Corporate Governance Report

1. Basic Approach
The Company will secure the development of responsible management system and sound operation of the Group’s businesses, to gain the creditworthiness from all stakeholders, including shareholders, customers, employees and local communities, and will increase corporate value creating a corporate governance structure with basic approach as follows :

• （1）
  The Company will secure the shareholders’ rights and equality.
• （2）
  The Company will create appropriate collaboration with stakeholders including shareholders, in consideration with their interests.
• （3）
  The Company will secure appropriate information disclosure and transparency.
• （4）
  The Company will secure the transparent, fair, prompt and decisive decision-making function through the Board of Directors, while ensuring the solid audit and supervisory function by the outside directors.
• （5）
  The Company will work toward constructive dialogue with shareholders directed at a sustainable growth and increasing corporate value over the medium to long term.

Reasons for non-compliance with the principles of corporate governance code

The Company complies with all principles of the Corporate Governance Code revised in June 2021 (including the principles applied to Prime listed companies).

Disclosure Based on the Principles of the Corporate Governance Code

[Principle 1.4] (Strategic Shareholdings)

Regarding basic policy on strategic shareholdings and exercising of voting rights, we have established in Article 7 of the “Corporate Governance Policy”. It is available on our website at (https://www.mebuki-fg.co.jp/eng/company/governance/)

○Status of efforts for reducing the number and balance of strategic shareholdings

The subsidiary banks that hold strategic shareholdings make efforts to reduce the number and balance of strategic shareholdings, taking into consideration the risk reduction and capital efficiency based on its economic rationale. And through sufficient dialogue with the issuing companies, we will reduce those holdings.

In the fiscal year ended March 31, 2023, strategic shareholdings decreased by 41 billion yen. In addition, strategic shareholdings(※) as a percentage of consolidated net assets decreased from 20.0% at the end of March 2022 to 16.6%. Our reduction targets for the next five years (until the end of March 2028) are as follows, and we will continue to reduce them while maintaining sufficient dialogue with our business partners.

(※)Figures are fair value of strategic shareholdings (including listed and non-listed stocks) held by Joyo Bank, which holds more than two-thirds of stock owned by Mebuki FG and its subsidiaries (including deemed shares held).

○Assessing the rationality of strategic shareholdings

The Company examines each strategic shareholding (of listed companies) held by the subsidiary banks annually for their significance and economic rationale, and the results of examination as of March 31, 2023, is as follows:

• We hold shares aimed for sustainable growth and medium to long term enhancement of corporate value of the Group and customers or building stable business relationships with those customers, upon the examination of the medium to long term economic rationale and future outlook of shareholdings taking into consideration the associated risks and returns.
• We examine each shareholding for economic rationale from the viewpoint of profitability, creditworthiness, regional characteristics (relevancy to our core business area), and improvement of business relationship, etc. Concerning profitability, we examine their overall business RORA(※) based on our ROE target.
  (※) overall business RORA = (Net interest margin on loans and deposits – Expenses (including credit cost) + Fees and Commissions + Dividends) ÷ Risk-weighted Assets (Loans and Stocks)
• As of March 31, 2023, the Board of Directors confirmed every strategic shareholding to be meaningful pursuant to the basic policy to secure sustainable growth, increase corporate value over the medium to long term of the Group and issuing companies, and build stable business relationships with those companies. Regarding profitability, their overall combined business RORA exceeds the target value.

[Principle 1.7] (Related Party Transactions)

When the Company engages in transactions with its directors or principal shareholders, in order to ensure that such transactions do not harm the interests of the Company or the common interests of our shareholders and prevent any concerns with respect to such harm, we have established the following procedures:

• When directors engage in transactions in the same line of business of the Company or transactions involving conflict of interest, the relevant transactions shall be approved by the Board of Directors.
• When the Company shall conduct transactions under unordinary terms and conditions with our subsidiaries or principal shareholders (who hold 10% or more of shareholder voting rights of the Company directly or indirectly), the relevant transactions shall be approved by the Board of Directors.

[Supplementary Principle 2.4.1]

• （1）
  Approach to Ensure Diversity
  In order for an organization to fully demonstrate its creativity and grow, it is essential to respect and utilize the diversity of individuals. In our corporate ethics, we have stipulated “The Group will realize the work-style reform that respects diversity, individuality and personality of employees”. As the business environment changes rapidly, it is more important that we accept diverse human resources and values, provide working opportunities, and utilize them in our corporate activities more than before, in order to respond flexibly to the changes in society and customers’ needs. By creating an environment that diverse human resources can work actively regardless of age and gender, we will strengthen our organizational power, improve our corporate value and realize sustainable management,allowing us to contribute to the regional growth and development.
• （2）
  Goals for Promoting Female, Foreign and Mid-career Employees to Managerial Position and Implementation Status
  Since the majority of employees of the Group are in Joyo Bank and Ashikaga Bank as core subsidiaries, “Voluntary and Measurable Goals” are set by the sum of the two banks.
  

  (a) Female Employees
  We are promoting our initiatives through setting the following target to expand the talent pool of future female executive candidates and continuous promotion of them.

  	Current	Target	Target Period
  Female employee ratio in positions equivalent to assistant manager or higher	33.3% (as of Mar 31, 2023, +1.9pt compared to previous year)	35% or more	end of March 2025

  ※The Company has disclosed the initiatives under the Act on Promotion of Women’s Participation and Advancement in the Workplace at our two subsidiary banks on our website.
  (https://www.mebuki-fg.co.jp/eng/esg/society/)

  (b) Foreign Employees
  We are engaged in recruiting people regardless of nationality and foreign employees are proactively working in the Group. Since the Company is a regional financial institution conducting our main business domestically, we only have a small number of foreign employees, and currently do not have a target for the promotion of foreign employees to managerial positions. However, it is essential to secure human resources who can be active globally, in order to support proactively the local needs for overseas business activities. We will continue to recruit foreign employees and develop a system in which diverse people, including foreign employees, can work actively in the environment best suited to them.

  (c) Mid-career Recruitment
  We are also actively engaged in recruiting external human resources who are ready to operate in various fields including specialized fields. Whether mid-career recruitment or not, we are proactively promoting motivated and competent employees. Currently, the number of mid-career employees in positions equivalent to assistant manager or higher is 208 people (5.6% of all employees in the same position, as of March 31, 2023). Under the above policy, we will continue to aim for further improvement.

• （3）
  Approach to Human Resources Development, Internal Environment Development and Implementation Status to Ensure Diversity
  We are promoting to develop human resources so that they can aim to build their career fairly, regardless of age, gender, etc., and create an environment where employees can work for a long time. Therefore, we have pursued various measures such as initiatives based on the Act on Promotion of Women’s Participation and Advancement in the Workplace and “Work-style Reform”. We have established the “Diversity Promotion Office” as an organization to supervise the initiatives for promoting diversity in each personnel division of the two subsidiary banks and we will strengthen and accelerate our initiatives to practice diversity and improve the environment, based on the Group Diversity Policy.
  

  (a) Developing System for Fair Career Advancement Regardless of Age, Gender, etc., and Support for Improving Employees’ Skills
  We are conducting a wide range of career management training for regular employees who have reached a certain position. Based on their positions, we are promoting to raise awareness of career advancement and improve management capability. We are also enhancing to improve employees’ skills through various training programs for each business. Furthermore, we are developing a system to properly compensate active employees regardless of age, gender, etc.

  (b) Human Resources Development for Promoting Female Employees to Higher Positions
  From FY2018, the two banks have jointly continued to hold “Mebuki Women’s Class” to foster future female leaders for those recently promoted to managerial positions. Further, each bank set an opportunity to acquire management skills mainly through their training by rank.

  (c) Development of a Working Environment where Employees can Work Easily and Actively in the Long Term
  In order that diverse people can work actively in the long term in the Group, we are developing a pleasant working environment and improving various systems. Continuously, we will implement necessary review and enhancement in order to respond to changes in lifestyles and awareness toward working.
  

  • Conducting seminars for employees returning to the workplace from childcare leave
  • Introduction of leave system due to transfer of one’s spouse, commuting from own home system
  • Introduction of flexible work system, work-interval system
  • Setting days to go home early, latest time to leave the office
  • Introduction and expansion of work-at-home (mobile working) system
  • Introduction and expansion of new leave system (time-select leave, etc.)
  • Introduction of a side job system
  • Expansion of support systems for balancing work with childbirth, childcare, etc.

[Principle 2.6] (Roles of Corporate Pension Funds as Asset Owners)

Our core subsidiaries, The Joyo Bank, Ltd.(hereafter referred to as “Joyo Bank”) and The Ashikaga Bank, Ltd.(hereafter referred to as “Ashikaga Bank”) have established each corporate pension fund. At the two banks, in order to demonstrate the expected functions as an asset owner, staffs with expertise in asset management are allocated at the secretariat. Furthermore, in the asset management committee, consisting of members familiar with asset management and pension fund in each department of market trading, risk management, corporate management and personnel, regular meetings are held to deliberate on basic policy for management and evaluation of the managing trustee organization, etc., enabling establishment of a framework to realize stable asset building for the participants/beneficiaries in the corporate pension plan and appropriate management of pension finance. In addition, each pension fund announced it would adopt the Principles for Responsible Institutional Investors (Japan's Stewardship Code).
With regards to preventing conflict of interest between the Company and beneficiaries of the funds, we shall ensure that it is managed appropriately as provided in the fund regulations preventing any act to harm fair fund management and investment for the purpose of its own interests or those of third parties. In addition, the significant matters such as the change of regulations shall be referred to the representative conference consisting of one-half of members who are pension funds’ participants.

[Principle 3.1] (Full Disclosure)

• （1）
  Under the Group philosophy of “providing high-quality comprehensive financial services to continue building a more prosperous future by together with local communities,” we will promote a sustainable growth together with local communities, with solid relationship of trust with local communities, by providing high-quality comprehensive financial services.
  With aim to ensure the sustainable growth and improving our corporate value through the realization of the group philosophy, we have formulated medium-term group business plan as the basic strategies and the Group performance objectives.
  For details, it is available on our website at (https://www.mebuki-fg.co.jp/eng/company/policy/)
• （2）
  The Company has established “Corporate Governance Policy” that has defined basic corporate governance policy, framework and management policy.
  It is available on our website at (https://www.mebuki-fg.co.jp/eng/company/governance/governance.html)
• （3）
  For the policies and procedures for determining the compensation of directors, see Article 24 (Compensation of Directors) of the “Corporate Governance Policy” on our website and “Ⅱ 1. Matters Regarding Organizational Composition and Operation, Policy for Determining Compensation Amounts or Calculation Methods Thereof”of this report.
  It is available on our website at (https://www.mebuki-fg.co.jp/eng/company/governance/governance.html)
• （4）
  The policies and procedures for election and dismissal of directors have been stipulated in Article 14 (Composition of the Board of Directors), 16 (Election of Directors), 17 (Dismissal of Directors) and 20 (Composition of the Audit and Supervisory Committee) of “Corporate Governance Policy”.
  It is available on our website at (https://www.mebuki-fg.co.jp/eng/company/governance/governance.html)
• （5）
  See “Notice convocation of the ordinary general meeting of shareholders” for the reasons for being selected as candidates. And it is available on our website at (https://www.mebuki-fg.co.jp/eng/shareholder/stock/generalmeeting.html)

[Supplementary Principle 3.1.3]

See “Ⅲ 3. Measures for Respecting Stakeholders, Implementation of Environmental Activities, CSR Activities” of this report.

[Supplementary Principle 4.1.1] (Roles and Responsibilities of the Board (1))

The approach to decision-making on business execution matters that have to be determined solely by the Board of Directors, and scope of delegation to management have been stipulated in Article 13 (Roles and responsibilities of the Board of Directors) of “Corporate Governance Policy”.
And it is available on our website at (https://www.mebuki-fg.co.jp/eng/company/governance/governance.html)

[Principle 4.8] (Effective Use of Independent Directors)

The Board of Directors shall have a balanced composition that shall provide a wealth of knowledge and expertise in wide range of fields and shall appoint two (2) or more independent outside directors, and the Company has appointed five (5) independent outside directors currently (Independent outside director ratio of all directors: 41.7%). The composition and election of the Board of Directors have been stipulated in Article 14 (Composition of the Board of Directors) and Article 16 (Election of Directors) of "Corporate Governance Policy".
And it is available on our website at (https://www.mebuki-fg.co.jp/eng/company/governance/governance.html)

[Principle 4.9] (Independence Standards and Qualification for Independent Directors)

Independence Standards for Outside Directors of the Company has been stipulated in Footnote 5 of “Corporate Governance Policy”.
And it is available on our website at (https://www.mebuki-fg.co.jp/eng/company/governance/governance.html)

[Supplementary Principle 4.10.1]

See“Ⅱ 1. Matters Regarding Organizational Composition and Operation, Voluntary Committees”.

[Supplementary Principle 4.11.1] (Preconditions for Board Effectiveness)

View on the balance of knowledge, experience and skills, diversity and size of the board of directors as a whole, the policies and procedures for the election of directors have been stipulated in Article 14 (Composition of the Board of Directors) and Article 16 (Election of Directors) of “Corporate Governance Policy”.
And it is available on our website at (https://www.mebuki-fg.co.jp/eng/company/governance/governance.html)
Please refer to “Reference documents for the general meeting of shareholders” of “Notice convocation of the 7th ordinary general meeting of shareholders”, which is available on our website, for the skills matrix containing a list of expertise and experience of current directors and executive officers.
(https://www.mebuki-fg.co.jp/eng/shareholder/stock/generalmeeting.html)

[Supplementary Principle 4.11.2]

Please refer to “Reference documents for the general meeting of shareholders” of “Notice convocation of the 6th ordinary general meeting of shareholders”, which is available on our website, for significant concurrent positions.
(https://www.mebuki-fg.co.jp/eng/shareholder/stock/generalmeeting.html)

[Supplementary Principle 4.11.3]

The Board of Directors of the Company conducts analysis and evaluation of its effectiveness as a whole each year, in order to utilize the results of such evaluation to improve the operations of the Board of Directors, by confirming the opinions of each director on such matters as the composition and operation of the Board of Directors. The summary of the evaluation of the Board of Directors for fiscal year 2022 is as follows:

<Evaluation Method>

Regarding the FY2022 evaluation, opinions were exchanged on the evaluation method and the contents of the questionnaire at the executive session comprising all outside directors of the Company and its subsidiary banks, as was the case in the previous fiscal year.
Based on this discussion, questionnaires on the composition and operations of the Board of Directors and other matters were distributed to all directors, and replies and comments were obtained. With regard to the results of the evaluations based on these replies and comments, the Board of Directors of the Company, upon deliberation by the Corporate Governance Committee (with outside directors accounting for the majority of its members), finalized and determined the results of analysis and evaluation of the effectiveness of the Board of Directors as a whole.

(Main items of questionnaire about effectiveness of the Board of Directors as a whole)

• （1）
  Rules and responsibilities of the Board of Directors (each director)
• （2）
  Composition of the Board of Directors
• （3）
  Operation of the Board of Directors
• （4）
  Execution of function by the Board of Directors

(Schedule)

• Exchange of opinions in the Executive Session : October 17, 2022
• Questionnaire distribution : December 19, 2022 (deadline for response : January 13, 2023)
• Deliberation at the Corporate Governance Committee : February 20, 2023
• Deliberation (making-decision) at the Board of Directors : March 20, 2023

<Evaluation Results>

The Board of Directors of the Company has confirmed that directors with diverse knowledge and experience have been elected and the composition is well balanced; all directors, upon sharing the roles and responsibilities of the Board of Directors, have successfully fulfilled both decision-making and supervising functions while taking advantage of the perspective of independent outside directors; and thus the effectiveness of the Board of Directors as a whole has been mostly assured.
Throughout the year, the operations of the Board of Directors resulted in continued improvements in the issues identified by the previous evaluation, specifically in “Enhancement of exchange of opinions among directors” and “Further utilization of the perspectives of independent outside directors”. However, based on each director’s assessment and opinions, we recognized that it is necessary to continue working toward further improvement.

• （1）
  “Enhancement of discussions regarding medium-to long-term management issues”
  

  • Further enhancement of discussions regarding various medium- to long-term management issues and providing value to stakeholders
  • Enrichment of discussions for the advancement of business management
• （2）
  “Strengthen efforts to share and solve issues among Group companies”
  

  • Expansion of opportunities to share management information and issues of Group companies with outside directors

By implementing necessary measures to ensure the sustainable growth of the Group and further increase its corporate value in the medium- to long-term, our Group will strive to enhance the effectiveness of its corporate governance structure.

[Supplementary Principle 4.14.2] (Director Training)

The policy for directors training has been stipulated in Article 25 (Directors Training) of “Corporate Governance Policy”.
It is available on our website at (https://www.mebuki-fg.co.jp/eng/company/governance/governance.html)

[Principle 5.1] (Policy for Constructive Dialogue with Shareholders)

The policies concerning measures and organizational structures aimed at promoting constructive dialogue with shareholders has been stipulated in Article 26 (Dialogue with shareholders and investors) of “Corporate Governance Policy”.
It is available on our website at (https://www.mebuki-fg.co.jp/eng/company/governance/governance.html)

[Responding to Achieve Cost of Capital and Stock Price Conscious Management]

For details on our efforts to improve corporate value, please refer to the “Financial Results for the First Half of FY2023 / Initiatives for Enhancing Corporate Value (IR Presentation Material)” pp.21-43. It is available on our website.
(https://www.mebuki-fg.co.jp/eng/shareholder/ir_library/results/)

[Status of Dialogue with Shareholders]

The Company has disclosed the status of dialogue with shareholders on the relevant pages of the “Integrated Report (Annual Report)” which are available on our website.
(https://www.mebuki-fg.co.jp/eng/shareholder/ir_library/annual_report/)

Status of Major Shareholders

Supplementary Explanation

The above major shareholders are as of March 31, 2023.
The Company holds 24,621,524 shares of treasury stock which is excluded from the above major shareholders. Shareholding ratio is calculated based on the total number of shares issued less treasury stock and the figures are rounded down to the second decimal place.

3. Corporate Attributes

4. Policy for Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder

－－－

5. Special Circumstances which may have Material Impact on Corporate Governance

－－－

Directors

Outside Directors’ Relationship with the Company (1)

※Relationship with the Company

○ : Outside director herself/himself is currently applicable or was applicable until recently

△ : Outside director herself/himself was applicable in the past

● : Close relative of the outside director is currently applicable or was applicable until recently

▲ : Close relative of the outside director was applicable in the past

a.　Executive (a person who executes business; hereinafter, the same) of the Company or its subsidiary

b.　Non-executive director or executive of the parent of the Company

c.　Executive of a fellow subsidiary of the Company

d.　Party whose major client or supplier is the Company or an executive thereof

e.　Major client or supplier of the Company or an executive thereof

f.　Consultant, accounting professional or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a director

g.　Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a corporation)

h.　Executive of a client or supplier of the Company (which does not correspond to any of d., e., or f.) (the director himself/herself only)

i.　Executive of a corporation to which outside officers are mutually appointed (the director himself/herself only)

j.　Executive of a corporation that receives a donation from the Company (the director himself/herself only)

k.　Other

Outside Directors’ Relationship with the Company (2)

The Audit and Supervisory Committee

Composition and attribution

Matters regarding the independence of above mentioned directors or employees from executive directors

The Company shall establish the Audit and Supervisory Committee Office and thereto assign one (1) or more full-time employee in order to assist the committee. The said employees shall conduct for assisting the duties of committee members following their directions solely, and not participate in their execution. Regarding his/her personnel transfer, the consent of the committee shall be required.

Status of cooperation among the Audit and Supervisory Committee, external accounting auditors, and internal audit section

• （1）
  Cooperation between internal audit section and the Audit and Supervisory Committee Full-time members of the Audit and Supervisory Committee enhance to strengthen the cooperation with internal audit section, Audit Department by exchanging opinions regarding audit system and audit policy (internal audit plan), expressing their views as the Audit and Supervisory Committee especially at the planning phase, and being reported on the results of internal audit.
• （2）
  Cooperation between internal audit section and external accounting auditors Through three-pillar audit system, Audit Department engages in exchanging opinions with external accounting auditor (Deloitte Touche Tohmatsu LLC) regarding audit policy (internal audit plan) as necessary, for securing the effectiveness of internal audit system.
• （3）
  Cooperation between the Audit and Supervisory Committee and external accounting auditors The Audit and Supervisory Committee shall receive the audit plan with explanation about significant matters, given by external accounting auditor. And also, the committee shall hold opinion exchange sessions (several times a year with the Audit and Supervisory Committees of subsidiary banks) and be reported on the status of audit regularly. By this, the Audit and Supervisory Committee shall exercise its effective supervisory function through a close cooperation with external accounting auditor.

Voluntary Committees

Committee’s Name, Composition, and Chairman’s Attributes

Committee Equivalent to Nomination Committee

Supplementary Explanation

The Company has established the Corporate Governance Committee as an advisory body to the Board of Directors to enhance the effectiveness of corporate governance for sustainable growth and medium to long term enhancement of corporate value of the Group. The Corporate Governance Committee shall deliberate matters such as nomination of director candidates and compensation for directors, and shall report back to the Board of Directors.

(Summery of the Corporate Governance Committee)

1. Objective
The Company shall establish the Corporate Governance Committee (hereafter referred to as “the Committee”) as an advisory body to the Board of Directors to enhance the effectiveness of corporate governance for sustainable growth and medium to long term enhancement of corporate value of the Group. The Committee shall deliberate matters as follows, and shall report back to the Board of Directors.

• （1）
  Election of president and directors candidates, and reappointment or dismissal of directors
• （2）
  Succession plan and development of directors’ candidates
• （3）
  Compensation for directors
• （4）
  Collection and analysis of opinions of shareholders
• （5）
  Other matters in response to request from the Board of Directors about improvement of corporate governance

2. Composition

• Committee members shall be composed of all outside directors of the Company, the representative director and outside directors nominated by subsidiary banks (one person from each bank).
• The chairman shall be elected by the Committee from among the independent outside directors of the Company.
• The majority of the Committee members shall be outside directors (including outside directors of subsidiary banks).
  (※) Current Composition of the Committee Members Out of nine (9) members, independent outside directors are a majority at five (5) (55%).

3. Operation

• The Committee meeting shall be held timely as required.
• The chairman may hold the Committee meeting without the participation of Outside Directors of the subsidiary banks with prior consent of said Outside Directors as required.
• The Board of Directors shall respect the opinions of the Committee which shall be reflected to the decision-making regarding significant matters, and supervision of directors’ duties. Through the deliberation at the Committee meeting, outside directors shall secure the opportunities such as “colleting necessary information and cooperating among outside directors for their supervisory function”, “appropriate determination from an independent and objective standpoint” and “expression of opinions with active execution of authority”.

4. Activities

• In fiscal year 2022, the Committee meeting was held five (5) times, one (1) of which in writing, and deliberated matters concerning IR activities (dialogue with shareholders) in addition to the election of director candidates and compensation for directors. Attendance of each member at the Committee is as follows.

Independent Officers

Other Matters relating to Independent Officers

The Company has designated all five (5) Outside Officers qualified to be Independent Officers as Independent Officers.
“Independence Standards for Outside Directors” are as follows:

Article 1　Outside Directors who are independent from the Company meet the legal requisites for Outside Directors as stipulated in Article 2, Item 15 of the Companies Act and do not fall under any of the following items.

• （1）
  A major shareholder of the Company (holding directly or indirectly 10% or more of the voting rights of the Company) or Executive Director, Executive, Manager, or other employee thereof (hereinafter, the “Executive Directors, etc.”)
• （2）
  A person who has the Company and the Group as a major business partner (to which (a) or (b) below applies, and includes its parent company or its significant subsidiaries) or the Executive Directors, etc., thereof
  

  (a) A person who receives payment from the Group of 2% or more of its total consolidated net sales for the most recent fiscal year

  (b) A person for which borrowings from the Group is the highest, and substituting the borrowings by another fund procurement method in the short term is deemed difficult

• （3）
  A major business partner of the Group (to which (a) or (b) below applies, and includes its parent company or its significant subsidiaries) or the Executive Directors, etc., thereof
  

  (a) A person who pays to the Group 2% or more of consolidated gross profit of the Company for the most recent fiscal year

  (b) A person which is important to the Group in the fund procurement aspect; that is, a major creditor, etc., on which the Group depends to the extent that it is irreplaceable

• （4）Directors or other Executive Directors, etc., of a corporation or organization which has received donations from the Group for an annual average of more than 10 million yen for the past three years
• （5）A consultant, accounting specialist, or legal professional (in the case of corporations or other organizations, a person who belongs to such groups is included) who has received from the Group compensation or other property benefit for an annual average of 10 million yen or more, excluding officer remuneration, for the past three years
• （6）A person who has fallen under any of (1) to (5) above in the past three years
• （7）An individual affiliated with a party with which the Group has a personnel relationship of mutual dispatch of outside officers
• （8）An individual whose spouse or relative within the second degree of kinship falls under (1) to (7) above
• （9）A person which might potentially pose continual and substantial conflict of interest with overall general shareholders of the Company due to reasons not provided in (1) to (8) above

Article 2　Even in the event that a person does not satisfy items (1) through (9) set forth above, the Company may appoint as its outside director a person who it believes to be suitable for the position of an outside director with sufficient independence in consideration of such person’s character and insight, provided that it fulfills the requirements of the Companies Act , and it externally provides an explanation as to why it believes such person qualifies as an outside director with sufficient independence.

Incentives

Supplementary Explanation

The Company has introduced performance-linked compensation system regarding the bonuses for executive directors. In addition to basic amount for each position, individual bonuses shall be distributed based on contribution to business performance by each executive director, within the limits of total amount determined in accordance with the consolidated target achievement rate and consolidated ROE (net income÷total shareholders’ equity) for each fiscal year.
For the purpose of promoting further value-sharing with the Company’s shareholders and providing an additional incentive to the Directors, excluding Outside Directors and Directors who are Audit and Supervisory Committee Members, to achieve the sustainable enhancement of the Company's corporate value, we have introduced a restricted stock remuneration plan.
The recipients of the restricted stock remuneration plan are the Directors, excluding Outside Directors and Directors who are Audit and Supervisory Committee Members, and executive officers of the Company and subsidiary banks.

Supplementary Explanation

－

Compensation for directors

Supplementary Explanation

The total amount of compensation to directors shall be disclosed in the annual securities reports.

Disclosure of Policy for Determining Compensation Amounts or Calculation Methods Thereof

Under the Corporate Governance Policy set by the Board of Directors, the director’s compensation amount shall be determined separately for “directors (excluding Audit and Supervisory Committee Members)” and “directors (who are Audit and Supervisory Committee Members)” as follows.

【Directors (excluding Audit and Supervisory Committee Members)】

• The compensation for directors (excluding Audit and Supervisory Committee Members) shall be determined appropriately in consideration to their transparency, fairness, objectivity and incentives toward improving results by enhancing the linkage of compensation with the Group’s performance and shareholders’ benefits.
• The amount for each director (excluding Audit and Supervisory Committee Members) shall be determined by the Board of Directors within the maximum amount of compensation per year resolved at the General Meeting of the Shareholders, while ensuring the objectivity and transparency after deliberation regarding their adequacy and validity in the Corporate Governance Committee.

【Directors (who are Audit and Supervisory Committee Members)】

• The compensation for directors (who are Audit and Supervisory Committee Members) shall be determined without the factor of incentive to ensure the transparency of their duties as auditor and supervisor.
• The amount for each director (the Audit and Supervisory Committee Member) shall be determined through discussion among all Audit Committee Members and within the maximum amount of compensation per year resolved at the General Meeting of the Shareholders.

The Company resolved the maximum amount of compensation for directors (excluding Audit and Supervisory Committee Members) at &#yen;200 million per year (the number of eligible directors: 7 persons) and for Audit and Supervisory Committee Members at &#yen;80 million per year (the number of eligible directors: 5 persons), at the Ordinary General Meeting of the Shareholders held on June 28, 2016.

Details of compensation system are as follow.

【Executive Directors among the Directors (excluding Audit and Supervisory Committee Members)】

• （a）
  Composition of compensation
  

  • The compensation comprises a monthly compensation as a basic compensation, bonuses as a performance-linked compensation and a restricted stock remuneration plan as a non-monetary compensation.
  • Composition ratio of each type of compensation (%)
    monthly compensation: bonuses: restricted stock remuneration plan = 86:7:7
    (Case in which the standard amount of bonuses is paid)
• （b）
  Contents of each compensation, etc.
  

  • Monthly compensation
    The amount of monthly compensation as a basic compensation shall be determined by the director’s position.
  • Bonuses
    The basic amount of bonuses shall be determined in accordance with the director’s position and the total amount of bonus payment shall be determined within a maximum amount which fluctuates each year in the range of 0% to 150% according to the Company’s consolidated target achievement rate and consolidated ROE (net income÷total shareholders’ equity). The amount for each executive director shall be determined based on the basic amount for the director’s position, which is adjusted according to the degree of contribution to business performance by each executive director.
    The percentage of the total bonuses is composed of 80％ linked to the Company's consolidated target achievement rate and 20％ linked to consolidated ROE, each of which increases or decreases in the range of 0％ to 150％, depending on the fiscal year's performance.
    The Indicator based on the Company’s consolidated target achievement rate has been adopted in order to give stronger incentives to achieve an annual business plan. In the current fiscal year 2022, the targets were set at \65.3 billion of ordinary profit and \45.0 billion of net income, and the achievement rates of each indicator, weighted by the ratio of ordinary profit : net income = 70％ : 30％, was 71.4％.
    The indicator based on ROE (net income÷total shareholders’ equity) has been adopted in order to give stronger incentives to the directors to improve the Group’s corporate value. Under the Third Medium-Term Group Business Plan (period: April 1, 2022 to March 31, 2025), a ROE of 5.5％ or more was targeted, and in the current fiscal year 2022, the ROE of 3.7％ was achieved.
    In addition, as of June 24, 2022, the Company revised the executive compensation system, reviewed the indicators and ratios for calculating executive bonuses (before change : calculated considering consolidated profit level (indicator based on ROE) only) , and revised the definition of consolidated ROE (before change : net income÷net assets), in order to sustainably increase the corporate value of the Group and to further share value with our shareholders.
  • Restricted Stock Remuneration Plan
    Under the Plan, the Company’s Directors (excluding Directors who are Audit and Supervisory Committee members ; the “Eligible Directors”) shall make payments in kind as contributed assets using all of the monetary compensation claims provided to them by the Company and receive the issuance or disposal of the Company’s common shares and the Company and each of the Eligible Directors shall enter into a restricted stock allocation agreement.
    The remuneration to be paid to the Eligible Directors for the granting of restricted stock shall be monetary compensation claims and the total amount of such claims is set at 20 million yen or less per year within the amount of remuneration for the Company’s Directors (excluding Directors who are Audit and Supervisory Committee Members), and the total number of common shares newly issued by the Company is set at 200 thousand shares or less per year, as resolved at the Ordinary General Meeting of the Shareholders held on June 24, 2020. The allocation of payment to each Eligible Director shall be determined by the director’s position.

<Details of restricted stock allocation agreement (the “Allocation Agreement”)>

• （1）
  Transfer Restriction Period
  The Eligible Directors may not transfer, use as collateral or otherwise dispose of the Company’s common shares allocated in accordance with the Allocation Agreement (the “Allotted Shares”) for a period of 30 years (the “Transfer Restriction Period”) from the date on which allocation was received in accordance with the Allocation Agreement (this prohibition is hereinafter referred to as the “Transfer Restriction”).
• （2）
  Treatment in the event of resignation
  In the event that an Eligible Director, prior to the expiry of the Transfer Restriction Period, resigns from a position stipulated by the Company’s Board of Directors for any reason other than the expiry of the term of office, death or any other legitimate reason, the Company shall rightfully acquire the Allotted Shares without consideration.
• （3）
  Removal of Transfer Restrictions
  Notwithstanding the provisions of (1) above, the Company shall remove the Transfer Restrictions on all Allotted Shares, at the expiry of the Transfer Restriction Period, on the conditions that the Eligible Director continuously remains in a position stipulated by the Company’s Board of Directors during the Transfer Restriction Period. However, if the Eligible Director resigns from a position stipulated by the Company’s Board of Directors prior to the expiry of the Transfer Restriction Period due to the expiry of the term of office, death or any other legitimate reason, stipulated in (2) above, the number of the Allotted Shares for which the Transfer Restrictions are to be removed and the timing of the removal of the Transfer Restrictions shall be reasonably adjusted, as necessary. Furthermore, the Company shall rightfully acquire without consideration any Allotted Shares for which the Transfer Restriction had not been removed immediately after the removal of the Transfer Restrictions in accordance with the above provisions.
• （4）
  Handling in the case of organizational restructuring, etc.
  Notwithstanding the provisions in (1) above, during the Transfer Restriction Period, in the case that a merger agreement in which the Company becomes the non-surviving company, a share exchange agreement or share transfer plan in which the Company becomes a wholly-owned subsidiary or other matters related to its organizational restructuring is approved at the general meeting of shareholders of the Company (or at the Board of Directors, if such organizational restructuring in question does not involve the approval of the general meeting of shareholders of the Company), the Company shall remove the Transfer Restriction on all Allotted Shares, by resolution of the Board of Directors of the Company, prior to the effective date of such organizational restructuring, etc. Furthermore, the Company shall rightfully acquire without consideration any Allotted Shares for which the Transfer Restriction had not been removed immediately after the removal of the Transfer Restrictions in accordance with the above provisions.
• （5）
  Other matters
  Other matters relating to the Allocation Agreement shall be determined by the Board of Directors of the Company.

【Outside Directors among the Directors (excluding Audit and Supervisory Committee Members)】

• （a）
  Composition of compensation
  

  • The compensation for outside directors (excluding Audit and Supervisory Committee Members) is comprised only of a monthly compensation
• （b）
  Contents of each compensation, etc.
  

  • Monthly compensation
    The amount of monthly compensation as a basic compensation shall be fixed by the director’s position.

【Directors (who are Audit and Supervisory Committee Members)】

• （a）
  Composition of compensation
  

  • The compensation for directors who are Audit and Supervisory Committee Members is comprised only of a monthly compensation
• （b）
  Contents of each compensation, etc.
  

  • The amount of monthly compensation shall be determined separately for full time and part time directors.

After deliberation of the Corporate Governance Committee, which was established as an advisory body to the Board of Directors to ensure its objectivity and transparency, individual compensation for “directors (excluding Audit and Supervisory Committee Members)” shall be decided by the Board of Directors, and that for “directors (who are Audit and Supervisory Committee Members)” shall be decided by the Audit and Supervisory Committee.
The majority of the Corporate Governance Committee Members shall be outside directors (including outside directors nominated by wholly-owned banks), and the chairman shall be elected from among outside directors.
In fiscal year 2022, activities in decision process for directors’ compensation by the Corporate Governance Committee and the Board of Directors are as follows.

(The Corporate Governance Committee)

(The Board of Directors)

In addition, activities in fiscal year 2021 related to the revision of the directors’ compensation system as of June 24, 2022, are as follows.

(The Corporate Governance Committee)

(The Board of Directors)

Regarding determining the details of compensation for each director, the Corporate Governance Committee shall deliberate including the confirmation of the integrity with the above policy and the related regulations. Therefore, the Board of Directors shall in general respect their proposals and judge them to be in line with policy.

The decision of the specific amount for each director is delegated to the President (the Representative Director) by resolution of the Board of Directors. This authority is the decision regarding specific amount of bonuses distributed to each director. The reason for the delegation is that they are in a position to judge the degree of contribution to the performance by each director from a company-wide perspective. Regarding this decision, the Corporate Governance Committee shall deliberate including the confirmation of the integrity with the above policy and the validity. Therefore, the Board of Directors shall in general respect their proposal and judge it to be in line with policy.

Supporting System for Outside Directors

The Board of Directors shall take measures for the materials made to the outside directors about the matters referred to meeting of the Board of Directors, and explanations of agenda previously. In addition, the Company shall assign full-time employee in order to assist the Audit and Supervisory Committee as required for the supervisory duties.

Status of Persons Retired from Representative Director and President

Names of Advisors (“sodanyaku,” “komon,”etc.) who have formerly served as Representative Director and President, etc.

Other Matters

• The Company does not have a system of advisors (“sodanyaku,” “komon,”etc.).
• Mr. Masanao Matsushita has served as President and Chief Executive Officer of the Company (formerly, Ashikaga Holdings Co., Ltd.) until October 1, 2016. At the same time when the Company integrated with Joyo Bank, he took office as Executive Vice President and Director of the Company.
• The former representative directors and chief executive officers of Joyo Bank, core subsidiary bank, may appoint as advisors with aim to engage in public office / regional contribution activities. The current lists of advisors are as following tables.

• Special Advisors will not be involved in management decision-making. And it is specified in the internal regulations concerning the advisors system. After the deliberation of the Corporate Governance Committee (of which the majority shall be outside directors), the Board of Directors of the bank shall decide the appointment of advisors.
• Date of Retirement from President indicates the date of retirement from the Company or the bank.

Internal Regulations to Respect Stakeholders

Under the Group philosophy of “providing high-quality comprehensive financial services to continue building a more prosperous future by together with local communities”, the Group will create appropriate collaboration with all stakeholders, including shareholders, customers, employees and local communities, and will contribute to sustainable growth of local communities.

Implementation of Environmental Activities, CSR Activities

＜Initiatives for Sustainability＞

Recognizing issues about sustainability as important management agendas, the Group has formulated the “Group Sustainability Policy” with the aim of achieving both the sustainable growth and the corporate value enhancement of the Group, while solving the issues of and realizing the sustainable growth of local communities. In addition, based on changes in social and economic trends and environmental awareness, the Group has defined 1) Revitalization of regional economy and local communities, 2) Climate change and environment conservation, 3) Promotion of digitalization, 4) Response to aging society and 5) Promotion of diversity, as key issues (materiality) which will particularly focus on contributing to the realization of sustainable local communities, while solving the issues of local communities.

Furthermore, we have formulated independent policies to clarify policies regarding Environment, Human Rights, and Diversity, and we conduct business operations in accordance with each policy.

The Company has disclosed the details of specific initiatives and information disclosure in line with the recommendation of TCFD (The Task Force on Climate-related Financial Disclosures) on the “Initiatives for Sustainability” and the relevant pages of the “Integrated Report (Annual Report)” and “Approach to Sustainability and its Initiatives” of the “Securities Report” which are available on our website.
“Initiatives for Sustainability”:(https://www.mebuki-fg.co.jp/eng/esg/esg.html)
“Integrated Report (Annual Report)”:(https://www.mebuki-fg.co.jp/eng/shareholder/ir_library/annual_report/)
“Securities Report”:(https://www.mebuki-fg.co.jp/eng/shareholder/ir_library/securities/)

＜Investment in Human Capital and Intellectual Capital＞

We have defined our vision in the “Long-Term Vision 2030” as“A Value Creation Group Working Together with Local Communities”. We will reinforce our core businesses of traditional banking services and comprehensive financial services and work to expand business areas that leverage these strengths. We will work to resolve local issues beyond the conventional framework of financial services and reinvest know-how obtained through these efforts into our core business to create new value.
In order to realize this goal, “Human Resources” are an important factor in the evolution of the Group's business and the execution of these business strategies. Therefore, through increasing the engagement of each employee, developing and securing human resources capable of creating value, and enhancing job satisfaction, we will form a diverse and self-reliant group that can provide local communities and customers with new value and a peace of mind.
The Company has disclosed the details of specific initiatives on the “Initiatives for Sustainability” and the relevant pages of the “Integrated Report (Annual Report)” and “Approach to Sustainability and its Initiatives” of the “Securities Report” which are available on our website.
“Initiatives for Sustainability”:(https://www.mebuki-fg.co.jp/eng/esg/esg.html)
“Integrated Report (Annual Report)”:(https://www.mebuki-fg.co.jp/eng/shareholder/ir_library/annual_report/)
“Securities Report”:(https://www.mebuki-fg.co.jp/eng/shareholder/ir_library/securities/)

Formulation of Policies for Information Provision to Stakeholders

Besides statutory items based on the Banking Act, the Company shall issue comprehensively edited integrated reports of our initiatives for sustainable growth of the Group and regional communities, including the group philosophy, medium-term business plan, financial information and non-financial information such as ESG information, with aim to convey our efforts toward sustainable growth and value creation in an easy-to-understand manner.
The Company also provides information to our stakeholders on website of the Company and subsidiary banks.

Corporate Governance Structure

Framework for Timely Disclosure