THE TOTTORI BANK, LTD.

As of the end of March 2026, disclosed claims stood at ¥10.6 billion (1.14% of loans outstanding), maintaining a low level. However, if the Japanese economy slows or the regional economy enters a downturn, deterioration in borrowers' financial conditions or bankruptcies could increase non-performing loans and credit-related expenses. The Bank Group manages risk by measuring risk volume using VaR (99% confidence interval) and integrated risk management, ensuring that risk volume remains within the range of capital.

The Bank Group holds a large number of marketable equity securities for the purpose of maintaining relationships with business partners, and a significant decline in stock prices could result in impairment or valuation losses. While bond investments are principally diversified among issues with high creditworthiness, sharp fluctuations in the yield curve could give rise to unexpected valuation losses, potentially leading to deterioration in business performance and a decline in the capital adequacy ratio.

The Bank Group earns net interest income by deploying funds raised through deposits into loans and securities, but differences in maturities or interest rate reset timing between funding and investment (interest rate gap) create a risk that net interest income may decrease depending on future interest rate movements. Although integrated risk management utilizing VaR is implemented, sharp interest rate fluctuations could adversely affect business performance.

The Bank Group at times raises funds temporarily from the market for settlement and other purposes, and there is a funding liquidity risk that, in the event of a decline in creditworthiness, securing necessary funds may become difficult or may require borrowing at significantly higher interest rates. In addition, market liquidity risk exists whereby the sale of held equities and bonds may become difficult during market turmoil; although this is managed by the ALM Committee and risk management departments, adverse effects on business performance and financial condition cannot be completely eliminated.

The Bank migrated its core banking system to the regional banks' joint center in May 2012 and is highly dependent on computer systems and communication networks. If the system were to stop functioning due to disasters, power outages, unauthorized external intrusion, or other causes, this could seriously impede business continuity. Although the Bank has east and west centers plus backup functions, the risk remains that unexpected failures could occur due to the increasing complexity and sophistication of systems.

The Bank Group manages a large amount of customer information via computer systems and communication networks, and if information leakage, loss, or falsification were to occur due to unforeseen circumstances, this could result in a loss of trust and adversely affect business performance and financial condition. The Bank is working to enhance its management sophistication through establishing a customer information management framework compliant with the Personal Information Protection Act and other regulations, as well as through officer and employee training and enhancement of information equipment.

In addition to the risk that intensifying natural disasters and extreme weather could damage the Bank's collateral properties and business locations, if business partners' performance deteriorates due to stricter regulations and technology response costs associated with the transition to a decarbonized society, this could increase the Bank Group's credit risk and adversely affect operating results and financial condition. The Bank recognizes and works to address both physical risk and transition risk.

As a bank operating under domestic standards, the Bank is obligated to maintain a consolidated and non-consolidated capital adequacy ratio of 4% or higher. If the capital adequacy ratio falls below the required level due to a decline in the value of the securities portfolio, an increase in credit-related expenses, changes in regulatory standards, or other factors, there is a risk that the Bank could receive an order for business suspension or other measures from the Commissioner of the Financial Services Agency. The Bank operates integrated risk management to keep risk volume within the range of capital.

The vast majority of the Bank Group's loans are extended to small and medium-sized enterprises and individuals within Tottori Prefecture, and an increase in bankruptcies of small and medium-sized enterprises or personal bankruptcies due to a downturn in the regional economy would directly and adversely affect business performance and financial condition. In addition, if the Bank is unable to secure an advantage over other financial institutions amid intensifying competition resulting from financial deregulation, this could adversely affect its business, results of operations, and financial condition.

The Bank Group is promoting its medium-term management plan "for the FUTURE ～未来に向けて～" (Toward the Future), covering the plan period from FY2024 to FY2026 (ending March 2026). If expansion of loan volume, widening of interest margins, increases in fee income, cost reductions, and other measures do not progress as expected, the strategic targets may not be achieved, potentially adversely affecting business performance. Changes in the external environment and insufficient internal execution capability are assumed to be the main contributing factors.