THE FUKUSHIMA BANK, LTD.

Loans to corporate and individual customers within Fukushima Prefecture constitute the Bank's primary assets, and there is a risk that deterioration in the regional economy could lead to downward migration of obligor classifications and a decline in collateral value. An increase in non-performing loan balances and credit-related expenses may affect operating results and financial condition. In response, the Bank has established internal rating systems, credit limit setting, individual credit reviews, and a problem loan management framework, and implements quantification of credit risk and credit portfolio management.

Financial assets and liabilities such as loans, deposits, government bonds, stocks, and various bonds are exposed to fluctuations in interest rates, stock prices, and foreign exchange rates. When interest rates rise, the value of fixed-rate loans and bond portfolios may deteriorate, and when stock prices decline, there is a risk of impairment or valuation losses on held equity securities. The Bank conducts internal management of market risk through quantitative analysis using VaR (variance-covariance method, one-year observation period, 99% confidence interval).

A decline in the Bank's creditworthiness or a sudden change in market conditions could make it difficult to secure necessary funds. In such cases, the Bank may be forced to raise funds at significantly higher interest rates or sell assets such as securities, which could adversely affect operating results and financial condition. While the Bank endeavors to appropriately manage its cash flow, there may be cases where it is difficult to respond to major changes in market conditions.

As a bank subject to domestic standards, the Bank is required to maintain a capital adequacy ratio of 4% or higher. If the ratio falls below this standard, prompt corrective action may be triggered, resulting in a risk of orders such as suspension of all or part of its operations. A combination of credit risk, market risk, and other risks materializing simultaneously could lead to a significant decline in the capital adequacy ratio. The Bank strives to maintain and improve its capital through thorough risk management across various categories.

Deferred tax assets are recorded based on estimates and scheduling of taxable income; however, if taxable income increases or decreases due to fluctuations in business performance or the occurrence of large-scale non-performing loan disposals, deferred tax assets may need to be written down, which could affect operating results and financial condition. Although the Bank thoroughly examines future recoverability based on generally accepted accounting standards, future uncertainty cannot be eliminated.

The Bank uses various computer systems for data processing related to deposits, loans, foreign exchange, and other operations, and is connected to external settlement institutions and other entities. As such, there is a risk of major disruptions such as system downtime, malfunctions, or unauthorized external access. If a disruption occurs, business continuity may become difficult, potentially affecting operating results and financial condition. The Bank works to ensure stable system operation through measures such as line redundancy and security countermeasures.

If customer information or management information is leaked externally, there is a risk of significant impact on operating results and financial condition due to damage claims from customers and loss of social credibility. The main causes of leakage are assumed to be unauthorized access, human error by officers and employees, and accidents at outsourcing contractors. The Bank strives to manage information appropriately by establishing information management regulations and systems and thoroughly educating officers and employees.

The Bank is required to comply with laws and regulations such as the Companies Act, the Banking Act, and the Financial Instruments and Exchange Act, as well as social norms and codes of conduct, and violations could affect operating results and financial condition. In addition, there is a risk that changes to or abolition of existing laws, or the enactment of new laws, could constrain business operations. The Bank strives to ensure compliance with laws and regulations through thorough compliance efforts.

An increase in natural disasters caused by climate change (physical risk) could damage real estate collateral and increase credit risk due to business stagnation among business partners. In addition, regulatory and tax changes accompanying the transition to a decarbonized society (transition risk) may increase credit risk related to affected business partners. Should these risks materialize in combination, they are expected to affect the Bank's business operations, operating results, and financial condition.

If accidental events such as natural disasters or crimes occur, or if officers and employees engage in inaccurate or inappropriate administrative processing, there is a risk of impact on business continuity and on operating results and financial condition. As the Bank conducts a wide range of operations in addition to banking, including securities, trust, and asset management services, the areas in which administrative risk may arise are extensive. The Bank addresses this through the development of business continuity plans that prioritize the safety of human life above all else, and through strengthening its administrative management framework.