Corporate Governance

The Board of Directors consists of internal officers who are well versed in business execution and outside officers who oversee management from an objective standpoint.
Under our management philosophy—“Contribute to the development of society through the creation of new value-added financial services”—the Bank will strive to achieve sustainable growth and enhance corporate value over the medium to long term by addressing social issues, taking into account perspectives of sustainability such as ESG and DEI^*. In order to achieve our goal, the Bank set forth the necessary skills and expertise of directors and Audit & Supervisory Board members as “global affairs” and “IT/digital,” which require higher levels of expertise, in addition to a wealth of knowledge on “corporate management,” “financial accounting,” “legal, compliance/ risk management,” “banking and finance,” and “human capital,” which are the foundations of financial institution management.

• Diversity, equity, inclusion. These are said to be essential elements for the growth of organizations and society.

Expertise Required of Members of the Board of Directors (Knowledge, Experience, and Capabilities)

To support our outside directors and Audit & Supervisory Board members, Aozora provides seminars from time to time by inviting experts from outside the Bank. In addition, for newly appointed outside directors and Audit & Supervisory Board members, the executive officer in charge of each business group provides orientation sessions to explain the Bank’s business operations. Prior to assuming their office, newly appointed directors collect and share key information on Aozora’s main governance-related regulations and business operations, and also attend multiple briefing sessions to deepen their understanding of its overall business, as well as finance, IT, human resources, risk management, and sustainability. After assuming office, they keep their understanding of the Bank’s business current, by receiving a briefing on the business situation directly from each responsible officer.

Basic Policy for Determining Remuneration for Directors, etc.

In order to realize the Group’s management philosophy to “contribute to the development of society through the creation of new value-added financial services,” Aozora recognizes the necessity of providing proper incentives and a work environment that allows successful and high-potential employees to perform their duties consistently while maintaining high morale, motivation, and pride. To this end, the Bank has designed a remuneration system based on the following basic policy.

1. Remuneration framework in line with Bank’s vision
   The Bank aims to build a compensation framework that reflects business performance in line with its objectives and values.
2. Remuneration framework appropriately reflecting the Bank’s performance
   The Bank’s remuneration framework is based on “pay for performance” and reflects the Bank’s commitment to sustainable growth, sound risk-taking through appropriate risk management, compliance, and customer protection.
3. Remuneration framework serving the interests of shareholders and other stakeholders
   The Bank has adopted a remuneration framework that is consistent with the values of its shareholders and other stakeholders.
4. Remuneration methodology that supports effective governance
   The Bank ensures that remuneration decisions are made with full transparency and free from specific influence.

Policy on Determination of the Amount and Calculation Method of Remuneration for Directors

The Bank has established the policy regarding the determination of the details of individual directors' remuneration, etc., with the approval of the Board of Directors based on the proposal of the Nomination and Remuneration Committee as a voluntary advisory body. Under this policy, the Nomination and Remuneration Committee, which is mainly comprised of outside directors, determines remuneration payable to each director, with the Board's delegation, from the perspective of ensuring that the remuneration determination process is transparent, independent, and objective.
In principle, the Bank pays fixed-base remuneration, bonus (performance-based remuneration), and equity compensation-type stock options (stock acquisition rights as non-cash remuneration) to internal directors and only fixed-base remuneration to outside directors.

Changes to the Policy on Determination of the Amount and Calculation Method of Remuneration for Directors

With respect to the remuneration structure for internal directors, a resolution was approved at the 93rd Ordinary General Meeting of Shareholders held on June 23, 2026, to change the structure, effective from the performance evaluation period for FY2026, to consist of: base remuneration (fixed-based remuneration), bonus (short-term performance-based remuneration), and performance-linked restricted stock remuneration (medium- to long-term performance-linked and non-cash remuneration). This change is intended to avoid excessive risk-taking and an undue focus on short-term performance, which are not commensurate with the strength of the Bank’s Group, while at the same time strengthening medium- to long-term incentives aimed at improving corporate value, thereby more closely aligning the interests of directors with those of shareholders.
As for the total remuneration framework, in light of the aforementioned objectives, the Bank will maintain the maximum annual amount of 600 million yen for base remuneration and performance-based bonus. At the same time, to contribute to the enhancement of the Bank’s medium- to long-term corporate value and shareholder value, the Bank will discontinue the equity compensation-type stock options remuneration framework (currently a limit of 150 million yen per year), which has been granted at a uniform fixed rate, and instead establish a new annual framework of 250 million yen for performance-linked restricted stock remuneration, the amount of which will vary according to performance. As a general rule, performance-linked restricted stock will be subject to transfer restrictions until retirement as well as to malus and clawback provisions, in order to minimize any impairment of shareholder value.

Policy on Determination of Audit & Supervisory Board Member Remuneration and Calculation

ASB members determine their individual remuneration amounts after discussion among themselves, taking into account the deliberations and proposals made at the Nomination and Remuneration Committee.
ASB members only receive fixed-base remuneration.

Director and Audit & Supervisory Board Member Remuneration Framework (FY2025^*)

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In principle, Aozora does not have cross-shareholdings^* where the associated benefits and risks are not commensurate with the cost of capital and where the purpose of the investment is not clearly identified.
Strategic shareholdings are composed of two different types: (i) equities held traditionally to maintain and strengthen relationships with existing customers (traditional equity investments); and (ii) equities acquired and held to support investee companies in enhancing their corporate value through dialogue with their senior management as a shareholder in the course of promoting our Strategic Investments Business (equity investments with a primary focus on engagement).
With regard to traditional equity investments, we make an assessment of whether the associated risks and benefits, including the investment purpose, RORA-based profitability, and business development potential, are commensurate with the cost of capital at the Board of Directors each year, and gradually sell any equities if they are determined to be “less significant” in business terms.
As for equity investments with a primary focus on engagement, Aozora proactively invests in companies whose corporate value is expected to increase based on dialogue with their senior management. We conduct progress monitoring on engagement during the equity holding period, and may sell equities depending on the degree to which the original investment purpose and return targets are met. We also report the status of investments to the Board of Directors, thereby maintaining our framework for equity investments with a primary focus on engagement at an appropriate level.
When exercising voting rights on shares held, the Bank exercises all of its voting rights from the perspective of whether or not each agenda item is expected to make a contribution to the medium- to long-term increase in value/sustainable growth of Aozora’s business partners or the Bank’s medium- to long-term economic benefit based on the Guidelines for Exercising Voting Rights established with the approval of the Integrated Risk Committee.

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For details regarding Aozora’s policy on Group management and its approach to maintaining independence from other affiliated companies, please refer to the Corporate Governance Report.

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