Evaluation of the Effectiveness of the Board of Directors

Corporate GovernanceCorporate Governance System
Juroku Financial Group is a company with an Audit &Supervisory Committee, and the functions of the Board ofDirectors are strengthened not only in its decision-making functions, but also in its auditing and supervisory functions.
By separately electing Executive Directors and Directors
who are members of the Audit & Supervisory Committee, wehave enhanced the audit system of Group-wide business management and the supervision system of Executive Directors by
the members of the Audit & Supervisory Committee.

In addition, we are working to further enhance our corporate
governance system by monitoring the status of business execution, the status of risk management, and the compliance systemof group companies, and striving to build a Group-wide business management system.
Group companies are striving for efficient business operations by preparing business plans based on Group-wide management policies, and by making prompt management decisions
and speeding up business execution.

Election / Dismissal

Election / Dismissal

Management
Meeting

AdvicePersonnel Affairs
Committee

Counseling

Board of Directors

Compensation
Committee

Group Management
Meeting

DirectOrderReport

Group Risk Compliance MeetingGroup Digital
Management OfficeGroup Risk
Group SalesManagement Division Management Division

Instruct / Manage

Audit
Sustainability
Management Office

We have established the Group Risk Management Division tooversee risk management and compliance, and are working toimprove the risk management structure and compliance systemof the Group. In addition, we have organized the Group Risk
Compliance Meeting chaired by the President to grasp theAudit & Supervisory
Committee’s Office
Collaboration

Group Management
Audit Division

Report / Discuss

Group-wide Risk Management Structure and Compliance System

Collaboration

Audit & Supervisory
Committee

Audit

Collaboration

Audit

Accounting AuditorJuroku Financial Group

Group Corporate
Planning Division

the effectiveness of the Board of Directors has been secured byensuring its diversity and expertise.
We will continue with our efforts to provide timely andappropriate information for the sustainable growth of the Groupand the enhancement of corporate value over the medium- tolong-term. Furthermore, we will fully exercise the functions ofdecision-making and supervision of the Board of Directors andfurther enhance its effectiveness, by continuously reviewing theoperation of the Board of Directors with Outside Officers tohold constructive discussions.

Risk Management Structure / Compliance System

Shareholders MeetingGroup Administration
Management Division

The Company has all Directors conduct a self-evaluation basedon a “Questionnaire regarding Effectiveness Evaluation of theBoard of Directors.” After compiling results of aggregating andanalyzing the contents of these self-evaluations, the Board ofDirectors deliberate on them following a consultation with theManagement Meeting, which is an advisory body to the Boardof Directors.
The following is a summary of the results of the “Overall
Effectiveness Evaluation of the Board of Directors” in FY2021.
As a result of aggregating and analyzing these self-evaluations, the Board of Directors of the Company confirmed thatstatus of risk management and compliance within the Group.
The Meeting holds deliberations or debates on analysis, evaluation, and improvement activities for risk management andcompliance, and reports and discusses to the Board of Directors
on a regular basis and on an irregular basis as necessary.

Risk management structure / compliance system
Juroku Financial Group

Group Management MeetingGroup companies

Group Management
Audit Division<Whistleblowing system>

The Juroku Bank
Instruct / Manage

Report / Discuss

Subsidiaries of The Juroku BankOther subsidiaries
Juroku Research Institute, Juroku TT Securities, Juroku Card, Juroku Lease
Juroku Densan Digital Service, NOBUNAGA Capital Village
Kanda Machi Okoshi

Audit<<Integrated risk management / compliance divisions>>

Lawyers

Participate

Group companies

Juroku Business Service, Juroku Credit GuaranteeGroup Risk Management Division

Comprehensive
audit monitoring

The Juroku Bank
Integrated Risk Management Meeting
Integrated Risk Management Committee
Operational Risk Management Meeting
Compliance Meeting
Compliance Committee
Anti-Money Laundering Meeting

Composition of the Board of Directors

Audit & SupervisoryCommittee

Board of DirectorsGroup Risk Compliance MeetingGroup Risk Compliance Committee

Managementaudit monitoring

Report<<Integrated risk management / compliance divisions>>
Risk Management Division

ReportOther subsidiaries
Risk management /compliance divisions

Report(as of June 30, 2022)

The Group strives to ensure that the Board of Directors has a wellbalanced structure with diverse knowledge and expertise.
In order to enhance the objectivity and rationality of decision-making by the Board of Directors in addition to supervising management,
we appoint Independent Outside Directors so that they consist of morethan one-third of the total number of Directors.

Internal Directors

Subsidiaries ofThe Juroku Bank

Risk management /compliance divisions

Outside Directors
The Company positions risk management and compliance as an important duty to ensure the soundness and safety of group management, and has established policies and regulations related to risk management and compliance. Each group company has also established its own policies and regulations based on the Company’s policies and regulations, and strives to conduct appropriate business.

Risk management and compliance-related policies and regulations, etc.

Management Meeting
In order to further ensure transparency and fairness of the Boardof Directors’ decision-making activities, we have established theManagement Advisory Board, which consists of two committees, thePersonnel Affairs Committee and the Compensation Committee, as anadvisory body to the Board of Directors.
Each committee is chaired by an Outside Director, and the majority of its members are Outside Directors. The Committees provide
advice on the matters shown in the table on the right.

Juroku Financial Group

Personnel Affairs Committee
1

Matters concerning determination of candidates for Director

2

Matters concerning selection and dismissal of Executive Directors, etc.

1Matters concerning compensation for Directors
Matters concerning evaluation of the effectiveness of theBoard of Directors
Other important matters related to management

Integrated Risk Management Rules

Operational Risk
Management Rules

Compliance Policy

Compliance Rules

Whistleblowing System
Implementation Rules

Money Laundering
Prevention Policy

Risk Management Regulations forMoney Laundering and Financingof Terrorism

Integrated Risk Management Policy

Code of Ethics[Compliance]

Compensation Committee

2326[Risk management][Anti-money
laundering measures]Group Companies

Business operations in accordance with Juroku Financial Group’s policies and regulations

27Integrated risk management

Risk management structure
Risk Appetite Framework
The Group has clarified the type and amount of risk to be taken appropriately as “risk appetite,” and introduced a “Risk Appetite Framework(RAF)” for business and risk management using the risk appetite as astarting point.
In order to achieve our “Vision” in the Group management philosophy, we seek to “optimize profits, risks and capital” through RAF
management, and enable the pursuit of more profit opportunities andmore appropriate risk control. By doing so, we are improving the effectiveness of our business strategies including management plans andcomprehensive budgets.

Overview of the Risk Appetite Framework
Management plan
Comprehensive budget, etc.

Risk appetiteBusiness strategy

The Group has established the “Integrated Risk ManagementRules” for the purpose of ensuring the soundness of management and building an integrated risk management system.
We comprehensively track various risks with quantification
using statistical methods, and control these risks so that they
are within the scope of our management abilities. The status ofintegrated risks is managed by the Group Risk ManagementDivision, and reported to the Group Risk Compliance Meetingand the Group Risk Compliance Committee quarterly, as wellas the Board of Directors biannually, in principle, and we have astructure to flexibly implement necessary measures such as riskcontrol.

Risk management

Credit risk management
Recognition of Top Risks
From the perspective of probability and degree of impact, the Group has chosen as top risks the “risk events that may have a significant
impact on our financial position and business performance, such as disrupting our business strategy and reducing profitability approximately within the next year.” We are taking necessary measures in advance to control such risks, and striving to manage them in orderto respond dynamically even if they manifest.
Top risks selected by the Board of Directors in March 2022 are as follows:
Risk event

Risk scenario (example)

Deterioration of the global economic and financial
environment due to strengthening hegemonism• Deterioration of the global economy, weak demand for funds, and deterioration of the business conditionsof borrowers, triggered by hegemonic behavior including the Ukraine situation, the Taiwan issue, and theU.S.-China friction• Pressure on deposit and loan profit due to continued ultra-low interest rate policies• Fewer profit opportunities and higher credit-related costs due to deterioration of economic conditions in
our operating bases, Gifu and Aichi prefectures

Continuous inflation and interest rate policies inthe USA• Market fluctuation risks, such as deterioration of gain (loss) on valuation of securities due to normalizationof monetary policy and interest rate hikes by the Federal Reserve Board (FRB) of the U.S. (in anticipationof midterm elections this autumn, the ruling Democratic Party is putting pressure on the FRB to raiseinterest rates, in order to curb inflation and restore public support.)

Climate change risks
Impact of the spread of COVID-1928• Deterioration of borrower performance and obsolescence of business models due to abnormal weather,climate change, delayed response to decarbonization, etc.
• Prolonged stagnation of economic activity due to the continued COVID-19 pandemic• Difficulty in maintaining business continuity

Large-scale disasters• Impact on the financial condition of the Group due to difficulty maintaining business continuity in theevent of the Nankai Trough Earthquake, etc., and from the deterioration of the business performance ofborrowers resulting from the ensuing turmoil in the local economy

Cyber-attacks• Functional failure, as well as large compensation for loss due to leakage of customer information or service
suspension

Rapid progress of DX• Customer attrition due to further entry to other businesses, intensified competition due to the emergence ofalternative services, and declining competitiveness due to delays in introducing digital services, etc.

Credit-related risks• Higher credit-related costs due to credit deterioration in real estate and other credit-intensive industries• High credit-related costs being incurred due to deterioration of the business performance or bankruptcy oflarge borrowers• Increasing credit-related costs resulting from the decline of regional industries due to their inability tochange their business structure to adapt to the era

Personnel risks• Impacted sustainable growth and business strategy of the Company and workplace control confusion,
resulting from accidents occurring to executive management• Loss of credibility and customer attrition due to administrative sanctions such as business suspension orders
by the Financial Services Agency and media reports, as a result of scandals of officers and employees• Decreased productivity, difficulty in continuing professional work due to insufficient education, outflow ofhuman resources, etc.

Inadequate response to antisocial forces andanti-money laundering measures• Loss of credibility due to transactions with antisocial forces• Disciplinary actions such as business suspension orders, payment of surcharges, and deterioration ofreputation due to failure in addressing money laundering and violations of various foreign exchange laws
and regulations

Insufficient implementation of “Customeroriented Business Operation Policy”• Customer attrition and administrative sanctions such as business suspension orders by the Financial Services
Agency, due to inadequate customer-oriented business operations

Credit risk refers to the risk of incurring losses due to the decrease or loss of asset value caused by deterioration of the financial condition of borrowers.
As a prerequisite for credit risk management, we have established a “credit rating system” which objectively evaluates thedegree of credit risk on a uniform scale. In addition to monitoring the credit risk management status of group companies andthe credit concentration risk of the whole Group, we also discusscountermeasures with group companies as necessary.

Market risk management
Market risk refers to the risk of incurring losses from the fluctuation of the value of assets and liabilities, as a result of changes
in various market risk factors such as interest rates, foreignexchange rates, and stocks, as well as the risk of incurring losses
due to fluctuations in the income generated from assets and liabilities.
Based on our integrated risk management, our consolidated
subsidiaries that engage in the banking business allocate risk
capital by business (deposits and loans, cross-shareholdings,securities other than cross-shareholdings, etc.) biannually. Ourconsolidated subsidiaries also set position management limits(maximum investment amount or holding amount), loss amountlimits, and negotiation points (levels of losses for reviewing response policies). Their divisions in charge of conducting market
transactions flexibly and efficiently within these set risk limits.

Liquidity risk management
Liquidity risk refers to funding risk and market liquidity risk.
Funding risk refers to the risk of difficulty in securing the necessary funds due to mismatches between investment and funding
periods or unexpected outflows of funds, as well as the risk of incurring losses due to being forced to raise funds at significantly
higher interest rates than usual. Market liquidity risk refers to
the risk of incurring losses due to market disturbances making
it impossible to trade in the market, or being forced to trade atprices that are significantly more disadvantageous than usual.
We monitor the status of funding risk and liquidity risk as wellas matters that affect funding, and we have established a structure to respond quickly and appropriately even under unforeseen
circumstances.

Operational risks
Operational risk refers to the risk of incurring losses due toinappropriate business processes, activities of officers and employees, or systems, or external events. Each group company has
established “Operational Risk Management Rules,” and classifies and manages operational risks as administrative risk, systemrisk, legal risk, personnel risk, fixed asset risk, and reputationalrisk.
For administrative and system risks, which are important
categories among operational risks, we have drawn up the following sub-policies and procedures.
■ Administrative risk
Administrative risk refers to the risk of incurring losses because of officers or employees neglecting to perform accurate
administrative work, or causing accidents, committing fraud,etc. The Group manages administrative risk through our own
Administrative Risk Management Rules. While adapting to thegrowing diversification and complexity of banking operations,our administration has become more rigorous in an effort toretain and strengthen the trust of our customers.
■ System risk
System risk refers to the risk of incurring losses due to computer
system failure, malfunction and other errors or system flaws andother deficiencies, as well as the risk of incurring a loss due tothe improper use of computers. This includes “cyber securityrisk” that threatens the safety of computer systems and computer networks as a result of cyber-attacks.
The Group has established “System Risk ManagementRules” in order to deal with these system risks. By ensuring theeffectiveness of our system risk management system, we strive tomaintain sound and appropriate group operations, and strengthen our cyber security management system.
In response to cyber security incidents that are increasingly
becoming a threat, each group company has set up a CSIRT(Computer Security Incident Response Team). The CSIRTSecretariat of The Juroku Bank collaborates with the rest of theGroup to stay alert in ordinary times and to promptly respondto and solve any incident.

Crisis management system
The Group places the highest priority on ensuring the safety ofhuman lives in the event of a crisis such as a major disaster or an
infectious disease epidemic. In order to continue business operations necessary to maintain the functions of the financial system,in addition to the risk management systems described above, wehave established the “Rules on Business Continuity Readinessand Management” and have established an appropriate crisis
management system.

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