The Ehime Bank, Ltd.

As the Bank Group's primary business base is centered on the Shikoku region, deterioration in regional economic conditions could adversely affect the business performance of borrowers, leading to downward migration of debtor classifications and declines in collateral value, thereby increasing non-performing loans and credit costs. The Bank Group provides for allowance for loan losses and discloses non-performing loans based on self-assessment; however, there is a possibility that provisions may prove insufficient in the event of unforeseen circumstances. The Bank Group positions this risk as a particularly important risk.

There is a risk that fluctuations in market interest rates could cause a decline in the value of the bond portfolio, and that declines in stock prices could result in impairment losses or valuation losses, with respect to various bonds and marketable equity securities held for surplus fund management or policy investment purposes. As risk management measures, the Bank conducts VaR measurement, BPV (interest rate sensitivity) measurement, and periodic stress tests to quantitatively grasp the amount of risk; however, in the event of sudden market fluctuations, losses could materially affect business performance and financial condition. The Bank Group positions this risk as a particularly important risk.

There is a mismatch in amount and maturity between fund management such as lending transactions and securities investments, and fund procurement through deposits and other means, and unexpected interest rate fluctuations could affect the Bank Group's business performance and financial condition. Interest rate risk is managed as one factor of market-related risk; however, in the event of a sharp rise in interest rates, this could lead to an expansion of unrealized losses and pressure on earnings.

The Bank is legally required to maintain a capital adequacy ratio of 4% or more under domestic standards, and if this required level is not met, there is a risk that the Bank may receive an order from regulatory authorities to suspend all or part of its operations. The capital adequacy ratio could decline as various risks such as credit risk and market risk materialize, and although the Bank strives to maintain an appropriate and sufficient level, responding to the situation could become difficult when multiple risks materialize simultaneously.

Since computer systems such as the core banking and settlement systems are connected via networks to customers and various settlement organizations, if a major system failure occurs or if unauthorized access or computer virus infection occurs due to a cyber attack, this could adversely affect business operations, business performance, and financial condition. As countermeasures, the Bank has established a system risk management policy, appointed a CISO, established a CSIRT, and built a system for preventing incidents and responding to them in cooperation with external organizations; however, complete defense is difficult due to the increasing sophistication of attack methods.

As the Bank Group operates primarily in Ehime Prefecture, with its business locations, computer centers, customers, and officers and employees concentrated in Ehime Prefecture, there is a possibility of severe damage to facilities and officers and employees in the event of a widespread or localized disaster. Combined with the impact on the regional economy, credit risk and business continuity risk could materialize simultaneously, making geographic concentration an inherent risk factor.

Both the risk that collateral properties of business partners may be damaged by natural disasters such as flooding (physical risk) and the risk that the businesses of business partners may be affected by the tightening of climate change countermeasure regulations (transition risk) could affect the Bank's creditworthiness and business performance. While a response is required as a global issue, disclosure of the specific details of management systems in the securities report remains limited.

The Bank holds a large amount of internal information, including customer information and management information, and while it has established information management policies, provided training for officers and employees, and implemented system security measures, if important information is leaked externally, this could damage the Bank's creditworthiness and adversely affect business operations, business performance, and financial condition. As there are various leakage pathways such as cyber attacks and internal misconduct, continuous strengthening of countermeasures is required.

In conducting banking operations, the Bank is subject to a wide range of laws and regulations, and failure to comply with these could adversely affect business operations, business performance, and financial condition. While the Bank strives to ensure thorough compliance among its officers and employees, continuous response to changes in the legal environment is required, including the establishment, revision, or abolition of regulations (regulatory change risk).

If business performance or financial condition deteriorates, or if there is a significant change in market conditions, it may become difficult to secure necessary funds, and the Bank may be forced to raise funds at significantly higher interest rates than usual. If a downgrade of the Bank's credit rating occurs, there is a risk of a chain reaction of rising fund procurement costs and difficulty in securing funds from the market, making it essential to maintain a robust management system based on objective standards for liquidity management.