Status of Audit by the Audit & Supervisory Committee

Corporate GovernanceCorporate Governance System
Juroku Financial Group is a company with an Audit & Supervisory Committee, and the functions of the Board of Directors arestrengthened not only in its decision-making functions but
Shareholders Meeting
also in its auditing and supervisory functions.
Election / Dismissal
Election / Dismissal
By separately electing Executive Directors and Directors
Juroku Financial Group
AdviceManagement Advisory
who are Members of the Audit & Supervisory Committee, weCollaboration& Supervisory
Board
Board of Directors AuditCommittee
Counseling
have enhanced the audit system of Group-wide business
Audit & Supervisory
management and the supervision system of Executive
Group Management
Committee’s OfficeCouncil
DirectAudit
Directors by Members of the Audit & Supervisory
Order
Collaboration
Group Risk Compliance Meeting
ReportCommittee.
In addition, we are working to further enhance our
Audit
Collaboration
Group Administration
Group Corporate
Group DX
Group Risk
Group Sales
Group Management
corporate governance system by monitoring the status of
Sustainability
Management Division Planning Division Management Division Management Division Management Division
Audit Division
Management Officebusiness execution, the status of risk management, and theInstruct / Manage
Report / Discuss
Audit
compliance system of group companies, and striving to build
Group companies
a Group-wide business management system.
The Juroku Bank
Other subsidiaries
Audit
Group companies are striving for efficient business
Juroku Research Institute, Juroku TT Securities, Juroku Card, Juroku Lease
Instruct / Manage
Report / Discuss
Juroku Densan Digital Service, NOBUNAGA Succession
operations by preparing business plans based on Group-wide
NOBUNAGA Capital Village, Kanda Machi Okoshi
Subsidiaries of The Juroku Bank
Juroku Business Service, Juroku Credit Guarantee
management policies, and by making prompt management
decisions and speeding up business execution.
Personnel Affairs
Committee

Accounting Auditor

Compensation
Committee

Composition of the Board of Directors(as of June 30, 2023)

The Group strives to ensure that the Board of Directors has awell-balanced structure with diverse knowledge and expertise.
In order to enhance the objectivity and rationality of decisionmaking by the Board of Directors in addition to supervising
management, we appoint Independent Outside Directors so thatthey consist of more than one-third of the total number of
Directors.

Internal Directors

Outside Directors

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

Personnel Affairs Committee
12Matters concerning the determination of candidates for
Director
Matters concerning selection and dismissal of Executive
Directors, etc.

Compensation Committee
1

Matters concerning compensation for Directors

2

Matters concerning the evaluation of the effectivenessof the Board of Directors

3

Other important matters related to management

Evaluation of the Effectiveness of the Board of Directors
The Company has all Directors conduct a self-evaluation based on a “Questionnaire regarding Effectiveness Evaluation of the Board of
Directors.” After compiling results of aggregating and analyzing the contents of these self-evaluations, the Board of Directors
deliberate on them following a consultation with the Management Advisory Board, which is an advisory body to the Board of
Directors.
The following is a summary of the results of the “Overall Effectiveness Evaluation of the Board of Directors” in FY2022.

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As a result of aggregating and analyzing these self-evaluations, the Board of Directors of the Company confirmed that theeffectiveness of the Board of Directors has been secured as open and constructive discussions are being held from the perspective of
the entire Group and the medium- to long-term perspective.
We will continue with our efforts to provide timely and appropriate information and enhance discussions on important management
issues such as sustainability for the sustainable growth of the Group and the enhancement of corporate value over the medium- to longterm. Furthermore, we will fully exercise the functions of decision-making and supervision of the Board of Directors and further enhance
its effectiveness, by continuously reviewing the operation of the Board of Directors with Outside Officers.

The Audit & Supervisory Committee consists of three Members of the Audit & Supervisory Committee (one of the three is a full-timeMember of the Audit & Supervisory Committee, as of June 16, 2023), including two Members of the Audit & Supervisory Committee
who are Outside Directors, and meets once a month in principle. In addition, the Audit & Supervisory Committee’s Office has been
established to assist Members of the Audit & Supervisory Committee in their duties, thereby ensuring the objective monitoring andauditing functions of the management’s business execution.
In accordance with the audit policy, audit plan, and allocation of duties established by the Audit & Supervisory Committee, thefull-time Member of the Audit & Supervisory Committee audits the execution of duties by Directors by attending meetings of theBoard of Directors, Group Management Council, and other important meetings, inspecting important documents, and interviewing
Representative Directors and other Directors. Part-time Outside Members of the Audit & Supervisory Committee communicate andcollaborate with the full-time Member of the Audit & Supervisory Committee to conduct audits based on discussions at Audit &Supervisory Committee meetings and other meetings. The Audit & Supervisory Committee also reviews the status of the development
and operation of the internal control system, the decision on the appointment of Directors other than Members of the Audit &Supervisory Committee, the decision on the compensation of Directors
other than Members of the Audit & Supervisory Committee, theNo. ofNo. ofName
Position
meetings meetings
suitability for reappointment of the Accounting Auditor, and theheldattendedagreement on the amount of compensation for the Accounting Auditor, Naohiko Member of the Audit & Supervisory1111and exchanges opinions with the internal audit department and theCommittee (Full-time)
Ishikawa
Accounting Auditor in order to enhance the effectiveness of audits.
Shinji Member of the Audit & Supervisory
11
11
Committee (Outside)
Ishihara
In FY2022, the Company held 11 meetings of the Audit &Supervisory Committee, and the attendance of individual Members of
Satoe
Member of the Audit & Supervisory
11
11
Committee (Outside)
Tsuge
the Audit & Supervisory Committee is shown in the table to the right.

Risk Management Structure and Compliance System
Group-wide Risk Management Structure and Compliance System
We have established the Group Risk
Management Division to oversee risk
management and compliance, and areworking to improve the risk management
structure and compliance system of theGroup. In addition, we have organized theGroup Risk Compliance Meeting chairedby the President to grasp the status of risk
management and compliance within theGroup. The Meeting holds deliberations ordebates on analysis, evaluation, andimprovement activities for risk management
and compliance, and reports to anddiscusses with the Board of Directors on aregular basis and an irregular basis asnecessary.

Risk management structure / compliance system

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

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

Juroku Financial Group

Group Management Council
Group Management
Audit Division<Whistleblowing system><<Integrated risk management / compliance divisions>>

Lawyers

Audit & Supervisory
Committee

Board of Directors

Group Risk Compliance MeetingGroup Risk Compliance Committee

Participate

Group companies

Group Risk Management Division

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

Audit
monitoring

ReportReportOther subsidiaries<<Integrated risk management / compliance divisions>>
Risk Management Division

Risk management /compliance divisions

ReportSubsidiaries of
The Juroku Bank

Risk management /compliance divisions

Juroku Financial Group[Risk management]

Integrated Risk Management Rules

Operational Risk
Management Rules

Compliance Policy

Compliance Rules

Whistleblowing System
Implementation Rules

Money Laundering
Prevention Policy

Risk Management Regulations for
Money Laundering and Financingof Terrorism

Integrated Risk Management Policy

Code of Ethics[Compliance][Anti-money
laundering measures]Group Companies

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

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<Risk Management Structure>
Integrated Risk Management
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 a starting 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 and more appropriate risk control. By
doing so, we are improving the effectiveness of our businessstrategies including management plans and comprehensive
budgets.

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

Risk appetite
Business strategy

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 asignificant 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 order to respond dynamically even if they manifest.
The top risks selected by the Board of Directors in March 2023 are as follows:
Risk event

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The Group has established the “Integrated Risk Management
Rules” 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 arewithin the scope of our management abilities. The status of
integrated risks is managed by the Group Risk Management
Division, and reported to the Group Risk Compliance Meetingand the Group Risk Compliance Committee quarterly, as well as
the Board of Directors biannually, in principle, and we have astructure to flexibly implement necessary measures such as risk
control.

Risk scenario (example)

Deterioration of the global economic andfinancial environment due to anxiety
about the financial system andstrengthening hegemonism• Anxiety about the financial system, deterioration of the global economy triggered by hegemonic behavior
including the prolonged invasion of Ukraine, the Taiwan issue, and the U.S.-China friction, weak demand forfunds, and deterioration of the business conditions of borrowers• Fewer profit opportunities and higher credit-related costs due to deterioration of economic conditions in ouroperating bases, Gifu and Aichi prefectures

Impact of monetary policy changes inJapan and the U.S.

• Market fluctuation risk triggered by monetary policy developments in Japan and the U.S. (e.g., deterioration in
valuation gains and losses of securities, decline in fund management income, etc.)• Pressure on deposit and loan profit due to the continued monetary easing policy in Japan

Climate change risks• Deterioration of borrower performance and obsolescence of business models due to abnormal weather, climatechange, delayed response to decarbonization, etc.

Impact of severe infectious diseases• Delayed economic recovery following the COVID-19 pandemic and prolonged stagnation of economic activity
due to the emergence of new infectious diseases• Difficulty in maintaining business continuity

Large-scale disasters• Impact on the financial condition of the Group due to difficulty maintaining business continuity in the event of
the Nankai Trough Earthquake, etc., and from the deterioration of the business performance of borrowers
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 of large
borrowers• Increasing credit-related costs resulting from the decline of regional industries due to shortages of humanresources, their inability to change their business structure to adapt to the era, and other factors

Personnel and compliance risks• Impacted sustainable growth and business strategy of the Company and workplace control confusion, resulting
from accidents occurring to executive management• Decreased productivity, difficulty in continuing professional work due to insufficient education, outflow ofhuman resources, etc.
• Loss of credibility and customer attrition due to administrative sanctions by the Financial Services Agency,
scandals of officers and employees, media reports, and other factors, as a result of insufficient implementation of“Customer-oriented Business Operation Policy”

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

System failure risks• Loss of credibility, suspension of business operations, etc. due to inconvenience or disadvantage to customers
caused by large-scale system failures

Credit risk refers to the risk of incurring losses due to thedecrease or loss of asset value caused by the deterioration of thefinancial condition of borrowers.
As a prerequisite for credit risk management, we haveestablished a “credit rating system” which objectively evaluates
the degree of credit risk on a uniform scale. In addition to monitoring the credit risk management status of group companies
and the credit concentration risk of the whole Group, we also
discuss countermeasures 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 andliabilities.
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 are 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 at prices that are significantly more disadvantageous thanusual. We monitor the status of funding risk and liquidity risk
as well as matters that affect funding, and we have established astructure to respond quickly and appropriately even underunforeseen 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 thefollowing 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 the growing
diversification and complexity of banking operations, ouradministration has become more rigorous in an effort to retainand 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 Management
Rules” 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 CSIRT Secretariat 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 describedabove, we have established the “Rules on Business Continuity
Readiness and Management” and have established an appropriate crisis management system.

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