The Ogaki Kyoritsu Bank, Ltd.

There is a risk that non-performing loans and credit-related costs may increase again due to deterioration in the business performance of borrowers or declines in collateral value resulting from changes in the economic environment. If actual credit losses significantly exceed estimates and require additional provisions for allowance for credit losses, or if corporate revitalization support efforts fail to succeed, this could also lead to an increase in credit-related costs. The Company controls this risk through credit screening, credit ratings, and credit portfolio management based on its Credit Risk Management Regulations, and positions this risk as one of the most critical management risks.

The Company holds securities such as government bonds, municipal bonds, listed stocks, and foreign securities, and if price declines occur due to economic or market trends or country risk, impairment or valuation losses may arise, adversely affecting business performance and financial condition. The Company explicitly identifies this risk as one of its most critical risks alongside credit risk, and manages it through various limit controls and a capital allocation system based on VaR (99% confidence interval) measurement under its Market Risk Management Regulations.

The Company's main business base is Gifu Prefecture and Aichi Prefecture, and deterioration of the economy in these regions directly leads to increased credit risk through the deteriorating business conditions of client companies. There is also a risk of credit concentration in specific borrowers or industries, and deterioration in the creditworthiness of large borrowers or the business conditions of specific industries could lead to increased credit-related costs. While the Company strives to diversify risk, given the nature of its regionally focused business model, its dependence on the regional economy is structurally high.

There is a mismatch in interest rates and maturities between fund management through loans and securities and fund procurement through deposits, etc., and if unexpected interest rate fluctuations occur, this may adversely affect business performance and financial condition through narrowing of interest margins, among other effects. The Company analyzes and manages this mismatch based on interest rate and market forecasts, but rapid changes in market conditions may be difficult to respond to. The Company also utilizes derivative transactions (for ALM and hedging purposes), but there is a risk of losses arising if fluctuations exceed expectations.

The Company is legally required to maintain a capital adequacy ratio of at least the domestic standard (4%), and if it falls below this standard, the Commissioner of the Financial Services Agency may issue an order for suspension of all or part of its business operations. Factors that affect the capital adequacy ratio include an increase in risk assets, an increase in credit-related costs, a decline in the value of the securities portfolio, and a reduction in deferred tax assets. If these factors occur in combination, this could lead to a rapid decline in the capital adequacy ratio.

The Company uses a wide variety of computer systems and networks, including core systems, and if system risk materializes due to system malfunction, downtime, unauthorized use, cyber attacks, etc., this may adversely affect business performance and operations. In addition, if customer information leaks occur due to negligence of officers or employees or unauthorized access from inside or outside the Company, this could lead to direct losses such as damages, as well as a decline in creditworthiness. The Company strives to thoroughly manage information based on its security policy, but responding to increasingly sophisticated and diverse threats remains an ongoing challenge.

The Company operates under regulations including the Banking Act and various other laws and systems, and if future amendments to laws and systems have an unfavorable impact on the Company, this may adversely affect business performance and financial condition. If compliance violations occur, this could lead to damages and a decline in creditworthiness. In addition, if deficiencies arise in anti-money laundering and counter-terrorist financing measures, there are concerns about adverse effects on business operations, performance, and financial condition.

The Company is pursuing diverse business strategies aiming to become a regional "comprehensive service industry" that solves local challenges, but there is a possibility that these strategies may not achieve the initially expected results due to intensified competition, changes in market conditions leading to stagnation in loan volume expansion or margin improvement, failure to achieve expected returns in the sale of assets under custody, or delays in management efficiency improvements. There is also a risk that expected returns may not be achieved in securities investment if market fluctuations exceed expectations. If these factors occur in combination, this could lead to a sustained decline in earning power.

If a large-scale disaster or an infectious disease outbreak occurs, the Company's business infrastructure may be damaged, and regional client companies may also be affected, adversely affecting business performance and financial condition. In particular, a large-scale earthquake is anticipated in the Tokai region, the Company's main business area, and although contingency plans have been developed, depending on the extent of damage, this could significantly hinder business operations. Due to its regionally focused business model, the Company has a high dependence on regional infrastructure, and this presents a structural risk in which the impact of damage could also spread to credit risk.

If difficulties arise in fund management due to changes in domestic and international economic conditions or market environments, and the Company is forced to procure funds under conditions significantly less favorable than usual, this may adversely affect business performance and financial condition. If the Company's credit rating is downgraded, this could lead to deterioration in capital and fund procurement conditions, increased costs, and a decline in social credibility. The Company manages fund utilization and procurement to maintain stable cash flow, but responding to this may become difficult in the event of sudden changes in market conditions.