THE DAITO BANK, LTD.

The Bank's primary business base is Fukushima Prefecture, and if the business condition of borrowers deteriorates due to domestic economic trends, deterioration in the regional economy, or fluctuations in real estate prices and stock prices, non-performing loans and loan loss provisioning expenses may increase, potentially adversely affecting business performance. The Bank maintains independence by separating the screening department from the sales promotion department, and manages risk through strict self-assessment of assets and provisioning of allowances for loan losses under a clear credit policy, as well as through risk quantification using VaR and capital allocation.

The Bank holds bonds, marketable equities, and other securities, and a rise in market interest rates may worsen unrealized gains/losses and bond-related gains/losses on held bonds, while a decline in stock prices may worsen stock-related gains/losses, potentially adversely affecting business performance. In addition, mismatches in interest rates and maturities exist between fund management through loans, securities, etc. and fund procurement through deposits, and if interest rate fluctuations occur beyond expectations, the Bank may suffer a decline in profit or losses. Risk is managed and operated through risk quantification using VaR and capital allocation.

Due to maturity mismatches between fund management and fund procurement, or unexpected fund outflows, it may become difficult to secure necessary funds, or the Bank may be forced to raise funds at interest rates significantly higher than usual, resulting in losses. There is also a risk that market disruptions or other factors may make market transactions impossible, or force transactions at significantly disadvantageous prices. The Bank continuously implements appropriate liquidity fund management.

The Bank applies domestic standards, and if the consolidated or non-consolidated capital adequacy ratio falls below the regulatory minimum level of 4%, the Bank will be subject to orders such as suspension of all or part of its operations. The capital adequacy ratio may be affected by a combination of factors, including an increase in loan loss provisioning expenses, deterioration in securities-related gains/losses, a reduction in deferred tax assets, and a decline in business performance. The Bank manages this risk through capital allocation to each risk category and periodic review of the allocation status.

Deferred tax assets recorded under the application of tax effect accounting are based on forecasts and assumptions regarding future taxable income, and actual results may differ from these forecasts. If deferred tax assets are determined to be unrecoverable based on forecasts of future taxable income, or are reduced due to changes in the tax system or other factors, this may adversely affect the Bank's business performance. Deferred tax assets are recorded after thorough consideration of recoverability based on the "Accounting Standard for Tax Effect Accounting" and related standards.

There is a possibility of incurring losses due to officers and employees neglecting to perform accurate administrative work, or due to accidents, fraud, or other misconduct. The Bank identifies the location, type, and characteristics of administrative risk in a timely and accurate manner and implements measures to prevent and mitigate such risk, while also conducting administrative guidance and training sessions, internal audits by the Audit Department, and in-branch inspections led by branch and department managers.

Computer systems occupy an important position in the Bank's business execution, and deficiencies such as system downtime or malfunctions may adversely affect business execution, and unauthorized use of computers may result in losses. In addition to daily trouble prevention measures, the Bank implements systems to prevent malfunctions caused by viruses and other threats, prevent unauthorized external use, and strengthens security management.

If leakage, loss, or unauthorized use of customer information or other data occurs, this may adversely affect the Bank's business performance. While the Bank takes necessary measures to protect all information assets it holds from all threats, risks such as cyberattacks and internal misconduct cannot be completely eliminated. The Bank addresses this through strengthened security management.

Regarding fixed assets such as land and buildings held by the Bank, factors such as a decline in earning power, changes in usage purpose, or a decline in value may result in the recognition of impairment losses based on the "Accounting Standard for Impairment of Fixed Assets." A downturn in the regional economy or deterioration in the real estate market could be factors that increase impairment risk.

Disasters such as earthquakes, tsunamis, and fires, as well as outbreaks of infectious diseases such as new strains of influenza, may cause damage to officers, employees, and tangible assets, adversely affecting business execution, and may also adversely affect the Bank's business performance through severe damage to the regional economy. The Bank has formulated contingency plans and conducts regular drills based on its Business Continuity Plan (BCP); however, its response may be limited in the event of a large-scale disaster or widespread infection.