The Kita-Nippon Bank, Ltd.

Deterioration in regional economic conditions or a decline in real estate prices could worsen the credit condition of borrowers, potentially increasing additional non-performing loans and credit-related expenses. The probability of companies experiencing deteriorating cash flow and financial conditions due to the increased burden of loan repayments accompanying policy interest rate hikes is rising, and the likelihood of this risk materializing is recognized as high. As countermeasures, the Bank conducts rigorous screening, rating management, and appropriate write-offs and provisioning based on its "Credit Policy," and strives to control credit risk through close dialogue with clients based on business feasibility assessments.

Market turmoil caused by sharp interest rate increases or stock price crashes could lead to a decline in the value of held assets such as securities and a narrowing of the interest margin due to rising funding costs. The likelihood of this materializing is recognized as high due to uncertainty in domestic and overseas financial markets and heightened geopolitical risk. The Bank regularly conducts VaR measurement, earnings simulations, and interest rate sensitivity measurement using BPV, and has established a mutual check-and-balance system through the separation of front, middle, and back offices, as well as an information-sharing framework through the ALM Subcommittee and the Risk Management Committee.

In the event of market turmoil, it may become impossible to secure the liquidity of held assets, which could adversely affect business performance and financial condition. The Bank holds some investments in low-liquidity products, which entails the risk that these could become difficult to liquidate in the event of a sudden change in market conditions. As a countermeasure, the Bank holds a certain proportion of assets in highly liquid instruments such as government and municipal bonds, and has established a system for the cash management department to grasp and manage payment reserve assets on a daily basis, along with a system for regular reporting to the Risk Management Committee.

Inaccurate administrative work due to insufficient understanding by officers and employees, improper administrative work due to misconduct or negligence, or insufficient response to special fraud and cash card theft could result in loss of customer trust or damage compensation claims. Operational risk is present throughout a wide range of business operations, including deposits, foreign exchange, lending, leasing, credit card operations, and investment operations, and it is recognized that a significant impact would result should a serious incident occur. The Bank works to prevent accidents and misconduct by establishing detailed operational procedure rules based on the "Operational Risk Management Rules" and by enhancing its administrative management and internal audit systems.

In the event of a serious system failure, malfunction, or unauthorized use by officers or employees, business operations and performance and financial condition could be adversely affected, and it is recognized that a significant impact would result should a serious incident occur. This also entails risks of cyberattacks and personal information leaks, increasing the importance of information security management. The Bank implements cybersecurity measures based on its "System Risk Management Rules" and "Security Policy," establishes backup sites and duplicates equipment and lines, formulates contingency plans and conducts drills, and performs system audits in compliance with FISC safety standards.

In an environment where information can easily spread due to the proliferation of the internet and other media, the spread of unfavorable rumors or credit information about the Bank Group could lead to adverse effects that could shake the management foundation, such as a massive outflow of deposits or a loss of customer trust. This is recognized as a significant risk that would have a major impact should it occur. The Bank has established an organizational management system aimed at prevention and preventing derivation into secondary risks, and works to prevent the expansion of such risks.

Disasters such as earthquakes, tsunamis, and infectious diseases could cause severe damage to the regional economy and to the facilities and personnel of the Bank Group, potentially adversely affecting business operations and performance and financial condition. As the Bank's main business area centers on the Tohoku region, including Iwate Prefecture, responding to natural disaster risk is especially important. The Bank has established "Crisis Management Rules" and other regulations, and strives to establish disaster prevention measures, early recovery systems, and support systems for affected areas, while also building a Business Continuity Plan (BCP) to fulfill its social role as a financial institution.

Transition risks arising from climate change (such as policy and regulatory changes accompanying the transition to a low-carbon society) and physical risks (such as the intensification of abnormal weather and natural disasters) could adversely affect business operations, strategy, performance, and financial condition. The Bank supports the TCFD recommendations and is working to establish a system and enhance information disclosure in line with TCFD. It is currently considering building a management system for identifying, assessing, and analyzing this risk within its integrated risk management framework.

Under the medium-term management plan "BRANDING THE KITAGIN QUALITY 2027," covering the period from April 2023 to March 2027, if strategies such as the consolidation and specialization of mortgage loan branches, the consolidation of head office operations, and the reallocation of branches and personnel fail to produce the expected results or cannot be implemented, this could adversely affect business operations and performance and financial condition. In light of environmental changes such as the Bank of Japan's review of its interest rate policy, management indicators were revised on May 14, 2025. The Bank strives to ensure the plan's effectiveness through the operation of a PDCA cycle via regular reporting to the Management Committee and the Board of Directors, course corrections through rolling plans, and the provision of information to stakeholders.