THE BANK OF KOCHI,LTD.

Deterioration in the business conditions of borrowers due to economic trends in Kochi Prefecture and the impact of soaring raw material and energy prices may lead to an increase in non-performing loans. If the allowance for loan losses falls short of actual losses incurred, or if collateral values decline due to worsening economic conditions, additional provisioning may become necessary, which could adversely affect the Bank's business results and financial condition. The Bank conducts strict credit screening and management as well as credit portfolio management, and provides funding support and business improvement support for borrowers in cooperation with related organizations.

The Bank's primary business base is Kochi Prefecture, which is more dependent on public investment than other prefectures and has a smaller economic scale. In addition to trends in the Japanese economy as a whole, deterioration of the local economy could directly and adversely affect the Bank's business results and financial condition. Although the Bank's business area extends to the three other Shikoku prefectures, Tokyo, Osaka, and Okayama, the majority of its earnings depend on Kochi Prefecture.

Loan interest rates, bond yields, and deposit interest rates are all affected by market interest rate trends, and given the mismatch in amount and maturity between fund management and fund procurement, unexpected fluctuations in interest rates could adversely affect the Bank's business results and financial condition. The Bank quantifies its risk exposure using VaR and regularly confirms at the Risk Management Committee that it remains within a certain range of its capital.

The Bank places emphasis on securities investment to improve the efficiency of fund management, and the prices of securities held may decline due to market fluctuations such as rising interest rates or changes in the credit standing of issuers. If a significant price decline continues, impairment losses or valuation losses may occur, adversely affecting the Bank's business results and financial condition. The Bank implements strict risk management through the determination of annual policy by the Board of Directors and the semi-annual setting of investment position limits and loss-cut rules.

If a natural disaster such as the Nankai Trough earthquake or a typhoon occurs, centered on Kochi Prefecture, the Bank's primary business base, it could cause direct damage such as damage to branches, as well as a significant adverse effect on business results and financial condition through increased credit risk resulting from damage suffered by client companies. The Bank has taken measures such as formulating a BCP, introducing a safety confirmation system for officers and employees, seismic reinforcement of branches, and conducting regular disaster drills.

As the Bank does not have overseas business offices, it is required under the Banking Act to maintain a domestic standard capital adequacy ratio of 4% or more, and if this falls below the required level, the Bank may receive an order from the Commissioner of the Financial Services Agency to suspend all or part of its business operations. The Bank strives to secure sufficient capital by comparing various risk amounts, such as credit risk, market risk, and operational risk, against capital, and by analyzing the impact of credit concentration risk and interest rate risk.

If a failure occurs in the Bank's own computer systems or in external computer systems, business operations may be restricted, which could adversely affect the Bank's business results and financial condition. There are also risks of unauthorized external access and information leakage, and while security measures are in place, complete prevention is difficult. The IT Innovation Department serves as the department responsible for system risk, conducting monitoring and providing guidance and supervision to operating departments.

The Bank acquires and uses a large amount of personal information in the course of its business, and if a legal violation such as an information leak occurs, the Bank may be subject to recommendations, orders, or penalties from the competent minister, as well as claims for damages or a decline in credibility, which could adversely affect its business results and financial condition. The Bank has established a management framework including the publication and notification of purposes of use, safety management measures, handling of disclosure requests, and complaint processing, in accordance with the Personal Information Protection Act.

The Bank applies tax effect accounting and records deferred tax assets, but if it determines that recovery is difficult due to changes in the estimated amount of future taxable income or other factors, it may become necessary to reverse deferred tax assets, which could adversely affect the Bank's business results and financial condition. Estimates of taxable income are subject to economic conditions and business performance trends, and thus inherently involve uncertainty.

To expand earnings, the Bank is implementing a variety of business strategies, including increasing loans to small and medium-sized enterprises and individuals and strengthening sales of investment trusts, but various factors such as changes in the competitive environment and a sluggish local economy may prevent it from achieving the expected results. In addition, future changes in laws, regulations, accounting standards, and the tax system may affect business operations and financial condition.