Co-Creating a Bountiful Future for Our Region

YMFG
Integrated Report 2022

Yamaguchi Financial Group, Inc.

Purpose and vision
Basic approach to working
on business activities witha focus on purpose

The Group’s mission andthe meaning of its existence(Purpose)

Co-creating abountiful futurefor our region

Management policy“A s ou n d an d pr oac t i v ee n t e r pr i s i n g s pi r i t ”
The thoughts that we cherish

Emphasized concepts

Yamaguchi Financial Group, Inc., has formulated the“Mission and the meaning of its
existence (Purpose)”and“What the Group should become in the future (Vision)”inorder to combine the abilities of the Group’s executives and employees, and toincrease corporate value.
We have incorporated the concepts of the conventional group vision and thethoughts that we cherish through our business activities, etc.

What the Group should become in the future(Vision)A regional value-up corporategroup that is chosen by our
region and responds to thetrust of our region

Future-oriented

We exist to create a future, for the future
Coexistence-oriented

We cannot survive alone, we must always co-exist
and work together with our stakeholders
Region-oriented

We always exist for our region

CONTENTS
Purpose and Vision / Contents and Editorial Policy… …… 1
History of YMFG……………………………………………………………… 3

Management Letter

Message from the President…………………………………………… 5

Round-table Discussion with Outside Directors… ……… 13

About YMFGYMFG Overview…………………………………………………………… 21
Sources of Competitive Advantage……………………………… 23
Value Creation Process……………………………………………… 25
Financial and Non-financial Highlights… ……………………… 27
Performance Status……………………………………………………… 29

1

Editorial Policy

Business Strategy for Value Creation
Overview of the YMFG Medium-Term

Management Plan 2022 ……………………………………………… 31<Priority Item 1>
Promotion of Regional Co-creation Sustainability<Priority Item 4>
Challenge to“Expand Business Areas

and Strengthen Profitability”………………………………………… 53<Priority Item 5>
Strengthening Governance and Internal Control

Management … …………………………………………………………… 33<Priority Item 2>
Promotion of the Active Participation of the Group’s(Improvement Measure Response Status)…………………… 57<Priority Item 3>
Pursuit for the“Maximization of Value Provided to Our

List of Officers… …………………………………………………………… 68

Human Assets… …………………………………………………………… 45… …………………………………………… 49
Region and Customers”

Power Supporting Value Creation

Corporate Governance………………………………………………… 59
Risk Management System… ………………………………………… 74
Compliance System……………………………………………………… 77
Communication with Our Shareholders and Investors…… 79

Yamaguchi Financial Group, Inc., has created the“YMFG Integrated
Report 2022”in order to help our stakeholders gain anunderstanding of our efforts towards sustainable value creation.
In the compilation of this report, we have referred to the“International Integrated Reporting Framework”advocated by theInternational Integrated Reporting Council (IIRC), the“Guidance forIntegrated Corporate Disclosure and Company-Investor Dialogues
for Collaborative Value Creation”publishedby the Ministry of Economy, Trade andIndustry, etc.
It should be noted that although thisreport does contain statements concerning
future performance, these descriptions do
not represent guarantees for future
performance, and actual performance may
be different to these statements due tochanges in the business environment, etc.

YMFG Integrated Report 20222

H i s t o r y o f YM F G
We are striving every day for the region and for the creation of a future, based on“a sound and

YMFG Medium-Term
Management Plan 2022

proactive enterprising spirit”that has been passed down over the course of our long history of over 140
years.

Aiming to“improve the sustainability of ourregion”and to“build a sustainable businessmodel for YMFG”

We are supporting the development of the region from a variety of perspectives by connecting
Yamaguchi, Hiroshima and Northern Kyushu with the wide area network and using the Group’s
comprehensive strengths, and we are jointly creating a sustainable future for our customers and region.

▪Made YAMAGUCHICAPITAL Co., Ltd.,Regional Trading
Company YamaguchiCo., LTD., KAIKA
Corporation andBankers Farm Inc.
subsidiaries

Realizing management integrationahead of industry
In recent years, there have been a large number of management
integrations at regional banks, however in 2006, The Yamaguchi
Bank, Ltd. and Momiji Holdings, Inc. (the holding company ofMomiji Bank, Ltd.) executed a management integration ahead of
the industry, resulting in the birth of YMFG. Furthermore, The
Kitakyushu Bank, Ltd., was established in 2011, resulting in theconstruction of the current three-bank system.
We are always at the forefront of the industry.

▪Changed the tradename of
Momiji Consulting Corporation
to YM CONSULTINGCORPORATION▪Started operation of The
Kitakyushu Bank, Ltd.

▪Established YM
Securities Co., Ltd.
▪Established YM Saison
Co., Ltd.

2006

2007

▪Established Yamaguchi
Financial Group, Inc.
▪Listed on the First Sectionof the Tokyo Stock
Exchange

2009

2014

2011

▪EstablishedYMFG ZONEPLANNING
CO., LTD.

2015▪Made YM Lease Co., Ltd.,a consolidated subsidiary

Yamaguchi Financial Group, Inc.
(current head office of The Yamaguchi Bank, Ltd.)▪Established Nishiseto
Regional Co-creation
Servicer Inc.

▪Established Data
Qvic Inc.

2016

2018

2019

2020

▪Establishment of
YM Career Inc.

2021

2022

▪Established INESUS Inc.
▪Established Nishiseto Marine
Partners Inc.

▪Establishment of YM
Asset Management
Co., Ltd.
▪Establishment of YM
Life Planning Co., Ltd.

▪Acquired all issued shares ofIzutsuya Withcard Company
LimitedHead office of The Kitakyushu Bank, Ltd.

2010 Established Kitakyushu Financial Project Co., Ltd.
2011 Changed the trade name to The Kitakyushu Bank, Ltd.,

1878 Founded The Hyakuju National Bank, Ltd.

and started its operation

The Hyakuju National Bank, Ltd., the predecessor of The
Yamaguchi Bank, Ltd. which is the origin of Yamaguchi

Head office of Momiji Bank, Ltd.

Financial Group, Inc., was founded in 1878.

1944 Founded The Yamaguchi Bank, Ltd.
(The merger of five banks: The Hyakuju Bank, Ltd., Kaho
Bank, Ltd., Senjo Bank, Ltd., Oshima Bank, Ltd., and Ube
Bank, Ltd.; capital of ¥13.45 million)

3

Former head office of The
Yamaguchi Bank, Ltd.

1923 Established Hiroshima Mujin, Ltd.
1951 Converted to a sogo bank, and changed the trade name to Hiroshima Sogo Bank, Limited.
1989 Converted to a commercial bank, and changed the trade name to Hiroshima-Sogo Bank, Ltd.
2001 Established a holding company, Momiji Holdings, Inc., through stock transfer
2004 Merged with Setouchi Bank Ltd., and changed the trade name to Momiji Bank, Ltd.
YMFG Integrated Report 2022

4

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

M es s a g e f r o m th e P r e s i d e n t
Together with the region, we will continue to battle
through these changing times towards the future.

To evolving YMFG

C o -C r e a t i n g
a Bountiful
Future for
Our Region
Yamaguchi Financial Group, Inc.
President,
Representative Director and CEO

Keisuke
Mukunashi

Formulation of purpose
YMFG, in order to contribute to our customers andregion more than ever before, and to raise
corporate value, formulated the“YMFG MediumTerm Management Plan 2022”to cover the three
years from the fiscal year ending March 31, 2023,
and has made this the starting point for the new

YMFG. While maintaining our conventional directionof aiming to improve regional value, we listen
carefully to the opinions of our customers andregion, devise strategies that meet the front-line
situation, and steadily implement them.
While the rapid progression of technology andglobalization, and impact of COVID-19 andinternational affairs, etc., make it difficult to forecast
the future, in a society in which the behavioral
patterns and values of people are undergoing majorchanges, YMFG must return to the reason for its
existence, and work together as an organization to
make the right changes for the future. What should
we fulfill as a regional financial group, and what isthe purpose of our being? Because it is the era of
VUCA*, we reconfirm the axis of our management,
and strongly feel that all YMFG employees hold thesame basic concepts and move in the same
direction. Therefore, we have formulated the
purpose (mission and reason for existence) as a
guideline. The purpose is the banner that unites
YMFG as one, and is a pledge that we have madeto our stakeholders.
* VUCA: an acronym of Volatility, Uncertainty, Complexity, andAmbiguity

The thoughts that we cherish (Future-oriented,
coexistence-oriented and region-oriented)
Our purpose, which we formulated upon reviewing
our own orientation and meaning of existence, is“co-creating a bountiful future for our region.”At theroot of this purpose there are three thoughts that
we cherish. The first is“future-oriented”: We exist
to create a future, for the future. The second is“coexistence-oriented”: We cannot survive alone,5

we must always co-exist and work together with
our stakeholders. The third is“region-oriented”: We
always exist for our region. These three thoughts
have been passed down throughout our history.
A stance passed down throughout our long history(sound and proactive enterprising spirit)
The Yamaguchi Bank, Ltd. has a history of over 140
years, counting back from its predecessor, The

Hyakuju National Bank, Ltd., which was founded in
1878. We have overcome numerous financial crises
together with the region since our founding. In
addition, Momiji Bank, Ltd. has a long history of over
80 years with its parent banks, Hiroshima-Sogo
Bank, Ltd. and Setouchi Bank Ltd. Momiji Bank, Ltd.
also has the background of having been a sogobank in the past, and has continued to operate
closely with regional small and medium-sizedenterprises and individual customers. The
Kitakyushu Bank, Ltd. was established in 2011 as
the only regional bank with a head office inKitakyushu-shi, in response to strong demand fromlocal residents.
YMFG is made up of these three banks at its
core. We are now the largest financial group in the
Chugoku and Shikoku regions, with 23 groupcompanies in addition to the three banks in theGroup. The presidents of our group companies
include people in their 30s and early 40s, and whoare still active. We are a group that is continuing totake on various challenges in accordance with theneeds of the region.
In this way, we have inherited the values thathave been passed down through our long history,
and we have continued to tackle various challenges
in order to create a future for the region, always inpartnership with our stakeholders, and have treated
our region and customers with sincerity. The basic
approach that we have adhered to in order to put
this into practice is“sound and proactive
enterprising spirit,”which has been ourmanagement policy since our foundation.
“Sound and proactive enterprising spirit”means“a sound attitude is one in which you tackle
everything proactively, boldly, and with an

YMFG Integrated Report 2022

6

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Me ssa g e f rom the P res i de n tenterprising spirit. In addition, sound management
content,
management system and management attitude
will naturally result in a constitution and strengththat allows for the aggressive and resolute taking inof risks.”In other words, soundness and proactive
action are not mutually exclusive concepts, butrather are a harmonious and integrated idea. YMFG
has maintained a sincere attitude towards thedevelopment of the local community based on“sound and proactive enterprising spirit,”as well as
management based on the principles of soundmanagement, to earn the trust of our customers andthe local community. Moving forward as well, for“co-creating a bountiful future for our region,”wewill continue to inherit and put into practice astance of“sound and proactive enterprising spirit.”
I think that“region”meaning staying in a“region”is a discussion of the past. In the modern
day era, which is based on digital nature, going
beyond“region,”“Japan,”and then the“world”areconnected by land, and are related to the future of
our stakeholders. Having each and every YMFG
employee hold such a perspective and realize thepurpose will result in the creation of a new era for
YMFG and the region.

About the new medium-term
management plan
New medium-term management plan formulation
process
The new medium-term management plan is firstly
characterized by its formulation process. The
previous medium-term management plan wasformulated through the use of a top-down
approach, and gave us points to reflect upon, suchas a lack of progress in strategy planning based onregional characteristics and strategy correction in
response to environmental changes, as well assome mismatches with customer needs. Based onthese points of reflection, we started consideringplans through the use of a bottom-up approach in
October 2021 for the new medium-term
management plan.
On this occasion, I have also included my wish
for YMFG employees to be more actively involved in
the formulation of the plan. In particular, we

7established a project team that included full-timemembers selected from the three banks in theGroup, which account for the majority of theGroup’s revenue, in order to sufficiently reflect theopinions of each bank and to consider the various
characteristics and positions, etc., of the region.
First of all, we prescribed a purpose to serve as thebasis for management, and then proceeded withthe formulation of a plan towards the realization of“a regional value-up corporate group that is chosen
by our region and responds to the trust of ourregion,”which is our vision (what the Group should
become in the future).
Furthermore, through the advance recording ofexpenses for the purposes of“restructuring our
securities portfolio”and“promoting drastic business
revitalization for customers,”as well as theexecution of organizational restructuring such as theappointment of the residents of the three banks as
Directors of the Company, we have established asystem that will enable the steady implementationof the new medium-term management plan.
In the fiscal year ending March 31, 2025, whichis the final fiscal year of the plan, we forecast a net
income of ¥33.0 billion, which will be our highest
ever, as well as a ROE of 5%. We believe that the
new medium-term management plan has a highprobability of being achieved as we have adopted aformulation method that allows for all YMFG
employees to work towards it with a sharedawareness and initiative, and because we haveestablished a solid foundation for its realization.
Towards the realization of a sustainable society
We have positioned the new medium-term
management plan as a“three year period to pushforward with regional and customer-oriented
business activities”as“Team YMFG,”towards the
improved sustainability of our region and YMFG.
In addition, as we work towards improving thesustainability of the region and building asustainable business model for YMFG, we haveprescribed the five priority items of the“promotionof regional co-creation sustainability management,”“promotion of the active participation of theGroup’s human assets,”“pursuit for the
maximization of value provided to the region andcustomers,”“challenging to expand business areas<Formulation process for the new medium-term management plan>

1

Started verificationof theMedium-Term
Management Plan
2019

2

October 2021
Formed the projectteam

3

December 2021
Formed the
purpose and visionand strengthen profitability,”as well as the“strengthening of the governance and internal
control system,”as the areas that are particularly
important to promote.
The momentum for efforts towards asustainable society has been increasing year afteryear, and a response to this has been strongly
sought from a large number of companies. In order<Target management indicators of the
new medium-term management plan>
Final fiscal year
(fiscal year ending
March 31, 2025)
Ordinary profits¥47.5 billion

Net income¥33.0 billion

ROE

Around 5%

Dividend payout ratio

Around 40%

4February 2022

Announced the
additional andprecautionary reserveand restructuring of
securities portfolio

5

March 2022
Announced theorganizational
restructuring◦Elected the Presidents ofthe three banks in theGroup as candidates for
FG Director◦Streamlined the Groupstructure, and unified
the business execution
system of sales branches

6

Formed theMedium-Term
Management Plan2022

to put into practice management that improves
regional sustainability, towards a better future forthe region, we have set the target, in the form of theGroup Sustainability Policy, of“in order to progress
and grow together with everyone in the region, we
will contribute to the realization of a sustainable
society by working on the resolution of various
issues and improving the value of the region,
through our various business activities.”In addition,
in regard to the ESG issue of“materiality,”which issomething that we should particularly focus on, we
have prescribed four themes for initiatives, namely
the“revitalization of local community andeconomies,”“environmental conservation,”“job
satisfaction for all executives and employees,”and“building a solid management foundation.”By
working to resolve the issues facing society throughbusiness, we aim to be a group that contributes tothe improved sustainability of the region, while atthe same time repeating a virtuous cycle that leads
to expanded business opportunities for YMFG, aswell as growth together with the region.
It should be noted that in the period of themedium-term management plan as well, we areconstantly monitoring the progress of the plan,
regularly reviewing the plan and adding newmeasures in response to changes in the
YMFG Integrated Report 2022

8

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Me ssa g e f rom the P res i de n t

management environment, and working towards
further growth.
Cultivating“human assets”to establish anorganization that is strongly adaptable to changes
We use the term“human assets”rather than“human resources,”as“human assets”are valuableassets and capital for the Company, and are thesource of our competitiveness. Japan is far behind
Europe and the United States in relation toinvestment in human capital, and this has been amajor factor in the decline of the competitiveness ofJapanese companies. Since assuming the position of
President, I have emphasized the necessity oforganizational reform alongside the need to change
the behavior of each employee of YMFG in order toachieve this. I ask that all employees keep in mind
the concepts that“people who can make active
changes will take the initiative”and“organizations
that can actively change will change society,”andtake action while thinking about what kind of skills
they can hone for our customers.
In the future, in order to respond to changes inthe environment and to improve the sustainability of
the company, YMFG will aggressively invest in
human capital, will push all employees to become
the people that they want to be, and will enhance
the competitiveness of YMFG as a whole. In the
promotion of the active participation of humanassets, the first issue that we have identified is theactive participation of women. Approximately 2,400
of our roughly 5,000 employees are female
employees, which accounts for 40% or more of
employees, but the percentage of female
employees in management positions remains at anincredibly low level. By focusing on the promotionof the active participation of women, we will
incorporate female perspectives into management
and the workplace, and will quickly progress withthe creation of an organization that can flexibly
respond to an increasingly diverse and complex
society. In particular, nearly 90% of female
employees have remained in retail positions such asbank deposits and asset management, however,going forward, we will appoint the right person to
the right position regardless of their gender, andthrough this, will operate an organization thatallows for the individuality of each person to be

9

demonstrated to the maximum extent possible. We
agree with the purport and have joined the“30%Club Japan,”a campaign which aims to increase theproportion of women in important corporate
decision-making organizations. We will further
accelerate the promotion of diversity and inclusion,
with the empowerment of women as the starting
point.
In addition, with the objective of further
increasing the awareness of employees about
participation in management, as well as aligning thedirection of our shareholders and employees
towards the improvement of corporate value, weare considering the introduction of stock pricelinked remuneration system for employees, andhave started the design and introduction of thesystem in the fiscal year ending March 31, 2023.
Furthermore, in addition to the diversification ofhuman assets, we are actively engaged in thefostering of an entrepreneurial spirit among
employees. In the previous fiscal year, we launched
the internal new business proposal system“YMFG
Growth”in order to broadly solicit new businessideas from YMFG employees. By encouraging free
thinking and bold challenges that are not bound by
the framework of finance, we aim to cultivate highly
creative employees and to foster an organizational
culture that continues to seek new value. The
business proposal that won the Grand Prize in thisproject last year is currently being brushed up withthe objective of it actually entering into service. I
have great expectations for the business that can beborn by this project, as well as in terms of whatkind of value can be provided by our human assets
for society.
Seeking to maximize the value provided and taking
on the challenge of change
The regional economic environment continues tochange moment by moment, in conjunction with
this, the issues and needs of customers has become
more varied and diversified, and this trend has been
accelerated even further by the COVID-19
pandemic. YMFG has the strength of anorganizational structure that can respond widely tosuch environmental changes, something whichcannot be seen at other companies.
For corporate customers, in order to revitalize

Internal new business proposal system“YMFG Growth”AWARD

the regional economy which has been damaged by
the COVID-19 pandemic, we have established acouncil that brings together the resources of the
YMFG Group and specializes in corporate
revitalization and regrowth, and we are constructinga system that provides full-fledged rehabilitation
support activities for individual companies. In
addition, for individual customers, we are providing
long term support that takes advantage of thecomprehensive strengths of the YMFG Groupthrough detailed life planning that is in keeping withthe life plans of each individual customer.
However, we have a strong sense of urgency
with the understanding that we will not be able togrow as a group with just our existing bank-centricbusiness model alone. Up until now, we havedeveloped a variety of new business, not just within
the finance sphere. YMFG will utilize our strengths
in“regional co-creation business,”which we havepromoted as time has passed, to involve regional
stakeholders and drive innovation, with theobjective of creating new industries that will solve
regional issues.

There are diverse voices saying that the current
time is an era of change. However, if we look backat the past, we can see that every era has had its
own changes. Changes to people, companies, andsociety are inevitable. We are always in an era ofchange and change makes us become stronger andbetter. That is how I think it should be. It has been
said that the maintenance of the status quo is the
beginning of decline, and that is certainly the case.
We will continue to take on challenges and will not
be satisfied with keeping the status quo.
Strengthening of the governance and internal
control system
YMFG has formulated improvement measures for all
35 items, as was announced on November 30,
2021, in order to work on the enhancement ofgovernance and internal control. We have examined
how we can improve our governance system, as
well as what kind of changes to make tomanagement to bring about an even betterorganizational system, and have quickly responded
to areas for which improvements can be madeYMFG Integrated Report 2022

10

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Me ssa g e f rom the P res i de n t

immediately. As of the end of June 2022, we hadalready implemented improvement measures for 30
items of all 35 items, and we are currently making
preparations for the implementation of measures forthe remaining five items, and have been making
steady progress.
Main examples of the measures we have put inplace include the reviewing of the Nomination
Committee’s system, reviewing the Group’s internal
control system, and promoting dialog within theGroup. Things do not end with the performance of
these measures, rather we will promote the makingof further improvements based on an ongoing PDCA
cycle.
In addition, on July 1, 2022, we established the
Risk Committee with the objective of strengthening
our management system for market risk. This, inregard to the“restructuring our securities portfolio”
mentioned as a key measure in the new mediumterm management plan, based on the accelerated
normalization of monetary policy through increasing
geopolitical risk and global inflation, is a part of ourefforts to prepare a system that reduces the focus
on foreign bonds and stock investment trusts insecurities investment, which have unrealized losses,
and to shift towards a stable earnings structure. By
incorporating the knowledge of outside Directors
and external specialists, we will reflect objective
opinion in our market risk management.

Strategic capital policy andshareholder returns
As an internationally active bank, YMFG is required
to maintain a capital adequacy ratio of 10.5%,
however, during the previous medium-term
management plan, YMFG’s consolidated capital
adequacy ratio remained in the range of the high
12% and low 13%, a relatively high level, and webelieve that we need to make more effective use ofthis relatively large amount of capital in the new
medium-term management plan. Specifically, we will
reduce the Tier 1 ratio, which is currently at around
12%, to around 10%, and will allocate the ¥100.0
billion that will be generated through this as
strategic capital to investment towards expanding
business areas and the strengthening of shareholder
returns, etc. By covering the reduced Tier 1 capital

11with Tier 2 capital, which has low procurement
costs, we will achieve both improve capitalefficiency and sound capital adequacy.
In addition, we will accelerate the reduction ofcross-shareholdings. Up until now we havepromoted the reduction of cross-shareholdings,
however, as it cannot be denied that the decision
making criteria for this contained some ambiguities
and unfortunately there have been cases we havenot been able to sell at the best possible timing, wehave reviewed our cross-shareholding investment
criteria. We have established the“Meeting for the
Reduction of Cross-Shareholdings”to discuss
policies for responding to cross-shareholdings. This
committee consists of the Presidents of the threebanks in the Group and myself. Through this, bypromptly considering the sale in the case of conflictwith our investment criteria, we will accelerate
reduction, which will also lead to improved capitalefficiency. In addition, we would like for the
implementation of these capital policies to result inenhanced shareholder return, and although in thepast we aimed for a dividend payout ratio of around30%, for the period of the new medium-term
management plan, we are aiming for a dividend
payout ratio of around 40%.
Our stock price is inferior to the stock priceperformance of the leading regional banks, and wehave a very strong sense of crisis. Through thesteady execution of the new medium-term
management plan, we will build a sustainable andstable earnings structure, and through strategic
investment involving the use of capital with anawareness of capital costs, reviewing business areas
without any exception, and providing steady returnto shareholders, we aim to improve ROE and also
raise PBR to the level of the top regional banks.

Towards the improvement ofcorporate value“Dialog”with our stakeholders
In order for YMFG to focus on improving corporate
value across the Group, I place the greatestemphasis on“dialog”in terms of organizational
management. We will provide appropriate and fair
information disclosure concerning YMFG’s current
status, efforts and objectives, will increase

opportunities for constructive dialog with our
stakeholders, including shareholders, the local
community, business partners, and employees, etc.,
will promptly reflect the opinions and evaluations,etc., obtained through such dialog in the Group’s
strategy, and in addition, will execute these steadily.
Embodiment of the purpose
Things do not end with the formulation of the
purpose. The most important thing is for the
purpose of“co-creating a bountiful future for our
region”to permeate among every single YMFG
employee, and for them to make it their own sothat they can speak it in their own words, and to
put this into practice. If we build relationships oftrust with customers based on the concepts ofmutual prosperity and mutual interest, and pushforward on a day to day basis while asking
ourselves whether the business we conduct, our
response to customers, and our interactions withthe region are“whether keeping with our purpose,”
I believe that the purpose will be embodied as amatter of course, and that the future of ourcustomers and region, and naturally YMFG, will
expand without limitation.
We will place our utmost efforts towards
improving our corporate value so that we can meetthe expectations of all stakeholders, including YMFG
employees.

YMFG Integrated Report 2022

12

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Round-table Discussion with Outside Directors
From left to right: Kazuo Tsukuda, Tomoko Mikami, Yumiko Nagasawa, Keisuke Mukunashi, Yuzuru Yamamoto,
Minako Suematsu and Michiaki Kunimasa

Concepts and initiatives towards
the strengthening of governance
Mukunashi First of all, I would like to talk about our

methods for improving the effectiveness of theBoard of Directors as well as the committee system,
including the Nomination Committee.
Furthermore, in order to improve effectiveness,basic concepts towards the strengthening of

we are actively engaging in dialog with our

corporate governance.

shareholders and institutional investors. We have

As a prerequisite for gaining the unwavering

held 27 meetings since December 2021, havetrust of our stakeholders, YMFG has prescribed

provided feedback on the opinions received at“strict compliance with all laws, ordinances andmeetings of the Board of Directors, have reflected

rules, the performance of honest and fair corporate

them in management improvements and strategies,

activities, and a permanent awareness of theand have also used them for information

fulfillment of our public mission as a financial group”

disclosures.

in its“Code of Conduct.”
In this way, as a regional financial group, YMFG
must ensure that all of our executives andemployees are aware that even more effective
governance is required in the course of their day to
day business.

Regarding recommendations,evaluations and issues for
improving the effectiveness ofcorporate governance at theBoard of Directors
Kunimasa I am in my eighth year and fourth term ofoffice as an Audit and Supervisory Committee

Initiatives to strengthen the
management found a ti o n in o r d er torealize our purp o se a nd v isi o nMember. Speaking frankly, the current quality of
discussions at the Board of Directors is different andmuch better than what it used to be. In the past,
there was only a small number of outside Directors,
it was rare to receive prior explanations, and it wasdifficult to voice opinions on proposals. Recently,

The Company is continuously working towards the strengthening of corporate governance in order to create aprior explanations for meetings of the Board ofcorporate group that is trusted and for which expectations are held by all stakeholders, including shareholders.

Directors have been improved, making it possible

On this occasion, we would like to provide a brief summary of the round-table discussion that was held between

for outside Directors to understand the content ofproposals beforehand, resulting in a better

outside Directors and the President, Representative Director and CEO of the Company under the topic of“Initiatives to strengthen the management foundation in order to realize our purpose and vision.”

Participants
President, Representative
Director and CEO

Outside Director

Outside Director

Outside Director

Honorary Advisor of Mitsubishi Heavy
Industries, Ltd., Director of Mitsubishi
Research Institute, Inc. (outside
director), Director of FANUCCORPORATION (outside director);
Director of Internet Initiative Japan Inc.
(outside director), appointed as Audit
and Supervisory Board Member of theCompany in 2013, and as Director who
is an Audit and Supervisory Committee
Member of the Company in 2015.

Managing Executive Officer, Corporate
Solution Business Group Lead, andDigital Sales Business Group Lead of
Microsoft Japan Co., Ltd., Director ofSun* Inc. (outside director), appointed
as Director of the Company in 2021.

Facilitator of Foster Forum (Forum for
Fostering High-quality Financial
Instruments), Director of Yakult Honsha
Co., Ltd. (outside director), Director of
GL Sciences Inc. (Audit and Supervisory
Committee Member) (outside director),
appointed as Director of The
Yamaguchi Bank, Ltd. in 2018 (Retiredin 2020), and as a Director of theCompany in 2020.

Outside Director

Outside Director

Outside Director

Chairman of the Board of Directors &Director of UBE Corporation, appointed
as Director of The Yamaguchi Bank,
Ltd. in 2020 (retired in 2021), and as
Director of the Company in 2021.

Representative Director, Chairman, andPresident of The Japan Times, Ltd.,
Representative Director of News2u
Holdings Corporation, appointed as
Director of the Company in 2020.

Lawyer at Kunimasa Law Office,appointed as Audit and Supervisory
Board Member of the Company in2014, and as Director who is an Audit
and Supervisory Committee Member of
the Company in 2015.

Keisuke Mukunashi
Joined The Yamaguchi Bank, Ltd., in1995, appointed as President,
Representative Director, and COO of
the Company in 2020, and as
President, Representative Director, andCEO of the Company in 2021.

Yuzuru Yamamoto

13

Kazuo Tsukuda

Minako Suematsu

Tomoko Mikami

Michiaki Kunimasa

Yumiko Nagasawa

Recognize the weight of YMFG ’spublic mission, and impr ove
cor por ate value thr ough the
str engthening of gover nancefunctioning organization. In addition, as the Board of

In terms of our efforts to strengthen governance,banks. At the same time, the Nomination

with the objectives of the sound operation ofCommittee and Compensation Committee arebusiness and improved corporate value, last fiscal

functioning effectively, and going forward, I believe

year the Group formulated improvement measuresthat the newly established Risk Committee will

for all 35 items, centered on“governance,”“internal

contribute to the further strengthening of thecontrol”and“corporate culture,”which are thegovernance of YMFG.

Directors now comprises of five internal Directors
and six outside Directors, it is a stable composition
that focuses on cooperation between the threefoundation for management.
In order to rebuild the management system, we
have made the Presidents of the three banks in theGroup YMFG Directors, and through this we havestrengthened monitoring system for our businessexecution status, and have also reviewed evaluation

YMFG Integrated Report 2022

14

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Ro u n d-ta bl e D i s c us s i on wit h Ou t s id e Dir e c t o r s

Up until now, I believe that things were stuckwith the conventional wisdom of the industry. We

this, as well to follow up on them. I believe thatdoing this will strengthen governance.

were looking at financial institutions of other regions

The improvement measures are very broad,in the same industry, or were thinking based only on

however, I highly regard the fast progression of the

our own group, but now the world is in a dynamic

improvements and reforms, which have been aided

era with an abundance of change. I feel thatby the efforts of President Mukunashi and otherdiscussions over the past year have become a lot

executives.

more active with the outside Directors, who haveextensive knowledge.

A challenge for the future will be to makeongoing improvements with substantive content, as
there is a risk that creating mechanisms and rules
for improvement measures alone will become just aformality. There have been major reforms to

Make rec om m endat i ons w i t h an
aw arenes s of w het her or not wem eet t he expec t at i ons of c us t om e r s,
as w el l as what ki nd of added valuec an be provi ded by Y MFG

organizational culture, etc., as well, and these have

Mikami It has been one year since I was appointed

Nagasawa After having worked in the financial

to what extent governance has been improved. Thisas outside Director, and I am currently in my second

industry, I have been involved for quite some time inis the supervisory function of the Board of Directors,

term. Since I have worked at an American company

consumer activities in the financial sector, and had

and I think that the higher the level of supervision,

for around 20 years, I started from a point where I

been also involved in the formulation of principles

the greater the effectiveness.

felt a gap in terms of how I saw Japanese

for the customer-oriented business activities of thecompanies were managed. I have been thinking

Financial Services Agency as a member of theabout how to improve governance even by a little

Financial System Council.

A b a l a n ce d g r ou p of m e m be r s of t he
Bo a rd o f D i r e c t or s , w it h a s t a bl ec om p o s i t i o n t h at e m ph as iz e s
c oo p e ra t i o n be t w e e n t h e t h r e e ba nks

through the use of the power of digital and thepower of technology.

During the discussions at the Board of Directors,

the regular receiving of reports. I think that this isincredibly important. In addition, in the medium tolong term, we will always return here and watch forWith the times changing, br oaden our
hor izons without being bound by
conventional wisdom

I have endeavored to ask questions and voice

Tsukuda I am now in my eighth year as an outside

opinions from the perspective of whether or not we

Director, and in recent times I think that outsidewith personnel possessing a wealth of experience inare meeting the expectations of customers, andDirectors of diverse backgrounds have voiced theirdiverse areas, we hold open discussions withwhat kind of added value we are able to provide. In

own opinions and deepened discussions, resulting

respect for all opinions, regardless of age andaddition, shareholders are also importantin the Board of Directors moving in a better

gender, with the objective of making YMFG evenstakeholders. I would like for us to place importancedirection.

better. Our Board of Directors, led by President

on how to reflect management decision-making

Yamamoto One year has now passed since I

Mukunashi, is a foundation for the appropriate

from the perspective of shareholders. I believe thatassumed the office of outside Director for the firstsharing of internal issues, and I think that in the past

the disclosure of information is of particulartime at last year’s General Meeting of Shareholders.

year we have been able to deepen substantive

importance.

Thinking about governance, an investigation report

At our Board of Directors, which is comprised

believe that the deepening of discussions on

October 2021, in which recommendations wereIn regard to the medium-term management

whether or not the taking of a risk is rational, andproposed. These consisted of an incredibly wide

G over nance will be s t re n g t h e n e d b y
accepting the invest ig a t io n re p o rtwith sincer ity, and s t e a d ily e x e c u t in g
the impr ovement me a s u re splan, I believe that President Mukunashi and other

how we can try to control such risk, is an issue forrange of proposals, extending from governance,

I highly regard the diversity of our outside Directors.

executives have been able to work together inthe Board of Directors. We have a diverse group ofincluding internal control, through to organizational

I think that how to make best use of such assets isorder to set appropriate goals. I believe thatmembers, and so I have great expectations for this.

culture and climate. In response to thesereally a matter of skill. I have great expectations for

producing results one after another will lead to us

Suematsu Since I operate a media company, I try torecommendations, the Board of Directors passed

the effective use of this to improve governance,

earning the trust of our shareholders andmake recommendations as an outside Director that

resolutions on improvement measures andwhich will certainly lead to an increase in corporate

stakeholders.

show consciousness of wanting horizons to be

published these at the end of November.

value, and I believe that this is also the mission of

discussions on how to accept current issues andhow to respond to them.

Risk-taking is vital for business, however, I

was published by the Investigation Group, etc., inbroadened a little, without being constrained by

15

been discussed at the Board of Directors alongside

I think that the mission of the Board of Directors

each individual Director.

conventional wisdom, as we are in an era of great

is to treat this investigation report with sincerity, toMukunashi As has been mentioned, things do notchange.

properly execute the improvement measures forend with the formulation of improvement measures,

YMFG Integrated Report 2022

16

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Ro u n d-ta bl e D i s c us s i on wit h Ou t s id e Dir e c t o r srather it is of great importance that the Board of

the three banks have made the Board of Directors

Directors and also the executives work sincerely

even more powerful. I am also excited about this.

towards the proper implementation of the PDCA

Looking at things from a global perspective,

cycle, the improvement of governance, and theJapan is seeing a decline in value, as can be seen

improvement of corporate value.

from the recent depreciation of the yen.

Regarding the role as outside
Director
Tsukuda First of all, the primary role of an outside

Furthermore, having been involved in the world of
IT, I have developed a sense of crisis about thegrowing gap between Tokyo and rural areas. Under
such circumstances, I believe that YMFG has a great
mission to fulfill in the creation of a future in which

Director is to properly make recommendations thatthe people of Japan, especially those in rural areas,

would be difficult for an internal Director to voice.

can live happily, joyously and brilliantly. I believe

The secondary role is to make recommendations onthat YMFG has a role to play in spreading a culture

the current business from a new perspective, based

towards the taking on of challenges and theon the accumulation of experiences that have notcreation of a framework for the growth of the entire

been experienced by anyone in the Company

region, and for this, I would like to be of use bywhatsoever. I think that these are the two roles.

actively promoting the hiring of human resources,

The low interest rate policy has been

the utilization of digital, and the incorporation of aestablished over the past five years or so, and thecompletely different type of knowledge.

business environment for regional banks and thefinancial industry has changed significantly.
Considering the state of the domestic economy, it is
impossible to raise interest rates. Therefore, I

recognized, through the positive spread ofis an awareness of this, it is not easy for an outside

believe that there is no choice but to change ourinformation and active communication.

director to find out how a company is managed. I

business model.

Yamamoto In regard to the improvement ofbelieve that one of the results of the reforms has

In order to achieve this, we should appoint

governance, YMFG is a company with an audit andbeen becoming able to directly hear the voices ofexternal human resources, recruit employees, andsupervisory committee, which is designed to focus

the Presidents of the three banks, who are directly

review employee education. Have diverse people

on the supervisory function of the Board of

involved in execution, thanks to the review of theactively speak out. I think that this is incredibly

Directors. I think that what has been revealed

composition of the Board of Directors. In order toimportant in the sense of developing new

through the various issues of the past is thatmake the Board of Directors even more effective, itbusinesses by riding on changes in our business

communication between the executive side and thewill be necessary to also reform the operation of

portfolio in the future.

supervisory side has not functioned well. If there is a

the Board of Directors, and I would like to make

Kunimasa I think that the positioning of YMFG andrecommendations to that end.

specific people and specific departments was also a

Di s s em i nat e a c ul t ure of t he ac t i ve
prom ot i on of t he us e of di g i t al as
w el l as t he ong oi ng t aki ng on ofc hal l eng es

discrepancy in this, the Board of Directors will not

Presidents of the three core banks as YMFG

two years. My role is to listen to the voices of the

big issue. This has been improved, and I believe that

Suematsu I myself am from Hiroshima Prefecture,

Directors was an incredibly good decision in terms

region in which YMFG is located, and to promote

my role is to engage in appropriate monitoring so as

and have a strong sense of regional revitalization.

of facilitating smooth communication between

some communication between the outside

to ensure that everyone holds discussions and

The perspectives of not only Tokyo, but also the

execution and supervision. While receiving reports

Directors of the three banks.

moves forward with new policies while looking inregions. I am always aware of my wish to speak out

on the execution status of the growth strategy or

Mukunashi We have outside Directors from an

the same direction.

from both of these perspectives.

the creation of regional value considered by theincredibly diverse range of backgrounds. In terms ofthe three banks has been ambiguous in the past
few years. The concentration of authority among17

be able to fulfill its supervisory function.
In that sense, I believe that appointing the

I myself was born in this region, and served as
an outside Director at The Yamaguchi Bank, Ltd. forMikami There was a big gap between what I saw

In addition, at the beginning I felt that there was

executive side, the Board of Directors discusses

the executive side, we will continue to strive

from the outside and what I saw from the inside.

an issue with communication with our shareholders.

how to achieve the targets, and I believe that mytowards providing explanations as carefully as

The things that have been learned from thisRecently, President Mukunashi has taken the time torole is to discuss what should be done next, andpossible in regard to the prior sharing of proposals,

experience, the relationship of trust at the Board ofprovide information and to realize communication

how to improve corporate value.

conveying what is happening on the executive side

Directors and the addition of voices from the front

reliably. Furthermore, I would like to give advice soNagasawa I recognize the key role of outside

in a real manner, and maintaining closelines thanks to the appointment of the Presidents ofthat our presence and achievements are properly

Directors is to monitor management. Although there

communication so that the Board of Directors can

YMFG Integrated Report 2022

18

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Ro u n d-ta bl e D i s c us s i on wit h Ou t s id e Dir e c t o r s

be a place of lively discussion. I would also like forthey all work actively and with vitality, and to thentherefore, I would like for the Board of Directors toopinions of all those with knowledge, to stop for a

the Board of Directors to work together in order tomove forward with our customers one step or two

follow up on the production of results in accordance

moment, and to think carefully before proceeding

improve corporate value.

steps at a time. I think that it is important to strike awith the plan that has been established.

with the next step.

About the expectations for
Yamaguchi Financial Group, Inc.

Other incredibly important stakeholders are our

We have adopted such a bottom-downsense of speed, and progressing towards what we

employees. How should we make use of humanapproach in the formulation process for thisshould become.

resources and how should we develop them?

medium-term management plan. In addition, theTsukuda I have great expectations for the future.

Naturally, this will be a long term effort that also

purpose, which is the meaning of the existence of

Mukunashi First of all, as a regional financial group,

I would like for us to steadily move forward withinvolves diversity and inclusion, etc. I would also likeYMFG, was discussed with everyone prior to

I believe that our corporate value will not increase

this medium-term management plan. In this plan, it

to follow up on this area as well.

formulation. We will work together with allunless the regional economy improves. In order tohas been made incredibly important to reform theachieve this, I believe it will be necessary toemployee culture, and we will have to retrain ourmanagement plan will serve as a response to theand while gaining various forms of knowledge in an

consider both financial and non-financial aspects in

employees. Therefore, investment in humanregion, employees and stakeholders, and I think it

open environment, we will proceed towards theterms of the kinds of issues facing our customers,

resources will be needed. We must change to awill also win the trust of our shareholders. I believe

improvement of the value of the region as well as

who support the regional economy, and the kind of

more innovative stance, including in relation tothat the achievement of the performance targets of

the improvement of the corporate value of YMFG.

solutions we need to provide in order to solve theserecurrent training and the addition of external

the medium-term management plan will be proof

issues.

human resources. This is the biggest challenge, andthat we have made improvements to our pastis where I have expectations.

governance-related issues.

In order to do this, we will instill the purpose in

The achievement of the medium-term

every single employee, and will work together as

Nagasawa I think that YMFG can be expected to

the Group in order to realize the vision.

change the region into one that is developing andWe will promote the active participation of

growing through both its financial and non-financial

human resources, increase employee engagement,

activities. I think that our stakeholders will choose

value employees who are devoted to their duties on

to invest in, work for, or become customers of

the front lines, and will provide the Board of

YMFG based on such expectations. I believe that

Directors with real information on how we arewhat is expected of YMFG is that it will become afacing customers. In such a manner, I would like tocorporate group that is able to think about how it

establish a group that is useful to customers andcan support the economic growth of the region, andwhich solves problems.

that can then execute and achieve this.

Kunimasa On this occasion, a new medium-term

Suematsu Under the framework of President

management plan has been prescribed. With the

Mukunashi, it has become possible to execute one’s

objective of the faithful execution of the medium-role in a speedy manner, and I am also proud of us

term management plan, which has been decided

that as outside Directors we have been able toexecutive side, but also on mutual relationships with

Devel op new bus i nes s by a di verse
g roup of peopl e by rec rui t i ng
ext ernal hum an res ourc es andret rai ni ng em pl oyees

shareholders, employees, customers and all

Yamamoto Sustainable management and purpose

strongly feel this situation. There have been great

have been attracting a great deal of attention inchanges to the style of communication. President

Mikami We also agreed on the major vision of“arecent years. YMFG has unified the language, andMukunashi dedicates a lot of time to communicating

regional value-up corporate group,”which has been

the significance of the company’s existence and thewith employees, and therefore I expect that theapproved by the Board of Directors. We would likekey issues that it faces have been discussed at the

motivation of our employees will increase.

to provide firm support for the steady execution ofBoard of Directors.

Mukunashi We regularly receive opinions from ourupon sufficient deliberation at the Board of
Directors, we will work not only on the YMFG

stakeholders. This is what things all come down to.

the plan.

through these challenging times.
I think that other members of the Company also

As we are a group that is centered aroundoutside Directors, and the meetings of the Board of
Directors are incredibly important and meaningful.

The co-creation of regional value and theregional financial institutions, I believe that how we
can provide high quality to our stakeholders, that is

important. I do not think that there are any

the members of the region, and the people

culture, we will continue to develop a culture ofshortcuts to achieving this. With a focus on our core

responsible for the economy of the region, is antaking on challenges in new fields. Although thisfinancial business, I believe it is important to firstly

incredibly important matter.

may cause something of a detour, I think that rather

I think that YMFG has such potential, andstakeholder to build a culture that resolves issues,

provide firm support in steering the company

passing of this on to the future are both incredibly

begin with changing the employee culture so that19balance between moving forward with a certain

Towards the reforming of our organizational

than working alone, it is important to listen to the

YMFG Integrated Report 2022

20

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Y M F G O v e r v ie w
Yamaguchi Financial Group, Inc.

YMFG has established a system for responding to the broad needs ofthe region and customers through the unification of various group

Head Office Address
Date of Establishment
Capitalcompanies, including the three core banks.

2-36, 4-chome Takezaki-cho, Shimonoseki
October 2, 2006
¥50.0 billion(As of July 1, 2022)

Insurance agent and bank agent business

Various consulting businesses

HOKEN HIROBA, LTD.

YM CONSULTING CORPORATION

Networks in Japan:
104 branches offices

Credit card business

Investment fund operation businessNetworks in Japan:
37 branches offices

Izutsuya Withcard Company Limited

YAMAGUCHI CAPITAL Co., Ltd.

Banking businessNetworks in Japan:
131 branch offices
Networks in overseas:
3 branch offices,
1 representative office

YM Saison Co., Ltd.
Securities business
YM Securities Co., Ltd.

YAMAGINCARD CO., LTD.
Momiji Card, Inc.

Receivables management andcollection businessNishiseto Regional CO-creation Servicer Inc.

Support for the development of the ship
finance businessNishiseto Marine Partners Inc.

Lease business
YM Lease Co., Ltd.

Real estate leasing business
Other two Group companies

Investment advisory and agency business

Investment management business

Credit guarantee business

YM Life Planning Co., Ltd.

YM Asset Management Co.,Ltd.

YM Credit Guarantee Co., Ltd.

Research on regional issues andconsulting business

Welfare agency business

Cloud funding businessDX consulting businesses

INESUS Inc.

KAIKA Corporation

Data Qvic Inc.

Wholesale and retail of regional products

Business relating to agricultural management

Regional Trading Company
Yamaguchi Co., LTD.,

Bankers Farm Inc.

YMFG ZONE PLANNING CO., LTD.

Paid employment referral business
YM Career Inc.

21

YMFG Integrated Report 2022

22

Management Letter

S ourc e o f C o m p e t i t i v e Ad v a n ta g e
S t r engt hs o f YM FG

1

Comprehensive strength of the GroupYMFG has over 20 subsidiaries and associates,
and has put into place a management systemthat can respond to the broad needs of theregion and customers as an overall Group thattranscends the financial framework.
Regional

Consulting

revitalization

2

Solid customer base

Our main bank share among the companies of
Yamaguchi Prefecture are at the top of
regional banks, second regional banks, city
banks and shinkin banks in the prefecture, andwe are also positioned as second in Hiroshima
Prefecture, where we have built a high sales
base and a solid customer base.

company

Loan
share

Depositshare

Yamaguchi
Prefecture

43 %

46 %

Hiroshima
Prefecture

22 %

22 %

Kitakyushu-shi

14 %

11%

Human

resources

Insurance

Agriculture

B a nkCard

WelfareLease

Cloud funding

Servicer

VC(Created based on clearinghouse exchange figures)

3

Sufficient equity capital and sound assets

YMFG has a top class level of assets among
regional banks, and as regional financial
infrastructure, aims to actively respond to thefinancial needs of its customers, and to growtogether with the region.

Total equity ratio

12.65%
Total assets

12,182.6 billion¥

4

Network

The main sales areas of YMFG are Yamaguchi
Prefecture, Hiroshima Prefecture and Northern
Kyushu, and in addition, it has branch offices in
Ehime Prefecture, Tokyo, Osaka, etc., overseas
branches in China and South Korea, as well asa representative office in Hong Kong.
We have established a system that is able
to support the sales channels and businessexpansion needs of customers, including
business matching across prefectures.

Yamaguchi
Prefecture

Abundant industrial zone
No. 1 in Japan in bulk ingredients
shipment value（2020）

Stable supply of industrial water
No. 1 in Japan in water supply capacity（2021）(according to the“Informational Brochure on
Corporate Locations”by Yamaguchi Prefecture)

23(Teikoku Databank)

Suitable area for risk diversification
No. 3 in Japan in lowest number ofearthquakes（2021）(according to the“Informational Brochure on
Corporate Locations”by Yamaguchi Prefecture)

Northern Kyushu(Kitakyushu-shi)Child-raising friendly towns(Cities designated by ordinance)

No. 1 for 11 consecutive years(according to the survey conductedby NPO Egalite Otemae)

Became the only city in Asia
to be designated a“global
model city for promoting
SDGs”in 2018
Abundance land, sea and airtransportation infrastructure

Hiroshima Prefecture
Shipping value of manufactured goods（2019）3.0% share in Japan (11th in Japan)(according to“Census of Manufacture”by the Ministry of Economy, Trade and Industry)

Number of offices

120,000 (11th in Japan)(according to“2021 Economic Census for Business Activity”by the Ministryof Internal Affairs and Communications)

Tourism resources: two World Cultural Heritage Sites Itsukushima Shrine and the Atomic Bomb Dome
No. 1 in Japan for oyster production（2021）

The Yamaguchi Bank, Ltd.��131 branch offices
Momiji Bank, Ltd.������104 branch offices
The Kitakyushu Bank, Ltd.�� 37 branch offices

The Yamaguchi Bank, Ltd.���3 branch offices,
1 representative officeFinancial Section

Corporate successor absentee rate
71.0% / 5th in Japan（2021）(According to the“Informational Brochure on
Corporate Locations”by Yamaguchi Prefecture)(according to“Hiroshima Lab”by Hiroshima Prefecture)P o p u la t i o n a n d e co n o m i c ch a ra ct e ri s t i cs
Population

Gross prefectural
domestic productPrefectural income

Yamaguchi Prefecture

1.34 million people¥6,374.6 billion¥4,383.4 billion

Hiroshima Prefecture

2.8 million people¥11,713.7 billion¥8,758.9 billion

Fukuoka Prefecture

5.14 million people¥19,808.0 billion¥14,735.9 billion

Non-performing loan ratio

1.55%

Management Foundation
Supporting Value Creation

YMFG’s sales areas of Yamaguchi Prefecture, Hiroshima Prefecture and Northern Kyushu have adeveloped industrial infrastructure and are blessed with an abundance of tourism resources.
Geographically, we are located close to China and Korea, and the region has potential to become anindustrial zone that has an eye towards the future.
On the other hand, the Chugoku region has a population that is aging in excess of the national
average, and we contribute to the sustainable development of the region by earnestly facing theseregional issues and aiming to resolve them.

Japan

Overseas

Business Strategy
for Value Creation

C h a ra ct e ri s t i cs o f t h e s a le s a re a
- Ya m a g u ch i , H i ro s h i m a , a n d No rt h e rn K yu s h u -(March 2022)

Regional trading

Securities

About YMFG

“2020(
Population Census”by
the Ministry of Internal Affairs andCommunications)(according to“Prefectural Accounts 2018”by the Cabinet Office *at current prices)

YMFG Integrated Report 2022

24

Management LetterVal ue Cr e a t io n P r o c e s s

YMFG’s mission and

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

meaning of existence (Purpose)“Co-creating a bountiful future for our region”

Management resources
Financial capital◦Sufficient equity capital◦Sound assets

Human capital◦Diverse and abundant
human resources◦A high level of expertisein financial andnon-financial fields

Social and relationship capital◦A broad network
centered on Yamaguchi,
Hiroshima and Northern
KyushuGroup Sustainability Policy

YMFG Medium-Term Management Plan 2022

In order to progress and grow together with

Di r ec t i o neveryone in the region, we contribute to therealization of a sustainable society by◦Build a sustainable business model for YMFG

and improving the value of the region,P r i o r i t y i t ems

Provided value

through our various business activities.

Four themes for our initiatives
Initiatives for local society andeconomic revitalization

Pursuit for the“maximization of value
provided to our region
and customers”

Declining birthrate and aging population

Diversification of lifestyles (responding to diverse values)

Challenge to“expand businessareas and strengthen
profitability”

Realization of a sustainable
society

Customers
Exercising of financial
intermediary function

Shareholders
Improvement of corporate value
Return to shareholders

Employees
Strengthening of the governance andinternal control system

Initiatives for building a solidmanagement foundation

Declining population

Economic revitalization

Promotion of the active
participation of theGroup’
s human assets

Initiatives for the job satisfactionof all executives and employees◦Brands established in
the region

Improvement to the value ofthe region

Provision of high quality solutions

Initiatives for the preservation of
the environment◦Initiatives forcollaborations between
industry, academia andthe government

Local society

Promotion ofregional co-creation
sustainability
management

Materiality specified by the Company◦Group-wide
comprehensive financial
services

25◦Improve the sustainability of the region

A regional value-up
corporate group that ischosen by our region
and responds to thetrust of our region

working on the resolution of various issues

Intellectual capital

External environment

What the Group should
become in the future(Vision)◦A solid customer baseSocial issues

Financial Section

Corporate growth
COVID-19

Business succession

Climate change

Co-creation of an environmentand opportunities that allow foreach individual to play anactive role

Industry creation

Digitalization

International affairs
YMFG Integrated Report 2022

26

Management LetterF i na n c ia l H igh l ig h t s
Business profit from core operations(excluding gain on cancellation of investment trusts)¥

Business Strategy
for Value Creation

About YMFGNet income attributable to owners of the parent

Sustainable finance execution amount

32.8 billion¥

FY2020

Expenses / OHR

FY2021

FY2022■■Expenses

OHR

156.9

FY2021CO₂ Emissions¥84.7 billion* Net income attributable to owners of the parent decreasedby ¥13.0 billion due to the recording of expenses for thereconstruction of the securities portfolio and the promotion of
drastic business revitalization for customers.

Capital adequacy ratio

FY2020

FY2021

FY2022■■Sustainable finance execution amount■■Of which investment in the environmental field and climatechangeAverage loan balance

12.65 %FY2020

FY2021

FY2022* Total CO₂ emissions of the Group in Scope 1 and Scope 2

Ratio of independent
outside directors

Ratio of female
directors

8.491 trillion

55%

Promotion of the active participation of* As of July 1, 2022
diverse human resources

Ratio of females in management
positions27%(6 out of 11)(3 out of 11)

5.9%
3.0%

¥

10.211 trillion

2022 Certified Health & Productivity
Management Outstanding Organization

Rating information
Yamaguchi Financial Group, Inc.

A

(Stable)A+ (Stable)
Endorsement of TCFD

27

FY2021

FY2022

FY2020

FY2021

FY2022

High

A
BBB
BB

Momiji Bank, Ltd.

B

A+ (Stable)

Creditlevel

CCC

Rating and Investment Information,
Inc. (R&I)*As of March 23, 2022AAA
AA

The Yamaguchi Bank, Ltd.

FY2020

FY2022

P a rt i ci p a t i o n i n e xt e rn a l a s s e s s m e n t s a n d i n i t i a t i v e s

Average deposit balance¥

FY2021(for the fiscal year ended March 31, 2022)

63.7 billion

FY2022

FY202039 ti mes / 3, 827 peopl e

Ratio of management positions ofdiverse backgrounds
FY2021-11.4%(from ﬁscal year ended
March 31, 2020)

FY202266.0 %FY202012,629t-co₂

billionFinancial literacy (seminars)¥

Financial Section

Non-financial Highlights-¥13.0 billion

FY2020Management Foundation
Supporting Value Creation

CC
CC

Low

YMFG Integrated Report 2022

28

Management Letter

Business Strategy
for Value Creation

About YMFGManagement Foundation
Supporting Value Creation

Financial Section

P er f o r ma n c e S t at u sResults for the fiscal year ended March 31, 2022 (consolidated)
Ordinary profits decreased ¥44.6 billion year on year to a loss of ¥7.6 billion due to a decrease in
securities-related income of ¥36.5 billion and an increase in credit-related expenses of ¥12.7 billion byrecording of expenses with the objective of the“reconstruction of the securities portfolio”and the“promotion of drastic business revitalization for customers.”
Net income attributable to owners of the parent decreased ¥37.9 billion year on year to a loss of¥13.0 billion.

(Billions of yen)

Fiscal year ended Fiscal year ended
March 31, 2021
March 31, 2022

122.0

108.7

(13.2)Net interest income

101.5

86.7

(14.8)Of which interest on deposits, and loans and discounts

66.9

65.9

(1.0)

Of which interest and dividends on securities

37.3

22.5

(14.8)

27.4

12.1(15.2)

15.8

17.0

1.1

Expenses (excluding temporary treatment portion)

67.0

63.7

(3.3)

Business profit from core operations

55.0

45.0

(9.9)

27.5

32.8

5.3

Ordinary profits

36.9

(7.6)

(44.6)

Extraordinary income or loss

(0.1)

2.1

2.3

Net income attributable to owners of the parent

24.9(13.0)

9.4

Expenses (including temporary treatment portion)
Securities-related income

Net fees and commissions

36.9

95.4

(13.3)Net interest income

74.4(12.3)Of which interest on deposits, and loans and discounts

69.9

4.0

Of which interest and dividends on securities

10.5(12.0)(12.1)

0

Of which gain on cancellation of investment trusts

1.1

(1.4)

Business profit from core operations

33.1(11.9)

33.1

0.2

Ordinary profits

25.0

32.6

(37.9)Net income attributable to owners of the parent

17.0

30.0

22.1

12.7

Credit-related expenses

64.5

60.5

(3.9)

23.0

(13.4)(36.5)

13.43

12.65

(0.78)＋1.1

Net fees and commissions

Excluding gain on cancellation of investment trusts

Expenses (including temporary treatment portion)
Securities-related income

2.9(19.2)

62.1

1.6

3.8

17.2

(Unit: Billions of yen)

(Unit: Billions of yen)

-36.5

・General allowance for loan losses-¥2.8 billion
・Speciﬁc allowance for loan losses, etc.
-¥9.9 billion

Expenses

Causes of Earnings Revision (Amount recorded in Q4)・Precautionary allowance (general) : ¥5.6 billion
・Additional allowance (Speciﬁc): ¥12.0 billion＋3.3
Securities-related
gains or losses

Expenses(excluding temporary
treatment portion)

Causes of Earnings Revision (Amount recorded in Q4)・Loss on sale of foreign bonds: ¥14.1 billion
・Loss on sale of stock investment trusts : ¥11.1 billion

29Core gross business profits

Causes of changes in ordinary profits

Interest
Interest on
Fees andon loans
deposits commissions
and discounts

Fiscal year ended
March 31, 2021

Year-on-year

62.3

Causes of changes in ordinary profits＋0.7

FG Consolidated

18.1

Credit-related expenses-1.7(Billions of yen)

Expenses (excluding temporary treatment portion)

Excluding gain on cancellation of investment trusts

Total equity ratio (%)

Performance for the fiscal year ending March 31, 2023 is planned as follows.
It is planned that ordinary profits will increase ¥32.6 billion year-on-year to ¥25.0 billion due to anincrease in service income, cost reductions, a shift to a stable earnings structure that emphasizes
income through the reconstruction of the securities portfolio, and a decrease in credit expenses.
It is planned that net income attributable to owners of the parent will increase ¥30.0 billion
year-on-year to ¥17.0 billion.

Year-on-year

Core gross business profits

Of which gain on cancellation of investment trusts

Performance forecast for the fiscal year ending March 31, 2023 (consolidated)

・Interest and dividends (excluding gains on cancellation of investment trusts)+¥0.5 billion
・Gain or loss in trading, etc. (including gains on cancellation of investment trusts)-¥37.0 billion

Fiscal year ended
March 31, 2022

-12.7
Creditexpenses

＋1.3
Other

-7.6

Securities-related
incomeFiscal year
ended
Interest
March 31,
on loans
Interest on
Fees and2022
and discounts deposits commissions

-7.6

＋4.6

-0.6

＋1.1

＋17.2

＋19.2

-10.5
Other

(excluding temporary
treatment portion)＋1.4

Creditexpenses

25.0

・General allowance for loan losses factors+¥6.0 billion
・Speciﬁc allowance for loan losses, etc. factors+¥13.2 billion

Fiscal year ending
March 31, 2023
・Interest and dividends (excluding gains on cancellation of investment trusts)+¥0.2 billion
・Gain or loss in trading, etc. (including gains on cancellation of investment trusts)+17.0 billion

YMFG Integrated Report 2022

30

Management Letter

Business Strategy
for Value Creation

About YMFGManagement Foundation
Supporting Value Creation

Financial Section

Overview of the YMFG Medium-Term Management Plan 2022
T it l e

YMFG Medium-Term Management Plan 2022
- Co-Creating a Bountiful Future for Our Region

Pl a n p e rio dThree years from the fiscal year ending March 31,
2023 to the fiscal year ending March 31, 2025

Five priority measures
Based on the trust of our stakeholders, we will think and act from the perspective of our region andcustomers as the driving force and spur for growth through the regional co-creation sustainability
management and the active participation of the Group’s human assets.

Priority Item (1)Medium-term management plan policy
In the“YMFG Medium-Term Management Plan 2022 - Co-Creating a Bountiful Future for Our Region,”with the cornerstone of management being based on the mission and meaning of existence (Purpose)of the Group,“Co-Creating a Bountiful Future for Our Region,”we have positioned the plan period (fromthe fiscal year ending March 31, 2023 to the fiscal year ending March 31, 2025) as a“three year period
to push forward with regional and customer-oriented business activities”as“Team YMFG,”towards the
improved sustainability of our region and YMFGBased on the Purpose, we will implement the five priority items, promote“improving thesustainability of the region”and“building a sustainable business model for YMFG,”hold the objectiveof realizing“a regional value-up corporate group that is chosen by our region and responds to the trustof our region,”which is what the Group should become in the future (Vision), and will meet the
expectations of our stakeholders.

Promotion of regional co-creation
sustainability management
Work to resolve the issues facing
society through business,
contributes to the improved
Pursuit for the“maximization sustainability of the region

Priority Item (3)Priority Item (4)of value provided to ourregion and customers”

Challenge to“expand
business areas andstrengthen profitability”

Accelerate sales activities truly
from the perspective of ourregion and customers throughthe diversification and improved
quality of services, as well as thestreamlining of business
operations

Positioning of the medium-term management plan

Priority Item (5)In order to progress and grow together with everyone in the region, we contribute to the realization of a sustainable society

Init ia t ives f o r
revit a liza t io n of l o c a l
co mm unit y a n d
eco no m ie s

In i ti a ti v e s f o r t h e
p r e s e r v a ti o n of t h e
e n v i r o n me n t

Initiatives for the job
s a t i s f a ct i o n o f a lle xe cu t i v e s a n d
e m p lo ye e s

I n i t i a t i v e s f o r b u i ld i n g a
s o li d m a n a g e m e n t
foundation

Positioning of this medium-term management plan

31

Strengthening of the governance and internal control system
Improve soundness and pursue business operations that are trusted
by our region and stakeholders

by working on the resolution of various issues and improving the value of the region, through our various business activities

Mat e r i a l i t y s pe c i f i e d by t h e C om pa ny ( f our them es f or our initia tiv es )Promotion of the active
participation of theGroup’
s human assets
Co-create an environment inwhich employees can play activeroles, and strengthen the unity of
the Group

Towards the realization of“a regional value-up corporate group that is chosen by our region andresponds to the trust of our region”

G r ou p Sus ta ina bil ity Pol ic y

Priority Item (2)Make use of the business baseand resources of our banking
business, and take on challenges
in areas that contributes to thecreation of new value

Target management indicators◦In the final fiscal year of the medium-term management plan (the fiscal year ending March 31, 2025),
we are aiming for an ROE of around 5.0% and net income of ¥33.0 billion, which will be our highest eve.
Fiscal year ended
March 31, 2022
(actual results)

Fiscal year ending
March 31, 2023

Fiscal year ending
March 31, 2024

Fiscal year ending
March 31, 2025

Ordinary profits¥(7.6) billion¥25.0 billion¥35.0 billion¥47.5 billion

Net income¥(13.0) billion¥17.0 billion¥24.0 billion¥33.0 billion

ROE

A three year period to push forward with regional and customer-oriented business activities

ー

2.7%

3.7%

Around 5%

as“Team YMFG,”towards the improved sustainability of the region and YMFG

Revised OHR (excluding
gain on cancellation of
investment trusts)

66%

65%

62%

Around 60%

Targeted direction

Total equity ratio

12.65%

Around 12%

Aiming to“improve the sustainability of our region”and to“build a sustainable business model for YMFG”

Dividend payout ratioーAround 40%

YMFG Integrated Report 2022

32

Management Letter

Priority Item (1)About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Promotion of Regional Co-creation
Sustainability Management

Group Sustainability Policy

Materiality identification process

YMFG has formulated the“Group Sustainability Policy ”with the objective of being a corporate groupthat contributes to the“improved value of the region,”and as a policy that allows for intent to beshared across the whole group.
We will endeavor to develop the region and to create a future through the conducting of businessactivities based on this policy.
In addition, by promoting sustainability management, we will improve the link between thesustainable growth of the Group and the improvement of the value of the region, and furthermore, byenhancing the disclosure of information, we will build a long term relationship of trust withstakeholders.

- Group Sustainability Policy -YMFG has identified the ESG issues,“materiality,”as issues that should be particularly focused on, inorder to contribute to the realization of a sustainable society. Through our business activities, we will
actively work on the resolution of the following 12 items of materiality.

Select ESG
issuesOrganize ESG
issues by levelof importance

Identification ofmateriality

Discuss andapprove at the
management level

Select ESG issues
comprehensively frominternational guidelines,
etc.

Organize the level ofimportance of ESG
issues by mapping
based on the two axisof“level of importancefor society andstakeholders”and“level of importance for
the Group”

Identification of 12
items of materiality andinitiative themes basedon materiality

Discuss and approve
the identified
materiality at top
management levelboard meetings

In order to progress and grow together with everyone in the region, we contribute to therealization of a sustainable society by working on the resolution of various issues andimproving the value of the region, through our various business activities

Materiality
Sustainability promotion system

Through our business activities, we actively work on the resolution of the following 12 items of materiality.

・Objective
Management
supervision
Execution ofbusiness

Board of Directors

Group Executive
Management Meeting

By contributing to the improved
sustainability of the environmentand society, which is the foundation
for the business, we will accelerate
the promotion of sustainability
management which aims for thesustainable growth of the Group’sbusinesses.

・Overview

Sustainability Promotion Committee
Chair / President, Representative Director and CEO

Working groups by field

The Committee examines theannual plan and measures, etc.,with the objective of promoting
sustainability management,
conducts monitoring in order tocomprehensively ascertain thesustainability management
promotion activities, and also builds
a system for supervision at theBoard of Directors.

－－－Materiality related to businesses－－－

Initiatives for revitalization of
local community and economies(1) Respond to the declining population, declining
birthrate, and aging population(2) Create innovation in the region and support thegrowth of local industries(3) Strengthen cooperation with the local community(4) Improve the safety and quality of products andservices(5) Respond to the conservation of resources, andenergy saving and creation(6) Respond to air pollution and climate change(7) Develop environmentally friendly products andservices

Promotion of Regional Co-creation Sustainability Management ▶P33
Pursuit for the“Maximization of Value Provided to Our Region and Customers”▶P49
Challenge to“Expand Business Areas and Strengthen Profitability”▶P53－－－Materiality related to business foundation－－－Initiatives for the job satisfactionof all executives and employees

Initiatives for building a solidmanagement foundation(8) Cultivate human resources and create training
opportunities(11) Strengthen governance system and internal
control(10) Active participation of human resources(diversity and inclusion)(12) Improve transparency and accountability ofmanagement(9) Create a safe and secure work environment

Promotion of the Active Participation of theGroup’s Human Assets ▶P45
33

Initiatives for the preservation of
the environment

Strengthening of the Governance andInternal Control System ▶P57
YMFG Integrated Report 2022

34

Management Letter

Countermeasures to global warming and climate change(Initiatives for the TCFD Recommendations)YMFG has identified“respond to air pollution and climate change”as one of its“materiality,”regards
responding to climate change as an important management issue, and endorsed the TCFD
recommendations for a climate change information disclosure framework in December 2021.

The Group has established a“Sustainability Promotion Committee”that is chaired by the President,
Representative Director and CEO, and coordinates deliberation and progress management centrally for mattersrelating to sustainability, including climate change. Working groups for each field have been established under
the Committee, and a cross-organizational promotion system has been constructed.
In addition, the contents of deliberations at the Sustainability Promotion Committee, including the initiatives
relating to climate change, are discussed and reported to the Board of Directors as appropriate, upon discussion
at the Group Executive Management Meeting, and the Board of Directors has supervised these.

Strategy
The Group has identified the“response to air pollution and climate change”as a materiality, and in regard to
the risks (transition risk and physical risk) and opportunities associated with climate change, based on the extent
of credit exposure and level of impact on climate change, etc., identifies important sectors, and conducts
qualitative analysis.
The proportion of loans of the Group that is occupied by carbon-related assets* (electricity, gas, energy,etc.) is 4.97%, and in the future, we will proceed with multiple scenario analysis of the risks and opportunities to
the Group by climate change, and in addition, will make appropriate investment and loan decisions based onthe“Investment and Loan Policy Considering Environment and Society.”
In addition, we will further accelerate our initiatives for the provision of products and services, etc., towards
the realization of a sustainable local community.
* Carbon-related assets: The total amount of loans, payment approvals, foreign exchange, and private placement bonds, etc., for the energy sector
and utility sector based on the definitions of the TCFD recommendations (however, excludes water supply and renewable energy projects)

SectorMain evaluation items

Transition
risk

The risk of increases in credit costs due to deterioration in the financial conditions ofcustomers by increased operating costs, decreased asset values, large capital
investments, etc.

Market /technology

・Mixing of energy
・Change in customer behavior

The risk of increases in credit costs due to deterioration in the financial conditions ofcustomers by increased operating costs, decreased operating rate, large capital
investments, etc.

・Intensification of abnormal
weather

The risk of increases in credit costs due to an impact on businesses and financial
conditions of customers by the stagnation of business activities and occurrence ofproperty damage

・Carbon tax and carbon pricing
Government
・Respond to GHG emissions
Transition policy / law
regulations
risk
Market /・Change in customer behavior
technology
Physical risk

Risk
Transition
risk

Automobiles,
automotive
parts andlandtransportation

Market /technology

Market /technology

The risk of increases in credit costs due to deterioration in the financial conditions ofcustomers by increased operating costs, and an increase of construction costs,
remodeling costs, etc., for responding to energy conservation regulations
The risk of increases in credit costs due to deterioration in the financial conditions ofcustomers by decreased operating rates, decreased asset value, etc.
The risk of increases in credit costs due to an impact on businesses and financial
conditions of customers by the occurrence of property damage
The risk of increases in credit costs due to deterioration in the financial conditions ofcustomers by increased transportation and construction costs, decreased asset values,etc.

・Energy prices
The risk of increases in credit costs due to deterioration in the financial conditions of・Introduction of next generation customers by increased transportation costs, decreased operating rate, large capital
fuel ships (LNG ships, etc.)
investments, etc.
・Intensification of abnormal
weather・Carbon tax and carbon pricing
Government
・Respond to GHG emissions
policy / law
regulations

Physical risk
Opportunities

35

・Intensification of abnormal
weather・Carbon tax and carbon pricing
Government
・Respond to GHG emissions
policy / law
regulations

Physical risk

Transition
risk

Main risks to the Group・Carbon tax and carbon pricing
Government
・Respond to GHG emissions
policy / law
regulations

Physical risk

Shipping andshipbuilding

Management Foundation
Supporting Value Creation

Financial Section

Risk management
We are aware that the risks associated with climate change will have a significant impact on our business
operations, strategies and financial plans, and we have formulated an“Investment and Loan Policy Considering
Environment and Society.”Based on this policy, we will appropriately address investment and loan specificsectors that may have a significant impact on environment and society.

YMFG has formulated a“Sustainability Policy”and“Materiality,”and actively supports customers that are
engaged in initiatives to resolve various issues, such as initiatives for revitalization of local community andeconomies, and initiatives towards the preservation of the environment.
On the other hand, for investment and loan that carries significant risks on or which is highly likely to have anegative impact on the environment and society, we take initiatives towards the reduction and avoidance of an
impact on the environment and society by responding appropriately based on this policy.

◦Businesses that provide active support across sectors
We actively support the following businesses towards the realization of a sustainable environment and society.
1．Businesses that contribute to the initiatives for revitalization of local community and economies
2．Businesses that contribute to the mitigation of climate change towards the realization of carbon neutrality
3．Businesses that contribute to the preservation of cultural properties such as World Cultural Heritage Sites as well as
tangible and intangible cultural properties
4．Businesses that contribute to disaster prevention and disaster mitigation◦Businesses that prohibit investment and loan across sectors
We will not engage in investment and loan for the following businesses if we recognize that there will be risks or anegative impact on the environment and society.
1．Businesses that violate the Convention on International Trade in Endangered Species of Wild Fauna and Flora(Washington Convention)* Sufficient care will be paid to the reservations of each country

2．Businesses that have a negative impact on the Ramsar Convention on Wetlands
3．Businesses that have a negative impact on UNESCO World Heritage Sites
4．Businesses involving child labor and forced labor◦Policy on initiatives for specified sectors◦Risks and opportunities

Real estateBusiness Strategy
for Value Creation

Investment and Loan Policy Considering Environment and Society

GovernanceElectricity,gas, energy,
etc.

About YMFGThe risk of increases in credit costs due to an impact on businesses and financial
conditions of customers by the stagnation of business activities and occurrence ofproperty damage
The risk of increase in credit costs due to deterioration in the financial conditions ofcustomers by increased transportation and manufacturing costs, decreased asset
values, etc.

The risk of increases in credit costs due to deterioration in the financial conditions of・Energy prices
customers by increased transportation costs, decreased operating rate, large capital
・Introduction of electric vehicles
investments, etc.
・Intensification of abnormal
weather

The risk of increases in credit costs due to an impact on businesses and financial
conditions of customers by the stagnation of business activities and occurrence ofproperty damage

・Increase financial and non-financial business opportunities in conjunction with the growth of industries related to the regional environment towards thetransition to a carbon free society
・Increase financial and non-financial business opportunities to support our customers’ response to climate change and efforts to become carbon neutrality
・Increase financial and non-financial business opportunities to support the strengthening of the disaster prevention system and the expansion of facilities ofcustomers in response to the intensification of natural disasters

We make appropriate investment and loan decisions based on the following policies for sectors that have the potentialof having a significant impact on the environment and society.
1．Coal-fired thermal power generation
It is said that coal-fired thermal power generation produces higher emissions of greenhouse gases and air pollutants
than other forms of power generation, and it may increase concerns over climate change and air pollution. We will
not provide investments and loans that involve the new construction of coal-fired thermal power plants or the
expansion of existing such power plants.
However, in the case of transitioning to high efficiency coal-fired thermal power generation through the use of newtechnologies such as CCUS (technology that makes use of separated and stored carbon dioxide), we will consider
this on a case by case basis.
2．Development and manufacture of inhuman weapons such as nuclear weapons, cluster bombs, etc.
The international society recognizes nuclear weapons, cluster bombs, biological and chemical weapons, andanti-personnel landmines as being of great humanitarian concern.
In consideration of the inhumane nature of these weapons, we will not invest or provide loans for businesses forwhich the purpose of funds is the manufacture of such inhumane weapons.
3．Development of palm oil plantations
Although palm oil is a vital raw material for daily life, the development of palm oil plantations may have a major
negative effect on the environment and society because of the impact it has on biodiversity and climate change dueto the logging of natural forests and the burning of peatlands, as well as issues of child labor, human rights violations,etc.
In the event of considering financing initiatives for palm oil businesses, we carefully check the implementation statusof the customer’s environmental and social considerations, as well as participation in international certifications such
as RSPO (*1).
4．Large scale deforestation
Large scale deforestation has a negative impact on biodiversity and ecosystems, and may cause various issues,
including a negative impact on climate change due to a decline in the carbon dioxide absorption and storage
functions. When considering investment and loan for businesses involving large scale deforestation, we carefully
check the acquisition status of international certifications such as FSC, PEFC, etc. (*2), as well as the status of theirconsideration of the environment.
*1 RSPO certification: the“Roundtable on Sustainable Palm Oil (RSPO), an international certification system that has the objective of the sustainable production and useof palm oil, as well as addressing issues surrounding palm oil*2 PEFC certification: the Programme for the Endorsement of Forest Certification Scheme (PEFC) is one of the international forest certification systems.
Characteristics: a framework for the mutual recognition of the forest certification systems in each country.

YMFG Integrated Report 2022

36

Management Letter

Business Strategy
for Value Creation

About YMFGMetrics and targets

Management Foundation
Supporting Value Creation

Financial Section

The Yamaguchi Bank, Ltd.

GHG emissions

The trends in GHG emissions of the Group from the fiscal year ended March 2020 to the fiscal year ended March 2022 are
as shown below.
Scope 1（t-CO2）
3,500
2,885

3,000

2,852

2,802

Scope 12,000

GHG emissions for FY2022

2,802

1,000

1

Of which, sustainable finance

FY2032

Sustainable finance as
defined by the Group2 contributes to the environmental sector

670.0 billion¥

or the response to climate change

FY2032245.0 billion¥

Sustainable finance results (execution amount)

2,500

1,500

Sustainable finance target (cumulative execution amount)

1 Sustainable finance as defined by the GroupFY2018t-CO2¥

56.2 billion

FY2019FY202039.4 billion

44.5 billion¥¥

FY202159.2 billion¥

FY202299.8 billion¥

2 Of which, sustainable finance contributes to the environmental sector or the response to climate change

500

FY2018

0

2019

2020

26.2 billion

2021

¥

Scope 2FY2019FY202016.8 billion

20.4 billion¥¥

FY202124.7 billion¥

FY202266.8 billion¥

16,00014,00012,43512,000Momiji Bank, Ltd.

11,406
9,828

10,000

Scope 2

9,828

8,000
6,000
4,000

Sustainable finance target (cumulative execution amount)

GHG emissions for FY2022

1

t-CO2

0

2019

2020

FY2018The Group has set as long term goals for investment and loan that will contribute to the response to climate change:from FY2023 to FY2032 (ten years), targets for execution amount have been set for (1) sustainable finance as definedby the Group (*), and (2) of which, sustainable finance contributes to the environmental sector or the response to
climate change.
* The Group has defined investment and loan that will contribute to the resolution of environmental issues and social
issues, and investment and loan that will support efforts towards improved sustainability of customers, and the targetof these are as shown below.
: medical care, nursing care and welfare, education related
Industry
Use of funds : start-up related, business succession, renewable energy introduction funds, etc.
Products: private placement bond (donation type, with BCP formulation support service, etc.), sustainabilitylinked loan, green loan, social loan, etc.

Sustainable finance target (cumulative execution amount)

1.5 trillion

FY2032500.0 billion¥

114.0 billion¥

FY2020100.4 billion¥

FY2021139.3 billion¥

FY2022156.9 billion¥

2 Of which, sustainable finance contributes to the environmental sector or the response to climate change

41.3 billion¥

FY201935.7 billion¥

FY202032.9 billion¥

57.7 billion

FY201951.0 billion¥

FY202038.0 billion¥

FY202149.9 billion¥

FY202242.8 billion¥

2 Of which, sustainable finance contributes to the environmental sector or the response to climate change

FY2018¥10.8 billion

FY201912.0 billion¥

FY2020

9.5 billion¥

FY2021

13.1 billion¥

FY202214.8 billion¥

The Kitakyushu Bank, Ltd.

Of which, sustainable finance

FY2032

Sustainable finance as
defined by the Group2 contributes to the environmental sector

250.0 billion¥

or the response to climate change

FY203250.0 billion¥

Sustainable finance results (execution amount)
FY2018

1 Sustainable finance as defined by the Group37

205.0 billion¥

1 Sustainable finance as defined by the Group

Sustainable finance results (execution amount)
FY2019¥1

Of which, sustainable finance2 contributes to the environmental sector¥
or the response to climate change

FY2032

Sustainable finance as
1
defined by the GroupFY2018or the response to climate change

Sustainable finance target (cumulative execution amount)Yamaguchi Financial Group, Inc.

147.1 billion

580.0 billion¥

FY2032

1 Sustainable finance as defined by the Group2021

Sustainable finance¥2 contributes to the environmental sector

Sustainable finance results (execution amount)

2,000

FY2018

Of which, sustainable finance

FY2032

Sustainable finance as
defined by the GroupFY202144.6 billion¥

FY202284.7 billion¥¥

33.1 billion

FY201923.4 billion¥

FY202017.9 billion¥

FY202130.1 billion¥

FY2022

14.1 billion¥

2 Of which, sustainable finance contributes to the environmental sector or the response to climate change

FY2018¥4.2 billion

FY20196.8 billion¥

FY20203.0 billion¥

FY2021

6.6 billion¥

FY202230.1 billion¥

YMFG Integrated Report 2022

38

Management Letter

Sustainability initiatives

3

Promotion of initiatives towards the realization of carbon neutrality
YMFG ZONE PLANNING CO., LTD. is further strengthening efforts towards the realization of carbon neutrality in
2050, while working together with various private sector partners.
The Company provide further support for the efforts towards decarbonization that are being conducted by
the local governments, and develop effective activities through collaborations with partners who agree with ourefforts, so as to meet the wide-ranging needs and expectations of everyone in the region.
Going forward, we will promote a virtuous cycle for the regional environment, economy and society, by
promoting structural reforms and innovation for economic growth, through initiatives that will contribute tocarbon neutrality.

In the YMFG area, we work with partners such as the local government,
financial institutions and core companies to promote a virtuous cycle for theregional environment, economy and society towards carbon neutrality.
Electricity, gas and oil business
operators
・Secure energy infrastructure
・Use sales networks and know-how

Public facilities, schools andhospitals

・Solar power for self-consumption,
conversion to ZEB and conversion towooden construction

Retail stores

・Granting points for CO₂ reduction
・Reduction of food waste andcollection of old clothes

Active participation byregional revitalizationcompanies, regional
financial institutions,
local governments, corecompanies, etc.

Chamber of commerce andindustry, and small andmedium-sized enterprises

・Invest in energy conservation andrenewable energy
・Respond to supply chains

Transport facilities,
transportation and tourism
business operators
・Electric vehicle sharing andcharging infrastructure
・Sustainable tourism

Agriculture, forestry andfisheries operators, andagricultural corporations

Building contractors andconstruction services shops

・Farming solar power generation andsmart agriculture
・Forest maintenance・ZEH and ZEB, insulation repair
・Rooftop solar power

SupportYamaguchi area, Hiroshima area and Northern Kyushu area

Centers for global warming, energy conservation
centers, universities, and research institutions, etc.

* Prepared by YMFG ZONE PLANNING CO., LTD. based on the Roadmap for Local Decarbonization (Draft) (Summary) at the meeting of the Council for National andLocal Decarbonization held in June 9, 2021
Website of the Cabinet Secretary: http://www.cas.go.jp/jp/seisaku/datsutanso/index.html (available in Japanese only)◦Main initiatives
1

Ministry of the Environment’s Project for the Platform
for the Creation of a Circular and Ecological Economy(from June 2021)

Ministry of the Environment x
RENOFA YAMAGUCHI x YMFG
(from November 2021)<Platform formation and operation support><Collaboration with various partners>

Regional platforms are being formed with the Company,
Jinsekikogen Town, and three local companies acting as
the platform operating body.

Based on the cooperation agreement that has been enteredinto between the Ministry of the Environment and a
J-League club and a financial institution, we are working on
the development of initiatives towards the creation of stateof the art examples ahead of the rest of the country inregard to carbon neutrality, circular economies, thepromotion of transition to a decentralized society, etc.,
starting with thepromotion of Local
SDGs in Yamaguchi
Prefecture.

Forestrybusiness
operators(unions)
Regional
financial
institutions▶Image of a “regional platform”
constructed throughenvironmental improvements

Agriculturalbusiness operators(organizations)

Local
companies

Supportingorganizations

39

2

YMFG ZONEPLANNING
CO., LTD.

Jinsekikogen
Town

Companies
partnering withthe town

Academic
institutions

Regional
residents

Neighboring
local
governments

Variousbusiness
operators

About YMFGBusiness Strategy
for Value Creation

Participation in the Osakikamijima Town Zero
Carbon Promotion Plan Meeting(from December 2021)

4Management Foundation
Supporting Value Creation

Financial Section

Participation in the Tokuyama-Kudamatsu Port
Carbon Neutral Port Study Group(from August 2021)<Support for plan formulation><Participation in the study group>

In order to promote the regional renewable energy
businesses that are rooted in the region, we are working
together with the local governments and regional parties to
examine sustainable initiatives, including plans for the
introduction ofrenewable energy
facilities that aresuitable for the region,
the formation of aconsensus with
regional residents, etc.

We examine next generation energy demand and utilization
policies towards making Tokuyama-Kudamatsu Port a
carbon neutral port.

Source: website ofOsakikamijima Town

5

Participation in the Green Society Promotion Study
Group of Yamaguchi University(from December 2021)(Contents of activities)◦Examination of the ideal form for Tokuyama-Kudamatsu Port asa new energy supply
base port, and the
direction of initiatives◦Examination ofpotential demand forhydrogen and ammonia◦Examination of workwith other ports, etc.

6Commission of basic research towards therealization of a decarbonized society in the region(from August 2021)<Participation in study group><Survey and examination work>

We contribute to the realization of carbon neutrality in theregion by forming networks for companies, local
governments, industry support organizations, universities,
etc., exchanging information, and promoting new researchand development, etc., between companies or throughcollaboration with business, academia and the public
sector. This study group hasseven subgroups which aim tocreate a new green local
community system.

We provide support for the formulation of plans towards
the realization of a decarbonized society, engage in new
initiatives towards the promotion of the creation andformation of projects, and aim to improve the know-how of
the public and private
sectors and to create
new businesses related
to decarbonization.

Source: website of Yamaguchi University(Contracted in 2021: Kure City)

Selected for the Ministry of the Environment’s“Project for the Platform for the Creationof a Circular and Ecological Economy,”and engagement in initiatives in Suo-oshima Town
YMFG ZONE PLANNING CO., LTD. was selected as the“Organization Engaged in Initiatives to Create a Circularand Ecological Economy for the Construction of the Platform for the Creation of a Circular and Ecological
Economy”sought from the public by the Ministry of the Environment.
The initiatives of this project involve a partnership with Yamaguchi Prefectural Suo-oshima Senior HighSchool for building an ESD* learning model that cultivates the next generation of players who will contribute to
the resolution of regional issues, and for promoting ecotourism in cooperation with local organizations throughthe use of natural resources.
* ESD: Education for Sustainable Development◦Background of the initiatives
The Ministry of the Environment is promoting the formation of the Circular and Ecological
Economy (Local SDGs) as an effort for the creation of the sustainable region, and is
supporting the construction of platforms in each region. In response to this selection, thecontents that we have developed are being used to promote the construction of an
educational model that will link to the resolution of regional issues and the cultivation of
the next generation of players.

◦Promotion of ecotourism
In partnership with organizations that are working to preserve our rich natural resources,
such as Alveopora Japonica that grows in colonies in the waters of Suo-oshima, we support
the promotion of ecotourism that makes use of the natural resources in Suo-oshima Townby building a mechanism of a cycle of creating a chain of various initiatives such as thecultivation of the next generation of players and the cooperation with companies fromoutside of the town, preserving regional nature and using resources effectively, anddeveloping players through our activities.
* Through this selection, YMFG ZONE PLANNING CO., LTD. will be registered as the Ministry of the Environment’s
Organization with Circular and Ecological Economies.

YMFG Integrated Report 2022

40

Management Letter

Execution of a comprehensive industry-government-academia partnershipagreement between Shimonoseki City, Karato Shotenkai Cooperative Association,
Coco Harete Co., Ltd. and Keio University Graduate School of Media Design
YMFG ZONE PLANNING CO., LTD. has entered into a comprehensive industry-government-academic partnershipagreement with five parties, namely Shimonoseki City, Karato Shotenkai Cooperative Association, Coco HareteCo., Ltd. and Keio University Graduate School of Media Design, with the objective of the promotion ofcommerce and industry and the revitalization of the region. We will promote the improved attractiveness ofregional resources, the creation of new value, and the realization of a rich lifestyle in the region, as well as thecultivation of an enterprising spirit, and urban development that facilitates the taking on of challenges. In orderto revitalize the Karato area of Shimonoseki City, we plan to conduct social demonstrations throughindustry-government-academic partnerships through the use of the Karato shopping district as the demonstration
venue.
(1) Matters relating to the revitalization of Shimonoseki City
(2) Matters relating to support for the start of businesses, thecreation of new businesses and the continuation of businesses(3) Matters relating to the cultivation and education of humanresources that will be active in the region(4) Matters relating to the promotion of regional production forregional consumption, the promotion, expanded sale routes
and promotion of the sale of goods produced in the region(5) Matters relating to the promotion of tourism(6) Matters relating to the creation of regional brands(7) Other matters deemed necessary for the achievement of theobjectives of the agreement

Establishment of a space for start-up communities on the campus of Yamaguchi University
YMFG ZONE PLANNING CO., LTD. and YAMAGUCHI CAPITAL Co., Ltd. have opened on the university’s campus
the start-up community space “Fun Fun Salon” as an initiative for the development business for start-up humanresources who will resolve issues of the region and companies in partnership with Yamaguchi University.
Until now, we have worked together on initiatives that support the launch and growth of regional start-ups,
including the establishment of the investment fund,“Fun Fun Drive Limited Liability Partnership,”which mainly
invests in current students, faculty members and graduates of Yamaguchi University, and the establishment of a
“Venture Business Support Office”for the provision of various forms of support, consultation on intellectual
property, the dissemination of information, etc., concerning start-ups within Yamaguchi University.
“Fun Fun Salon” is a venue that provides the opportunity to learn about businesses and regional companies
through lectures on basic knowledge and methods for the construction of business and the provision of businessidea creation projects, and which cultivates the creativity, problem solving skills and ability to take action of
students.
<<Overview of Fun Fun Salon>>Open : the third Wednesday of every month from 10:00 to 17:00(excludes during long breaks): employees of YMFG ZONE PLANNING CO., LTD. and
Staff
Yamaguchi Capital Co., Ltd.
Venue : Yoshida Campus (the student lounge facing the first floor of
the Common Education Lecture Building)Tokiwa Campus (the lounge on the first floor of the Welfare
Building)

41

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Tanga Market Restoration Project From FireIn the early hours of April 19, 2022, the Tanga Market in Kokurakita-ku, Kitakyushu City, which is familiar to thecitizens as a kitchen and has a history of over 100 years, was hit by a large fire that destroyed more than 40
stores. With the objective of recovering from this fire, KAIKA Corporation, a crowdfunding company of YMFG,
launched the“Tanga Market Restoration Project From Fire,”organized by the“Kokura Central Commercial
Federation,”and the project was supported by many people and received approximately ¥55 million, anamount that greatly exceeded the goal.
All of the proceeds are being used to support recovery (removalof debris, etc.) in Tanga District (Tanga Market Shopping Street,
Shintanga Neighborhood Association and Uomachi Green Road
Cooperative Association).
In addition, The Kitakyushu Bank, Ltd. assisted with the launch ofthis project, and donated ¥5 million to help with the restoration.
We would like to extend our deepest sympathies to all those
who have been affected by the fire in the “Tanga District,” and hopethat the disaster will be recovered from as soon as possible.

Tanga Market Restoration Project
From Fire
Kitakyushu City, Fukuoka Prefecture

Provision of“Local SDGs”educational contents to the Ministry of Economy, Tradeand Industry’s“STEAM Library,”and promotion of ESD that utilizes the contents
YMFG ZONE PLANNING CO., LTD. develops and provides for the Ministry of Economy, Trade and Industry’s“STEAM Library” educational contents with the objective of the development of regional human resources whowill take on the challenge of the construction of a “Circular and Ecological Economy (Local SDGs).”
Development of the contents is being performed as part of the 2021 “Future Classrooms” project of the
Ministry of Economy, Trade and Industry, and YMFG ZONE PLANNING CO., LTD. is the only financial institution
to have been selected as a content producer. The produced contents will be used to promote ESD (Educationfor Sustainable Development).

Contents

In addition to learning about how to build a “Circular and Ecological Economy” that aims to implement the SDGs
in the region, it is the contents that considers what should be done in order to overcome the tradeoffs and tosolve various environmental, societal, and economic issues at the same time.

Use of the Contents

In the demonstration project of the Ministry of Economy, Trade and Industry’s 2020 “Future Classrooms,” theCompany participated in inquiry and project-based learning through the creation of a curriculum thatincorporates an economic perspective for the
resolution of regional issues, and the use of the“Comprehensive Inquiry Time” class at Hiroshima
Prefectural Hatsukaichi High School. The efforts of said
school were awarded the “7th Hiroshima Prefecture
UNESCO ESD x SDGs Grand Prize, Hiroshima University
Faculty of Education Dean’s Award.”
These developed contents are on the topic of thecreation of a circular and ecological economy, andtheir actual use in educational settings, in partnershipwith the local governments and educational
institutions such as high schools, are being promoted
as an initiative that will contribute to ESD.

YMFG Integrated Report 2022

42

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Initiatives to improve regional value through investment in start-up companies

The Yamaguchi Bank, Ltd. women’s handball team, “YMGUTS”

YMFG mainly invests in start-ups that are working to resolve issues of society as a whole, and has the objectiveof creating new industries, solving regional issues, and growing the regional economy by growing together withthese start-ups.

In April 2018, YMGUTS was formed with the wish to revitalize the region through sports while working in theregion, making use of the regional characteristics of eastern Yamaguchi Prefecture, where handball has
traditionally been popular. Most of the team members are employees of The Yamaguchi Bank, Ltd., work
full-time, and train hard after work. Through the activities of athletes who achieve a balance between work andsports, we are aiming to be a good model for the promotion of sports in the region and the ways in which
women work.

Cumulative performance 51 cases / ¥3.4 billion

Investment performance for FY2022 19 cases / ¥1.1 billion

Aim of
YMGUTS◦SmartScan, inc.
The company has a vision of creating a disease-free world, and aims to spread preventive medicine through theuse of technology.

・Establish a team that is loved by the local community, and serve as a good model forachieving a balance between sports and work and the ways in which women work.
・Build a local community through handball, and develop the multi-generational interactions
and the younger generation
・Contribute to improved competitiveness in handball and the promotion of regional sports,
and to the establishment of healthy lifestyles with “YMGUTSxα.”

Main initiatives

By partnering with the company to spread in the region its low-cost
self-diagnostic brain checkup service that can be easily used by anyone, we will
support healthy community development and lifestyles.

◦vivid garden Inc.
The company provides the farm to direct mail order site “TABE CHOKU,” on which fresh ingredients can bepurchased directly from producers across the country.
Through the provision of this service, it is aimed to realize a society in which
the commitment of producers is properly rewarded and where even small scale
producers can make profit, and YMFG is working to spread this service inpartnership with the company.

◦Contribute to the promotion of sports through the management of a teamDevelop a wide range of activities in order to improve competitiveness and to form a variety of communities,
through the provision of support for the operation of tournaments in various categories and the holding ofhandball classes◦Develop activities that will convey to children and students awareness of working hard towards their dreams,
while having a professional awareness of handball and work
Business trip GUTS (visits to local elementary and junior high schools)◦Participate in regional events and develop activities that bring prosperity together with the region
Engaged in joint research with YAMAGUCHI DENTAL ASSOCIATION regarding the effects of wearing mouth
guards and gum shields on sports performance.
Appointed as tourism ambassador for Yuno-onsen (Shunan City) and engaged in initiatives in partnership with
regional business operators in order to conduct PR for the onsen Introduced various contents in partnershipwith Shimonoseki City to promote outdoor activities in the city

YMGUTS performance◦Won the 73rd Japan Handball Championship, Chugoku Region Preliminary Round in November 2021
◦Best 16 in the 73rd Japan Handball Championship in January 2022
◦8th Place in the Takamatsunomiya Trophy 10th All Japan Amateur Championship in June 2022

Introduction of environmentally friendly electric vehicles
As the movement towards decarbonization accelerates both in Japan and overseas, The Yamaguchi Bank, Ltd.
started to introduce next generation electric vehicles, which have a lower environmental impact, in July 2022,
and is engaged in efforts to reduce CO2 emissions.

Vehicle10 ultra-compact electric vehicles (Toyota C+Pod) CO2
reduction effect: annual emissions reduced by about
65% (reduced by approximately 6,819 kg)

Introduction
Head office of The Yamaguchi Bank, Ltd.
location
Upon the establishment of infrastructure for power
supply equipment in store parking lots, we plan toreplace all company vehicles with environmentally
Future plans
friendly electric vehicles by 2030, which is around thetime at which the currently used vehicles are scheduled
to be replaced.

43

All Japan Amateur Championship (June 2022)

Handball instruction (March 2022)

Business trip GUTS (July 2021)

Tourism ambassador for Yuno-onsen inauguration
ceremony (June 2021)(Toyota C+Pod)

YMFG Integrated Report 2022

44

Management Letter

Priority Item (2)About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Promotion of the Active Participation of
the Group’s Human Assets

The Group is working together to create an environment and opportunities that will allow for each
employee to play an active role, and by transforming the organizational culture (behavioral patterns) byhaving each individual employee grow in a manner that gives him/her satisfaction, we are working as agroup to “maximization of value provided to our region and customers” and “create new value.”

Towards the securing of diverse human resources
With the objective of becoming an organization atwhich business can always be created with a sense of
speed, we are actively and continually recruiting andappointing diverse human resources, including women,
foreigners, mid-career hires, alumni and people withexperience of external secondments. We arepromoting initiatives such as the creation of a work
environment that maximizes the characteristics andabilities of these people, and the training of the
management level.

◦Ratio of females inmanagement
positions

15.0%◦Ratio of management
positions of diverse
backgrounds

25.0%

or moreJuly 2022

or more

5.9%

3.0%
2031

July 2022◦Expansion of the number of staff with side jobs
After ending the ban on side jobs in April 2019, for the further
development of employee careers, the improvement of skills and thereturn of skills to the region, we relaxed the rules on side jobs in January
2021, and we now have 23 employees who are engaged in side jobs.
Summaryof therelaxation

Initiatives towards the promotion of diversity and inclusion

2031

Initiatives to encourage the active participation of women◦Female Corporate Sales Job Trial
Since February 2022, we have been implementing the “Female Corporate Sales Job Trial” to support the careerdevelopment of female employees and to have them play an active role in corporate sales.
We seek female employees who would like to work in corporate sales, and while they actually work forcustomers, they obtain knowledge on business feasibility evaluations, credit ratings, finance, etc., and are given
on-site OJT guidance.
◦Pre-promotion training for female managers
Since March 2022, we have provided pre-promotion training for female employees who are being promoted tothe management positions, with the aim of encouraging them to take a step up in their careers.

1. End the prohibition of side jobs outside of regular working hours (including
holidays)
2. End the prohibition of side jobs for department heads
3. End location restrictions for side jobs

Towards the realization of diverse career paths and working methods for employees
We are engaged in a range of initiatives in order to ensure that our employees are highly motivated and torealize diverse career paths and work styles.

◦Side job system◦Short-time work system◦Childcare and nursing
care leave system◦Opening of on-site
childcare center◦Return to work system◦Implementation of
teleworking

45

23

people* As of the end of May 2022

Partner system

Flextime system

Telework system

Designation of work
location as spouse’s
work location

Work hours being
determined by
employees themselves

Preparation of work styles that are
not bound by location and a work
environment that allows for diverse
employees to play an active role

Cumulative number of users

Usage rate

Potential users

83

people52%* As of the end of May 2022

* As of the end of May 2022

All employees otherthan counter andback office workers

Promotion of the activities of human assets who embody regional co-creation
Through the return of human assets to regional companies, we are aiming to build new relationships
between companies suffering from a lack of business creation awareness and knowledge and YMFG’s
employees who would like to take on new challenges and places of work, and are aiming to revitalize
the regional economy.

Revitalization of the regional economy by returning YMFG’s employees
to regional companies❶Apply by employees who aspire
to revitalize the regional economy
and want to take on challenges

Examples of initiatives for the realization ofdiverse working styles for employees

Cumulative number of users◦Partner system / flextime system / telework system

Regional human assets platform◦Flextime system

Financial Section

Spreadwithin YMFG
❹Return to YMFG, andmake full use of theexperiences gained at theregional company❷Implement thenecessary skills throughtraining❶
Internal
postings❷
Implementationof skills❹
Internal
return❸Return to
the region

Elimination of the shortage ofcore human assets at regional
companies
Sending YMFG’s employees toregional companies, that are
dealing with a shortage ofcore human assets, andsupporting their growth
Expand the fields of activityof YMFG’s employees❸Support the company’s
growth from the inside
as human assets that
embody regional
co-creation

We provide training toemployees who aspire to
revitalize the regional
economy that will give themthe skills required of corehuman assets, and support
them as human assets who
embody regional co-creation

YMFG Integrated Report 2022

46

Management Letter

Development of human assets for maximization of value provided
to our region and customers
Realization of an organization that places value in dialog - one-on-one meetings
Towards the realization of “the creation of an organization thatvalues opportunities for the growth and self-realization of all
employees” as well as an “organization that values dialog,” inDecember 2021, we started to hold “one-on-one” across theGroup.

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Development of DX human resources
Development of human resources
When promoting DX, we focus on the development of DX human resources by providing opportunities to learn
digital skills through the development of new skills for many employees, not just the members of the information
systems department.

Development target (by the end of fiscal year ending March 31, 2026)
DX core human:resources*

Creation of opportunities for human resource development and training - doubling
the investment in human resources development
From the fiscal year ending March 31, 2023, we have decided to double the investment in human assets
development, including training in line with the strategies described in the Medium-Term Management Plan
2022, compared to the fiscal year ended March 31, 2022, in order to contribute to the “development of humanresources and the creation of training opportunities,” which is one of our identified materiality. In addition, by
designing a new curriculum for roughly 60% of the entire training curriculum for the fiscal year ending March 31,
2023, we will ascertain the internal and external environment, and promote the career development of ourdiversifying employees.

5% of all employees* Human resources who have expertise in the transformation ofbusiness models, the creation of new products and services, andthe digitalization of internal work, and who are able toindependently proceed with work relating to digital DX

DX basic human:resources*

90% of all employees* Human resources that utilize IT / digital tools, while understanding
their impact, etc., on the company, based on the importance ofthe customer experience and the trends in digital technology, andwho have an interest in digital and a sound sense of crisis◦DX human resource development cycle: repeating the cycle annually
STEP 0: Definition of DX human resource skills

Lv.4 Core human resources

Set the definition for the expected roles and skills levels bylayer.

Lv.2 DX human resource reserve

Lv.3 DX core human resources
Lv.1 DX basic human resources

Development of next generation leaders
From the fiscal year ended March 31, 2020, we
have conducted the “Junior Board Program” withthe objective of “the development of young humanresources who may become candidates for
executive positions in the future.” Discussions, etc.,
are held regarding matters that require managerial
decision making between the 10 selected
employees, who are trained to think from amanagement perspective, and at the same time,such discussions, etc. are used at management
meetings, etc. as their diverse opinions.

◦Ratio of males and females
selected to participate in
the training program fornext generation leaders* The number of employees who
participated in the program and havebeen promoted to officer positions
within the Group as of the end of
March 2022

4

Female23%

Cumulative
number ofparticipants: 30
Male
77%

people (13%)

Development of highly creative employees and fostering an organizational cultureoriented towards value creation - in-house new business proposal system
From the fiscal year ended March 31, 2022, we have implemented the “YMFG Growth,” internal new businessproposal system, with the objective of the “development of highly creative employees” and “fostering anorganizational culture oriented towards creation of new value.” We have built a support system that is notbound by employee background through having external experts provide accompanying support (mentoring)from the project formulation stage towards the creation of new business.

STEP 1: DX assessment
By implementing DX skill assessments, we ascertain the current
status of the digital skills of all employees, and plan measures forthe development of digital human resources that are suitable foreach level and issue.
Individual reports

Lv.4

0

0

1

2

Lv.3

0

1

0

2

Lv.2

4

3

6

8

Lv.1

9

1

2

1

A Dept. B Dept. C Dept. D Dept.

Organizational reports

STEP 2: DX human resource development plan
We review whether or not the contents of the training are in line withthe respective skills levels and the issues facing the Company.

STEP 3: Implementation of DX humanresource development
The performance of training and measures at each level andthe strengthening of basic skills leads to the enhanced
profitability of core business.

Strengthen the profitability ofcore businessCorporation

Retail[Digital human resource development area]
Strengthen basic skills- Foundation for enhanced profitability -47

YMFG Integrated Report 2022

48

Management Letter

Priority Item (3)Financial Section

Introduction of new products to respond to SDGs and ESG

We contribute to the development of regional companies and the improved sustainability of theregional economy through the provision of solutions based on business feasibility assessments thatmake use of the comprehensive strengths of the Group in response to various issues and needs atregional companies.

Support for the dramatic business revitalization and regrowth of business operators
The Group supports initiatives towards the revitalization andfurther growth of our customers.
We have built a business support system in which adiverse range of group companies, which is one of thestrengths of YMFG, work together to thoroughly discussbusiness revitalization and regrowth for customers that inurgent need of business improvement, determine thedirection, and pursue synergy as Team YMFG.

Improved credit rating*1

Cumulative total of 150
or more customers*2

Improvement of customer sustainability
Demonstration of group synergy
Revitalization
Council
Nishiseto Regional
CO-creation Servicer Inc.

YM CONSULTINGCORPORATION

Regional
ﬁnancial
institutions

YAMAGUCHICAPITAL Co., Ltd.

Tax
accountants*1 Improved rank target: revitalization support recipients andadditional recipients*2 Plan for the period from April 2022 to March 2025

Lawyers
YMFG ZONEPLANNING CO., LTD.

YM Career Inc.

External
companies(real estatecompanies, etc.)

Nationwide development of “Search Fund” model“YMFG Search Fund” has the objectives of inviting searchers (talented young managers) to the region, solving
business succession issues for regional companies, as well as diverse social issues, including the depopulation of
the region and the lack of young human resources, and realizing corporate growth and transformation. Since theestablishment of the fund in 2019, investment has been made in eight searchers, and five business successions
have been realized.
In response to these successful cases, we have established the “Regional Future co-creation Search Fund,”comprising of subsidiaries of the Group and four other regional banks. Going forward, we will expand thisscheme nationwide, connect companies that are struggling with a lack of successors to searchers with highmotivation towards management, and provide our full support.

49

Management Foundation
Supporting Value Creation

Pursuit for the “Maximization of Value
Provided to Our Region and Customers”

Corporate strategy

Candidates forcorporate manager
for urban areas(Searchers)

Business Strategy
for Value Creation

About YMFGRegional Future co-creation Search Fund

Regional
successor absentee
companies

Initiatives for sustainable loans

We handle sustainable loans that have a positive impact on ESG issues.
In December 2021, we entered into a loan contract with YASUNARI Co., LTD. (Shimonoseki City) for asustainability linked loan (SSL) with loan conditions that change according to the achievement status ofenvironment, social and corporate governance (ESG)-related goals, and this was the first loan of its kind in theprefecture.
In addition, we offer green loan, social loan, and sustainability loan as financing that supports sustainability
initiatives.

Improvement of regional sustainability through support for the launchof SDGs management
YM CONSULTING CORPORATION has started to offer an “SGDs management
launch support service” towards the spread of SDGs in the region and thepromotion of related initiatives.
After diagnosing the status of the customers’ SDGs initiatives and providing
feedback of them, we provide support for the formulation of their own “SDGs
Declaration.”
Until now, support for the formulation of an “SDGs Declaration” has been
provided for a total of 256 customers* across the Group.
* As of June 30, 2022

Launch of “support for the calculation of CO2 emissions”

YM CONSULTING CORPORATION has partnered with WasteBox Co., Ltd. (Nagoya City) to launch “support forthe calculation of CO2 emissions” as an initiative towards the realization of decarbonization management at
customers.
In the service, support (option) is provided for the calculation of Scope 1*1 and Scope 2*2, and SBT*3 application,
which visualizes CO2 emissions and leads to a reduction in CO2 emissions.
*1 Scope 1 : direct emissions of greenhouse gases by companies themselves*2 Scope 2 : indirect emissions associated with the use of electricity, heat andsteam that is supplied by other companies*3 SBT: greenhouse gas emission reduction targets that are consistent withthe levels required under the Paris Agreement

Support for overseas development
The Company provides support for the overseas development ofcustomers (overseas development advisory service), which makes
use of the Group’s overseas network.
In the overseas development advisory service, in addition tomarket research, we provide solutions for various issues that can be
expected to increase once overseas travel becomes possible again,
including the expansion of sales channels, searching for
manufacturing contractors and suppliers, and preparing for theestablishment of local subsidiaries.
In addition, as a trial to expand overseas sales channels, we
provide opportunities for trade negotiations with overseas suppliers
online every three months, and a cumulative total of 109 tradenegotiations have been conducted to date.

Number of cases supportedby overseas development
advisory service
59(cases)52

5
FY2020

FY2021

FY2022YMFG Integrated Report 2022

50

Management Letter

Retail strategy

Strengthening of FP power inaccordance with life events

Manual for
consulting methods

Prior toretirement

Person in chargeof asset manager

Person in chargeof loanConsulting sales inaccordance with life plan

Management Foundation
Supporting Value Creation

Financial Section

Improving convenience for customers through the utilization of digital

Under the background of the diversification of lifestyles, such as in terms of people’s values and working
styles, customer needs as well as thoughts and methods for selecting financial services are alsochanging. The Group, through the demonstration of its comprehensive strengths, responds to thediversifying needs of customers to perform planning that is tailored to each individual customer throughmeticulous consulting.
Organizational
knowledge andsophistication ofservices

Business Strategy
for Value Creation

About YMFG

Construction ofrelationships thatwill last for life

Prior to homepurchase

Customers

Prior toinheritanceStrengthening of
portfolio proposal
capabilities

We provide a “smartphone app” thatallows for account opening, transfers,
balance and deposit / withdrawal
statement inquiries, and other transactions
to be performed on a smartphone.
As the main bank in our customers’
pockets, we work to improve conveniencefor customers who use digital with the aimof improving the safety and quality of ourservices, so that customers can use various
banking services “easily,” “with peace ofmind,” and “enjoyably.”

Asset management
services for high net
worth individuals

YMFG Selection

Prior todeath

HOKEN HIROBA, Ltd.  YM Securities Co., Ltd.

YM LIFE PLANNING, Ltd.

YM Asset Management Co., Ltd.

▶The number of app users has increased
11 fold in the last two years▶We are aiming to double
this number again within
43.5
the next three years
Plan
33.5

65.0
54.0

Plan

Plan

11.8
3.0
FY2020

FY2021

FY2022

FY2023

FY2024FY2025◦Initiatives to expand functions
In addition to providing banking functions, we are continuously working on making improvements towards africtionless UI / UX and design that pursues “simplicity” and “easiness.”

Main functions

Three banks of the Group YM Credit Guarantee Co., Ltd.

◦Trends in app downloads◦Account opening, balance, deposit and withdrawal statement inquiries, bank transfers, payee
registration, fixe term and cumulative (balance inquiry, deposit and withdrawal), loan (balance
inquiry and partial early repayments), reporting loss and reissuance of passbooks, cards, etc.
◦Passbook memo function, switch to non-use of passbook, customer survey function,
recommendation function, design switch (in collaboration with local sports teams), link towelfare service (INESUS*)

Future expansion ◦Automated remittances of fixed amounts, transfer scheduling and opening of time deposit
accounts
of functions (plan) ◦Provision of FP consulting information* Smartphone app provided by INESUS Inc., a company of the Group

Sincere life planning proposals and long term accompanying support
We have built know-how in order to be able to make firm FP proposals in accordance with life events ofcustomers, and demonstrate the comprehensive strength of the Group to provide and propose services,
including home loans, insurance reviews, investment, various insurance, and private trust consulting, from theperspective of our customers.

Provision of personalized services
The smartphone app allows us to become a familiar point of contact with customers, and we provide services
that match the life events and needs of each individual customer.

◦Link to a cloud data platform to realize personalized proposals for customers

Asset management service

In addition, we propose portfolios for medium to long term asset building throughthe proposals of “YMFG Selection,” which is an asset management service that offersa carefully selected lineup of products through the combination of banking andsecurities. We are promoting “organizational knowledge” on FP consulting, and areengaged in efforts to consolidate know-how and knowledge, as well as to develop
human resources in order to improve the “FP power” of our employees to make theoptimal proposals to customers.

Cloud data platform(*)
Spreading information and raising awareness of private trusts

As the country proceeds towards becoming a super-aging society, countermeasures to the increase in dementia
sufferers and asset freezes have become social issues.
In order to ensure that customers are able to manage their assets smoothly, we focus on spreading
information and raising awareness of “private trusts,” in which property management is entrusted to a family
member, and also hold “family trust seminars” two or three times per month.

51

Number of private trust consultations forthe fiscal year ended March 31, 2022

214

cases

Number of private trusts established forthe fiscal year ended March 31, 2022

128

cases

A platform for the centralized
aggregation and analysis of
the major data dispersed incore banking and information
systems of banks of the Groupbuilt on cloud

Data management
platform

Personalizedrecommendations

Setting of recommendation
rules based on website
behavioral data and customer
attributes

We make appropriate
proposals to customers basedon the recommendation rules
on our own app and website* A proprietary database built on Microsoft Azure as a platform for the collection and accumulation, and use and analysis of financial data, data ofeach Group companies, as well as external and open data, etc.

YMFG Integrated Report 2022

52

Management Letter

Priority Item (4)Challenging to “Expand Business Areas
and Strengthen Profitability”

Regional co-creation strategy
The Group aims to create newvalue in the region by actively
arranging “regional ecosystems”
that resolve regional social
issues, creating them one after
another, and implementing
many ecosystems. The growthof existing business and thecreation of new business in theregional co-creation field will
accelerate the resolution ofregional issues, and realize thecreation of new industries forthe further growth of regional
co-creation businesses in major
areas.

About YMFGBusiness Strategy
for Value Creation

Further businessgrowthRegional

TradingCompany
Yamaguchi
YM CareerCo., LTD.
Inc.

YM-ZOPAs the frontrunner for comprehensive human resource consulting in the financial industry, we are engaged inefforts to improve regional value from a human resource perspective and to realize a sustainable society, andwe will continue to develop business support consulting for financial institutions as one of our businessexpansion measures. As efforts to support recruitment by regional financial institutions are one of the effectivemeans for promoting regional growth and resolving regional issues, many financial institutions work on
recruitment, and we aim to contribute together for the development of each region.

Major areas

Management leveland middle level
human resources referral
Secondary job and side job
human resources referral

Core humanresourcesin the Tokyo
metropolitan
area

Support to improve skills□Recurrent

YM-ZOP

Demonstration

Demonstration
businessoutsourcing

Policyrecommendation
Regional
demonstration
Central government

Local design

Examination area (collection of information)□Career consultant

Regional issues and needs

Commercialization

Consulting for regional banks□Human resources referral support consulting

Career development
supportOutside ofmajor areas

Creation of next generation
businesses that drive the region

Creation of
examplesLocal
governments/ SMEsDevelopments toother regions(Yamaguchi Prefecture, Hiroshima Prefecture,
Northern Kyushu)

Financial Section

YM Career Inc. (human resource consulting)

Resolving of regional issues
Further regional
revitalization INESUS Inc.

Management Foundation
Supporting Value Creation

Business
evaluation activities
as a ﬁnancial group□Reskilling

Support for humanresources management

Utilization of diverse
human resources□Payroll service□Labor management

Internal training□Level-speciﬁc training

Employment support□Job training

Support forrecruitment management□Recruitment management system

ministries

Regional Trading Company Yamaguchi Co., LTD.
YMFG ZONE PLANNING CO., LTD. (regional revitalization consulting)Through the promotion of public-private partnerships (PPP / PFI), we have actively worked on everything fromthe creation of projects to commercialization, including the planning and operation of regional platforms in key
areas of the Group. In the future, we will further strengthen the promotion of public-private partnership projects
through the introduction of the vitality of the private sector, such as in terms of public facilities and public
infrastructure, by using social impact bond (SIB) as a new approach, and we will realize initiatives that have amajor impact on the resolution of social issues in the region.

●Image of SIB Initiatives (long-term care prevention field)
Promotion ofparticipation insociety

Healthy elderly

Private business
operators(Companies, NPO, etc.)＄
Consumption
activities+

Existing business areas
Domestic distribution businessEC business

Overseas distribution businessNew business areas
Alliance business*

Social participation
historical
data
Third party evaluation
organizations

Hobbies

SportsVolunteering,work

Leading to the resolution of regional social
issues and aiming to revitalize the region
Localgovernments

Private funds＄
Business funds / Result reward＄

Result reward

Evaluation results◦The first public-private partnership method in Japan

Using “LABV,” we are engaged in a town development project for the development of multiple pieces of municipal land
in a chain, including the redevelopment of commercial and industrial centers and the use of a former bank branch in
Sanyo-onoda City, Yamaguchi Prefecture.

◦Towards increasing population involved in sports, we have worked with RENOFA YAMAGUCHI FC to implement theJapan Sports Agency’s “Sport in Life Promotion Project.”53

We established based on a collaborative concept with Yamaguchi Prefecture in order to support local producers
through the sale of products made in Yamaguchi Prefecture in the Tokyo Metropolitan area. It became a YMFG’sgroup company in April 2022, and in the future, it will promote the construction of alliances with business
operators that can expect scale through partnerships with their industry and synergies through partnerships withdifferent industries, and evolve into a “regional general trading company” that maintains and revitalizes
commercial flows while being involved across the entire regional value chain.

(Main business contents)(Main business contents)(Main business contents)(Main business contents)▪Support for sales channel
expansion▪Support for productdevelopment (branding)▪Support for improved
productivity▪Domestic EC website sales (Bto C)▪EC website operation support▪Export of domestic products
Japanese sake and livestock
products, etc.
▪Import of food ingredients▪Investment in partnercompanies▪Work with companies that lacka successor* Work with business operators
through investment<Other companies of the Group>

INESUS Inc.

Bankers Farm Inc.

With the mission of the realization of a sustainableregional society through the strengthening of ties
between regional workers, companies and theregion, we provide a regional circulation-type
welfare service.

We aim to contribute to the resolution of social
issues such as the shortage of agricultural workers inassociation with the aging of workers, the shrinkingof production areas, and the increase in the amountof abandoned farmland, and to the improvement ofregional value.

(welfare services agent)(agricultural corporation)

YMFG Integrated Report 2022

54

Management Letter

DX strategy

Business Strategy
for Value Creation

About YMFGManagement Foundation
Supporting Value Creation

Financial Section

Market operation strategy

Changes are being made to lifestyles and business styles alongside the rapid evolution of technology.
“Transformation through DX” will be the important key for responding to these changes and increasing
the value of regional customers and YMFG.
First of all, YMFG will transform through DX, and will use the know-how it has gained ontransformation for the resolution of the DX issues that are faced by regional customers.

We will rebuild our securities portfolio and will shift to a stable earnings structure that places anemphasis on income. In the final fiscal year of the medium-term management plan, we will convert thevaluation gains and losses from the pure investment department into a positive, and furthermore, willcontribute to the resolution of social issues and environmental issues through investment in ESG and
SDGs bond, etc.

Realization of “planned periodic earnings” that place an emphasis on income
The transformation of YMFG with DX
The transformation of YMFG through aggressive investment◦We have defined IT investment for business transformation as “aggressive” investment, and currently plan 30
investment projects worth a total of ¥3.3 billion (includes running costs).
◦In order to quickly respond to changes in how customers think and the market environment, we will move ourinternal systems to the cloud and will change to a system that is able to quickly respond to changes.

Reform of the awareness, behavior and skills of YMFG’s employees

We will shift from “capital” focused investment to “income” focused investment, and will pursue higher bookyields.
We will secure investment capacity at a bargain price level through an investment strategy that emphasizes
carry and value, and will engage in further investment in stages during the three year period of rising interest
rates and falling stock prices.

Pure investment department: Interest and dividends yield*
0.67%

Two banks total
The Yamaguchi Bank, Ltd.

0.62%

Momiji Bank, Ltd.

◦We will hold seminars and training sessions that redevelop abilities and skills so that employees are able tocreate value with digital.

150(Billions of yen)

0.54%

Work with DX players

0.51%◦In a cooperation with Double Standard Inc., which holds data cleansing technology, we start further internal DX
initiatives.
◦We are promoting DX which provide a radical review of existing operation with a new approach that combines
SaaS and a set of multiple modules to realize systems that are tailored to the operation, rather than tailoring
operation to a package system.

0.36%

Joint research with the University of Tokyo

0.34%◦We have launched joint industry-university research on inter-company network using AI together with the
Morikawa Narusue Laboratory of the University of Tokyo Graduate School, which specializes in information
technology.
◦Through the utilization of inter-company network to find hidden corporate value and potential transactionneeds, we aim to consider opportunities for corporate growth as well as to increase the value of the regional
economy as a whole.
◦Based on deposit and withdrawal data of administration departments of our business partners, the laboratorybuilds and analyzes a network of companies, visualizes the core companies that drive the growth of the regional
economy and the evaluation of companies by ascertaining the supply chain, and furthermore, examines thepresence, absence, and characteristics of hub companies.
◦In the future, we will consider diverting business through the use of forecasts for new transactions between
companies that will lead to growth, etc., in proposal materials.

Pure investment department:
Income

0.44%
0.37%

0.42%

0.54%
71

0.47%
25

0.38%
△156

FY2022

FY2023(Plan)FY2024(Plan)FY2025(Plan)*Interest and dividends(excluding gain on cancellation of investment trusts)/ Pure investment securities balance

FY2022

FY2023(Plan)FY2024(Plan)FY2025(Plan)*Pure investment department:
Management of securities excluding
cross-shareholdings of the Yamaguchi Bank, Ltd., and Momiji Bank, Ltd.

Accelerating actions towards the reduction of cross-shareholdings
We will accelerate actions towards the reduction of cross-shareholdings through the establishment, etc., of a
Meeting for the Reduction of Cross-Shareholdings. We will make use of the gains from sale as funds for
improving the portfolio of the pure investment department, which will result in improved capital efficiency.

Return to the region of successful experiences andknow-how in transformation through DX
Resolution of the DX issues faced by regional companies, etc.

Strengthening of risk management system in securities investment
In order to strengthen the supervisory function of the Board of Directors concerning risk management, in July
2022 we established the“Risk Committee”as an advisory body for the Board of Directors, and the objective
opinions of outside Directors and an external expert are being reflected in risk management.

We will make use of the successful experiences and know-how (BPR, academic
knowledge on the latest technologies, etc.) accumulated within YMFG, and will solve
the issues that are faced by regional companies and other financial institutions.

55

YMFG Integrated Report 2022

56

Management Letter

Priority Item (5)About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Strengthening of the Governance andInternal Control System

Initiatives toward the sound operation of business in the Group(improvement measure response status)

The Company sincerely accepted the facts recognized in the “investigation reports” by the Investigative Committee that was established in May 2021 in response to a whistle-blowing made against the former CEO, and the Internal Investigation
Group that was established in August 2021 with the objective of investigating how to proceed with a project for the establishment of a new bank, etc., as well as the indicated issues and recommendations for improvement. Therefore, we
identified the current issues and analyzed the causes of such issues in four items in total, consisting of three items of “governance,” “internal control” and “corporate culture,” which form the management foundation for the sound operation ofbusinesses by the Group, adding perspective of “regional revitalization,” which is one of our major roles as a regional financial institution, and formulated improvement measures for 35 items in total on November 30, 2021.
As of the end of June 2022, we implemented 30 items (including those for which the response was completed, and those for which the response was completed and that have moved into the operation stage) out of the 35 items, and we are
currently responding to the remaining five items. We have been making steady progress.

Main improvement measure response status (as of the end of June 2022)
Category
GovernanceName of measure
Reconstruction of operational management system

Establishment of a system for the appropriate provisionof information to Directors

Review of evaluation method towards improving theeffectiveness of the Board of Directors

Review of Nomination Committee system
Internal control

Implemented

Work inprogress

In regard to the composition of the Board of Directors, while ensuring that the majority of members are outside Directors, we haveappointed the Presidents of the three banks in the Group as directors to enhance the monitoring function of the performance ofbusiness at banks, which account for the majority of our performance and management resources.

〇

In addition to providing convocation notice and materials for the Board of Directors earlier, we have expanded opportunities for
explanations to be given prior to meetings by the department in charge of the matter. At the same time, we have shared theannual schedule internally, and ensured it is implemented strictly by the execution departments. In addition, the Secretariat, which
is an organization under the direct control of the Board of Directors, have provided administrative support in response to requests
from Directors and other matters.

〇

Based on the survey on the effectiveness of the Board of Directors and individual interviews by the Secretariat conducted in
November 2021, the opinions received have been reflected in various measures, including a review of the Nomination Committee
and the Compensation Committee, and the appointment of the Presidents of the three banks as Directors of the Company fromthe perspective of ascertaining the status of the execution. We also conducted similar survey and interviews in April 2022 in order
to confirm the progress status of each measure.

〇

We have optimized the number of members of the Nomination Committee and reviewed the appointment and dismissal process,and this have been implemented for officer personnel of the Group for the fiscal year ending March 31, 2023.

〇

Development of an environment that secures andmakes use of diversity〇

Implementation of regular employee awareness surveys
Promotion of “dialog” within the Group57

We conducted culture audits while receiving support and undergoing reviews by external consultants with a track record.
By conducting officer interviews and employee surveys, and through the evaluation and verification of mechanisms that have an
impact on culture, we identified issues in the organizational culture of the Group, and conducted verification towards thecultivation of a sound culture. In regard to the PDCA for the management plan, we consider the implementation of audits focusedon the identification of internal control issues and the making of recommendations for improvement in order to achieve the plan.
We have promoted initiatives for the securing of diversity through the formation of the project for promoting active participation of
women and the introduction of comeback recruitment, etc.

〇

Implementation of measures that leads to awarenessreform and organizational culture reform(inner communication)

We newly formulated the “Group Officer Personnel Guidelines,” which serves as the policy for the development of managerial
human assets at the Group and the appointment of officers of the Group. Based on the guidelines, we clearly state a monitoring
system for the training process and training status of candidates of officers of the Group in the future. The human resource training
plan and training schedule for candidates of executives are currently being developed.
For certain operational lines within bank sales branches, we have changed from a system in which operational execution iscontrolled by the Company to a system that is centrally controlled at the bank, and clarified the division of roles and responsibility
system within the Group. At the same time, we have streamlined our group structure from the perspective of clarifying the chain ofcommand and making decision making faster.

〇

Implementation of audits focused on the achievementof the management plan

Corporate culture

Overview〇

Review of succession plan

Review of internal control of the Group(review of sales branch system)

30 items out of 35 items in total was completed〇

Based on the results of the employee awareness survey, we have determined that the penetration of the “YMFG Medium-Term
Management Plan 2022” and the penetration of management strategy through dialog with the management level are highpriorities, and we are currently formulating measures towards the constructive dialog.

〇

We have started the regular employee awareness surveys (My Check), and have strengthened the PDCA cycle towards the
improvement of corporate culture, etc.

〇

We have increased opportunities for internal communication through the introduction of one-on-one meetings and thedevelopment of direct channels to the top management, etc.
YMFG Integrated Report 2022

58

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Corporate Governance
Basic concepts on corporate governance

Board of Directors

The Group has formulated the “Mission and the meaning of its existence (Purpose),” which is a core of all
business activities of the Group, and “What the Group should become in the future (Vision),” as what the Groupshould become when pursuing the mission and the meaning of its existence, in order to combine the abilities of
the Group’s officers and employees and to increase corporate value.
Co-creating a bountiful future for our region[What the Group should become in the future (Vision)]A regional value-up corporate group that is chosen by our region and responds to the trust of our region
Based on “a sound and proactive enterprising spirit” as the basic stance (management policy) for theengagement in business activities with a focus on the mission and meaning of its existence (Purpose), the Groupaims for management transparency and fair, swift and bold decision-making that will lead to sustainable growthand increases in corporate value over the medium to long term. To this end, positioning that creating aneffective corporate governance system is an important management priority, and we continue to pursue theinitiatives described below to enhance our corporate governance.
(1) The Company strives to substantially secure the shareholder rights, to create an environment thatshareholders can exercise their rights appropriately, and to secure effective equal treatment of shareholders.
(2) The Company cooperates appropriately with our principal stakeholders, including customers, the local
community, shareholders and employees.
(3) The Company appropriately discloses important management-related information to our principal
stakeholders.
(4) The Company endeavors to ensure the effectiveness of the supervisory and auditing functions of the businessexecution through the establishment of various bodies, including the Board of Directors.
(5) The Company creates systems to promote construction dialog in order to build long-term relationships withshareholders.

Corporate governance system
An overview of the corporate governance system at the Company is provided below.

[Supervision](1) Board of Directors and Directors

The main role of the Board of Directors is to make decisions on important matters relating to the operation of
the Group, such as matters relating to management planning and governance and the basic policy on theinternal control system, and in addition, to supervise the execution of the duties of Directors and Executive
Officers. In principle, meetings are held once a month, and are chaired by the President and CEO.
The Board of Directors is composed of 11 Directors with a fine balance of knowledge, experience and abilities
for the effective performance of their roles and responsibilities.
In particular, outside Directors, who make up the majority of the Board of Directors, have been arranged
with a focus on diversity, based on the perspectives of gender, career history, and age, etc., in order to activate
multifaceted and objective discussions. (Three out of the six outside Directors are females)
Composition of the Board of Directors

6external
persons

internal
persons
Ratio ofexternal persons:

55%

59

Keisuke Mukunashi
Narumasa Soga
Koji Oda[Mission and the meaning of its existence (Purpose)]

5

Name

Female officers
Males

8

Females
Ratio offemales:27%

3

Mitsuru Kato

Current position, etc., in the Company
President, Representative Director and CEO
Director (President and Director of The Yamaguchi Bank, Ltd.)
Director (President and Director of Momiji Bank, Ltd.)
Director (President and Director of The Kitakyushu Bank, Ltd.)

Yumiko Nagasawa

Director

OutsideIndependent

Minako Suematsu

Director

OutsideIndependent

Yuzuru Yamamoto

Director

OutsideIndependent

Tomoko Mikami

Director

OutsideIndependent

Susumu Fukuda

Director, Audit & Supervisory Committee Member

Kazuo Tsukuda

Director, Audit & Supervisory Committee Member

OutsideIndependent

Michiaki Kunimasa

Director, Audit & Supervisory Committee Member

OutsideIndependent(2) Committees
In addition to the “Audit & Supervisory Committee” prescribed in the Companies Act, the “Nomination

Committee,” “Compensation Committee” and “Risk Committee” have been established as described below.
(1) Audit & Supervisory Committee and Audit & Supervisory Committee Members
The Audit & Supervisory Committee is composed of three Directors who are Audit & Supervisory Committee
Members (including two outside Directors), holds meetings once a month, in principle. It audits the execution ofduties of the Directors, builds the internal control system of the Company and the Group, supervises andexamines the operation status of the system, and prepares audit reports.
In addition, through the exercising of voting rights at meetings of the Board of Directors by Audit &Supervisory Committee Members, who are mainly outside Directors, it is aimed to enhance the function ofauditing and supervising the Board of Directors, and to improve the transparency and speed of the decision
making process.
In order to prepare for cases where there is a shortage of Directors who are Audit & Supervisory Committee
Members as prescribed by law, one substitute Director who is an Audit & Supervisory Committee Member has
been elected.
Audit & Supervisory Committee
Name

Current position, etc., in the Company

Susumu Fukuda

Director, Audit & Supervisory Committee Member

Kazuo Tsukuda

Director, Audit & Supervisory Committee Member

OutsideIndependent

Michiaki Kunimasa

Director, Audit & Supervisory Committee Member

OutsideIndependent(2) Nomination Committee, Compensation Committee
The Company has established the Nomination Committee and the Compensation Committee as voluntary
advisory bodies to the Board of Directors in order to ensure the validity of the proposals relating to theappointment and dismissal of Directors and Executive Officers and their remuneration, as well as the objectivity
and transparency of the decision making process, and has put a system in place to make decisions at the Boardof Directors based on the details reported from the respective committee regarding the proposal.
Based on the objective of its establishment, it is prescribed in the internal rules that each committee is
YMFG Integrated Report 2022

60

Management Letter

Yuzuru Yamamoto
Minako Suematsu

OutsideDirector

Kazuo Tsukuda

OutsideDirector, Audit & Supervisory Committee Member

OutsideIndependent
Independent
Independent

Partnership

Current position, etc., in the Company

Yumiko Nagasawa◎ Director

OutsideIndependent

Tomoko Mikami

Director

OutsideIndependent

Michiaki Kunimasa

Director, Audit & Supervisory Committee Member

OutsideIndependent(3) Risk Committee
From the perspective of strengthening the supervisory function of the Board of Directors for risk management,

the “Risk Committee” has been established under the Board of Directors, which will strengthen risk management
system by reflecting the objective opinions of outside Directors and third party (an external expert) in risk
management.
The Risk Committee is intended to deliberate mainly on various circumstances relating to the risk
management of the market department, and to then provide recommendations to the Board of Directors. It willconsider reviewing matters subject to deliberation, as necessary.

Audit & Supervisory
Committee Oﬃce

Election /Dismissal
ReportAudit /
Supervision

Board of Directors
Directors 11

Election(Voluntary advisory body)

Directors (excluding Audit & Supervisory Committee Members) 8*Of which outside 4
Directors (Audit & Supervisory Committee Members) 3*Of which outside 2(◎: Chair)

Name

Election / Dismissal

Partnership

Audit & Supervisory
Committee

Compensation Committee

(As of August 22, 2022)

General meeting of shareholders

Current position, etc., in the Company◎ Director

Financial Section

Yamaguchi Financial Group, Inc.
(◎: Chair)

Name

Management Foundation
Supporting Value Creation

Corporate governance system structurecomposed of three or more committee members, and the majority of members is independent outside
Directors, in order to ensure independence.
Nomination Committee

Business Strategy
for Value Creation

About YMFG

ReportInstruction /Support
Order

Audit & Inspection
Dept.
Internal Audit

Instruction /Order

Nominating
Committee

Remuneration
Committee

Risk
Committee

Financial
Audit

Report / Proposal

Secretariat
PartnershipGroup ALM Committee

President and CEOGroup Compliance Committee

Group Executive Committee(Business execution system)

Group Risk Management Committee
Investment Project Veriﬁcation Committee
Instruction / Order

Sustainability Promotion Committee

Business execution departments

Other associates

Risk Committee
Name
Masao Aratani

Director of The Yamaguchi Bank, Ltd. (Outside)

Ichinari Koda

Chairman and Director of The Yamaguchi Bank, Ltd.

Yumiko Nagasawa
Kyoji Hironaka

61

Current position, etc., in the Company

Director of the Yamaguchi Financial Group, Inc. (Outside)

Company with audit and supervisory committee•YM Lease Co., Ltd. •YM CONSULTING CORPORATION•Izutsuya Withcard Company Limited •YAMAGINCARD CO., LTD.
•YM Credit Guarantee Co., Ltd. •Sanyu•YMFG ZONE PLANNING CO., LTD. •YM Life Planning Co., Ltd.
•YM Asset Management Co., Ltd. •Momiji Estate •HOKEN HIROBA, Ltd.
•YM Saison Co., Ltd. •Momiji Card, Inc. •Data Qvic Inc.
•YM Career Inc. •INESUS Inc.
•Nishiseto Regional CO-creation Servicer Inc.
•Nishiseto Marine Partners Inc. •YAMAGUCHI CAPITAL Co., Ltd.
•Regional Trading Company Yamaguchi Co., LTD. •Bankers Farm Inc.
•KAIKA Corporation

External expert

YMFG Integrated Report 2022

62

Management Letter[Execution of Business](1) Group Executive Management Meeting / various committees
The Group Executive Management Meeting has been established as a decision making body for businessexecution departments.
The Group Executive Management Meeting is composed of Directors (excluding outside Directors and Audit &Supervisory Committee Members), Executive Officers (excluding the General Manager of the Audit & Inspection
Dept.) and the Presidents of the banks in the Group, and discusses and makes decisions on important mattersrelating to the management of the Group based on the basic policy, etc., determined by the Board of Directors.
In addition, various committees (Group Compliance Committee, Group ALM Committee, Group Risk
Management Committee, Investment Project Consideration Committee, Sustainability Promotion Committee)
have been established for each management themes as bodies for the deliberation of important matters relating
to the execution of business.
(2) Executive Officers
The Group has introduced the executive officer system, under which the executive officers appointed byresolution of the Board of Directors are assigned the positions of heads of the respective departments (General
Managers of the Business Groups, General Managers of the Administration Groups and General Manager of the
Audit & Inspection Dept.), and engage in the execution of the designated business.

Policy and process relating to appointment at the Board of Directors
The Board of Directors of the Company ensures balance of the knowledge, experience and ability as required as
the Board of Directors as a whole, and diversity in order to effectively fulfill its role and responsibilities, andmaintains an appropriate number of members so that the functions of the Board of Directors may bedemonstrated most effectively and efficiently in terms of promptness of decision making.
Based on this basic concept, the Board of Directors nominates those who are familiar with the Company’sbusinesses and have exceptional ability and an abundance of experience as candidates for internal Director,
nominates those who have diverse knowledge and backgrounds as candidates for outside Director in order toensure the independence and objectivity of the Board of Directors, and maintains a number of members of theBoard of Directors within 13 members.
Please refer to the skills matrix for skills (experience and expertise) of the Board of Directors as a whole.
It should be noted that “Skill items” are reviewed from time to time based on the elements required bygovernance and society.
The Nomination Committee has been established as a voluntary advisory body of the Board of Directors forthe nomination of candidates for Director, and a system has been put in place in which decisions are made by
the Board of Directors based on the details reported from the Nomination Committee.

63Management Foundation
Supporting Value Creation

Financial Section

its subsidiaries(*1) Definition of “large sum” : an amount of ¥10 million or more per year on average over the last three years(*2) Definition of “recent past” : refers to cases that may be regarded as being substantially identical to thepresent, for example, this includes such cases as when the candidate fell under the condition at the time
the content was determined for the proposal for the General Meeting of Shareholders electing him or her
as outside Director(*3) Definition of“important”: an important person refers to the officer and general manager in the case of aperson who execute business, and to certified public accountants and lawyers in the case of a person
affiliated with an accounting firm or law firm(*4) Definition of “close relative” : a relative within the second degree of kinship

Evaluation of the effectiveness of the Board of Directors
In regard to the governance of the Company, including the effectiveness of the Board of Directors, as a result ofconducting surveys and individual interviews with each Director, and then discussing the results at the Board of
Directors, it was found that there were matters to be improved, including information access system to performthe highly effective supervisory function of the Board of Directors of the Company as monitoring board, andeffectiveness of the process of the appointment and dismissal of officers. We have formulate improvement
measures, including strengthening the support system for execution of director’s duties, establishing theinformation access system, and reviewing the Nomination Committee system and the process of theappointment and dismissal of officers, and we have proceeded the initiatives for the measures.
As a result of the conduct of the surveys and individual interviews with each Director again in April 2022,
and the examination of the governance, it was found that stead improvements have been made through theexecution of improvement measures such as the above.
On the other hand, through the examination, we have recognized the issues, including the provision of
information towards the further deepening and substantiation of discussions at the Board of Directors, theenhancement of opportunities for communication and gaining knowledge, and the review of the standards fordiscussion at the Board of Directors (delegation of authority from the Board of Directors to the execution
departments), and we have proceeded to discuss to the improvement.
Going forward, we will continue to examine the improvement status of the Company’s governance throughregular surveys and informal individual interviews, which will lead to improved effectiveness.

Skills Matrix
This does not represent all of the knowledge and experience possessed by each Director, but indicates up to
three priority areas where expertise is expected based on his or her experience, etc.
Classification

Expected priority areas of expertise

Qualifications and criteria for determining the independence of independent outside Directors
The Company designates as independent officer all outside officers who meet the qualifications for independent
officers.
The criteria for determining independence determined by the Company is as shown below.
<Criteria for determining independence>
In principle, outside Directors of the Company are persons who at present or in the recent past have not fallen
under any of the following requirements.
(1) A person whose major business partner is the Company and its subsidiaries, or in the case of such aperson being a corporation, etc., a person who executes business(2) A person who is a major business partner of the Company and its subsidiaries, or in the case of such aperson being a corporation, etc., a person who executes business(3) A consultant, an accounting professional, or legal professional, etc., who receives a large sum of money orother property from the Company and its subsidiaries other than remuneration for officers (in the case of
the person receiving such property being a body such as a corporation or organization, etc., a person
affiliated with such a body(4) A major shareholder of the Company, or in the case of such a person being a corporation, etc., a person
who executes business(5) A close relative of the following person (excluding those who are not important)
A. A person who falls under (1) to (4) above
B. A Director, an Audit and Supervisory Board Member, or an important employee, etc., of the Company andBusiness Strategy
for Value Creation

About YMFGInternal Directors

Name

Keisuke
Narumasa
Mukunashi
Soga

Position

President,
Representative
Director

Director

Director

Corporate
Governance

〇

〇

〇

Corporate
Strategy〇

Business Strategy /Regional Revitalization〇

MarketInvestment
Human Resource
Development〇

Koji Oda〇

Outside Directors

Mitsuru
Kato

SusumuFukudaName

YumikoNagasawa

Director

Director, Audit& Supervisory
Committee
Member(Full-time)

Position

Director
Director
Director
Director(Independent) (Independent) (Independent) (Independent)〇〇

Corporate
Governance〇

Sustainability〇

Regional Economy/ Administration

〇

〇

〇
〇

〇

Compliance /Risk Management

DX

〇

〇

〇

TomokoMikami〇

Corporate
Legal Affairs

Kazuo
TsukudaMichiaki
Kunimasa

Director, Audit Director, Audit& Supervisory & Supervisory
Committee
Committee
MemberMember(Part-time)(Part-time)

〇

〇

〇
〇

〇

〇
〇

Macroeconomics
FinanceDX / Systems

MinakoYuzuruSuematsu Yamamoto

〇
〇

〇
〇

YMFG Integrated Report 2022

64

Management Letter

Regarding “expected priority areas of expertise”
Categories for internal Directors have been selected based on priority measures for the YMFG Medium-Term
Management Plan 2022, etc. And, categories for outside Directors have been selected with a focus on diverse
knowledge, experience, and expertise.
Category

Priority Measures for the YMFG Medium-Term Management Plan 2022, etc.

Corporate
Governance〇 Establish a Group management structure with a system where the banks proactively engage in businessexecution by expanding the executive authority and responsibilities of the banks, and enable them todemonstrate front-line initiatives.

Corporate Strategy〇 Strengthen the link between the Group’s sustainable growth and increase in regional value by promoting
sustainable management.
〇 Effectively utilize capital as a new growth driver, including by investing in areas that contribute to the
expansion of areas of business and improve profitability for the Group.

Business Strategy /Regional
Revitalization〇 Strengthen support for corporate rehabilitation and business succession with equity, hands-on andcorporate business succession support to assist the local economy in recovering and returning to growthfollowing the COVID-19 pandemic and to improve sustainability.
〇 Clearly identify life events that require consulting, and provide sincere financial planning and asset
management services to each customer leveraging on skills assimilated throughout the organization.
〇 Review the customer touchpoints and provide “easy” and “convenient” services.
〇 Achieve both higher quality solutions for customers and efficient branch operation through the slimming ofsales branches by expanding centralized processing at the headquarters, making changes to the sales
systems, etc.
〇 Deepen the understanding of customers by using data analysis, and improve the quality of feasibility
studies and financial planning activities.
〇 Support business reform including by building digital hubs available for use by regional corporations.

Market investment〇 Rebuild the securities portfolio with appropriate risk-taking and risk management and convert to a stableprofit structure.

Human Resource
Development〇 Jointly create an environment and opportunities for each employee to thrive and grow with good job
satisfaction, thereby transforming the organizational culture(behavior). The Group as a whole is to engage
in the “maximization of value provided to our region and customers” and the “creation of new value.”

DX / Systems〇 Promote DX across the Group through the development of next-generation financial businesses using thelatest technology, the formation of alliances with DX players, etc.

Compliance / Risk
Management〇 Build a compliance system that covers risks of damage to the interests and expectations of customers andlocal communities. Strengthen the establishment and operation of the RAF management structure using
stress tests and scenario analysis.
〇 Build a forward-looking credit risk management framework and strengthen the risk management
framework of each Group company.

Reason for selection as outside officer
Name of outside Director

65

Reason for selection as outside Director

Yuzuru Yamamoto

He provides pertinent recommendations toward overall management taking into account local
economic conditions, etc., based on his advanced insight and wealth of experience as a corporate
manager, having served as President & Representative Director of UBE Corporation and in otherexecutive positions.

Yumiko Nagasawa

She possesses a wealth of experience regarding financial instruments such as establishing a citizen
group “Foster Forum (Forum for Fostering High-quality Financial Instruments)” after serving at
financial institutions, and provides pertinent recommendations toward overall management based on
her professional insight as well as the perspective of a citizen.

Minako Suematsu

She has offered information on the present conditions of Japan and global trends on a daily basis as
Representative Director, Chairman, and President of The Japan Times, Ltd. She also has advanced
knowledge on online business development, evidenced by matters such as her establishment of aninternet-related business, and is actively working to increase the brand value of her hometown, theSetouchi area. She provides pertinent recommendations on the Company’s current initiatives toincrease the value of regional communities.

Tomoko Mikami

She has been engaged in the promotion of digital transformation (DX) utilizing IT as Managing
Executive Officer of Microsoft Japan Co., Ltd., particularly in the DX promotion of local enterprises.
She provides pertinent recommendations on the Company’s current initiatives to provide DX support
to client corporations as well as DX within the Company.

Kazuo Tsukuda(Audit & Supervisory
Committee Member)

He provides pertinent recommendations toward overall management based on advanced insights
and a wealth of experience as a corporate manager fostered by serving as President of Mitsubishi
Heavy Industries Ltd. and other executive positions.

Michiaki Kunimasa(Audit & Supervisory
Committee Member)

He provides pertinent recommendations based on a wealth of experience and professional
knowledge as a lawyer.

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Support for outside Directors
The Secretariat, which is the administrative office of the Board of Directors, and the Audit & Supervisory
Committee Office, which is the secretarial office of the Audit & Supervisory Committee, provide support asappropriate for the execution of duties of outside Directors (including the Audit & Supervisory Committee
Members), and endeavor to activate and facilitate cooperation with the execution departments.
In addition to making efforts to secure sufficient explanations to outside Directors and sufficient preparation
time for these through the early issuance of notice of convocation of a meeting of the Board of Directors anddiscussion materials (including regular execution report materials) and the enhancement of prior briefing
meetings, we regularly provide study sessions on the financial business and management environment ofregional banks, etc., which are necessary areas for Directors of the Company.

Succession plan
The “Group Officer Personnel Guidelines” prescribes the following in regard to the development process forcandidates for the Group officers and the monitoring system for development status.

[Development of candidates for the Group officers]

Individual development plans are formulated by the human resource department for candidates for key
management personnel that are selected internally, and they are promoted to important positions (General
Manager of branch of banks in the Group, General Manager of the division, etc.) at the appropriate time, basedon the activity status and performance of each candidate.
A group of human resources holding important positions is designated as the pool of candidates for officer.
The President and CEO selects candidates for the Group officers from human resources in the pool ofcandidates for officer based on each candidate’s activity status and performance, recommendation of the Group
officer, etc., and then submits the list of candidates to the Nomination Committee.
Promotion to an important positions is determined and executed upon deliberation at internal meetings(personnel promotion meetings), comprising of internal Directors and the human resource department, and thesystem ensures the objectivity and validity of the promotion.

[Monitoring system for development status]

The activity status and performance of human resources who are candidates for key management personnel andwho are in important positions are regularly monitored by the President and CEO, and the human resource
department.
The Nomination Committee also considers the development status of candidates for the Group officer to be
an important monitoring matter, and has adopted a system to monitor whether the development of candidates
for the Group officer is conducted as planned through reporting from the President and CEO as appropriate
about the development status to the Nomination Committee and the Board of Directors.

Remuneration for officers
Remuneration decision making process
In regard to the policy for determining the amount of remuneration for Directors (excluding those who are Audit& Supervisory Committee Members) and the calculation method, this is determined by the Board of Directors
upon deliberation by the Compensation Committee, which is chaired by an outside Director, within the
remuneration limits resolved at the General Meeting of Shareholders.
In addition, the Compensation Committee deliberates on the decision making policy relating to the content
of the remuneration, etc., for the Directors of the Company and the banks in the Group, and the content of the
remuneration, reports the details to the Board of Directors, and aims to improve the objectivity andtransparency of the decision making process.
The determination of the amount of performance-linked remuneration for each individual has beendelegated to the President and CEO by resolution of the Board of Directors. The President and CEO determines
the amount of performance-linked remuneration for Directors within the range of the amount calculated basedon the distribution ratio by position for performance-linked remuneration and the evaluation rate as set forth in
the report from the Compensation Committee. Basic remuneration is determined for each Director by the Boardof Directors based on the report from the Compensation Committee. In addition, in regard to the share-based

YMFG Integrated Report 2022

66

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

List of Officers

remuneration, the number of points to be granted to each Director is calculated based on the Officer Share
Delivery Rules that have been prescribed by the Board of Directors based on the report from the Remuneration
Committee.
The policies for determining the amount of remuneration, etc., for Directors who are Audit & Supervisory
Committee Members, and the calculation method are determined upon consultation by the Audit & Supervisory
Committee Members, including outside Directors, within the remuneration limits resolved at the General
Meeting of Shareholders.
Remuneration determination policy
The Company and the banks in the Group have established the remuneration plan for officers with the objectiveof increasing the transparency of the remuneration plan for officers, raising motivation towards contributing to
improved performance and increased corporate value, and raising awareness of shareholder-oriented
management.
In terms of the specific officer remuneration plan, the composition of officer remuneration, etc., comprises of
fixed-amount remuneration, performance-linked remuneration and share-based remuneration (Board Benefit
Trust: BBT).
Fixed-amount remuneration
By the resolution of the General Meeting of Shareholders held on June 26, 2015, the maximum amount of the
remuneration for Directors (excluding those who are Audit & Supervisory Committee Members) has been set as
up to ¥25 million per month (of which, up to ¥2.5 million per month for outside Directors) and up to ¥5 million
per month for Directors who are Audit & Supervisory Committee Members.
Performance-linked remuneration
By the resolution of the General Meeting of Shareholders held on June 27, 2017, the maximum limit of theperformance-linked bonus remuneration for Directors (excluding Directors who are Audit & Supervisory
Committee Members, part-time Directors and outside Directors) has been set as up to ¥70 million per year. The
total amount of remuneration is determined in consideration of the level of business performance, and the
remuneration has a function as a short-term performance-linked remuneration plan.
Board Benefit Trust (BBT)
By the resolution of the General Meeting of Shareholder held on June 27, 2017, the total number of points per
fiscal year to be granted to Directors (excluding Directors who are Audit & Supervisory Committee Members,
part-time Directors and outside Directors) has been set at up to 80,000 points (one point equals one share of
the Yamaguchi Financial Group, Inc.).
By granting points that vary each period depending on the level of achievement of the medium-term
management plan that has been formulated by the Company, the trust has a function as a medium- to long-term
performance-linked remuneration plan with the objective to align interests with shareholders, to increase
incentives for the improvement of business performance and corporate value over the medium to long term.
Total amount of remuneration, etc. for each officer category, total amount, etc. by type of remuneration andnumber of eligible officers
In the fiscal year ended March 31, 2022
Category of officer
Director (excluding Audit &Supervisory Committee
Member) (excluding outside Director)

Total amount of
Numberremuneration, etc.
of officers(Millions of yen)
4

115

Fixed-amountremuneration

Performancelinked
remuneration

Non-monetary
remuneration,
etc.

104

-

11

Director (Audit & Supervisory
Committee Member) (excluding
outside Director)

1

28

28

-

-

Outside officer

8

40

40

-

-

*1. The above includes two Directors who are not Audit & Supervisory Committee Member and retired at the conclusion of the Annual
General Meeting of Shareholders held on June 25, 2021, and one Director who retired on December 23, 2021.
2. “Non-monetary remuneration, etc.” refers to the amount recorded as expenses during the current fiscal year for the Board Benefit
Trust (BBT).

Officers of Yamaguchi Financial Group, Inc. (as of July 1, 2022)
President, Representative
Director and CEO

Director

Keisuke Mukunashi

Narumasa Soga

Director

Director

Koji Oda

Mitsuru Kato

Director

Director

Yuzuru Yamamoto

Yumiko Nagasawa

Director

Director

Minako Suematsu

Tomoko Mikami

Director, Audit & Supervisory
Committee Member (Full-time)

Director, Audit & Supervisory
Committee Member (Part-time)

Susumu Fukuda

Kazuo Tsukuda

Director, Audit & Supervisory
Committee Member (Part-time)

Michiaki Kunimasa

Senior Managing Executive Officer and General
Manager of the Audit & Inspection Dept.

Shuji Tanabe

Managing Executive Officer and General Managerof the Regional Co-Creation Business Group

Kazuhito Yagi

Managing Executive Officer and General Managerof the Financial Business Group

Hirofumi Hiranaka

Executive Officer and General Manager of theCompliance & Risk Administration Group

Takeki Kaneko

Executive Officer and General Manager of the IT& Operations Administration Group

Yasuhiro Kijima

Executive Officer and General Manager of the
Corporate Administration Group

Katsuhiro Sogi

* Yuzuru Yamamoto, Yumiko Nagasawa, Minako Suematsu, Tomoko Mikami, Kazuo Tsukuda and Michiaki Kunimasa are outside Directors as prescribed in Article 2, item(xv) of the Companies Act.

67

YMFG Integrated Report 2022

68

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Organizational chart of Yamaguchi Financial Group, Inc. (As of August 22, 2022)
Yamaguchi Financial Group, Inc.

Business Strategy Planning Dept.
Corporate Banking Business Oﬃce

Risk Committee

Nominating Committee

Remuneration Committee

FinancialBusiness Group

Ship Finance Oﬃce

Officers of The Yamaguchi Bank, Ltd. (as of July 1, 2022)

Corporate
Administration Group

Ichinari Koda

Director and Senior Managing
Executive Officer

Director, Executive Officer andGeneral Manager of Head
Office Sales Department

Regional Co-Creation Management Oﬃce
Corporate Planning Dept.

Hideyuki Taga

Yasuhiro Watanabe

Director

Director

Masao Kusunoki

Kuniko Usagawa

Director, Audit & Supervisory
Committee Member (Full-time)

Director, Audit & Supervisory
Committee Member (Part-time)

Shinji Yoshidomi

Munefusa Saito

Corporate Planning Oﬃce

Group Executive Committee

President and CEO

Board of Directors

Narumasa Soga

Digital Service Promotion Oﬃce

Regional Co-Creation
Business Group

Public & Investor Relations Oﬃce
Accounting Oﬃce
Corporate Administration Dept.
Human Resource Development Oﬃce
DX Strategy Planning Dept.
Compliance & Risk
Administration Group

Compliance Administration Dept.
Financial Crime Prevention Oﬃce

Secretariat

Audit & Supervisory
Committee

Chairman and Director

Retail Banking Business Oﬃce

Market Administration Dept.

General meeting of shareholders

Director and President
Representative Director

Risk Administration Dept.
Credit Risk Control Oﬃce
IT & Operations
Administration GroupIT Administration Dept.
System Uniform Promotion Oﬃce

Audit & Supervisory
Committee Oﬃce

Customer Relations Center
Customer Services Administration Dept.
Centralized Operations Oﬃce
Various Group
Committees

Account Management Center

Director, Audit & Supervisory
Committee Member (Part-time)

Masao Aratani

Audit & Inspection Dept.

The Yamaguchi
Bank, Ltd.

MomijiBank, Ltd.

The Kitakyushu
Bank, Ltd.

YM Securities
Co., Ltd.

Company with audit and supervisory committee

69

YM Lease Co., Ltd.
YM CONSULTING CORPORATION Izutsuya Withcard Company Limited
YAMAGINCARD CO., LTD. YM Credit Guarantee Co., Ltd.
Sanyu YMFG ZONE PLANNING CO., LTD.
YM Asset Management Co., Ltd. Momiji Estate YM Life Planning Co., Ltd.
HOKEN HIROBA, Ltd. YM Saison Co., Ltd. Momiji Card, Inc. Data Qvic Inc.
YM Career Inc. Nishiseto Regional CO-creation Servicer Inc. INESUS Inc.
Nishiseto Marine Partners Inc. YAMAGUCHI CAPITAL Co., Ltd.
Regional Trading Company Yamaguchi Co., LTD.
Bankers Farm Inc. KAIKA Corporation

Senior Managing Executive Officer, General
Manager of Yamaguchi Branch and General
Manager of Kenchonai Branch

Satoshi Ono

Executive Officer and General Manager ofHiroshima Branch

Koji Kanayama

Managing Executive Officer and General
Manager of Tokyo Branch

Noritsugu Hanaeki

Executive Officer and General Manager of
Iwakuni Branch

Makoto Murakami

Managing Executive Officer and General
Manager of Tokuyama Branch

Hiroaki Kaita

Executive Officer, General Manager of Hagi
Branch and General Manager of Higashi Hagi
BranchRie OmotoExecutive Officer and General Manager ofUbe Branch

Yoji Nakashima* Masao Kusunoki, Kuniko Usagawa, Munefusa Saito and Masao Aratani are outside Directors as prescribed in Article 2, item (xv) of the Companies Act.

YMFG Integrated Report 2022

70

Management Letter

Officers of Momiji Bank, Ltd. (as of July 1, 2022)

Business Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Director and President
Representative Director

Director, Senior Managing
Executive Officer and General
Manager of Head Office Sales
Department

Director and President
Representative Director

Director and Senior Managing
Executive Officer, General
Manager of Head Office Sales
Department and General
Manager of Itozu Branch

Koji Oda

Shigeyuki Amano

Mitsuru Kato

Hiroyuki Nakano

Director and Executive Officer

Director and Executive Officer

Director and Executive Officer

Director

Hideyuki Fujimura

Yoshiro Yasudomi

Masahiko Nagamo

Masatoshi Okano

Director

Director, Audit & Supervisory
Committee Member (Full-time)

Director, Audit & Supervisory
Committee Member (Full-time)

Director, Audit & Supervisory
Committee Member (Part-time)

Yoji Ohshimo

Naoto Tada

Akihisa Uchida

Kazumasa Tatsumi

Director, Audit & Supervisory
Committee Member (Part-time)

Director, Audit & Supervisory
Committee Member (Part-time)

Director, Audit & Supervisory
Committee Member (Part-time)

Tetsuo Yamashita

Masao Nagano

Hayato Morita

Managing Executive Officer and General
Manager of Fukuyama Branch

Hajime Ohshimo

Executive Officer and General Manager of
Kaita Branch

Yuko Ogawa

Financial Section

Officers of The Kitakyushu Bank, Ltd. (as of July 1, 2022)

Executive Officer and General Manager ofKure Sales Department

Akira Wada

* Yoji Ohshimo, Tetsuo Yamashita and Masao Nagano are outside Directors as prescribed in Article 2, item (xv) of the Companies Act.

71

About YMFG

Executive Officer, General Manager of Yahata
Branch, General Manager of Aioi Branch andGeneral Manager of Hibikino Branch

Takafumi Uno

Executive Officer and General Manager of
Fukuoka Branch

Hisao Tsubouchi* Masatoshi Okano, Kazumasa Tatsumi and Hayato Morita are outside Directors as prescribed in Article 2, item (xv) of the Companies Act.

YMFG Integrated Report 2022

72

Management Letter

Business Strategy
for Value Creation

About YMFGManagement Foundation
Supporting Value Creation

Financial Section

Risk Management System
Internal audits
Yamaguchi Financial Group, Inc.

Group ALM Committee

Administration Group
Risk Management
Administration Department
Classiﬁcation of risk

Department in charge ofrisk management

73

Audit
Audit

Risk Administration Dept.
Credit risk

Market risk
Liquidity risk

Operational risk
・Administrative risk ・System risk
・Information risk ・Legal risk
・Tangible asset risk ・Human risk・Money laundering and terrorism funding risk

Reputational
risk

Risk
Administration
Dept.

Risk
Administration
Dept.

Risk Administration Dept.
Compliance Administration Dept.
Corporate Administration Dept.
IT Administration Dept.

Corporate
Planning
Dept.

Audit

Integrated management of group risks
Basic policy and instructions for system development, etc.

The Yamaguchi
Bank, Ltd.

MomijiBank, Ltd.

Report on risk management status

The Kitakyushu
Bank, Ltd.

ReportReportBoard of Directors Audit & Supervisory Committee

Committee System(Yamaguchi Financial Group, Inc.)

Risk Management
Administration Department
Classiﬁcation of risk

Group Executive Committee
Group Risk Management Committee
Audit

Corporate Administration Dept.

Credit risk

Market risk
Liquidity risk

Operational risk
・Administrative risk ・System risk
・Information risk ・Legal risk
・Tangible asset risk ・Human risk・Money laundering and terrorism funding risk

Reputationalrisk

Department in charge ofrisk management

Each Group and Dept. Each Department in Charge of Risk Management

Department involved inrisk management

Each Group and Dept. Each Department Involved in Risk Management

Sales / Business Operation

Operation of business by each group and dept. (integration, promotion, guidance, andmanagement for each business under their jurisdiction), operation of business by sales branches

External audits (audit ﬁrm)

The Company has established “Internal Control Rules,” and endeavors to develop a system for the timely
information disclosure for the building of an internal control system.
In the “Timely Information Disclosure Standards” based on the “Internal Control Rules,” the following basic
policy is prescribed, and pursuant to this policy, in regard to the disclosure of important corporate informationand investment information, the Company aims to address timely and appropriate in accordance with the
Banking Act, the Financial Instruments and Exchange Act, the rules of financial instruments exchange, otherrelevant laws and regulations, etc., after reporting to and consulting with the management team.
Basic policy(1) The Group shall disclose important corporate information so that customers, shareholders, investors, etc.,
are able to accurately ascertain and determine the actual situation of the Group.
(2) The Group discloses important investment information so that investors, etc., are able to accurately
ascertain and determine the investment status of the Group.
(3) The disclosure of important corporate information and investment information is made in a timely andappropriate manner, in accordance with the Banking Act, the Financial Instruments and Exchange Act, therules of financial instruments exchange, other relevant laws and regulations, etc.
(4) In order to disclose important corporate information and investment information in a timely andappropriate manner, the Group develops and enhances the systems of the Company and subsidiaries thathave entered into business outsourcing agreements with the Company.

Group Risk Management Committee

Compliance & Risk Administration Group

Group ALM Committee

Timely information disclosure system

ReportGroup Executive Committee

Committee System

ReportBoard of Directors Audit & Supervisory Committee

External audits (audit ﬁrm)

Internal audit operation system
The Audit & Inspection Dept., the internal audit department of the Company, leads the planning and drafting ofgroup-wide internal audits, and in addition to conducting internal audits, ascertains and manages theimplementation status of internal audits at each Group company.
Specifically, it formulates the various rules concerning the internal audits of the Group and the medium-term
internal audit plan mentioned earlier, conducts internal audits on the compliance administration departments,
the risk management departments, etc., of the Group, and conducts internal audits on the accuracy of financial
reports, including the accuracy of the Group’s capital adequacy ratio.
Internal audits of front-line sales sites, outlets are conducted with a focus on verifying the status of functionsof compliance and risk management and the effectiveness of the mutual checks.
In addition, it monitors the internal audit department of each Group company based on the reporting on theinternal audit results and improvement status, etc., received from each Group company, gives necessary
guidance and advice to each Group company, and reports the status of internal audits of the Group to theBoard of Directors and the Audit & Supervisory Committee.

The Group’s risk management system (as of July 1, 2022)

Audit & Inspection Dept.
(Veriﬁcation of the appropriateness andeﬀectiveness of risk management)

Basic policy of internal audits
The Group defines an internal audit as a series of processes for verifying the appropriateness and effectivenessof internal controls, including risk management, objectively and fairly and making recommendations fornecessary improvements.
Based on this definition, the Company has established “Internal Audit Rules” as the Group’s basic audit
policy, and the internal audit departments of the Company and each Group company conduct internal audits inaccordance with this basic policy.
In addition, the medium-term internal audit plan based on the management policy and internal and external
conditions as a uniform plan for the Group. The internal audit departments of the Company and each Group
company endeavor to ensure the effectiveness of internal audits through the conduct of internal audits based on
this plan.

Audit
Audit

Audit
Audit

YM Securities Co., Ltd., YM Lease Co., Ltd., Izutsuya Withcard Company Limited, YM CONSULTING CORPORATION, Sanyu, Momiji Estate,
YAMAGINCARD CO., LTD., YM Credit Guarantee Co., Ltd., YMFG ZONE PLANNING CO., LTD., YM Asset Management Co., Ltd.,YM Life Planning Co., Ltd., HOKEN HIROBA, Ltd., Data Qvic Inc., YM Saison Co, Ltd., Momiji Card, Inc., YM Career Inc., INESUS Inc.,
Nishiseto Regional CO-creation Servicer Inc., Nishiseto Marine Partners Inc., YAMAGUCHI CAPITAL Co., Ltd.,Regional Trading Company Yamaguchi Co., LTD, Bankers Farm Inc., KAIKA Corporation

The Group operates its businesses while facing various risks, including credit risk, market risk, liquidity risk, etc.,
and these risks become more diversified and complex along with changes in the economy, society and financial
environment. Based on such circumstances, the Group regards the enhancement of the risk management system
as one of its important issues, and endeavor to maintain and improve soundness.
The Group has established the “Risk Management Rules,” which clarify the basic policy for risk management.
The Group has established an organizational structure in which there is departments in charge of risk
management for each risk, a risk management control department, and the “Group ALM Committee,” the “Group
Risk Management Committee” and the “Group Executive Management Meeting” that conduct management level
deliberations, and promote the sophistication and strengthening of risk management by measuring risk amountwith a uniform method and allocating and managing capital depending on risk amounts (integrated risk
management), etc.
In addition, the Group applies the system that each department in charge of risk management of theCompany ascertains risk management conditions in the whole Group and manage comprehensively in
preparation for a ripple effect of risk within the Group.
The Audit and Inspection Dept., which is independent of the operation departments, conducts internal
audits to verify the appropriateness and effectiveness of each risk management condition in the Group, andpromotes the improvements.
YMFG Integrated Report 2022

74

Management Letter

Credit risk management
Credit risk is the risk of a decline or the destruction in the value of assets held as a result of a deterioration in
the financial condition of customers granted credit, etc. In the case of a credit risk occurring, as this may have asignificant impact on the soundness of bank management, particularly strict risk management is conducted onloans that has most of the credit risk.
The Group endeavors to ascertain the actual status of the customers and to conduct accurate credit risk
assessments through the appropriate operation of the credit rating system, and improves the accuracy of
creditworthiness evaluations by reviewing credit ratings appropriately from time to time upon the issuance offinancial statements and the occurrence of changes in the credit standing of the customers.
Self-assessment is strictly conducted by the banks in the Group based on unified standards, write-offs andprovision of allowance are performed appropriately based on the results of the self-assessment. In regard to its
validity, the content is verified by the department in charge of verification, the internal audit is conducted by thedepartment in charge of audit with maintaining its independence, and the external audit is also conducted by anauditing firm.
In addition, for the screening of individual cases, the Group has introduced a screening system that
corresponds to the size and characteristics of the banks in the Group, provides detailed support and optimal
solutions that take into consideration the business characteristics, etc., of the customers. In terms of portfolio
management, based on credit risk quantification, the Group conducts risk status analysis for each credit rating,industry and district, and endeavors to make risk management more sophisticated.
In regard to the response to the new BIS regulations that were introduced at the end of March 2007 (newregulations for capital adequacy requirements), the Company, The Yamaguchi Bank, Ltd. and Momiji Bank, Ltd.
have applied the basic internal rating measures from the second half of the fiscal year ended March 31, 2013,
and The Kitakyushu Bank, Ltd. has applied such measures from the fiscal year ended March 31, 2017.
For companies with management issues, the Customers’ Business Potentials Evaluation Dept., which has
been established in the banks in the Group, takes the leading role in responding to this, where it examines
management improvement measures, and provides support for the preparation and execution of reconstructionplans, in partnership with sales branches and external specialist organizations, and endeavors to work on
initiatives to improve rating and to prevent downgrades.

Market risk management
Market risk is the risk of incurring loss due to fluctuations in asset and liability values caused by changes invarious market risk factors, including interest, the price of securities, etc., and foreign exchange rates.
The Group constructs a management process for market risk, identifies inherent market risk, and conducts
quantitative measurements. In addition, in order to control market risk to tolerable levels, the Group has
introduced the Asset and Liability Management (ALM) system, and it regularly hold meetings of the Group ALM
Committee, and takes measures in accordance with the situation.
In addition, in regard to the status of market risk, the Group conducts regular evaluations, and conduct
verifications of the appropriateness, etc., of risk control.

Liquidity risk management
Liquidity risk is the risk, etc., of incurring loss due to being forced to raise funds at a much higher interest rate
than normal to secure funds in the case that, due to a deterioration in a bank’s financial condition, etc., thenecessary funds may not be secured, and the bank runs out of cash to run its operations.
As the majority of the Group’s fund raising is performed through deposits, fund management is conductedbased on precise forecasts under the stable funding base, and the Group mainly manages funds through fundcontrols in the financial markets.
In the fund management, the Group takes all possible measures to manage liquidity risk, including the
suppression of liquidity risk, the securing of stability, and the preparation of highly liquid assets in case of
unpredictable events, etc.

Operational risk management
Operational risks are defined as risks that the Group suffers loss due to the occurrence of problematic events inbusiness operations. They include internal fraud, external fraud, inappropriate responses in the working
environment (acts that conflict with laws and regulations, etc.), inappropriate responses in transactions withcustomers (violations of obligations, problems in product design, etc.), natural disasters, accidents, system
failures, relationships with business partners, inappropriate transaction processing, and inadequate process75

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

management, etc. The Group manages the operational risks by classifying into seven types: (1) administrativerisk, (2) system risk, (3) information risk, (4) legal risk, (5) tangible assets risk, (6) human risk and (7) money
laundering and terrorist financing risk, and manage them.
The Group has established the “Operation Risk Management Standards,” which prescribe the basic mattersconcerning operational risk management, based on the “Risk Management Rules” that prescribe the basic policy
for risk management in general, in order to appropriately manage operational risks. The department in charge ofoverseeing operational risk management centrally ascertains and manages operational risks, and eachdepartment in charge of risk management manages each risk from a technical standpoint.
“Administrative risk” is the risk of incurring loss as a result of negligence in the performance of accurate
administrative work, or due to the occurrence of an accident or fraud. The Group has prescribed its basic policy
for administrative risk management in the “Risk Management Rules,” and conducts appropriate risk management
towards the reduction of administrative risk.
“System risk” is the risk of incurring loss due to system failures, including a computer system outage or
malfunction, a cyber security incident, or the unauthorized use of computers, etc. The Group has prescribed its
basic policy for system risk management in the “Risk Management Rules,” and has established the “Information
Asset Management Rules,” which prescribe the basic matters, etc., relating to the protection and use of
information systems, and the Group conducts appropriate system risk management.
“Information risk” is the risk of incurring loss due to the leaking, loss, tampering, or inappropriate handling, etc.,
of information. The Group has prescribed its basic policy for information management in the “Risk Management
Rules,” and has established the “Information Asset Management Rules,” which prescribe the basic matters, etc.,
relating to the protection and use of information systems, and the Group conducts appropriate information
management.
“Legal risk” is the risk of incurring loss due to an incomplete legal relationship in a transaction, etc., or due to an
inadequate response to an amendment, etc., of a law and regulations. The Group has prescribed its basic policy
for legal risk management in the “Risk Management Rules,” performs legal checks and works with specialists
towards the mitigation of legal risk, and conducts appropriate risk management.
“Tangible assets risk” is the risk of incurring loss due to damage to tangible assets or a deterioration in thequality of the work environment, etc., that occurs as a result of fire, crime, or defect in asset management, etc.
The Group has clarified the department in charge of management in the “Operational Risk Management
Standards” based on the “Risk Management Rules,” and conducts appropriate risk management in response to
the wide ranging risks that surround tangible assets.
“Human risk” is the risk of incurring tangible and intangible loss due to an inappropriate employment, workplace,or safety environment, the insufficient development of human resources, or traffic accident, etc. The Group hasclarified the department in charge of management in the “Operational Risk Management Standards” based on
the “Risk Management Rules,” and conducts appropriate risk management in accordance with the characteristicsof the risk.
“Money laundering and terrorism financing risk” is the risk that the Group supper loss, including risks
deteriorating the Group’s credibility domestically and internationally by damaging society, in addition to risks
negatively affecting business operation due to imposition of the immense amount of financial penalty,
cancellation of correspondent contract, etc., when there are insufficient countermeasures against money
laundering and the provision of funds for terrorist activities.
The Group has prescribed its basic policy for money laundering and terrorism funding risk management in
the “Risk Management Rules,” has established the “Money Laundering, etc., Prevention Standards,” and conducts
appropriate money laundering and terrorism funding risk management with a risk-based approach.
Towards preventing the occurrence of a risk and minimizing the impact in the case of a risk occurring, theGroup ascertains the distribution of the operational risks that are inherent to its products, businesses, processes
and systems, internal department evaluations are conducted by each department in charge of management, andefforts are made towards risk and control self-assessment (CSA), which involves the improvement of risk
management independently, and furthermore, the Group endeavors to establish a PDCA cycle to improve theeffectiveness of risk management.
Furthermore, as a means for identifying risks and taking countermeasures, the Group establishes a reporting
system for operational risk information, collects information and reports to the management level, andendeavors to make risk management more sophisticated, such as control, transfer and avoidance of risks
through countermeasures to prevent recurrence based on factor analysis.

Reputational risk management
Reputational risk is the risk of incurring loss due to the occurrence of reputation about the Group’s managementin the market, etc.
The Group constructs a system for the early ascertaining of information relating to reputation, andendeavors to minimize risk by prescribing prevention measures in the case of occurrence of reputation, including
information disclosure, and emergency backup measures in the case of a concern of risk occurrence.
YMFG Integrated Report 2022

76

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Compliance System
Policy for compliance initiatives

Basic policy on responding to antisocial forces

The Group shares a common understanding of its responsibilities to fulfill its public mission and corporate social
responsibilities as a financial group. Accordingly, we accord topmost management priority to thoroughcompliance, take the seriousness of effective compliance and consider earning the trust of a broad-basedsociety as the basic policy.

Compliance system
To ensure appropriate compliance, the Group has established the Compliance Administration Dept., andconducts the development of compliance-related system and training for officers and employees.
The Compliance Administration Dept. liaises with the compliance management department of each Group
company, and centrally manages compliance matters throughout the Group.
In addition, the Group has established the Group Compliance Committee. It also formulates complianceprograms for each fiscal year, which equate to specific execution plans, and monitors the status of program
implementation.

Group compliance structure (as of July 1, 2022)
General meeting of shareholders

Yamaguchi Financial Group, Inc.
ReportReport Audit & Supervisory

ReportBoard of Directors
Audit

Committee

Director

ReportPartnership

Introduction

Banks within the Group
ReportBoard of Directors
Audit Audit & Supervisory Report
Director
Committee
ReportIntroduction

Group Executive Committee

Financial Auditor
Instruction

Introduction

Partnership

Financial Auditor

Introduction

Instruction

Report / Introduction

Instruction

Report / Introduction

ReportGuidance /Instruction /Monitoring

Report /Consulting

Report /Consulting

Instruction

ComplianceManagerCompliance
Personnel

Instruction /Department Response
in Charge
of Business Report /Consulting

Audit

YMFG Audit & Inspection Dept.

ManagerCompliance
Personnel
Employee

Audit

Audit /
ReportInstruction

Whistleblowing system

77“Financial Instruments Solicitation Policy”
Financial Instruments Solicitation Policy
The banks in the Group comply with the following matters, and solicit financial instruments for customers
appropriately.
(1) We recommend financial instruments that are appropriate in consideration of the customer’s investment
objective, knowledge, experience and asset standing.
(2) In order to ensure that customers select and buy financial instruments at their own judgment, we endeavor
to explain important matters, including the product content and risks.
(3) We always pay close attention to soliciting in a sincere and fair manner, and in the case of anything that is
uncertain, we do not provide fragmentary judgments, intentionally misrepresent the facts, or conduct
misleading solicitation.
(4) In the case of solicitation made by telephone or in person, we always take care to ensure that the timeand location do not cause inconvenience for the customer.
(5) We always endeavor to gain extensive product knowledge so that we can meet the trust and expectationsof customers.
* We also comply with the solicitation policy described above in relation to the “Operational Management ofCorporate Pensions in Relation to Investment Method Selection and Presentation to Members, Etc.,” and the“Designation or Changing of Investment Management Organization for Personal Pensions” under the DefinedContribution Pension Act.

LawyerPartnership
Guidance /Report /Control
Instruction /Consulting
Dept.
Monitoring
Report /Consulting
Report /Consulting
Compliance

Employee

Audit

Instruction

Guidance /Response /Monitoring

Sales Branch /Each Dept.

Audit

Report /Consulting

Each Dept.

Department
in Charge
of Business

Instruction /Response

Report /Consulting

Compliance
Committee

AdviceYMFG Compliance Administration Dept.
Guidance /Response /Monitoring

Board of Directors

Compliance
Administration Dept.

Group Compliance Committee
Secretariat: YMFG Compliance Administration Dept.
Instruction

Other Group
Companies

The Group fully recognizes the importance of social responsibility and public mission, and in order to ensure thesound performance of business operations, based on the following basic policy, promotes efforts to cut off all
relationships with antisocial forces.
1. We respond as an organization to unreasonable demands that are made by antisocial forces, and resolutely
reject such demands. In addition, we take legal measures from both civil and criminal perspectives.
2. In preparation for unreasonable demands from antisocial forces, we always work to strengthen our close
cooperation with the police, the Center for the Elimination of Violence, the Corporate Defense Council, andLawyer, etc.
3. We do not provide funds to antisocial forces.

In order to prevent scandals caused by compliance violations and harassment, etc., to detect risks at an earlystage, and to strengthen the self-cleaning function as a company, The Group has established a Group-wide
whistleblowing help desk.
In addition, for cases of compliance-related concerns and issues including acts that may be connected to aviolation of internal rules and social rules, harassment, etc., we have established the “Any Compliance Issue Help
Desk,” which receive a broad range of consultations and questions, and have developed a system to receive
reports and consultations broadly.

Handling of personal information
The Group complies with relevant laws and regulations, including the Act on the Protection of Personal
Information and the Act on the Use of Numbers to Identify a Specific Individual in Administrative Procedures, andin order to ensure the accuracy and confidentiality of information, as well as safety, the Group has established adepartment in charge of information management, provides education for officers and employees on an ongoingbasis, and endeavors to improve its effectiveness.
In addition, we have formulated and published the “Personal Information Protection Policy” concerning theappropriate protection and use of personal information.

Financial alternative dispute resolution (ADR) system
In order to resolve complaints and disputes that are filed by customers in a fair and neutral manner, the banks in
the Group have entered into a master agreement on the performance of procedures with the following
designated dispute resolution organization.
Contracted designated dispute resolution organization under the Banking Act   Japanese Bankers Association
Contact Information : JBA Customer Relations Center
Telephone: 0570-017109 or 03-5252-3772

YMFG Integrated Report 2022

78

Management Letter

Business Strategy
for Value Creation

About YMFGManagement Foundation
Supporting Value Creation

Financial Section

Communication with our shareholders and investors
Return to shareholders
FY2023 - FY2025

General meetings of shareholders and financial results briefings (Investor Relation: IR)

Trends in annual dividend /share and dividend payout ratio

Financial results briefings for analysts
and institutional investors
Individual briefings for institutional
investors* Implementation period: December 2021 to June 2022

79

Annual dividend/ Share17 companies, for 27 times

6.5

Total
return ratio
Amount ofacquisitionof ownshares5.0
Total dividends

25
20

23

24
20

FY

FY

21
20

19

18

20
20
FY

20
FY

20

17

6.8

6.5

6.1

5.6

5.0

FY

20
FY

24

23

22

21

25
20
FY

20
FY

20
FY

20
FY

20

20

(Plan)

Held two times

23% 24%

FY

31

28

4.5

FY

20
FY

Meetings with our investors

22

20

18

46%

26

own shares inconsideration ofmarket trends
and performance
forecast, etc.

10.0

14% 15%24

20

Disclosure journal (half year)

19

February

17

Q2 ﬁrst half of year
results announcement

January

Dividend
payout ratio

26%

14% 15%FY

DecemberQ3 disclosure

20

Novemberof
100% Examinationacquisition ofaround 40%

23% 24%(Unit: Billions of yen)

*Excludes acquisition of treasury shares relatingto CB issuances and redemptions

22

Integrated report
Disclosure journal (full year)

Company brieﬁng

43%

The target for FY2023 to FY2025
is a dividend payout ratio of18

Annual general
meeting of shareholders

August

FY

July

20

June

FY

May

(Unit: Yen)

Dividends increasing on an ongoingbasis (11 consecutive periods)

20

Q1 disclosure

Financial results announcement, company brieﬁng

Trends in total dividends, amount ofacquisition of own shares*, and total return ratio*

FY

IR calendar- Fiscal year ending March 31, 2023 Based on the current fiscal year’s earnings forecast and current stock price level, we acquire treasury shares,
subject to an upper limit of a transaction price of ¥10.0 billion. Through this, we expect a total return ratio of
100% to net income in the earnings forecast for the fiscal year ending March 31, 2023. Going forward, we willcontinue to aim for a dividend payout ratio of around 40%, and will consider prompt acquisition of treasury
shares in accordance with the stock price and other circumstances.

20

We actively disseminate information about financial results and the Group’s initiatives through IR tools, including
the regular corporate briefings, briefings for investors and integrated reports.
In addition, at the annual general meeting of shareholders, which is held in June of each year, we provide
courteous explanations from the perspective of shareholders, with a focus on the disclosure of information heldby the Group, and with the interest of all shareholders being treated as the highest priority.

We are targeting a dividend payout ratio ofaround 40%, and implement flexible and prompt
acquisitions of treasury shares in considerationof market trends and earnings forecasts.

Policy on
return toshareholders

FY

The Yamaguchi Financial Group, Inc. endeavor to enhance information disclosures in order to improve thesoundness and transparency of management and to increase the trust and reputation from all stakeholders,
including customers, shareholders and the local community. We focus on opportunities for dialog with ourshareholders and institutional investors, and will actively reflect the opinions of our stakeholders in management
policies and improvements through promotion of the constructive dialogue.

(Plan)

Reduction of cross-shareholdings
In regard to cross-shareholdings, the Group determines whether the stocks are held or not from the perspectiveof the appropriateness of the holding purpose, whether the benefits and risks associated with the holding areworth compared to capital cost. We have adopted a policy of not taking out new holdings unless it can berecognized that there is a valid reason for such a new holding. In addition, in regard to existing crossshareholdings, we endeavor to improve capital efficiency by implementing reductions if there is no valid reason
for holding them.

YMFG Integrated Report 2022

80

Management LetterF i na n c ia l Se ct ion

About YMFGBusiness Strategy
for Value Creation■ The Regional Economy

Through the fiscal year ended March 31, 2022, theJapanese economy continued to face difficulty because of
the prolonged novel coronavirus disease (COVID-19)
pandemic. In the first half of the year, the economy
showed signs of recovery due to the promotion of
vaccinations, the effects of various governmental policies
and improvement in overseas economies. In the second
half of the year, however, the overall situation came to a
standstill due to the emergence of new mutated variant
and the effects of Russia’s invasion to Ukraine on soaring
raw material prices and fluctuations in the financial andcapital markets.
The regional economy also continued to face difficulty
because of the prolonged COVID-19 pandemic. However,production levels in the chemical industry remained high.
The automobile industry showed signs of improvement in
the second half of the year despite the impact of parts
supply chain. Personal consumption also picked up, andthe economy as a whole was on a recovery trend.
Against this backdrop, from the perspective of regional
invigoration and in line with their mission of contributing
to regional economic development, regional financial
institutions face requests to deliver stronger financial
soundness and profitability, supply funding more flexibly
and further enhance their financial services.

■ YMFG Performance

YMFG Business Situation ………………………………… 82
Consolidated Financial Statements …………………… 84
Notes to Consolidated Financial Statements … …… 88
Independent Auditor’s Report … …………………… 113
Yamaguchi Bank Financial Statements … ………… 119
Momiji Bank Financial Statements … ……………… 121
Kitakyushu Bank Financial Statements … ………… 123

81

Financial Section

YMFG Business Situation
Summary of Business Results

Financial Section

Management Foundation
Supporting Value Creation

Amid these financial and economic conditions, supported
by its shareholders and business partners all YMFG’s
officers and employees were united in their efforts tostrengthen the Group’s management base, bolster
operating performance and contribute to the region.
YMFG strived to realize the YMFG Medium-Term
Management Plan 2019, which launched in the fiscal year
ended March 31, 2020, as this is the final fiscal year of theplan. In December 2021, YMFG formulated“Mission andReason for Existence (Purpose),”“Ideal Future (Vision)”and“Group Sustainability Policy,”and identified“Materiality,”aiming to enhance its corporate value bymobilizing all Group officers and employees and becomea corporate group that contributes to further valueenhancement of the region.
◦ “Mission and Reason for Existence (Purpose)”
Co-creation of the flourishing future of theregion◦ “Ideal Future (Vision)”
The corporate group that is chosen by theregion, trusted by the region, and contributes
to value enhancement of the region◦ “Group Sustainability Policy”
To walk and grow together with local
communities, YMFG will contribute to therealization of a sustainable society byworking to solve diverse issues and enhancecommunity value through various businessactivities.
◦ “Materiality”
YMFG has identified twelve“Materialities”tocontribute to the realization of a sustainable

society.
Through the business activities based on“Mission andReason for Existence (Purpose),”YMFG strives for regional
development and future creation. In view of themedium-term management plan starting in the fiscal year
ending March 31, 2023, losses were recorded mainly for“portfolio restructuring of securities”and“promotion of
fundamental business revitalization for customers affectedby the COVID-19 pandemic.”Due to this, the consolidated
statement of income for the current fiscal year reported
net loss attributable to owners of the parent of ¥13,005
million.
◦ Portfolio restructuring of securities
In light of the recent rise in geopolitical risks
and the accelerated normalization ofmonetary policy due to global inflation,
YMFG is restructuring its securities portfolio
by reducing mainly foreign bonds and equity
investment trusts with unrealized losses inorder to promote a shift to a stable profit
structure in the management of securities.
◦ Promotion of fundamental business revitalization
for customers affected by the COVID-19 pandemic
To vigorously promote smoother and fasterfundamental business revitalization, YMFG in
unison takes full advantage of the Group’s
strengths in having consulting and fundfunctions as well as servicing capabilities
within the Group. YMFG will allocate
additional reserves for customers who may
be affected by excessive debt or soaring
resource and energy prices, taking into
account the impact on the regional economy.
In addition, precautionary provisions areallocated for business sectors that areexperiencing increased uncertainty due tothe prolonged COVID-19 pandemic.
◦ Impairment losses on goodwill and others
associated with Hoken Hiroba
In light of the current situation where futureremains highly uncertain due to theprolonged COVID-19 pandemic, goodwill
and others, calculated as excess earning
power and recorded at the acquisition of
Hoken Hiroba in the consolidated financial
statements, have been fully amortized.
In the international business, the YMFG Overseas
Buyers’ Online Business Talks were held four times a year
online to provide opportunities to expand overseas sales
routes for the businesses that are considering overseas
operations against the backdrop of a shrinking domestic
market due to population decline and other factors, but
are facing difficulties in traveling overseas or participatingin business meetings under COVID-19 pandemic.

■ Financial Results

On a consolidated basis, total income decreased ¥29,213
million year on year, to ¥156,292 million, due to lower
gains on the cancellation of investment trusts and the saleof stock. As a result, net income (loss) attributable toowners of the parent decreased ¥37,963 million, to¥(13,005) million.
Comprehensive income decreased ¥92,869 million

YMFG Integrated Report2022

82

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Consolidated Financial Statements
year on year, to ¥(31,336) million. This decrease was due
primarily to a decrease of ¥37,886 million in net income(loss), ¥25,026 million in remeasurements of defined
benefit plans, and ¥21,089 million in unrealized gains(losses) on available-for-sales securities.
Deposits amounted to ¥10,334.6 billion, up ¥323.0
billion, due to efforts to enhance products and services tomeet increasingly diverse customer needs, as well as tosteady progress in developing sales rooted in the region.
Loans and bills discounted increased ¥249.9 billion, to¥8,144.0 billion as of March 31, 2022, due to the Group’s
efforts to fulfill its role as a regional financial institution
through its function as a financial intermediary andaggressive efforts to meet demand from business partners
with whom the Group has developed trust-based
relationships.
The Group’s holdings of securities came to ¥1,354.0
billion at year-end, down ¥431.5 billion. This change isdue to the portfolio restructuring to promote a shift to astable profit structure in terms of the management of
securities by reducing mainly foreign bonds and equity
investment trusts with unrealized losses.
Total assets amounted to ¥12,182.7 billion at fiscal
year-end, up ¥188.9 billion from one year earlier. This

increase was the result of smaller holdings of securities
and growth in due from banks and loans, against a
backdrop of higher deposits.
Net assets stood at ¥636.3 billion, down ¥44.8 billion
from a year earlier. The decrease was due to a ¥16.8
billion decrease in retained earnings due to the recordingof net loss attributable to owners of the parent, as well as
to a ¥11.3 billion decrease in unrealized gains onavailable-for-sale securities and ¥10.5 billion decrease inremeasurements of defined benefit plans from the revisionof retirement benefit plan.
Net cash used in operating activities was ¥77.1 billion,a ¥1,196.4 billion decrease from the previous year, mainly
due to the decrease in borrowed money. Net cash
provided by investing activities was ¥462.0 billion, a¥754.7 billion increase from the previous year, mainly due
to decrease in purchases of securities. Net cash used infinancing activities was ¥13.2 billion, and a difference of¥22.0 billion from the previous fiscal year is primarily
because subordinated bonds were not issued. As a resultof these cash flows, cash and cash equivalents at the endof the fiscal year came to ¥2,151.8 billion, up ¥371.6
billion.

CONSOLIDATED BALANCE SHEETSMarch 31, 2022 and 2021

Millions of yen

ASSETS
AssetsMillions of yen

Thousands of U.S.
dollars (Note 1)

2022

2021

2022

¥2,175,914¥1,807,659$17,778,528

Call loans and bills purchased (Note 4)

31,7139,189

259,114

Monetary claims bought

5,443

4,556

44,473

Trading assets (Notes 4 and 6)

3,101

1,981

25,337

Money held in trust (Notes 4 and 6)

35,06035,093

286,461

Securities (Notes 4, 5, 6 and 9)

1,354,034

1,785,562

11,063,273

Loans and bills discounted (Notes 4, 7 and 8)

8,143,997

7,894,126

66,541,360

Foreign exchanges

30,041

22,408245,453

Lease receivables and investment assets

19,69920,320160,953

Other assets (Notes 4, 6 and 9)288,263285,229

2,355,282

Tangible fixed assets (Notes 10, 11, 15 and 20)

83,13388,790679,247

Intangible fixed assets (Note 20)

6,991

9,797

57,121

Net defined benefit asset (Note 14)

32,72859,607

267,407

Cash and due from banks (Notes 3, 4 and 9)

Deferred tax assets (Note 21)

3,513

3,254

28,703Customers’ liabilities for acceptances and guarantees (Note 16)

50,38239,495

411,651

Allowance for loan losses
Total assets(81,349)(73,344)(664,670)¥12,182,663¥11,993,722$99,539,693$84,439,562

LIABILITIES AND NET ASSETS
Liabilities¥10,334,558¥10,011,575

Call money and bills sold (Notes 4 and 9)

Deposits (Notes 4 and 9)

78,078167,152

637,944

Payables under securities lending transactions (Notes 4 and 9)

314,959

326,415

2,573,405

Trading liabilities (Notes 4 and 6)
Borrowed money (Notes 4, 9 and 13)
Foreign exchanges

Yamaguchi Financial Group, Inc., Management Indices (Consolidated)

194

1,405

20,000163,412

Other liabilities (Notes 4 and 6)

102,982

89,658841,427

Provision for bonuses

2,878

2,852

23,515Net defined benefit liability (Note 14)

2,652

2,789

21,668Provision for directors’ retirement benefits

287

294

2,345

Provision for loss on interest repayments

19

43

155

Provision for reimbursement of deposits

531

709

4,339

Millions of yen

Millions of yen

Millions of yen

2021

2020

2019

2022

Consolidated total income

156,292

185,505

175,423

162,593

1,276,992

Consolidated net income (loss) attributable toowners of the parent(13,005)

24,95825,391

23,149(106,267)

Deferred tax liabilities (Note 21)

Consolidated comprehensive income(31,336)

61,533(25,204)652(256,034)

Consolidated total net assets

636,345

681,139630,245

660,958

5,199,322

12,182,663

11,993,722

10,605,416

10,304,140

99,539,693

2,652.26
yen2,729.94
yen2,458.73
yen

2,580.74
yen

21.67
U.S. dollars(53.29)
yen

99.63
yen

100.07
yen

94.65
yen

(0.44)
U.S. dollars

—
yen

99.59
yen

93.86
yen

83.27
yen

—
U.S. dollars

Capital ratio*2

12.65%

13.43%

12.62%

13.62%—

Earnings on equity – increase(1.99)%

3.84%

3.97%

3.53%

—

Group price earnings ratio*4— times

7.38 times

6.11 times

9.91 times—

Current term net income (loss) per share
Current term net income per share (diluted)*3*1 US dollar amounts have been translated, for convenience only, at the rate of ¥122.39 = US$1.00 as of March 31, 2022.
*2 YMFG calculated its capital ratio according to the uniform international standard (Basel 3).
*3 Net income per share (diluted) for the year ended March 31, 2022 is not described, because net loss per share is recorded although dilutive
shares exist.
*4 Group price earnings ratio for the year ended March 31, 2022 is not described because net loss per share is recorded.

83

172

2022

Net assets per share

11,275
5,119,258

20,000Millions of yen

Consolidated total assets

749
638,353

Corporate bonds

Thousands of
U.S. dollars*1

Provision for customers point services

83

70

678

Provision for directors’ stock benefits

489

434

3,995

Reserves under special laws

17

17

139

1,422

1,499

11,619Deferred tax liabilities for land revaluation (Notes 15 and 21)

8,883

10,28572,579Acceptances and guarantees (Note 16)

50,38239,495

411,651

Total liabilities
Net Assets(Notes 22
and 23)

1,380
626,546

11,546,318

11,312,583

94,340,371

Capital stock

50,00050,000408,530

Capital surplus

58,64858,655479,189

Retained earnings

511,253

528,086

4,177,245

Treasury stock(25,045)(18,649)(204,632)

Total shareholders’ equity

594,856

618,092

4,860,332

Unrealized gains on available-for-sale securities (Note 6)

8,172

19,477

66,770

Deferred gains (losses) on hedges

4,749

1,480

38,802

Revaluation reserve for land (Note 15)

20,001

23,192

163,420

Remeasurements of defined benefit plans

2,102

12,553

17,175

Total accumulated other comprehensive income

35,02456,702

286,167

Stock options (Note 24)

82

117

670

Non-controlling interests

6,383

6,228

52,153

Total net assets
Total liabilities and net assets

636,345

681,139

5,199,322¥12,182,663¥11,993,722$99,539,693

See accompanying notes.

YMFG Integrated Report2022

84

Management Letter

CONSOLIDATED STATEMENTS OF OPERATIONSMillions of yen

Millions of yen

2022

2021

2022

Interest on loans and discounts¥67,497¥69,188$551,491

Interest and dividends on securities

22,54737,395

184,223

Other interest income

2,196

849

17,94300026,57025,389217,093

Trust fees
Trading income

1,752

1,925

14,315

Other operating income

20,10827,095

164,294

Recoveries of written-off claims

10

9

82

Compensation for branch relocation

—

2

—

Other income (Note 17)

15,612

23,653

127,551

Total income

156,292

185,505

1,276,992

Expenses
Interest expense:
1,594

2,274

13,024

Interest on borrowings and rediscounts

747

945

6,103

Interest on bonds payable

158

81

1,291

2,966

2,546

24,234

Other interest expense
Fees and commissions

9,561

9,577

78,119Other operating expenses

47,78650,895

390,440

General and administrative expenses (Notes 18 and 24)

60,56264,541

494,828

Impairment losses (Note 12)

5,631

381

46,009Other expenses (Note 19)

32,79017,470267,915

Total expenses

161,795

148,710

1,321,963(5,503)36,795(44,971)941

11,655

7,689

Income (loss) before income taxes
Income taxes (Note 21):
Current
Deferred

6,432

130

52,553

Net income (loss)(12,876)

25,010(105,213)

129

52

1,054

¥(13,005)¥24,958$(106,267)

Yen

Yen

Net income attributable to non-controlling interests
Net income (loss) attributable to owners of the parent
Amounts per share of common stock:2022

Net income (loss) attributable to owners of the parent (Note 30)¥(53.29)

Millions of yen
Shareholders’ Equity

Treasury Stock¥50,000¥58,656¥508,212¥(14,321) ¥602,547

Dividend paid

(6,347)(6,347)(6,347)

Net income attributable toowners of the parent

24,95824,95824,958(5,001)(5,001)(5,001)

673

672

672

1,263

1,263

Balance at March 31, 2020

¥99.63Purchase of treasury stock
Disposal of treasury stock

Deferred gains (losses) on hedges
Remeasurements of defined benefit plans
Comprehensive income (Note 27)
Comprehensive income attributable to owners of the parent
Comprehensive income attributable to non-controlling interests
See accompanying notes.

(1)

Reversal of revaluation reserve
for land

1,263

Net changes of items otherthan shareholders’ equity
Total changes of items during theyear

Millions of yen

Millions of yen

2022

2021

2022

¥(12,876)¥25,010$(105,213)(18,460)

36,523(150,821)(11,278)

9,811(92,140)

3,269

12,137

26,710(10,451)

14,575(85,391)¥(31,336)¥61,533$(256,034)(31,493)

61,459(257,317)

157

74

1,283

¥24,455¥(2,022)¥21,465¥127¥6,106¥630,245

Balance at March 31, 2021

12,137(1,263)

14,57535,237(10)

12235,34919,874(4,328)15,545

9,788

12,137(1,263)

14,57535,237(10)122

50,894¥50,000¥58,655¥528,086¥(18,649)¥618,092¥19,477¥1,480¥23,192¥12,553¥56,702¥117¥6,228¥681,139

Cumulative effects of changes
in accounting policies
Restated balance

9,788
(1)

(320)
50,00058,655

527,766(320)(18,649)

617,772(320)
19,477

1,480

23,192

12,55356,702

117

6,228

680,819

Changes of items during the year
Dividend paid

(6,699)(6,699)(6,699)Net loss attributable toowners of the parent(13,005)(13,005)(13,005)(6,501)(6,501)(6,501)

105

98

98

3,191

3,191

Purchase of treasury stock
Disposal of treasury stock(7)

Reversal of revaluation reserve
for land

3,191

Net changes of items otherthan shareholders’ equity
Total changes of items during theyear
Balance at March 31, 2022

(11,305)

3,269(3,191)(10,451)(21,678)

(35)

155

(21,558)—(7)(16,513)(6,396)(22,916)(11,305)

3,269(3,191)(10,451)(21,678)

(35)

155

(44,474)¥50,000¥58,648¥511,253¥(25,045)¥594,856¥8,172¥4,749¥20,001¥2,102¥35,024¥82¥6,383¥636,345

Thousands of U.S. dollars (Note 1)
Shareholders’ Equity

Accumulated other comprehensive income

Retained
Earnings

Total
Unrealized gains
accumulatedon
Remeasurements
otheravailable-for- Deferred losses
Revaluation of defined benefit comprehensive
sale securities
on hedges
reserve for landplansincomeStock options

Non-controlling
Interests
Total Net Assets$964$50,887 $5,565,324

Capital Surplus$408,530$479,247 $4,314,781$(152,374) $5,050,184(2,605)(2,605)

4,312,176(152,374) 5,047,579

Dividend paid

(54,737)(54,737)(54,737)

Net loss attributable toowners of the parent(106,267)(106,267)(106,267)(53,116)(53,116)(53,116)

858

800

800

26,07326,073

Restated balance

408,530

479,247

Treasury Stock

Total
Shareholders’EquityCapital Stock

Cumulative effects of changes
in accounting policies
Thousands of U.S.
dollars (Note 1)¥(10,657)

Non-controlling
Interests
Total Net Assets—$(0.44)Years ended March 31, 2022 and 2021

¥9,689Stock options

Changes of items during the year

2022

2021

Total
Unrealized gains
accumulatedon
Remeasurements
otheravailable-for- Deferred losses
Revaluation of defined benefit comprehensive
sale securities
on hedges
reserve for landplansincomeRetained
Earnings

U.S. dollars (Note 1)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unrealized gains (losses) on available-for-sale securities

Total
Shareholders’EquityCapital Surplus

Balance at March 31, 2021

Other comprehensive income (Note 27)

Accumulated other comprehensive income

Capital StockSee accompanying notes.

Net income (loss)

Financial Section

Years ended March 31, 2022 and 2021

Thousands of U.S.
dollars (Note 1)

Income (Note 26)
Interest income:Interest on deposits

Management Foundation
Supporting Value Creation

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

Years ended March 31, 2022 and 2021

Fees and commissions

Business Strategy
for Value Creation

About YMFG

$159,139$12,092$189,492$102,566$463,289(2,605)
159,139

12,092

189,492

102,566

463,289

964

50,887

5,562,719

Changes of items during the year

Purchase of treasury stock
Disposal of treasury stock(58)

Reversal of revaluation reserve
for land

26,073

Net changes of items otherthan shareholders’ equity
Total changes of items during theyear
Balance at March 31, 2022—
$408,530(58)(134,931)$479,189 $4,177,245(92,369)

26,710(26,072)(85,391)(177,122)

(294)

1,266

(176,150)(187,247)(92,369)

26,710(26,072)(85,391)(177,122)

(294)

1,266

(363,397)$(204,632) $4,860,332$66,770$38,802$163,420$17,175$286,167$670(52,258)$52,153 $5,199,322

See accompanying notes.

85

YMFG Integrated Report2022

86

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Notes to Consolidated Financial Statements
Years ended March 31, 2022 and 2021

CONSOLIDATED STATEMENTS OF CASH FLOWS

1. BASIS OF PRESENTATION

Years ended March 31, 2022 and 2021

Millions of yen
2022

Millions of yen
2021

Thousands of U.S.
dollars (Note 1)
2022¥(5,503)
5,401
5,631
400
5
8,005
26
26,879
(137)
(7)
54
(24)
(178)
13
0
(92,239)
5,465
34,738(245)(18,785)90(1,120)631(249,871)
323,940(956)(11,806)
3,392(23,412)(89,074)(11,456)(7,633)(22)
622(9,094)
1,241
81,234(5,614)(40,474)(69,883)(9,095)
1,846(77,132)¥36,795
5,787
381
378
7
7,542
87
(24,565)(1,141)
(0)
45
33
(321)
0
(11)
(107,432)
5,846
8,440
3,680
(9,935)
(733)
(439)
6
(241,500)
600,731(115,091)
610,354(487)(7,170)75,160164,949(1,715)
(3)
(558)
—
—
82,401(6,668)48,673
1,133,526(14,227)
2
1,119,301¥(44,971)
44,12946,0093,268
41
65,406
212
219,618(1,119)
(57)
441
(196)
(1,454)106
0(753,648)
44,652283,830(2,002)(153,485)
735(9,151)5,156(2,041,597)
2,646,785(7,811)(96,462)
27,715(191,290)(727,788)(93,602)(62,366)
(180)
5,082
(74,303)
10,140663,731(45,870)(330,672)(570,968)(74,312)
15,083(630,197)

Cash flows from investing activities:
Purchases of securities
Proceeds from sales of securities
Proceeds from maturity of securities
Purchases of money held in trust
Proceeds from sales of money held in trust
Purchases of tangible fixed assets
Proceeds from sales of tangible fixed assets
Purchases of intangible fixed assets
Purchases of shares of affiliates accounted for by the equity method
Net cash provided by (used in) investing activities(2,107,076)
2,534,144
35,224(8,510)8,970(1,516)2,740(1,992)(10)
461,974(2,623,555)
2,286,070
60,669(49,940)
37,131(1,666)754(2,202)—(292,739)(17,216,080)
20,705,483
287,801(69,532)
73,291(12,387)
22,388(16,276)(82)
3,774,606

Cash flows from financing activities:
Issuance of subordinated bonds
Dividends paid
Dividends paid to non-controlling shareholders
Purchases of treasury stock
Proceeds from disposal of treasury stock
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of fiscal year
Cash and cash equivalents at the end of fiscal year (Note 3)—(6,699)(3)(6,501)
0(13,203)7
371,646
1,780,180¥2,151,826

19,885(6,347)(3)(5,001)297
8,831
3
835,396944,784¥1,780,180—(54,735)(25)(53,116)0(107,876)
65
3,036,598
14,545,143$17,581,741

Cash flows from operating activities:
Income (loss) before income taxes
Depreciation
Impairment losses
Amortization of goodwill
Equity in earnings of affiliates
Net change in allowance for loan losses
Net change in provision for bonuses
Net change in defined benefit asset
Net change in defined benefit liability
Net change in provision for directors’ retirement benefits
Net change in provision for directors’ stock benefits
Net change in provision for loss on interest repayments
Net change in provision for reimbursement of deposits
Net change in provision for customers point services
Increase (decrease) in reserves under special laws
Interest income
Interest expenses
Net gains related to securities transactions
Net losses (gains) from money held in trust
Net exchange losses (gains)
Net losses (gains) from disposition of fixed assets
Net change in trading assets
Net change in trading liabilities
Net change in loans and bills discounted
Net change in deposits
Net change in negotiable certificates of deposits
Net change in borrowed money excluding subordinated loans
Net change in deposits with bank
Net change in call loans and bills purchased
Net change in call money and bills soldNet change in payables under securities lending transactions
Net change in foreign exchanges (asset account)
Net change in foreign exchanges (liability account)
Net change in lease receivables and investment assets
Losses (gains) on cancellation of retirement benefit trusts (Note 14)
Loss (gain) on revision of retirement benefit planInterest received
Interest paid
Other, net
Subtotal
Income taxes paid
Income taxes refunds
Net cash provided by (used in) operating activities

See accompanying notes.

87

Yamaguchi Financial Group, Inc. “YMFG”() is a holding
company for The Yamaguchi Bank, Ltd. “Yamaguchi(
Bank”), Momiji Bank, Ltd. “Momiji(
Bank”), The Kitakyushu
Bank, Ltd. “Kitakyushu(
Bank”) and other subsidiaries.
YMFG and its consolidated subsidiaries “the(Group”)
maintain their accounts and records in accordance withthe provisions set forth in the Financial Instruments andExchange Act and its related accounting regulation and in
conformity with accounting principles and practices
generally accepted in Japan “Japanese(
GAAP”). Japanese
GAAP are different in certain respects as to applicationand disclosure requirements of International Financial
Reporting Standards.
The accompanying consolidated financial statements
are a translation of the audited consolidated financial
statements of YMFG which were prepared in accordancewith Japanese GAAP and were filed with the appropriate
Local Finance Bureau of the Ministry of Finance as
required by the Financial Instruments and Exchange Act.
In preparing the accompanying consolidated financial
statements, certain restructuring and reclassifications havebeen made in the consolidated financial statements issued
domestically in order to present them in a form which ismore familiar to readers outside Japan.
The consolidated financial statements are stated inJapanese yen. The translations of the Japanese yenamounts into U.S. dollars are included solely for theconvenience of readers, using the prevailing exchange rate
at March 31, 2022, which was ¥122.39 to U.S.$1.00. Suchtranslations should not be construed as representations
that the Japanese yen amounts have been, could havebeen, or could in the future be, converted into U.S. dollars
at this or any other rate of exchange.

2. SIGNIFICANT ACCOUNTING POLICIESConsolidation and equity method(1) Scope of consolidation

Japanese accounting standards on consolidated financial
statements require a company to consolidate any
subsidiaries of which the company substantially controls
the operations, even if it is not a majority owned
subsidiary. Control is defined as the power to govern thedecision-making body of an enterprise.
(i) Consolidated subsidiaries were 19 at March 31, 2022
and 2021.
The names of the main consolidated subsidiaries arelisted on page 21.
The scope of consolidation includes Nishiseto
Regional Co-creation Servicer Inc. and Inesus inc. dueto their establishment in the year ended March 31,2021.
(ii) No unconsolidated subsidiary at March 31, 2022 and2021.
Maple Funding Corporation, an unconsolidated
subsidiary not accounted for by the equity method in
the year ended March 31, 2020, was liquidated in theyear ended March 31, 2021.

(2) Application of the equity method

Japanese accounting standards also require any
unconsolidated subsidiaries and affiliates with financial
and operating policies over which YMFG is able toexercise material influence to be accounted for by theequity method.
(i) No unconsolidated subsidiary was accounted for by theequity method at March 31, 2022 and 2021.
(ii) As at March 31, 2022 and 2021, three and two
affiliates were accounted for by the equity method,respectively.
Affiliates as at March 31, 2022 were as follows:
YM Saison Co., Ltd.
Momiji Card Co., Ltd.
Nishiseto Marine Partners
The scope of application of equity method includes
Nishiseto Marine Partners due to its establishment in
the year ended March 31, 2022.
Affiliates as at March 31, 2021 were as follows:
YM Saison Co., Ltd.
Momiji Card Co., Ltd.
(iii) As at March 31, 2022 and 2021, no unconsolidated
subsidiary was not accounted for by the equity
method.
Maple Funding Corporation, an unconsolidated
subsidiary not accounted for by the equity method in
the year ended March 31, 2020, was liquidated in theyear ended March 31, 2021.
(iv) There were no affiliates that were not accounted forby the equity method as at March 31, 2022 and 2021.

(3) The balance sheet dates of consolidated
subsidiaries

The balance sheet date of all of the consolidated
subsidiaries is March 31 every year.

(4) Accounting policies
Criteria for recording dividends payable on securities
Dividends distributed from other retained earnings (cashdividends only) are recorded in the year that includes theeffective date of the dividend-related resolution by theissuing company’s general meeting of shareholders, Boardof Directors or other institution with decision-making
authority.

Trading assets, trading liabilities and transactions for
trading purposes

The valuation method of“trading assets”and“trading
liabilities”is as follows:
Balances incurred by transactions of which the
purpose is to earn a profit by taking advantage ofshort-term fluctuations in a market or discrepancies indifferent markets of interest rates, currency exchange
rates, share prices or other indices (hereinafter referred toas“trading purposes”) are included in“trading assets”or“trading liabilities”in the consolidated balance sheets asof the date on which the transactions have been
contracted. The income or losses on these transactions
are recorded as“trading income”and“trading expenses”
in the consolidated statements of OPERATIONS.
Trading assets and trading liabilities are valued, in thecase of securities and commercial paper, at the market
value as of the date of the balance sheet and, in the case

YMFG Integrated Report2022

88

Management Letterof derivatives, including swaps, futures and options, at theamount due if the transactions were to be settled as ofthe date of the balance sheet.“Trading income”and“trading expenses”include interest income and interest
expense, respectively, and gains and losses, respectively,
resulting from the valuation of securities, commercial
paper, derivatives, etc., which are included in“trading
assets”or“trading liabilities.”

Securities

With regard to the valuation of securities, held-to-maturity
debt securities are stated at amortized cost (straight-line
method) using the moving-average method.
Available-for-sale securities are stated at fair value (cost ofsale calculated primarily according to the moving-averagemethod). Shares, etc. that do not have a market price arevalued at cost using the moving-average method.
Unrealized gains (losses) on available-for-salesecurities (excluding valuation differences due to foreignexchange fluctuations, which are included in foreignexchange trading gains or losses as other operating
income or other operating expenses) are reported as acomponent of net assets.

Money in trust

Trust assets within money held in trust are valued using
the market value method.

Derivatives

Derivatives other than those for which exceptional
accounting treatment is applied are stated at fair value.

Criteria for recording gains or losses on thecancellation of investment trusts

When handling the cancellation of investment trusts byconsolidated subsidiaries engaged in the banking
business, YMFG does not offset cancellation gains andlosses occurring on each transaction. Rather, cancellation
losses are recorded in“loss on redemption of government
bonds, etc.,”which is within“other operating expenses.”
Cancellation gains are recorded in“interest and dividends
on securities.”

Criteria for recording income and expenses related
to lease transactions

Criteria for recording income and cost are recognized at
the time lease fees are received. Income is recorded in“other operating income,”and cost of sale is recorded in“other operating expenses.”

Criteria for recording sales and cost of sales of
installment sales transactions

Payment dates are used as the basis for installment
agreements, with installment sales and installment costs
recoded in accordance with the elapsed period.
Installment sales are recorded in“other operating
income,”and installment costs are recorded in“otheroperating expenses.”Unrealized profit on installment
sales is recorded under“other liabilities,”and unrealized
installment profit is deferred for installment receivables
that have not come due as of the end of the year.

89

Method for recording revenue

YMFG recognizes revenue when control of a promised
goods or services is transferred to a customer in an
amount that reflects the consideration to which YMFG
expects to be entitled in exchange for those goods orservices.

Method of hedge accounting

The subsidiaries that conduct banking business “the(Banks”) apply deferred hedge accounting in accordancewith the“Treatments of Accounting and Audit on
Application of Accounting Standard for Financial
Instruments in Banking Industry”(The Japanese Instituteof Certified Public Accountants “JICPA”() Industry Audit
Committee Report No. 24, March 17, 2022).
As for the hedge to offset market fluctuation, theBanks assess the effectiveness of the hedge by grouping
the hedged items such as deposits and loans and thehedging instruments such as interest rate swaps by theirmaturity.
Also, the Banks apply deferred hedge accounting tohedge foreign exchange risks associated with various
foreign currency denominated monetary assets andliabilities as stipulated in the“Treatment of Accounting
and Auditing Concerning Accounting for Foreign Currency
Transactions in Banking Industry”(JICPA Industry Audit
Committee Report No. 25, October 8, 2020).
The effectiveness of the currency swap transactions,exchange swap transactions and similar transactions
hedging the foreign exchange risks of monetary assets andliabilities denominated in foreign currencies is assessed
based on comparison of the foreign currency position of
the hedged monetary assets and liabilities and thehedging instruments.
The Banks apply an exceptional accounting treatment,
as permitted if certain conditions are met, for certain
interest rate swaps utilized as hedging instrument. In thattreatment, the interest swap contracts are not recorded atfair values but the net interest to be paid or received
under the contracts is added or deducted to the interest
arising from their related hedged assets.

Allowance for loan losses

The Banks provide allowance for loan losses according to
the following write-off and provisioning standards.
For loans to borrowers who are legally bankrupt (dueto bankruptcy, composition, suspension of transactions
with banks by the rules of clearinghouses, etc.) or
substantially bankrupt, an allowance is provided in theamount of loans, net of amounts expected to be collected
through disposition of collateral or through execution ofguarantees.
For loans to borrowers in danger of bankruptcy, anallowance is provided in the amount considered
uncollectible based on the amount of loans, net ofamounts expected to be collected through disposition ofcollateral or through execution of guarantees, and othersources.
Loans to normal borrowers and borrowers requiringcaution are classified into certain groups, and expected
losses are estimated for the upcoming one or three-year
period. For loans to normal borrowers, expected loss
amounts are calculated by using average values for actual

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rates of losses from bad debts during a specific period in
the past, based on actual amounts of bad debt over a
one-year period, and adjusted as necessary for futureforecasts taking into account the expected deteriorationof operating performance. For loans to borrowers
requiring caution, expected loss amounts are calculated
by using average values for actual rates of losses from bad
debts or default probabilities during a specific period in
the past, based on actual amounts of bad debt or
bankruptcy over a three-year period, and adjusted asnecessary for future forecasts taking into account the
expected deterioration of operating performance.
For loans to a large borrower requiring caution who
has formulated a management improvement plan andcarries specifically large credit risk and whose loan
amount, net of amounts expected to be collected throughdisposition of collaterals or execution of guarantees,
exceeding a certain amount, difference between amountobtained by discounting cash flows at the initial
contractual interest rate and the book value of loans isrecorded as allowance for loan losses (discounted cash
flow method; hereinafter,“DCF method”), if the cash
flows related to the collection of principal and the receipt
of interest can be reasonably estimated.
Each branch as well as the credit supervision
department evaluates all loans in accordance with theself-assessment rule.
Other consolidated subsidiaries provide an allowance
for an amount calculated using the rate of collection
losses in the past for loans of normal borrowers in
addition to amounts estimated based on collectability
analysis for borrowers in danger of bankruptcy and certain
other borrowers.

Tangible fixed assets (excluding lease assets)

Depreciation of tangible fixed assets of YMFG and its
consolidated subsidiaries that conduct banking businessare computed by using the declining-balance method
except for buildings (excluding fixtures) acquired after
April 1, 1998 and fixtures and buildings acquired after
April 1, 2016, which are depreciated using the straight-line
method.
The estimated useful lives of the assets are primarily
as follows:
Buildings: 7 to 50 years
Others: 2 to 15 years
Other consolidated subsidiaries depreciate their
tangible fixed assets using mainly the declining-balancemethod over the useful lives of the respective assets
provided by the Corporation Tax Act in Japan.

Intangible fixed assets (excluding lease assets)

Amortization of intangible fixed assets is computed byusing the straight-line method. Software costs for internal
uses are amortized over the estimated useful life (5 years).

Lease assets

Lease assets included within tangible and intangible fixed
assets related to finance lease transactions that do nottransfer ownership are depreciated over the lease termusing the straight-line method. For lease assets with aguaranteed residual value stated in their leaseagreements, the residual value is set at the guaranteed

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Financial Section

amount. Otherwise, the residual value is assumed to be
zero.

Income taxes

Income taxes comprise corporate, enterprise andinhabitant taxes. The Group recognizes tax effects of
temporary differences between the financial statement
basis and the tax basis of assets and liabilities. The asset
and liability approach is used to recognize deferred tax
assets and liabilities for the expected future tax
consequences of temporary differences.

Foreign currency translation

Foreign currency assets and liabilities and the accounts ofoverseas branches of YMFG and consolidated subsidiaries
are translated into yen at the rates prevailing at theconsolidated balance sheet date.

Provision for bonuses

Provision for bonuses is provided for payment of bonuses
to employees, in the amount of estimated bonuses thatare attributable to the year.

Method of accounting for retirement benefits

When calculating retirement benefit obligations, thebenefit formula method is used for attributing expected
retirement benefits to the year-end. The following
methods are used to expense prior service costs andactuarial gains or losses.
Prior service costs: Expensed as incurred using thestraight-line method over a fixed period (two years) within
the employee’s average remaining service period
Actuarial gains or losses: Apportioned for each year as
incurred using the straight-line method over a fixed period(10–11 years) and expensed in each of the following years
Some consolidated subsidiaries employ the simplified
method for calculating retirement benefit obligations andperiodic benefit costs, stating retirement benefit
obligations at the amounts required as if all employees
voluntarily terminate their employment as of the year-end.

Provision for directors’ retirement benefits

The provision for directors’ retirement benefits forconsolidated subsidiaries outside the banking business isprovided for the estimated amount corresponding to
accrued retirement benefit payments to directors as of theend of the year.

Provision for directors’ stock benefits

The provision for directors’ stock benefits is determinedaccording to the directors’ stock benefit regulations for
YMFG and its subsidiaries (banks within YMFG (Yamaguchi
Bank, Momiji Bank and Kitakyushu Bank) and YM
Securities; the same shall apply hereafter) in preparation
for the payment of stock benefits to directors (excluding
directors who are members of the Audit and Supervisory
Committee, part-time directors and outside directors) and
executive officers (hereinafter,“Subject Directors, etc.”)
based on expected stock benefit obligations as of March
31, 2022.

Provision for loss on interest repayment

Provision for loss on interest repayment is provided for

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90

Management Letter

possible losses on reimbursements of excess interest
payments and loan losses related to consumer financeloans extended at interest rates in excess of the maximum
interest rate prescribed in the Interest Rate Restriction
Law.
In accordance with the“Audit Guidelines on Consumer
Finance Companies’ Provisions for Possible Losses on
Reimbursements of Excess Interest Payments,”issued by
JICPA in 2012, the amount of such provision is rationallyestimated and booked based on actual historical
repayment claims by debtors.

Provision for reimbursement of deposits

Provision for reimbursement of deposits is provided for inorder to meet depositor requests for reimbursement on
deposits already derecognized as liabilities, in an amountdeemed necessary by estimating the losses corresponding
to the expected requests for reimbursements in the future.

Provision for customer point services

Provision for customer point services is provided inconjunction with a point system to promote credit carduse. The provision is recorded for the expected cost to be
incurred when credit card members use points they havereceived as of the balance sheet date.

Reserves under special laws

Reserves under special laws consist of the financial
instruments transaction responsibility reserve posted by
YM Securities Co., Ltd., which were calculated according
to the specified formula of Article 46-5 of the Financial
Instruments and Exchange Act and Article 175 of the
Cabinet Office Order Related to the Financial Instruments
Business, to prepare for future eventual losses originatingfrom incidents relating to the purchase and sale ofsecurities or other transactions.

Amounts per share of common stock

Computations of net income per share of common stock
are based on the weighted-average number of shares
outstanding during each year.
Cash dividends per share represent the cash dividends
declared as applicable to each year.

Amortization of goodwill

Goodwill is amortized mainly over a 10-year period using
the straight-line method.

Consumption taxes

YMFG and its consolidated subsidiaries employ the tax
exclusion method for consumption tax and local
consumption taxes, meaning that transaction amounts andconsumption tax amounts are treated separately foraccounting purposes.
However, non-deductible consumption taxes forpurchase of property, plant and equipment are recognized
as expenses for the year of the purchase.

Adoption of consolidated tax payment system

YMFG and certain of its consolidated subsidiaries adopted
the consolidated tax payment system as provided under
the Corporation Tax Act.

91

Major accounting estimates
Allowance for loan losses

The items below relate to all banks within YMFG.
1. Amounts in the consolidated financial statements forthe years ended March 31, 2022 and 2021
Millions of yen

Total loan amount before
intra-Group eliminations

Corresponding allowance forloan losses

Thousands of
U.S. dollars

2022

2021

¥8,223,908¥7,963,538$67,194,281

2022

78,06869,505

637,863

Of this, the following amounts were to borrowers ofmanagement improvement support initiatives.
Millions of yen

Total loan amount before
intra-Group eliminations

Corresponding allowance forloan losses

Thousands of
U.S. dollars

2022

2021

¥133,405¥137,771$1,089,999

2022

27,693

15,835226,268

2. Details of major accounting estimates related to items
identified separately(1) Calculation method
At YMFG banks, branches and departments conducting
self-assessments perform asset appraisals of all
obligations, including loans, based on asset
self-assessment criteria. Asset appraisals are conducted inaccordance with borrowers’ credit risk. In addition tofinancial details and other quantitative information,
judgments incorporate factors related to the borrower,such as forecasts for the future. Appraisals also take into
consideration the satisfaction of certain conditions, suchas the formulation of management improvement plans
determined to be rational and highly likely to be achieved.
Borrower categories are determined on the basis of suchconsiderations.
Information related to recording the allowance forloan losses is provided in“Allowance for loan losses”
under (4) Accounting policies in“2. SIGNIFICANTACCOUNTING POLICIES.”(2) Major assumptions
YMFG’s main bases of operation are in Yamaguchi
Prefecture, Hiroshima Prefecture and the city of
Kitakyushu. In addition to a shrinking population,
decreasing birthrate and aging population, and a shortageof business successors, recently the region has been
affected by the prolonged COVID-19 pandemic, which has
reduced corporate earnings, lowered personal
consumption and led to uncertainty about the future.
As one aspect of its efforts to achieve regional
revitalization and regional economic invigoration amid
these circumstances, YMFG conducts business feasibility
assessments. YMFG designates borrowers that it
determines to require management improvement support
as“borrowers of management improvement support
initiatives”and concentrates on providing such support.
The determination of borrower categories asborrowers of management improvement support initiatives
is based on YMFG’s estimates of future forecasts, namely,
the expectation that management improvement plans on
which such support is based are rational and achievable.
Recently, the impact of the prolonged COVID-19
pandemic on loan credit expenses has been at a low level
partly due to active financial support. However, for sectors
with increasing uncertainties due to the prolonged

About YMFGBusiness Strategy
for Value Creation

COVID-19 pandemic, additional allowance for loan losses
is recorded using the expected loss rate adjusted basedon the expected deterioration of operating performance.
(3) Impact on consolidated financial statements for the
next year
Actual losses that exceed bad-debt expectations, aninsufficient allowance for loan losses, deterioration of theoverall economic environment, a decrease in the value ofcollateral or other unforeseen circumstances could require
the Group to change the standards it has set or adjust
expected losses. Furthermore, accumulations in theallowance for loan losses could have a significant effecton operating performance and the financial condition.
If the COVID-19 pandemic persists for a longer periodof time or increases in severity, the operating environment
could deteriorate further. This situation could have amaterial impact on the allowance for loan losses for thefollowing year.

Changes in accounting policies
Application of the Accounting Standard for Revenue
Recognition and other standards

YMFG has applied the“Accounting Standard for Revenue
Recognition”(ASBJ Statement No. 29, March 31, 2020;
hereinafter“Revenue Recognition Standard”) and otherstandards from the beginning of the year ended March 31,
2022. YMFG recognizes revenue when control of apromised goods or services is transferred to a customer inan amount that reflects the consideration to which YMFG
expects to be entitled in exchange for those goods orservices. YMFG applies the“Revenue Recognition
Standard,”etc. in accordance with the transitional
treatment provided for in the proviso to Paragraph 84 of
the Revenue Recognition Standard. The cumulative impactof retrospectively applying the new accounting policies toprior years is adjusted to retained earnings at the
beginning of the year ended March 31, 2022, with the
new accounting policies applied from the beginningbalance. The impact of the application on the
consolidated financial statements is immaterial.
In accordance with the transitional treatment set forthin Paragraph 89-3 of the Revenue Recognition Standard,notes on revenue recognition for the year ended March
31, 2021 are not presented.

Application of the Accounting Standard for Fair
Value Measurement and other standards

YMFG has applied the“Accounting Standard for Fair
Value Measurement”(ASBJ Statement No. 30, July 4,
2019; hereinafter“Fair Value Measurement Standard”)
and other standards from the beginning of the year ended
March 31, 2022. In line with the application, YMFG
reviewed fair value measurement for unlisted derivativetransactions to reflect the credit risk of YMFG andcounterparties on the fair values. In applying the new
accounting policies, the cumulative impact to prior years
is reflected on retained earnings at the beginning of theyear ended March 31, 2022 in accordance with thetransitional treatment provided in the additional clause in
Paragraph 20 of the Fair Value Measurement Standard.
The impact of this measure on the consolidated financial
statements is immaterial.

Management Foundation
Supporting Value Creation

Financial Section

Moreover, YMFG prospectively applied the new
accounting policies stipulated by the Fair Value
Measurement Standard, etc. in accordance with thetransitional treatment provided in Paragraph 19 of the Fair
Value Measurement Standard and Paragraph 44-2 of the“Accounting Standard for Financial Instruments”(ASBJ
Statement No. 10, July 4, 2019). Accordingly, YMFG
changed the measurement criterion for the value of listed
shares on the consolidated balance sheets as of the endof the year ended March 31, 2022 from the average ofmarket prices for one month prior to the end of the year
to the market price at the end of the year.
In addition, YMFG included notes on fair value
information by level within the fair value hierarchy in thenotes on financial instruments. However, in accordancewith the transitional treatment provided in Paragraph 7-4of the“Implementation Guidance on Disclosures about
Fair Value of Financial Instruments”(ASBJ Guidance No.
19, July 4, 2019), notes pertaining to the year ended
March 31, 2021 are not presented.

Standards and guidance not yet adopted

The following guidance was issued but not yet adopted.
-“Implementation Guidance on Accounting Standard for
Fair Value Measurement”(ASBJ Guidance No. 31, June17, 2021)(1) Overview
The revision to the“Implementation Guidance on
Accounting Standard for Fair Value Measurement”(ASBJ
Guidance No. 31) as of June 17, 2021 is to revise andpublish“determination of the fair value of investment
trusts”and notes on the fair value of“investments inpartnerships, etc. for which equity interests are recorded
on a net basis on the consolidated balance sheet.”Whenthe ASBJ published this guidance on July 4, 2019, it
announced that these issues would be examined forapproximately one year after the publication of the“Accounting Standard for Fair Value Measurement,”
because“determination of the fair value of investment
trusts”requires certain examination in discussions with
relevant parties, and notes on the fair value of“investments in partnerships, etc. for which equity
interests are recorded on a net basis on the consolidatedbalance sheet”also require certain examination.
(2) Effective date
To be effective from the beginning of the year ending
March 31, 2023.
(3) Effects of the application of the standards
The impact of applying the“Implementation Guidance on
Accounting Standard for Fair Value Measurement”on the
consolidated financial statements is currently being
measured.

Changes in accounting estimates
Criteria for recording allowance for loan losses

Through business feasibility assessments, the banks within
YMFG have supported the formulation andimplementation of business plans and other plans leading
to the medium- to long-term growth of borrowers.
Meanwhile, for borrowers requiring caution who have

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92

Management Letter

formulated a management improvement plan Underdifficult financial condition, the banks within YMFG
deliberated methods and frameworks for estimating
expected losses more precisely, since they confirmed thatthe portfolio of these borrowers has risk characteristics
different from that of other borrowers requiring caution In
terms of loss rates.
As a result, the banks within YMFG have successfully
established a framework for estimating expected losses
more precisely for the portfolio. Accordingly, since theyear ended March 31, 2022, the DCF method has been
applied to these large borrowers, of the aforementioned
borrowers, whowhose loan have the amount of loans andthe amount of loans, net of amounts expected to becollected through disposition of collateral or throughexecution of guarantees, exceedsing a certain amount.
As a result of this change, provision of allowance forloan losses and allowance for loan losses increased by¥828 million ($6,765 thousand), respectively, and ordinary
loss and loss before income taxes accordingly increasedby the same amount.

Additional information(Board Benefit Trust (BBT))YMFG has introduced a Board Benefit Trust “BBT”() toraise awareness among Subject Directors, etc. of YMFG
and its subsidiaries (banks within the Group (Yamaguchi
Bank, Momiji Bank and Kitakyushu Bank) and YM
Securities; the following shall apply hereinafter) towardraising operating performance at YMFG over the medium
to long term and contributing to increases in corporate
value.
(1) Overview of transactions
Via the trust, YMFG acquires YMFG’s common sharesusing funds provided by YMFG. YMFG’s share and cash
equivalent to fair value of YMFG’s stock measured at thetime of retirement are granted to be distributed via thetrust to Subject Directors, etc. according to Subject
Directors, etc.’ positions, and the level of achievement ofoperating performance in accordance with directors’ stock
benefit regulations established by YMFG and its
subsidiaries.
(2) Company shares residing in the trust
YMFG’s shares residing in the trust are recorded astreasury stock in the net assets section based on the bookvalue of the trust (excluding ancillary expenses).
The book value and the number of shares of thistreasury stock amounted to ¥743 million ($6 million) and
849 thousand shares on March 31, 2022 and ¥805 million
and 921 thousand shares on March 31, 2021.
(Treatment related to the application of tax effectaccounting for the transition from the consolidated
taxation system to the group tax sharing system)
With regard to matters related to the transition to thegroup tax sharing system established by the“Act for thePartial Amendment of the Income Tax Act”(Act No. 8 of2020) and the revision of the single tax payment system
to coincide with the transition to the group tax sharing
system, YMFG and certain consolidated subsidiaries basetheir amounts of deferred tax assets and deferred tax
liabilities on tax law prior to revision without applying

93

Paragraph 44 of the“Implementation Guidance on Tax
Effect Accounting”(ASBJ Guidance No. 28, February 16,2018), in accordance with treatment under Paragraph 3 ofthe“Practical Solution on the Treatment of Tax EffectAccounting for the Transition from the Consolidated
Taxation System to the Group Tax Sharing System”(PITF
No. 39, March 31, 2020).
From the beginning of the year ending March 31,
2023, YMFG and certain consolidated subsidiaries will
apply the“Practical Solution on the Accounting andDisclosure Under the Group Tax Sharing System”(PITF
No. 42, August 12, 2021) which stipulates the practicalsolution on the accounting and disclosure of corporate
taxes, local corporate taxes and tax effect accounting
under the group tax sharing system.

3. CONSOLIDATED STATEMENTS OF
CASH FLOWS AND CASH
EQUIVALENTS
In preparing the consolidated statements of cash flows,
the Group considers cash and due from THE BANK OF
JAPAN as cash and cash equivalents.
The reconciliation of cash and due from banks in the
consolidated balance sheets and cash and cash
equivalents in the consolidated statements of cash flows
at March 31, 2022 and 2021 was as follows:

Cash and due from banks
Time deposits in other banks
Other
Cash and cash equivalents

Millions of yen
2022
2021

Thousands of
U.S. dollars
2022¥2,175,914 ¥1,807,659 $17,778,528(12,421)(15,172)(101,487)(11,667)(12,307)(95,300)¥2,151,826 ¥1,780,180 $17,581,741

Significant transactions not requiring use of cash or cash
equivalents were acquisition of securities due to partial
cancellation of retirement benefit trusts of ¥25,026 million($204,477 thousand) for the year ended March 31, 2022.

4. FINANCIAL INSTRUMENTS
Items pertaining to the status of financial instruments(1) Policies on financial instruments

YMFG provides community-based integrated financial
services centered on the banking, securities and credit
card businesses. Accordingly, the Group is subject to avariety of risks, including credit risk, market risk andliquidity risk. Due to changes in economic, social andfinancial conditions, these risks have grown more diverseand complex. Under these conditions, the Groupconsiders strengthening its risk management structure asa priority issue. To maintain and enhance the soundnessof its operations, YMFG has created groupwide risk
management regulations, which clarify the Group’s
fundamental stance on risk management.

(2) Content and risks of financial instruments

Of financial assets held by the Group, principally loans
and bills discounted extended to business partners are
subject to the credit risk from breach of contract. The
Group holds securities, principally debt securities, equity

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securities and investment trusts, for trading purposes, forholding to maturity, for purely investment purposes or topromote positive business relations. These securities are
subject to issuer credit risk, interest rate fluctuation risk
and market price fluctuation risk.
The Group’s financial liabilities center on deposits andnegotiable certificates of deposit, and call money that itraises in the market. However, the Group is subject to theliquidity risk of becoming unable to secure necessary
funding. The Group is also subject to interest rate risk
arising from fluctuations in financial and economic
conditions.
The Group employs derivative transactions to hedge
underlying market risks on its assets and liabilities. The
Group also provides derivatives as financial products tomeet customers’ needs. Interest-related andsecurities-related derivative transactions are employed tolimit the impact on income of future interest rate
fluctuations and price fluctuations for loans and bills
discounted, deposits, securities and other instruments
bearing long-term interest at fixed rates. Currency-related
derivative transactions are used primarily to avoid
fluctuations in income stemming from future exchange
rate fluctuations, stabilize funding denominated in foreign
currencies, as well as offered as products to clients. With
regard to transactions to secure income through changes
in market rates, which are conducted on a limited basis,the Group has established stringent standards that include
risk limits and loss limits.
As market risk factors, interest-rate-related andsecurities-related derivative transactions are subject to therisk of fluctuations in interest rates and prices, andcurrency-related derivative transactions are subject toexchange rate fluctuations. For transactions that are notconducted on exchanges, the Group is subject to credit
risk, the risk of loss in the event a counterparty becomesunable to fulfill its contractual obligations due todeteriorating financial conditions.
With regard to use of hedge accounting, the Groupapplies deferred hedge accounting after it ensured inadvance that the established conditions are satisfied. As
for hedging methods, the Group employs the portfolio
hedge where certain group of assets with similar risk is
identified and such risk is hedged comprehensively. In
addition, for certain interest swap contracts, exceptional
accounting treatment is applied.

(3) Risk management structure related to financial
instruments(i) Management of credit risk
Through the appropriate operation of a credit rating
system, the Group endeavors to determine the financial
conditions of business partners and accurately evaluate
their credit risk. The Group has enhanced the precision of
its credit evaluations, reviewing business partner credit
ratings swiftly and appropriately for each financial period
and each time their credit conditions change.
The Group conducts self-assessments according tostringent standards that are consistent throughout theGroup. The Group performs write-off and provisions basedon the results of its self-assessments. The Group’s
authentication departments verify the content of suchself-assessments. Independence is maintained throughManagement Foundation
Supporting Value Creation

Financial Section

internal audits conducted by audit & inspection
departments. In addition, the Group undergoes external
audits conducted by its independent external auditors.
With regard to the screening of individual transactions,
the Group employs a screening system suited to eachsubsidiary bank’s size of the business and characteristics
to conduct detailed screenings that take individual sector
and regional characteristics into consideration. In terms of
portfolio management, the Group strives to enhance its
risk management by first measuring credit risk, and thenmanaging risk by category, sector and geographic area.
Risk administration departments periodically obtain
credit information and fair value as a part of managing
credit risks on securities issuers and counterparty risks onderivative transactions.
(ii) Management of market risk
Qualitative information on the management of market risk
The Group has formulated a market risk management
process that identifies and quantitatively measures market
risks. An asset-liability management (ALM) system is
employed to control market risk within allowable limits,and the Group ALM Committee is periodically held torespond to such risks.
YMFG periodically evaluates market risk conditionsand verifies the appropriateness of risk controls.
Quantitative information on the management of market
risk
The market risk (estimated loss amount) of the loans,securities, deposits and derivatives transactions of
Yamaguchi Bank, Momiji Bank and Kitakyushu Bank of theGroup is calculated according to value at risk (VaR).
Furthermore, the covariance method is used to calculate
VaR.
As of March 31, 2022, the market risk (estimated loss
amount) of Yamaguchi Bank was ¥50,361 million ($411
million), the market risk (estimated loss amount) of Momiji
Bank was ¥20,507 million ($168 million) and the market
risk (estimated loss amount) of Kitakyushu Bank was¥21,609 million ($177 million). Also, as of March 31, 2021,
the market risk (estimated loss amount) of Yamaguchi
Bank was ¥65,092 million, the market risk (estimated loss
amount) of Momiji Bank was ¥19,718 million and themarket risk (estimated loss amount) of Kitakyushu Bankwas ¥20,587 million.
Assumptions used in calculating VaR include a holding
period of three months (however, one year for a holding
period for shares held for the purpose of strategic
investment), a confidence interval of 99.9% and an
observation period of five years.
Yamaguchi Bank, Momiji Bank and Kitakyushu Bank
conduct back-testing to compare the VaR calculated by
the model with the actual losses. Increasing price volatility
in financial markets has led to cases in which the banks
were unable to cover risks. As a result, VaR was corrected,using a multiple obtained from the number of conflicts
resulting from back-testing from the year ended March 31,
2021.
However, as the practice of measuring market risk
amount with a set risk probability calculated on the basisof historical market fluctuations remains unchanged evenafter revising the measurement method to appropriately
capture the market risk amount, in some cases it is notpossible to capture market risk in the event of sudden

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94

Management Letterchanges in the market environment outside the normally
expected scope.
(iii) Management of liquidity risk related to fundraising
The majority of funds is raised through deposits, whichconstitute a stable base for procuring funds. The Groupmanages funds on the basis of elaborate forecasts,
confirming cash flows primarily through the managementof financial balances using short-term financial markets.
For cash flow management, the Group strives tomanage the liquidity risk by ensuring stability, preparing
for unexpected events, and maintaining highly liquid
assets.

(4) Supplementary explanation of items pertaining to
the fair value of financial instruments(i) Money held in trust(ii) Securities
Held-to-maturity debt securities
Available-for-sale securities(iii) Loans and bills discounted
Allowance for loan losses (*1)
Total assets(i) Deposits(ii) Borrowed money
Total liabilities
Derivative transactions (*2)
Hedge accounting not applied
Hedge accounting applied
Total derivative transactions

As assumptions are used in the calculation of the fairvalues of financial instruments, different assumptions canyield different values.

Items pertaining to the fair value of financial
instruments

The table below indicates the consolidated balance sheet
amounts of financial instruments, as well as their fairvalues and the differences between the two. Line items
whose fair value is approximately the same as their bookvalue due to their short settlement period, including cash
and due from banks, call loans and bills purchased, callmoney and bills sold and payables under securities
lending transactions, as well as line items with little
significance to balance sheet amounts, have been omitted.
Shares and investments in partnerships, etc. that do nothave a market price are not included in the table below.
(Refer to (Note 1).)(i) Money held in trust(ii) Securities
Held-to-maturity debt securities
Available-for-sale securities(iii) Loans and bills discounted
Allowance for loan losses (*1)
Total assets(i) Deposits(ii) Borrowed money
Total liabilities
Derivative transactions (*2)
Hedge accounting not applied
Hedge accounting applied
Total derivative transactions

Consolidatedbalance sheet
amount¥35,060

Millions of yen
2022
Fair value¥35,060

Difference¥—

38,61338,892
1,286,606
1,286,606
8,143,997(78,208)
8,065,789
8,133,259¥9,426,068¥9,493,817¥10,334,558 ¥10,334,732
626,546626,540¥10,961,104 ¥10,961,272

279—¥(6,828)¥(19,892)¥(26,720)¥(6,828)¥(19,892)¥(26,720)

67,470¥67,749
¥174
(6)
¥168
¥—
¥—
¥—

(i) Money held in trust(ii) Securities
Held-to-maturity debt securities
Available-for-sale securities(iii) Loans and bills discounted
Allowance for loan losses (*1)
Total assets(i) Deposits(ii) Borrowed money
Total liabilities
Derivative transactions (*2)
Hedge accounting not applied
Hedge accounting applied
Total derivative transactions

Consolidatedbalance sheet
amount¥35,093

Millions of yen
2021
Fair value¥35,093

Difference¥—

31,621
31,992
1,731,871
1,731,871
7,894,126(69,721)
7,824,405
7,913,644¥9,622,990¥9,712,600¥ 10,011,575 ¥10,011,851
638,353
637,903¥10,649,928 ¥10,649,754

371—¥ (6,549)¥ (5,504)¥ (12,053)

89,240¥ 89,611¥276(450)¥(174)¥ (6,549)¥ (5,504)¥ (12,053)

¥—
¥—
¥—

Thousands of U.S. dollars
2022
Consolidatedbalance sheet
amountFair value
Difference$286,461$286,461$—
315,491
317,771
10,512,346
10,512,346
66,541,360(639,006)
65,902,354
66,453,624$77,016,652 $77,570,202$84,439,562 $84,440,983
5,119,258
5,119,209$89,558,820 $89,560,192$(55,789)$(162,530)$(218,319)$(55,789)$(162,530)$(218,319)

$—
$—
$—

(*1) The general allowance for loan losses and specific allowance forloan losses are deducted.
(*2) The amount collectively represents derivative transactions that arerecorded as trading assets and liabilities, and other assets andliabilities. This indicates the net amount of rights and obligations
under derivative transactions. Parentheses, ( ), indicate that the net
amount is negative.

(Note 1) The consolidated balance sheet amounts ofshares and investments in partnerships, etc. that
do not have a market price
Shares and investments in partnerships, etc. that do nothave a market price are not included in“available-for-salesecurities.”

Category(1) Unlisted equity securities (*1, *2)(2) Investments in partnerships, etc. (*3)
Total(1) Due from banks(2) Call loans and bills
31,713——purchased(3) Money held in trust
35,060——(4) Securities
33,211
93,082
135,791
Held-to-maturity debt
2,790
10,067
14,641securities
Local government
100
1,700
2,200
bond
Corporate bond
2,690
8,367
12,441
Available-for-sale30,421
83,015
121,150
securities withmaturities
Japanese——
8,200
government bondLocal government
15,127
22,827
27,672bond
Corporate bond
8,152
32,15253,190
Others7,142
28,03632,088(5) Loans and bills
1,682,917 1,228,819 1,135,369
discounted (*)
Total¥3,850,511 ¥1,321,901 ¥1,271,160

Thousands of
U.S. dollars
Millions of yen
2022
2021
2022
Consolidated balance sheet amount¥7,130¥7,466$58,256
21,685
14,605
177,180¥28,815¥22,071$235,436(*1) Unlisted equity securities are not included in the scope of fair value
disclosures based on Paragraph 5 of the“Implementation
Guidance on Disclosures about Fair Value of Financial Instruments”(ASBJ Guidance No. 19, March 31, 2020).
(*2) During the years ended March 31, 2022 and 2021, impairment
losses of ¥5 million ($41 thousand) and ¥55 million were recordedon unlisted equity securities.
(*3) Investments in partnerships, etc. are not included in the scope offair value disclosure based on Paragraph 27 of the“Implementation Guidance on Accounting Standard for Fair Value
Measurement”(ASBJ Guidance No. 31, July 4, 2019).

(Note 2) Expected maturity amount of monetary claims
and securities with maturities after the
consolidated balance sheet date(1) Due from banks(2) Call loans and bills
purchased(3) Money held in trust(4) Securities
Held-to-maturity debt
securities
Local government
bond
Corporate bond
Available-for-salesecurities withmaturities
Japanesegovernment bondLocal government
bond
Corporate bond
Others(5) Loans and bills
discounted (*)Total(1) Due from banks(2) Call loans and bills
purchased(3) Money held in trust(4) Securities
Held-to-maturity debt
securities
Local government
bond
Corporate bond
Available-for-salesecurities withmaturities
Japanesegovernment bondLocal government
bond
Corporate bond
Others(5) Loans and bills
discounted (*)
Total

—

—

—
118,109—670,183

7,897

3,220

1,100

3,020

6,797

200

110,212

666,963

18,500347,050

50,496

127,976

13,22427,992

24,531
167,406

868,266

3,228,626¥986,375 ¥3,898,809

Millions of yen
2021
More than More than More than
one year three years five years
Within one and within and within and within More thanyear
three years five years seven years seven years¥1,708,158
¥—
¥—
¥—
¥—
9,189

—

—

—

—

35,09380,433—
120,923—
241,993—
192,571—
802,099

1,544

5,458

14,956

6,195

3,470

100

700

2,530

900

2,970

1,444

4,758

12,4265,295

500

78,889115,465

227,037

186,376

798,629——

24,600—420,800

8,601

28,53825,572

46,433

159,41261,705
8,583

24,786
62,141

74,237
102,628

58,595
81,34830,093
188,324

1,638,436

1,109,516

1,133,446

958,395

3,054,333¥3,471,309 ¥1,230,439 ¥1,375,439 ¥1,150,966 ¥3,856,432
Thousands of U.S. dollars
2022
More than More than More than
one year three years five years
Within one and within and within and within More thanyear
three years five years seven years seven years$16,893,619
$—
$—
$—
$—
259,114

—

—

—

—

286,461
271,354—760,535—
1,109,493—
965,022—5,475,798

22,79682,253

119,625

64,52426,309817

13,89017,975

8,988

24,675

21,97968,363

101,650

55,536

1,634

248,558

678,282

989,868

900,498

5,449,489——

66,999151,156

2,835,607

123,597

186,510226,097

412,583

1,045,641

66,60758,354

262,701
229,071434,594
262,178

108,048
228,711200,433
1,367,808

13,750,446

10,040,191

9,276,648

7,094,256

26,379,819$31,460,994$10,800,726$10,386,141$8,059,278$31,855,617

Management Foundation
Supporting Value Creation

Financial Section

interest-bearing liabilities to be repaid after the
consolidated balance sheet dateMillions of yen
2022
More than More than More than
one year three years five years
Within one and within and within and within More thanyear
three years five years seven years seven years¥2,067,610
¥—
¥—
¥—
¥—

2,280
—
551,270$553,550$1,421(49)$1,372Business Strategy
for Value Creation

About YMFG

Millions of yen(i) Deposits (*)(ii) Call money and bills sold(iii) Payables under securities
lending transactions(iv) Borrowed money
Total

2022
More than More than
one year
two years
Within one and within and within Three years
year
two years three years
or more¥9,673,732¥480,751¥146,911¥33,164
78,078———314,959———

611,586¥10,678,355

3,984¥484,735

2,461¥149,372

8,515¥41,679

Millions of yen(i) Deposits (*)(ii) Call money and bills sold(iii) Payables under securities
lending transactions(iv) Borrowed money

Within one
year¥9,290,409

2021
More than More than
one year
two years
and within and within Three years
two years three years
or more¥429,417¥255,309

326,415———

622,413

5,134

3,810

6,995

167,152——¥10,406,389(i) Deposits (*)

Thousands of U.S. dollars
2022
More than More than
one year
two years
Within one and within and within Three years
year
two years three years
or more$79,040,216 $3,928,025 $1,200,351$270,970

Total¥259,119¥36,441

Total(ii) Call money and bills sold(iii) Payables under securities
lending transactions(iv) Borrowed money¥434,551—¥43,436

637,944——2,573,405———

4,997,025

32,552

20,10869,573$87,248,590$3,960,577$1,220,459—$340,543(*) Within deposits, demand deposits are included in“within one year.”

Fair value information by level within the fair value
hierarchy

The fair value of financial instruments is classified into thefollowing three levels according to the observability andmateriality of inputs used to measure fair value.
Level 1 fair value: Fair value measured using observable
inputs, i.e. (unadjusted) quoted prices
in active markets for identical assets
or liabilities.
Level 2 fair value: Fair value measured using observable
inputs other than Level 1 inputs.
Level 3 fair value: Fair value measured using
unobservable inputs.
If multiple inputs are used that are significant to thefair value measurement, the fair value measurement iscategorized in its entirety in the level of the lowest level
input that is significant to the entire measurement.

(*) Loans and bills discounted for which no period is specified areincluded in“within one year.”(Note 3) Estimated repayment amounts of deposits,
negotiable certificates of deposit and other95

YMFG Integrated Report2022

96

Management Letter(1) Financial instruments measured at fair value

Category
Money held in trust
Securities (*1)
Available-for-sale securities
Japanese government bondand local government bondCorporate bondEquity securities
Foreign bond
Derivative transactions (*2)
Interest-rate-related
Currency-related
Total assets

Category
Money held in trust
Securities (*1)
Available-for-sale securities
Japanese government bondand local government bondCorporate bondEquity securities
Foreign bond
Derivative transactions (*2)
Interest-rate-related
Currency-related
Total assets

Level 1
¥5,849Millions of yen
2022
Fair value
Level 2
Level 3¥29,211¥—

Total¥35,060

373,861

242,762—

616,623—
111,699
95,200117,351
136
29,123

13,886——131,237
111,835
124,323——¥586,609

6,496(33,216)¥391,863——¥13,886

6,496(33,216)¥992,358

Thousands of U.S. dollars
2022
Fair value
Level 1
Level 2
Level 3
Total
$47,790$238,671$—$286,461

3,054,669

1,983,512—

5,038,181—
912,648
777,841

958,828
1,111
237,952

113,457——

1,072,285
913,759
1,015,793——$4,792,948

53,076(271,395)$3,201,755——$113,457

53,076(271,395)$8,108,160(*1) The above table does not include investment trusts and others towhich the transitional treatment provided in Article 5-6 of the
Supplementary Provisions of the“Cabinet Office OrdinancePartially Amending the Ordinance, etc. on Terminology, Forms, andPreparation Methods of Financial Statements, etc.”(Cabinet Office
Ordinance No. 9, March 6, 2020) is applied. The amount of theinvestment trusts and others on the consolidated balance sheets is¥302,588 million ($2,472,326 thousand).
(*2) The amount collectively represents derivative transactions that arerecorded as trading assets and liabilities, and other assets andliabilities. This indicates the net amount of receivables andpayables under derivative transactions. Parentheses, ( ), indicatethat the net amount is payable.

(2) Financial instruments other than those measured
at fair value

Category

Securities
Held-to-maturity debt securities
Local government bondCorporate bond
Loans and bills discounted
Total assets
Deposits
Borrowed money
Total liabilities

Category

Securities
Held-to-maturity debt securities
Local government bondCorporate bond
Loans and bills discounted
Total assets
Deposits
Borrowed money
Total liabilities

Level 1Millions of yen
2022
Fair value
Level 2
Level 3¥—
¥8,104
—
3,418
—
—
¥—
¥11,522— 10,334,732—
626,540¥— ¥10,961,272

Total

¥—
¥8,10427,37030,7888,133,259
8,133,259¥8,160,629 ¥8,172,151— 10,334,732—
626,540¥— ¥10,961,272

Thousands of U.S. dollars
2022
Fair value
Level 1
Level 2
Level 3
Total$—
$66,215$—$66,215—
27,927
223,629
251,556—— 66,453,624 66,453,624$—$94,142 $66,677,253 $66,771,395— 84,440,983— 84,440,983—
5,119,209—
5,119,209$— $89,560,192$— $89,560,192(Note 1) A description of the valuation technique(s) andinputs used in the fair value measurements

97(1) Assets
Money held in trust
As for the securities held as trusted assets in money heldin trust established independently for the purpose ofinvesting mainly in the securities, the value on stock
exchanges is taken as fair value for the equity securities,
and either the value on exchanges or a price indicated bybrokers or information vendors is taken as fair value forthe debt securities. The fair value is classified as Level 1 orLevel 2.
Additional information related to money held in trustby the purpose of holding is described in the note entitled“Money held in trust.”
Securities
The fair value of securities for which unadjusted quoted
prices in active markets are available is classified as Level
1. These securities mainly include equity securities,
Japanese government bonds and government bonds(foreign bonds) of major countries (G7). The fair value of
securities for which quoted prices are used but themarkets are not active is classified as Level 2. These
securities mainly include local government bonds andcorporate bonds (excluding private placement bonds
guaranteed by Yamaguchi Bank, Momiji Bank andKitakyusyu Bank).
The fair value of investment trusts is based on
disclosed net asset value. It is not classified into any levels
due to the application of the transitional treatment inaccordance with Paragraph 26 of the Implementation
Guidance on Accounting Standard for Fair Value
Measurement.
Since private placement bonds guaranteed by
Yamaguchi Bank and Momiji Bank do not have a quoted
price, their fair value is determined by discounting thetotal amount of interest, principal and guarantee
commission to their present value, using the interest rate
obtained by adding the credit cost for each internal rating
category. The fair value is classified as Level 3 because thediscount rate is unobservable.
Loans and bills discounted
For loans and bills discounted with floating interest rates,
as in the short term their values reflect market interest
rates, unless the credit status of the obligor has changed
significantly since the loans were extended, their fair value
is similar to their book value, so their book value is taken
as their fair value. For loans and bills discounted bearing
fixed interest rates, fair value is determined for each type
and period by discounting the total amount of interest
and principal to their present value, using as the discountrate the market interest rate as of the valuation date for
operating loans and bills discounted plus the credit costfor each internal rating category. For consumer loans andbills discounted and housing loans, fair value isdetermined by discounting the total amount of interest
and principal to their present value using the assumed
interest rate on new loans of the same type. These fairvalues are classified as Level 3, because they are
determined using a discount rate reflecting risk factors,
such as credit risk, and the discount rate is unobservable.
With regard to loans to legally bankrupt obligors,
substantially bankrupt obligors or obligors who are indanger of bankruptcy, the estimated collectible amount isbased on either the present value of estimated future cash

About YMFGBusiness Strategy
for Value Creation

flows or the expected amounts recoverable from thedisposal of collateral and/or under guarantees, etc. As thefair value is essentially equivalent to the amount after
deducting the allowance for possible loan losses from thebook value as of the consolidated balance sheet date, it isclassified as Level 3.
For loans that have no specific repayment period, as
the fair value is assumed to be equivalent to the bookvalue according to the expected payment dates andinterest rates, book value is taken as the fair value. The
fair value is classified as Level 3.
(2) Liabilities
Deposits
The fair value of demand deposits is determined as thepayment amount if payment were required on the
consolidated balance sheet date (book value). The fairvalue of time deposits is determined by discounting future
cash flows to their present value by certain time periods.
The discount rate employed is the interest rate required
for newly accepted deposits. For deposits having a shortperiod (within one year) and time deposits with variableinterest rates, as their fair values and book values areapproximately the same, their book value is taken as theirfair value.
The fair value of deposits is classified as Level 2.
Borrowed money
Short-term market interest rates are used for borrowings
having a short contract period (within one year) or
variable interest rates. In addition, the market value isassumed to be similar to the book value, as the credit
standing of YMFG and its consolidated subsidiaries isunchanged before and after taking out these borrowings.
The current values of borrowings having a long contract
period (more than one year) and borrowings with fixedinterest rates are calculated by applying an assumed
discount rate to the total principal amount borrowed,
separating principal amounts according to their borrowing
periods.
The fair value of borrowed money is classified as
Level 2.
Derivative transactions
The fair value of derivative transactions for which
unadjusted quoted prices in active markets are available
is classified as Level 1. These derivative transactions
mainly include bond futures transactions and stock futurestransactions.
However, most of the derivative transactions areover-the-counter transactions and do not have a quoted
price. Accordingly, the fair value of these derivativetransactions is determined using valuation techniques,
such as a present value technique and the Black-Scholesmodel, in accordance with the type of transactions andthe period to maturity. The main inputs used in thesevaluation techniques include interest rates, exchange rates
and volatility. Moreover, price adjustments are madebased on the credit risk of counterparties as well as thatof YMFG and its consolidated subsidiaries. The calculationof credit risk-related price adjustments takes into accountprobability of default and loss given default which areobserved from credit default swaps, or those which are
estimated from the country, sector and external ratings,
etc. of counterparties. The fair value of over-the-countertransactions which use observable inputs or which use

Management Foundation
Supporting Value Creation

Financial Section

unobservable inputs whose effect is immaterial isclassified as Level 2. These transactions include plain
vanilla interest rate swap transactions and foreignexchange forward contract transactions.
(Note 2) Information about Level 3 fair value of financial
instruments measured at fair value(1) Quantitative information on significant
unobservable inputs
Category
Securities
Corporate bondPrivate placement
bond

2022
Significant
unobservable inputs Scope of inputs

Valuationtechniques
Present value
technique

Credit cost
rate

0.016%0.326%

Weighted averageof inputs

0.044%(2) A reconciliation from the beginning balances tothe ending balances and gains or losses on
valuation of financial assets and liabilities held at
the end of the year included in profit (loss) for
the year
Profit (loss) or othercomprehensive income for theyear

BeginningbalanceSecurities
Available-forsale securities
Corporate¥12,331bondMillions of yen
2022

Gains or losses
on valuation offinancial assets
and liabilities
held at thePurchases,
end of the year
Recorded insales,
included in
Recorded inotherissuances andprofit (loss) for
profit (loss) comprehensive settlements, Transfer into Transfer out of(*1)
income (*2)
net
Level 3 (*3)
Level 3 (*4) Ending balance the year (*1)

¥—

¥(33)

¥1,588¥—¥—¥13,886¥—

Thousands of U.S. dollars
2022

Profit (loss) or othercomprehensive income for theyear

BeginningbalanceSecurities
Available-forsale securities
Corporate$100,752
bond

Gains or losses
on valuation offinancial assets
and liabilities
held at thePurchases,
end of the year
Recorded insales,
included in
Recorded inotherissuances andprofit (loss) for
profit (loss) comprehensive settlements, Transfer into Transfer out of(*1)
income (*2)
net
Level 3 (*3)
Level 3 (*4) Ending balance the year (*1)$—$(270)$12,975$—$— $113,457$—(*1) There were no gains or losses on valuation of financial assets andliabilities held at the end of the year included in profit (loss) for theyear.
(*2) Included in“unrealized gains (losses) on available-for-salesecurities”under“other comprehensive income”in the
consolidated statements of comprehensive income.
(*3) There was no transfer out of Level 2 fair value into Level 3 fairvalue.
(*4) There was no transfer out of Level 3 fair value into Level 2 fairvalue.

(3) A description of valuation processes used for fairvalue measurements

The risk administration divisions of the Group haveestablished policies and procedures for measuring fairvalue, and each trading division measures fair value
accordingly. Independent authentication departments
verify whether the fair value obtained is measured using
valid valuation techniques and inputs as well as whether
they are classified into an appropriate level of the fairvalue hierarchy to ensure that the policies and procedures
for measuring fair value are appropriate.
In measuring fair value, YMFG uses a valuation modelthat most appropriately reflects the nature, characteristics

YMFG Integrated Report2022

98

Management Letterand risks of each asset. In addition, when using quoted
prices obtained from third parties, YMFG verifies whether
the prices are valid using appropriate methods, such asconfirming the valuation techniques and inputs used andcomparing them with similar financial instruments.

(4) A narrative description of sensitivity of the fairvalue measurement to changes in significant
unobservable inputs

Credit cost rate
The credit cost rate is determined by adding
brand-specific risk premiums according to credit risk to
the base market interest rate, such as TIBOR and OIS.
Generally, a significant increase (decrease) in the discountrate will result in a significantly lower (higher) fair value
measurement.

5. SECURITIESSecurities held at March 31, 2022 include shares of
unconsolidated subsidiaries and affiliates amounting to¥37 million ($302 thousand). The corresponding figure atMarch 31, 2021 was ¥27 million.
Bonds held at March 31, 2022 and 2021 of ¥20,000
million ($163 million) comprise waivers in the event of
substantial bankruptcy and subordinated bonds.
The amount of guarantee obligations for private
placement bonds (Financial Instruments and ExchangeAct, Article 2-3), out of bonds included in securities,
amounted to ¥40,924 million ($334 million) and ¥33,260
million as of March 31, 2022 and 2021, respectively.

6. FAIR VALUE INFORMATION
Securities

The following tables summarize book values, fair value
and acquisition cost of securities with available fair values
as of March 31, 2022 and 2021:(a) Trading securities
Amount of unrealized gain (loss) on trading securities
included in the consolidated statements of
OPERATIONS— ¥(4) million ($(34) thousand) and ¥(0) million as at
March 31, 2022 and 2021, respectively.

(b) Held-to-maturity debt securities
Millions of yen
2022
Type
Book value Fair value
Securities with fair Local government bonds¥2,900¥2,922
value exceeding
Corporate bonds
29,45929,757
book value
Subtotal
32,35932,679Securities with fair Local government bonds
5,220
5,181
value not exceeding Corporate bonds
1,034
1,031
book value
Subtotal
6,254
6,212
Total
¥38,613 ¥38,891

Difference
¥22
298
320
(39)
(3)
(42)
¥278

Millions of yen
2021
Type
Book value Fair value
Securities with fair Local government bonds¥3,930¥3,970value exceeding
Corporate bonds
23,83324,174book value
Subtotal
27,76328,144
Securities with fair Local government bonds
3,270
3,263
value not exceeding Corporate bonds
588
586
book value
Subtotal
3,858
3,849
Total
¥31,621 ¥31,993

Difference
¥40
341
381
(7)
(3)
(10)
¥371

Thousands of U.S. dollars
2022
Book value Fair value$23,695$23,874
240,698 243,133
264,393 267,007
42,65142,3328,448
8,424
51,09950,756$315,492 $317,763

Difference
$179
2,435
2,614
(319)
(24)
(343)
$2,271Type
Securities with fair Local government bonds
value exceeding
Corporate bonds
book value
Subtotal
Securities with fair Local government bonds
value not exceeding Corporate bonds
book value
Subtotal
Total(c) Available-for-sale securities

Securities withbook value notexceedingacquisition cost

Securities withbook value
exceedingacquisition cost

Securities withbook value notexceedingacquisition costType
SharesJapanese government
bonds
Local government bonds
Corporate bonds
OthersSubtotal
SharesJapanese government
bonds
Local government bonds
Corporate bonds
OthersSubtotal
Total

Acquisition
Book value
cost
Difference¥95,975¥44,523¥51,452
5,222

4,959

263

6,612
37,744
49,126
194,679
15,8606,611
37,62447,010140,727
20,7231
120
2,116
53,952(4,863)368,639

384,348(15,709)236,150
93,492377,785
1,091,926¥1,286,605

237,999
94,293398,725
1,136,088¥1,276,815(1,849)(801)(20,940)(44,162)¥9,790Millions of yen
2021
Securities withbook value
exceedingacquisition costType
SharesJapanese government
bonds
Local government bonds
Corporate bonds
OthersSubtotal
SharesJapanese government
bonds
Local government bonds
Corporate bonds
OthersSubtotal
Total

Book value¥93,820

Acquisition
cost
Difference¥31,882¥61,939

2,095

1,806

288

113,741
157,781
83,750451,187
12,182

113,379
157,241
83,007387,315
14,012362
540
743
63,872(1,830)446,712458,570(11,857)

155,407
92,592573,792
1,280,685¥1,731,872

155,946
93,038595,195
1,316,761¥1,704,076

(539)
(447)
(21,403)(36,076)¥27,796

Business Strategy
for Value Creation

Thousands of U.S. dollars
2022
Acquisition
Type
Book value
cost
Difference
Shares$784,174$363,780$420,394
Japanese government
42,66740,5182,149
bonds
Local government bonds
54,02454,016
8
Corporate bonds
308,391
307,411980
Others401,389
384,100
17,289Subtotal
1,590,645
1,149,825
440,820
Shares129,586
169,319(39,733)
Japanese government
3,012,003
3,140,355(128,352)
bonds
Local government bonds
1,929,488
1,944,595(15,107)
Corporate bonds
763,886
770,431(6,545)
Others
3,086,731
3,257,823(171,092)
Subtotal
8,921,694
9,282,523(360,829)
Total$10,512,339 $10,432,348$79,991(d) Held-to-maturity debt securities sold during the year
There were no held-to-maturity securities sold during theyears ended March 31, 2022 and 2021.
(e)Available-for-sale securities sold during the year

SharesJapanese government bonds
Local government bonds
Corporate bonds
Others
Total

Millions of yen
2022
Sale
Total gain Total loss
amounton saleon sale¥11,670¥442¥1,920605,664
969
4,666
94,368492—
102,021294
6806,809
6,241
22,099¥1,620,532¥8,438¥28,691

SharesJapanese government bonds
Local government bonds
Corporate bonds
Others
Total

Millions of yen
2021
Sale
Total gain Total loss
amounton saleon sale¥15,294¥11,515¥16
442,674
510
2,380
3,114
49
—
89,621
1,174—
803,113
17,6001,653¥1,353,816¥30,848¥4,049

SharesJapanese government bonds
Local government bonds
Corporate bonds
Others
Total

Thousands of U.S. dollars
2022
Sale
Total gain Total loss
amounton saleon sale$95,351$3,611$15,688
4,948,640
7,917
38,124
771,043
4,020—
833,5732,402
496,592,115
50,993
180,562$13,240,722$68,943$234,423

Millions of yen
2022

Securities withbook value notexceedingacquisition cost

99

Securities withbook value
exceedingacquisition cost

About YMFG(f) Securities for which purpose of holding changed
There were no securities for which the purpose of holding
changed at March 31, 2022 and 2021.

Management Foundation
Supporting Value Creation

Financial Section

securities. The basis for determining whether the market
value has fallen significantly is as follows.
If the market value of the securities in general has
fallen by 30% or more compared with the acquisition cost,the value of the securities is determined to have“fallen
significantly.”However in the case of shares andequivalent securities, if their market value has fallen by
30% or more but less than 50% of the acquisition cost,
the determination of whether the value has“fallen
significantly”takes into consideration other factors suchas the issuing company’s credit risk (independent debtor
classification, external ratings, etc.) and previous
percentage decreases over a specific period of time in the
past.

Money held in trust

Information on money held in trust as of March 31, 2022
and 2021 was as follows:(a) Money held in trust classified as trading purposes

Money held in trust classified as trading
purposes

Money held in trust classified as trading
purposes

Money held in trust classified as trading
purposesMillions of yen
2022
Unrealized gains
Consolidated (losses) included
balance sheet
in profit (loss)
amountfor the year
¥4,894¥—

Millions of yen
2021
Unrealized gains
Consolidated (losses) included
balance sheet
in profit (loss)
amountfor the year
¥4,673¥—Thousands of U.S. dollars
2022
Unrealized gains
Consolidated (losses) included
balance sheet
in profit (loss)
amountfor the year
$39,987$—(b) Money held in trust classified as held-to-maturity
There are no corresponding transactions as at March 31,
2022 and 2021.
(c) Available-for-sale money held in trust
Consolidatedbalance sheet
amountAvailable-for-sale money held in trust¥30,166

Millions of yen
2022
Acquisitioncost¥30,489

Unrealized
gains (losses)¥(323)

Impairment losses on securities

Regarding securities (excluding shares and investments inpartnerships, etc. that do not have a market price) otherthan trading securities, if their market values have fallen
substantially below their acquisition price and are notexpected to recover to the acquisition price, such market
values are recorded as the consolidated balance sheet
amounts. The valuation difference is recorded as a loss forthe year in which such difference is realized (hereinafter,“impairment losses”).
During the year ended March 31, 2022, impairment
losses were ¥380 million ($3,105 thousand) on equity
securities and during the year ended March 31, 2021,
impairment losses totaled ¥457 million on equity

Consolidatedbalance sheet
amountAvailable-for-sale money held in trust¥30,420

Millions of yen
2021
Acquisition
cost¥30,932

Unrealized
gains (losses)¥(512)

Thousands of U.S. dollars
2022
Consolidatedbalance sheet Acquisition
Unrealized
amountcost
gains (losses)
Available-for-sale money held in trust $246,474$249,113$(2,639)

YMFG Integrated Report2022

100

Management Letter

Unrealized gains (losses) on available-for-salesecurities(b) Currency-related:
Millions of yen
2022

Information on unrealized gains (losses) on
available-for-sale securities and available-for-sale money
held in trust was as follows:
Millions of yen

Net unrealized gains

Available-for-sale securities

Available-for-sale money held in trust

Deferred tax liabilities
Unrealized gains on available-for-salesecurities before following adjustment
Equivalent to non-controlling interests

YMFG’s interest in net unrealized gains on
valuation of available-for-sale securities
held by affiliates accounted for by theequity method
Unrealized gains on available-for-salesecurities2022¥11,3452021¥27,545

(323)

(512)

11,66828,057

Thousandsof U.S.
dollars
2022$92,696
95,335(2,639)

3,132

8,055

25,5908,213

19,49067,106

41

13

327

—
¥8,172$66,779

Valuation differences on investments in partnerships,
etc. that do not have a market price of ¥1,877 million($15,336 thousand) at March 31, 2022, and valuationdifferences on investments in partnerships, etc. for whichmarket values are extremely difficult to determine of ¥263
million at March 31, 2021 are recorded inavailable-for-sale securities of net unrealized gains in thelist above.

Derivatives(1) Derivative transactions at March 31, 2022 and 2021,
to which hedge accounting is not applied(a) Interest-rate-related:
Millions of yen
2022

Type
Over-the-counter:
Interest rate swaps:
Receivable fixed, payable floating
Receivable floating, payable fixed
Total

Contract
amounts

UnrealizedOver one
gains
year
Fair value (losses)¥68,01068,011¥—¥66,839
66,840¥—¥(1,112)
1,825
¥713

¥(1,112)
1,825
¥713

Millions of yen
2021

Type
Over-the-counter:
Interest rate swaps:
Receivable fixed, payable floating
Receivable floating, payable fixed
Total

Type
Over-the-counter:
Interest rate swaps:
Receivable fixed, payable floating
Receivable floating, payable fixed
Total

101

Contract
amounts¥43,231
43,232¥—

UnrealizedOver one
gains
year
Fair value (losses)¥36,499
36,500
¥—

¥41
438
¥479

¥41
438
¥479

Thousands of U.S. dollars
2022
Unrealized
Contract Over one
gains
amounts
year
Fair value (losses)$555,683
555,691$—$546,115
546,123$—$(9,086)
14,911$5,825$(9,086)
14,911$5,825Contract
amounts

Over oneyear
Fair value

Unrealized
gains(losses)¥138,528¥72,929¥(4,125)¥(69)

207,932
109,344

78,60576,967(9,111)
5,755(9,111)
5,755

212,131
212,131¥—

168,844
168,844¥—(7,723)
7,662¥(7,542)267
1,493¥(1,665)(2) Derivative transactions as at March 31, 2022 and
2021, to which hedge accounting is applied(a) Interest-rate-related:

Type
Over-the-counter:
Currency swaps
Foreign exchange forward
contracts:
Sold
BoughtCurrency options:
Sold
BoughtTotal

TypeOver-the-counter:
Currency swaps
Foreign exchange forward
contracts:
Sold
BoughtCurrency options:
Sold
BoughtTotal

Contract
amounts

UnrealizedOver one
gains
year
Fair value (losses)¥289,392¥64,017¥(7,083)¥(72)

160,202
133,339

60,71753,672(2,625)2,683(2,625)
2,683

166,746
166,746¥—

121,677
121,677¥—(6,878)6,876¥(7,027)

1,120
452¥1,558

Thousands of U.S. dollars
2022
Unrealized
Contract Over one
gains
amounts
year
Fair value (losses)$1,131,857$595,874$(33,704)$(564)

1,698,930
893,406

642,250
628,867(74,442)47,022(74,442)47,022

1,733,238
1,733,238$—

1,379,557
1,379,557$—(63,102)62,603$(61,623)

2,182
12,199$(13,603)(c) Stock-related:
There were no stock-related transactions as at March 31,
2022 and 2021.
(d) Bond-related:
There were no bond-related transactions as at March 31,
2022 and 2021.
(e) Commodity-related:
There were no commodity-related transactions as at
March 31, 2022 and 2021.
(f) Credit-derivatives:
There were no credit-related transactions as at March 31,
2022 and 2021.

Management Foundation
Supporting Value Creation

Financial Section

7. LOANS AND BILLS DISCOUNTED(c) Stock-related:
There were no stock-related transactions at March 31,
2022 and 2021.

Loans under the Banking Act and the Act on Emergency
Measures for the Revitalization of the Financial Functionsat March 31, 2022 and 2021 are as follows. These loans
consist of corporate bonds in“ securities”(limited tothose corporate bonds for which redemption of theprincipal and payment of interest are fully or partiallyguaranteed and which are issued through private
placement of securities (Article 2-3 of the Financial
Instruments and Exchange Act)), loans and bills
discounted, foreign exchanges, interest accrual andsuspense payments in“other assets”and customers’
liabilities for acceptances and guarantees in the
consolidated balance sheets, as well as securities loaned
under a loan-for-use or lease agreement.
(1) Bankrupt/de facto bankrupt loans amounting to¥33,432 million ($273 million) and ¥45,099 million
denote loans at March 31, 2022 and 2021,
respectively, held against borrowers with failed
business status due to commencement of bankruptcy
proceedings, commencement of reorganization
proceedings or commencement of rehabilitation
proceedings, and any other type of loans equivalent
thereto.
(2) Doubtful loans amounting to ¥89,439 million ($731
million) and ¥45,267 million denote loans at March
31, 2022 and 2021, respectively, whose borrower is
not yet in the status of failure in business althoughsuch borrower’s financial status and operating
performance are worsening,and for which it is highly
probable that the principal will not be collected orinterests will not be received in accordance with thecontract, excluding bankrupt/de facto bankrupt loans.
(3) Loans past due for three months or more amounting to¥364 million ($3 million) and ¥445 million denoteloans at March 31, 2022 and 2021, respectively,
where payment of interest or principal has been
delayed for three months or more, excluding
bankrupt/de facto bankrupt loans and doubtful loans.
(4) Restructured loans amounting to ¥4,569 million ($37
million) and ¥10,630 million denote loans at March
31, 2022 and 2021, respectively, to borrowers forwhich the repayment terms have been modified tomore favorable terms including reduction of interest
rate, deferral of interest payments, extension ofprincipal payments and debt forgiveness with theobjective of promoting recovery of borrowers ineconomic difficulty, excluding bankrupt/de facto
bankrupt loans, doubtful loans and loans past due forthree months or more.
The total of bankrupt/de facto bankrupt loans,doubtful loans, loans past due for three months or more
and restructured loans amounted to ¥127,804 million($1,044 million) and ¥101,441 million at March 31, 2022
and 2021, respectively.
The loan amounts disclosed above are amounts
before deducting an allowance for loan losses.

(d) Bond-related:
There were no bond-related transactions at March 31,
2022 and 2021.

(Changes in presentation method)
Applying the“Cabinet Office Order Partially Amending theRegulation for Enforcement of the Banking Act, etc.”

Type
Principal accounting procedure:Interest rate swaps
Receive floating, payable fixedInterest rate swaps employing exceptional
accounting treatment:Interest rate swaps
Receive floating, payable fixed
Total

Millions of yen
2021

—

—
¥19,477Type
Over-the-counter:
Currency swaps
Foreign exchange forward
contracts:
Sold
BoughtCurrency options:
Sold
BoughtTotal

Business Strategy
for Value Creation

About YMFG

Type
Principal accounting procedure:Interest rate swaps
Receive floating, payable fixedInterest rate swaps employing exceptional
accounting treatment:Interest rate swaps
Receive floating, payable fixed
Total

Type
Principal accounting procedure:Interest rate swaps
Receive floating, payable fixedInterest rate swaps employing exceptional
accounting treatment:Interest rate swaps
Receive floating, payable fixed
Total

Millions of yen
2022
Contract Over one
amounts
year
Fair value¥402,778¥280,878¥5,783

42
¥—

42
¥—

*
¥5,783

Millions of yen
2021
Contract Over one
amounts
year
Fair value¥279,245¥279,245¥2,234

75
¥—

75
¥—

*
¥2,234

Thousands of U.S. dollars
2022
Contract Over one
amounts
year
Fair value$3,290,939 $2,294,942

343
$—

343
$—

$47,251*$47,251(*) Of interest rate swaps employing exceptional accounting treatment,
as these instruments are accounted for together with the hedgedloans and bills discounted and borrowings, their fair value isincluded in the fair value of said loans and bills discounted within“4.
FINANCIAL INSTRUMENTS.”(b) Currency-related:

Type
Principal accounting procedure:
Currency swaps
Total

Type
Principal accounting procedure:
Currency swaps
Total

Type
Principal accounting procedure:
Currency swaps
Total

Millions of yen
2022
Contract Over one
amounts
year
Fair value¥324,749¥—¥112,040¥—¥(25,676)¥(25,676)

Millions of yen
2021
Over oneyear
Fair value

Contract
amounts¥176,233¥—¥75,844¥—¥(7,737)¥(7,737)

Thousands of U.S. dollars
2022
Contract Over one
amounts
year
Fair value$2,653,395$—$915,434 $(209,788)$— $(209,788)

YMFG Integrated Report2022

102

Management Letter(Cabinet Office Order No. 3, January 24, 2020) that cameinto effect on March 31, 2022, the classification of“riskmanagement loans”under the Banking Act is presented inaccordance with the classification of disclosed loans
under the Act on Emergency Measures for the
Revitalization of the Financial Functions.

Commercial bills

Bills discounted are accounted for as financing
transactions in accordance with the Industry Audit
Committee Report No. 24, March 17, 2022, of the JICPA,
although the Banks have the right to sell or pledge themwithout restrictions. The total face value of commercial
bills and purchased foreign exchange bills obtained as aresult of discounting was ¥20,760 million ($170 million) at
March 31, 2022 and ¥20,648 million at March 31, 2021.

Loan participation

Based on the“Accounting Treatment and Presentation ofLoan Participation”(Japanese Institute of Certified Public
Accountants Accounting System Committee Report No. 3,
November 28, 2014), the consolidated balance sheet
amount of loan participation agreements in which theBanks have acquired the economic benefits and risks of
the underlying loans from the original lender was ¥2,783
million ($23 million) and ¥2,783 million at March 31, 2022
and 2021, respectively.

8. COMMITMENT LINES
Loan agreements and commitment line agreements
relating to loans are agreements that oblige theconsolidated subsidiaries to lend funds up to a certain
limit agreed in advance. The consolidated subsidiaries
make the loans upon the request of an obligor to draw
down funds under such loan agreements as long as there
is no breach of the various terms and conditions stipulated
in the relevant loan agreement. The unused commitment
balance relating to these loan agreements amounted to¥937,356 million ($7,659 million) at March 31, 2022 and¥949,071 million at March 31, 2021. Of this amount,¥745,398 million ($6,090 million) at March 31, 2022 and¥774,026 million at March 31, 2021 relate to loans forwhich the term of the agreement is one year or less, or
unconditional cancellation of the agreement is allowed at
any time.
In many cases the term of the agreement runs its
course without the loan ever being drawn down.
Therefore, the unused loan commitment will notnecessarily affect future cash flows. Conditions areincluded in certain loan agreements that allow theconsolidated subsidiaries either to decline the request fora loan draw-down or to reduce the agreed limit amountwhen there is due cause to do so, such as when there is achange in financial condition or when it is necessary toprotect the consolidated subsidiaries’ credit. Consolidated
subsidiaries take various measures to protect their credit.
Such measures include having the obligor pledge collateral
to the consolidated subsidiaries in the form of real estate,securities, etc., at entering into a loan agreement or inaccordance with the consolidated subsidiaries’
established internal procedures for confirming theobligor’s financial condition, etc., at regular intervals.

103

Business Strategy
for Value Creation

About YMFG

9. PLEDGED ASSETS

12. IMPAIRMENT LOSSESAt March 31, 2022 and 2021, the following assets were
pledged as collateral for certain liabilities of the Banks.

During the years ended March 31, 2022 and 2021,
impairment losses were recorded on the following assets.

Cash and due from banks
Securities
Loans and bills discounted

Millions of yen
2022
2021
¥14
¥14
535,274
588,440
585,530
633,488

Thousands of
U.S. dollars
2022
$114
4,373,511
4,784,133

The collateral was pledged to secure the following:

Deposits
Payables under securities lendingtransactions
Borrowings

Millions of yen
2022
2021
¥48,378¥39,569

Thousands of
U.S. dollars
2022$395,277

314,959

326,4142,573,405

605,400

613,500

4,946,483

In addition, securities not included in the aboveschedules were pledged as collateral for operatingtransactions, such as foreign exchange contracts andforward exchange contracts. These securities amounted
to ¥1,983 million ($16 million) at March 31, 2022 and¥23,225 million at March 31, 2021.
Also, other assets included security deposits, collateralpledged for transactions involving public funds, collateralpledged for financial instruments, collateral pledged forexchange settlements, the financial futures margin andmargin on bond futures transactions, as indicated below.

Deposits
Collateral pledged for transactions
involving public funds
Collateral pledged for financial
instruments
Collateral pledged for exchange
settlements
Financial futures margin
Margin on bond futures transactions

Millions of yen
2022
2021
¥1,864¥2,220Thousands of
U.S. dollars
2022$15,230

1,299

1,199

10,614

44,831

22,503366,296

84,00076,400686,331

10
1,000

10
1,000

82
8,171

10. ACCUMULATED DEPRECIATION
Accumulated depreciation of tangible assets was ¥80,477
million ($658 million) at March 31, 2022, and ¥80,146
million at March 31, 2021.

11. ADVANCED DEPRECIATION AMOUNTOF TANGIBLE FIXED ASSETSAt March 31, 2022 and 2021, accumulated advanced
depreciation amount of tangible fixed assets was ¥9,628
million ($79 million) and ¥8,147 million. Advancedepreciation expenses in the years ended March 31, 2022
and 2021 were ¥1,592 million ($13 million) and none,
respectively.

Location
WithinYamaguchi
PrefecturePrimary use
Business-use
assets,corporate
assets,welfarefacility
WithinBusiness-use
Hiroshimaassets,Prefecture
corporate
assets,welfarefacility
Within Hyogo Business-use
Prefecture
assets,welfarefacility
Within Tokyo Welfare
Metropolitan facility
Within Aichi
WelfarePrefecture
facility
WithinWelfareShimanefacility
Prefecture
WithinBusiness-use
FukuokaassetsPrefecture
Within Osaka Business-use
Prefecture
assetsWithin Oita
Prefecture

Business-use
assetsWithinKumamoto
Prefecture
Other

Business-use
assets—Business-use
assets,welfarefacility—

WithinHiroshima
Prefecture
WithinYamaguchi
Prefecture

Business-use
assetsWithin Aichi
Prefecture
Within Tokyo
Metropolitan

Business-use
assets
Welfarefacility for
sale
Business-use
assetsWithinFukuoka
Prefecture
Total

Business-use
assetsTypeLand,buildings,
other tangible
fixed assets

Impairment loss
Thousandsof U.S.
Millions of yen
dollars
2022
2021
2022
¥1,941¥—$15,859Land,
buildings,
other tangible
fixed assets

1,501

—

12,264Land,
buildings,
other tangible
fixed assets
Buildings

251

—

2,051

190

—

1,552

Land,
buildings
Land,buildings

54

—

441

46

—

376

Buildings,
other tangible
fixed assets
Buildings,
other tangible
fixed assets
Buildings,
other tangible
fixed assets
Buildings

43

—

351

18

—

147

13

—

106

12

—

98

17

—

139

1,545

—

12,625

—

183

—

—

155

—

—

37

—

Buildings—

5—

Buildings,
movableproperty—

1—¥5,631¥381$46,009Land,
buildings
Other assets,
goodwill
Buildings,
movablepropertyLand,
buildings,
movableproperty
Buildings(1) Land, buildings and other tangible fixed assets YMFG
and its consolidated subsidiaries that engage in thebanking and securities business group their business-use
assets into the smallest units possible from the standpointof management accounting, which is the branch (Ifmultiple branches operate in a same building, thesebranches are grouped in one group). Idle assets are, in
principle, grouped as units of individual assets. In addition,
corporate headquarters, administrative centers, training
facilities, company housing and dormitories are
considered corporate assets, as these are related to all
the consolidated subsidiaries which are engaged in thebanking businesses.
Consolidated subsidiaries that do not engage in thebanking and securities business group their assets, inprinciple, on an individual company basis.
In the year ended March 31, 2022, the book values ofbusiness-use assets which were determined not to create

Management Foundation
Supporting Value Creation

Financial Section

sufficient operating cash flow and assets to be moved,
discontinued in use or sold are reduced to theirrecoverable values, and the reduction of ¥4,086 million($33,384 thousand) was recognized as impairment losses.
This amount includes land of ¥3,071 million ($25,091
thousand), buildings (including exit and disposal costs) of¥1,009 million ($8,244 thousand) and movable propertyof ¥6 million ($49 thousand).
In the year ended March 31, 2021, the book values ofbusiness-use assets which were determined not to create
sufficient operating cash flow and assets to be moved,
discontinued in use or sold are reduced to theirrecoverable values, and the reduction of ¥381 million wasrecognized as impairment losses. This amount includes
buildings (including exit costs) of ¥248 million, land of¥132 million and movable property of ¥1 million.
The recoverable amount used to estimate theimpairment loss for the years ended March 31, 2022 and2021 is the net selling price, which is calculated bydeducting the expected disposal cost from the expected
disposal value.
(2) Other assets
In the year ended March 31, 2022, the book values ofother assets whose value has declined are reduced totheir recoverable values, and the reduction of ¥18 million($147 thousand) was recognized as impairment losses.
(3) Goodwill
In the event of signs of impairment of fixed assets statedin the consolidated financial statements (including
goodwill), if the total amount of undiscounted future cash
flows from the target assets falls below the book value of
fixed assets (including goodwill), book value is reduced to
the recoverable value, and the reduction in book value isrecognized as an impairment loss.
With respect to goodwill which YMFG recorded at theacquisition of Hoken Hiroba, a consolidated subsidiary,
Hoken Hiroba experienced a substantial decline in thenumber of people visiting its branches amid the prolonged
COVID-19 pandemic, during the year ended March 31,
2022, and income declined and operating performance
deteriorated accordingly. As a result, YMFG
determined signs of impairment in this business, including
goodwill. In deliberating on whether to recognize
impairment losses, YMFG determined that the amount of
undiscounted future cash flows from the target fixed
assets (including goodwill) fell below their book value, so
recognized goodwill of ¥1,527 million ($12,477 thousand)as impairment losses.

13. BORROWED MONEY
Payment schedule of borrowed money as of March 31,
2022 is as follows:
2022
2023
2024
2025
2026
Thereafter
Total

Millions ofyen¥611,586
3,984
2,461
1,690
1,160
5,665
¥626,546

Thousands of
U.S. dollars$4,997,026
32,552
20,10813,8089,478
46,286$5,119,258

YMFG Integrated Report2022

104

Management Letter

14. PROVISION FOR EMPLOYEERETIREMENT BENEFITS(4) Retirement benefit costs and their breakdowns

Overview of severance payments and pension plans

Service cost (*1)
Interest cost
Expected return on plan assets
Recognized actuarial loss
Recognized past service cost
OthersRetirement benefit costs on defined
benefit plans
Gains on cancellation of retirement
benefit trusts (*2)
Loss on revision of retirement benefit
plan (*3)

YMFG and some consolidated subsidiaries employ funded
and unfunded defined benefit and defined contributionplans as employee retirement benefits.
Defined benefit plans include defined benefit
corporate pension plans and lump-sum retirement plans.
Also, some are established as retirement benefit trusts.
Moreover, in the year ended March 31, 2022, part ofplan assets under defined benefit corporate pension plans
was transferred to defined contribution pension plans.
Some consolidated subsidiaries employ the simplified
method for calculating retirement benefit obligations.

Defined benefit plans(1) Reconciliation of retirement benefit obligation
balances at the beginning and the end of the years
ended March 31, 2022 and 2021

Retirement benefit obligations at the
beginning of the year
Service cost
Interest cost
Actuarial differences
Past service cost
Retirement benefit payments
OthersRetirement benefit obligations at theend of the year

Thousands of
U.S. dollars
2022

Millions of yen
2022
2021
¥53,953¥61,677$440,828

1,396
116
(681)
—
(3,398)
(5)

1,853
110
(1,023)(5,577)(3,099)12

11,406948(5,564)—(27,764)(41)¥51,381¥53,953$419,813(2) Reconciliation of plan asset balances at the beginningand the end of the years ended March 31, 2022 and2021

Balance of plan assets at the beginningof the year
Expected return on plan assets
Actuarial differences
Contribution from employer
Retirement benefit payments
Decrease resulting from transfer todefined contribution pension plans
Cancellation of retirement benefit
trustsOthersBalance of plan assets at the end of
the yearThousands of
U.S. dollars
2022

Millions of yen
2022
2021
¥110,770¥92,788$905,058

1,846(1,946)456(2,358)2,060
17,167623(2,162)

15,083(15,900)
3,726(19,266)(1,241)—(10,140)(26,286)—(214,772)

216

294

1,764

¥81,457¥110,770$665,553(3) Reconciliation of the balances of retirement benefit
obligations and plan assets at March 31, 2022 and
2021, and the carrying amounts of net defined benefit
liability and net defined benefit asset

Retirement benefit obligations offunded plans
Plan assets
Retirement benefit obligations of
unfunded plans
Net carrying amount of Liabilities andassetsNet retirement benefit liability
Net retirement benefit asset
Net carrying amount of Liabilities andassets105

Millions of yen
2022
2021

Thousands of
U.S. dollars
2022¥51,269¥53,846$418,899(81,457)(110,770)(665,553)(30,188)(56,924)(246,654)

112

107

915

¥(30,076)¥(56,817)$(245,739)

Millions of yen
2022
2021
¥2,652¥2,789(32,728)(59,607)

Thousands of
U.S. dollars
2022$21,668(267,407)¥(30,076)¥(56,818)$(245,739)¥(3,637)¥(2,825)$(29,717)¥9,094¥—$74,303

1,241—

10,140(*1) Excludes employee contribution portion of defined benefit
corporate pensions(*2)“Gains on cancellation of retirement benefit trusts”are recorded inother income.
(*3)“Loss on revision of retirement benefit plan”is recorded in otherexpenses.

(5) Remeasurements of defined benefit plans
Items posted as remeasurements of defined benefit plans(before tax-effect exclusions) break down as follows:

Actuarial gain (loss)
Past service cost
Total

Thousands of
U.S. dollars
2022$(100,016)(22,780)$(122,796)(6) Cumulative remeasurements of defined benefit plans
Items posted as cumulative remeasurements of defined
benefit plans (before tax-effect exclusions) break down as
follows:

Unrecognized actuarial gain (loss)
Unrecognized past service cost
Total

Millions of yen
2022
2021
¥(3,022)¥(15,263)—(2,788)¥(3,022)¥(18,051)

Thousands of
U.S. dollars
2022$(24,692)—$(24,692)(7) Plan assets(i) Percentages of major asset categories to total plan
assets are as follows:
Bonds
SharesOthers
Total

2022
36%
36%
28%
100%

2021
30%
53%
17%
100%

(Note) Plan assets include 31% of corporate pension plans established
as retirement benefit trusts at March 31, 2022, and 49% at
March 31, 2021.

(ii) Method of establishing expected long-term return onplan assets(Corporate pensions)
Based on the weighted average rate according to thepolicy asset mix (medium- to long-term portfolio) of the
expected rate of return for individual investment fiduciary
institutions, net of investment cost
(Retirement benefit trusts)
Past dividend performance is converted to yield.
(8) Basis of actuarial calculation
The basis of actuarial calculations as of March 31, 2022
and 2021
Discount rate
Expected long-term rate of return on plan
assetsExpected rate of salary increase2022
0.00%—1.27%

Business Strategy
for Value Creation

Defined contribution plans

Thousands ofMillions of yen
U.S. dollars
2022
2021
2022
¥1,396¥1,853$11,406
116
110
948(1,846)(2,060)(15,083)(621)(20)(5,074)(2,788)(2,788)(22,780)
106
80
866

Millions of yen
2022
2021
¥(12,241)¥18,171(2,788)2,788¥(15,029)¥20,959

About YMFG

2021
0.00%—0.98%

1.00%—2.60%

1.60%—2.60%

0.63%—3.84%

0.63%—3.84%

The required contribution to the consolidated subsidiaries’
defined contribution plans at March 31, 2022 and 2021
was ¥317 million ($3 million) and ¥269 million,
respectively.

Management Foundation
Supporting Value Creation

18. GENERAL AND ADMINISTRATIVE
EXPENSES
Items included in operating expenses for the years ended
March 31, 2022 and 2021 were as follows:

Other items pertaining to retirement benefits

As a result of transferring part of plan assets from defined
benefit corporate pension plans to defined contribution
pension plans in the year ended March 31, 2022,“loss onrevision of retirement benefit plan”of ¥1,241 million ($10
million) is recorded in other expenses.

15. REVALUATION RESERVE FOR LAND
Pursuant to the Law concerning Revaluation of Land (Law
No. 34, promulgated March 31, 1998, the“Law”), YMFG
revalued certain land used for banking operations by
consolidated subsidiaries. The tax-equivalent portion ofthis revaluation amount was recorded in liabilities under“deferred tax liabilities for revaluation reserve for land,”and the reminder under net assets as“revaluation reserve
for land.”
Revaluation date: March 31, 1998
Article 3-3 of the Law establishes the evaluation
method as that prescribed by Article 2-4 of the Order for
Enforcement of Law on Revaluation of Land (Enforcement
Order No. 119, promulgated March 31, 1998), and theamount of land tax is calculated on the basis of the land
tax amount specified under Article 16 of the Land-holding
Tax Act, adjusted rationally in accordance with the basisof calculation announced officially by the Director Generalof the National Tax Administration Agency.
Total difference between market value of land forbusiness use revalued in accordance with Article 10 of the
Law and the total post-revaluation book value of land at
March 31, 2022 and 2021 was ¥12,474 million ($102
million) and ¥15,005 million, respectively.

16. CONTINGENT LIABILITIES —ACCEPTANCES AND GUARANTEESAll contingent liabilities, including letters of credit,
acceptances and guarantees are reflected in acceptancesand guarantees. As a contra account, customers’ liabilities
for acceptances and guarantees are shown on the asset
side, which represent the Banks’ right of indemnity from
customers.

17. OTHER INCOME
Other income included the gains on sale of stock of¥3,725 million ($30 million), dividends from creditor groupinsurance of ¥919 million ($8 million) and income frominvestment partnership of ¥398 million ($3 million) for theyear ended March 31, 2022 and the gains on sale of stockof ¥19,295 million, dividends from creditor groupinsurance of ¥691 million and income from investment
partnership of ¥343 million for the year ended March 31,
2021.

Financial Section

Millions of yen
2022
2021
¥28,729¥30,214
5,401
5,787

Salary and allowance
Depreciation

Thousands of
U.S. dollars
2022$234,733
44,12919. OTHER EXPENSES
Items included in other expenses for the years ended
March 31, 2022 and 2021 were as follows:

Loss on sale of stock
Losses on investment partnership
Loss on financial derivatives
Losses on devaluation of stocks andother securities
Loss on investment in money held in
trust

Millions of yen
2022
2021
¥7,140
¥656
858
574
424
198

Thousands of
U.S. dollars
2022$58,338
7,010
3,464

386

512

3,154

0

3,680

0

In addition to the above, the ESOP Trust for employee
shareholders was unable to pay off its debt obligations, so
the Group recorded a loss on loan guarantees of ¥535
million for the redemption period ended March 31, 2021.

20. LEASE TRANSACTIONS
1. Finance lease transactions
Finance lease transactions that do not transfer ownership
Borrower(i) Content of lease assets
Tangible fixed assets
		 Mainly vehicles and office equipment
Intangible fixed assets
		 Software(ii) Depreciation method for lease assets
As described in“Tangible fixed assets (excluding leaseassets)”under (4) Accounting policies in“2.
SIGNIFICANT ACCOUNTING POLICIES.”
2. Operating leases
Future minimum lease payments at March 31, 2022 and2021 were as follows:
Borrower

Within one year
More than one year
Total minimum lease payments

Millions of yen
2022
2021
¥130
¥117
522
575
¥652
¥692

Thousands of
U.S. dollars
2022$1,062
4,265$5,327

Millions of yen
2022
2021
¥44
¥4
127
27
¥171
¥31

Thousands of
U.S. dollars
2022
$360
1,038
$1,398

LenderWithin one year
More than one year
Total minimum lease payments

YMFG Integrated Report2022

106

Management Letter

21. INCOME TAXES
1. Significant components of the deferred tax assets andliabilities as of March 31, 2022 and 2021 were as
follows:

Deferred tax assets:
Allowance for loan losses
Unrealized gains on available-forsale securities
Net operating losses carryforwards
Provision for bonuses
Depreciation
Losses on devaluation of securities
Net defined benefit liability
Other
Deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Unrealized gains on available-forsale securities
Net defined benefit asset
Securities contributed to retirement
benefit trusts
Deferred gains or losses on hedges
Capital gain (loss) adjustment
Gains on cancellation of retirement
benefit trusts
Reserve for advanced depreciationof non-current assets
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)

Thousands of
U.S. dollars
2022

Millions of yen
2022
2021
¥22,692¥18,519$185,407

4,693

3,829

38,345

1,014
881
637
611
324
2,370
33,222(10,168)
23,054

486
901
584
581
143
1,808
26,851(1,632)
25,219

8,285
7,198
5,205
4,992
2,647
19,364271,443(83,079)
188,364(7,826)(11,884)(63,943)(2,906)(6,421)(23,744)(2,620)(3,045)(21,407)(2,076)(1,886)

(644)
(130)

(16,962)(15,410)(1,793)—(14,650)(1,324)(1,334)(10,818)(533)(20,964)¥2,090(5)(23,464)¥1,755(4,355)(171,289)$17,075(Note) The main change in valuation allowance is an increase invaluation allowance related to allowance for loan losses.

2. Significant differences between the statutory effective
tax rate and the actual income tax rate after applicationof deferred income tax accounting for the year ended
March 31, 2021 were as follows:
Effective statutory tax rate
(Adjustments)
Changes in the valuation reserve
Items that are not permanently included in
profits, such as dividends received
Non-deductible goodwill amortization
Items that are not permanently included inlosses, such as entertainment expenses
Inhabitant tax on a per capita basis
Consolidation adjustments
OthersTax burden after the application of tax-effectaccounting

2022
—%

2021
30.46%

—%

0.44%

—%

(0.63)%

—%

0.28%

—%

0.72%

—%
—%
—%

0.36%
0.14%
0.26%

—%

32.03%(Note) Information for the year ended March 31, 2022 is not describedas loss before income taxes is recorded.

Consolidated Balance Sheets.
Under the Act, legal earnings reserve and additional
paid-in capital may be used to eliminate or reduce a
deficit, or may be capitalized, by a resolution of theshareholders’ meeting.
Under the Act, additional paid-in capital and legal
earnings reserve may not be distributed as dividends,
however all of these may be transferred to other capitalsurplus and retained earnings, respectively, which arepotentially available for dividends.
The maximum amount that YMFG can distribute as
dividends is calculated based on the Non-Consolidated
Financial Statements of YMFG in accordance with the Act.
At the annual shareholders’ meeting, held on June 24,
2022, the shareholders approved cash dividends
amounting to ¥3,337 million ($27 million). Suchappropriations have not been accrued in the consolidated
financial statements as of March 31, 2022 and to berecognized in the period in which they are approved by
the shareholders.
At the annual shareholders’ meeting, held on June 25,
2021, the shareholders approved cash dividends
amounting to ¥3,225 million. Such appropriations havenot been accrued in the consolidated financial statements
as of March 31, 2021 and to be recognized in the period
in which they are approved by the shareholders.

23. CHANGES IN NET ASSETS
1. Type and number of shares issued and treasury shareswere as follows:

Shares issued
Common stock
Total
Treasury stock
Common stock (*1, *2)
Total

107

264,353
264,353————

264,353
264,353

17,171
17,171

9,806
9,806

112
112

26,865
26,865(*1) The increase in the number of treasury stock is due to market
purchases of 9,805 thousand shares, and purchases of sharesconstituting less than one trading unit, totaling 1 thousand shares.
The decrease of treasury stock included 71 thousand shares dueto the exercise of rights of the Board Benefit Trust (BBT) and 41
thousand shares for the exercise of share options.
(*2) Treasury stock as of beginning and ending of year ended March
31, 2022 includes 921 thousand shares and 849 thousand shares
held by the Board Benefit Trust (BBT).

22. NET ASSETS
Under the Companies Act of Japan (the“Act”), the entire
amount paid for new shares is in principle required to be
designated as common stock. However, a company may,by a resolution of the Board of Directors, designate an
amount not exceeding one-half of the price of the newshares as additional paid-in capital, which is included incapital surplus.
Under the Act, in cases where dividend distribution of
surplus is made, the smaller of an amount equal to 10% of
the dividend or the excess, if any, of 25% of common
stock over the total of additional paid-in capital and legal
earnings reserve must be set aside as additional paid-in
capital or legal earnings reserve. Legal earnings reserve is
included in retained earnings in the accompanying

Number of shares (in thousand)March 31,
March 31,2021
Increase
Decrease
2022

Shares issued
Common stock
Total
Treasury stock
Common stock (*1, *2, *3)
Total

Number of shares (in thousand)March 31,
March 31,
2020
Increase
Decrease
2021
264,353
264,353————

264,353
264,353

10,55910,559

7,160
7,160

549
549

17,171
17,171

About YMFGBusiness Strategy
for Value Creation

employee shareholders. The trust has sold all of the Company’s
shares it held; as of March 31, 2021, the trust had no holdings ofCompany shares.
(*3) Treasury stock as of beginning and ending of year ended March
31, 2021 includes 1,005 thousand shares and 921 thousand
shares held by the Board Benefit Trust (BBT).

2. Stock options
Stock options at March 31, 2022 and 2021 were ¥82
million ($1 million) and ¥117 million, respectively.
3. Information on dividends is as follows:(a) Dividends paid in the years ended March 31, 2022 and2021.

Type of shares
Resolved at the board of
directors meeting on May
14, 2021
Common stock
Resolved at the board of
directors meeting on
November 12, 2021
Common stock

Aggregate
amount ofdividends(Millions of
yen)

Cash
dividends
per share(Yen)¥3,225 (*1)

¥13.00Mar. 31, 2021 Jun. 28, 2021

¥3,474 (*2)

¥14.00Sep. 30, 2021 Dec. 10, 2021

Recorddate

Effective
dateManagement Foundation
Supporting Value Creation(b) Dividends to be paid in the years ending March 31,
2023 and 2022 are as follows:

Type of shares
Resolved at the boardof directors meetingon May 13, 2022
Common stock

Type of shares
Resolved at the board of
directors meeting on May
15, 2020
Common stock
Resolved at the board of
directors meeting on
November 13, 2020
Common stockCashdividends
per share(Yen)¥3,063 (*1)

¥12.00Mar. 31, 2020 Jun. 26, 2020

¥3,284 (*2)

¥13.00Sep. 30, 2020 Dec. 10, 2020

Recorddate

Effective
date(Millions of yen, except per share amount)
Aggregate
amount ofCashdividends
dividends(Millions Source of per share
RecordEffectiveof yen)dividends
(Yen)
date
date

¥3,337*Retainedearnings¥14.00Mar. 31,2022

Jun. 27,
2022* The total amount of dividend on common stock includes ¥12 million
in dividends to Board Benefit Trust (BBT).

Type of shares
Resolved at the boardof directors meetingon May 14, 2021
Common stock(Millions of yen, except per share amount)
Aggregate
amount ofCashdividends
dividends(Millions Source of per share
RecordEffectiveof yen)dividends
(Yen)
date
date

¥3,225*Retainedearnings¥13.00Mar. 31,2021

Jun. 28,
2021* The total amount of dividend on common stock includes ¥12 million
in dividends to Board Benefit Trust (BBT).

(*1) The total amount of dividend on common stock includes ¥12
million in dividends to Board Benefit Trust (BBT).
(*2) The total amount of dividend on common stock includes ¥13
million in dividends to Board Benefit Trust (BBT).
Aggregate
amount ofdividends(Millions ofyen)

Financial Section

Type of shares
Resolved at the boardof directors meetingon May 13, 2022
Common stock(Thousands of U.S. dollars, except per share amount)
Aggregate
amount ofCashdividends
dividends(Thousands
per shareof U.S.
Source of(U.S.
RecordEffective
dollars)
dividends
dollars)
date
date$27,265*

Retainedearnings$0.11

Mar. 31,2022

Jun. 27,
2022* The total amount of dividend on common stock includes $98
thousand in dividends to Board Benefit Trust (BBT).

(*1) The total amount of dividend on common stock includes ¥18
million in dividends to ESOP Trust for employee shareholders andBoard Benefit Trust (BBT).
(*2) The total amount of dividend on common stock includes ¥14
million in dividends to ESOP Trust for employee shareholders andBoard Benefit Trust (BBT).

Type of shares
Resolved at the board of
directors meeting on May
14, 2021
Common stock
Resolved at the board of
directors meeting on
November 12, 2021
Common stock

Aggregate
amount ofdividends(Thousandsof U.S.
dollars)Cashdividends
per share(U.S.
dollars)$26,350 (*1)

$0.12

Mar. 31, 2021 Jun. 28, 2021

$28,385 (*2)

$0.13

Sep. 30, 2021 Dec. 10, 2021

Recorddate

Effective
date(*1) The total amount of dividend on common stock includes $98
thousand in dividends to Board Benefit Trust (BBT).
(*2) The total amount of dividend on common stock includes $106
thousand in dividends to Board Benefit Trust (BBT).

(*1) The increase in the number of treasury stock is due to market
purchases of 7,159 thousand shares, and purchases of sharesconstituting less than one trading unit, totaling 1 thousand shares.
The decrease of treasury stock included the sale of 456 thousand
shares from the ESOP Trust for Group employees to the YMFG
stock ownership plan, 84 thousand shares due to the exercise ofrights of the Board Benefit Trust (BBT), 8 thousand shares for the
exercise of share options and purchases of shares constituting lessthan one trading unit, which amounted to 0 thousand shares.
(*2) Treasury stock as of beginning and ending of year ended March
31, 2021 includes 456 thousand shares held by the ESOP Trust for

YMFG Integrated Report2022

108

Management Letter

24. STOCK OPTIONS
At a Board of Directors meeting, resolutions were passedwith regard to subscription requirements for the allotmentof stock options as compensation to directors of YMFG’s
banking subsidiaries, Yamaguchi Bank, Momiji Bank andKitakyushu Bank. The details of these resolutions aredescribed below.
1. Recording of expenses related to stock options and thename of line items.
There were no expenses in the years ended March 31,
2022 and 2021.
2. The contents of the stock options are outlined as
below:
Category and number of
persons to be granted stock
options
Number of stock options byclass of stock*
Grant date2016
27 directors (excluding directors who aremembers of the Audit and Supervisory
Committee, part-time directors and outside
directors) of YMFG’s subsidiaries, Yamaguchi
Bank, Momiji Bank and Kitakyushu Bank
122,000 shares of YMFG’s common stock
August 25, 2015

Vesting conditions
No vesting conditions set
Target length of service period No target length of service period set
Period for exercise of rights

Category and number of
persons to be granted stock
options
Number of stock options byclass of stock*
Grant dateAugust 26, 2015—August 25, 2045

2015
27 directors (excluding outside directors) of
YMFG’s subsidiaries, Yamaguchi Bank, Momiji
Bank and Kitakyushu Bank
182,900 shares of YMFG’s common stock
July 29, 2014

Vesting conditions
No vesting conditions set
Target length of service period No target length of service period set
Period for exercise of rights

3. The summary of stock option activity is as indicatedbelow:(a) Number of stock options
2016

2015

2014

2013

Prior to vesting
As of the end of the previous year————
Granted————Expired————
Vested————Rights not yet determined————
After vesting
As of the end of the previous year 31,600 34,200 21,900 20,200
Rights determined————
Rights exercised
4,900 7,300 9,100 11,900
Expiry————Amount unexercised
26,700 26,900 12,800 8,300

2012
—
—
—
—
—
7,800
—
7,800
—
—

(b) Price information
Exercise price
Average share price at time of
exercise
Fair value on date granted

Category and number of
persons to be granted stock
options
Number of stock options byclass of stock*
Grant dateJuly 23, 2013
Vesting conditions
No vesting conditions set
Target length of service period No target length of service period set
Period for exercise of rights
July 24, 2013—July 23, 2043

2013
27 directors (excluding outside directors) of
YMFG’s subsidiaries, Yamaguchi Bank, Momiji
Bank and Kitakyushu Bank
294,900 shares of YMFG’s common stock

Category and number of
persons to be granted stock
options
Number of stock options byclass of stock*
Grant dateJuly 30, 2012
Vesting conditions
No vesting conditions set
Target length of service period No target length of service period set
Period for exercise of rights
July 31, 2012—July 30, 2042

2016
¥1

2015
¥1

Yen
2014
¥1

2013
¥1

2012
¥1

634

634

634

634

634

1,377

1,015

973

619

660

4. Method for estimating the number of rights determined
for stock options
Due to the difficulty of rationally estimating the future
number of rights that will expire, in general a method is
employed that reflects only the number of rights that haveactually expired.

25. INVESTMENT AND RENTAL PROPERTYThis note is omitted, as the total amount of investment
and rental property is immaterial.

26. REVENUE RECOGNITION
1. Disaggregation of revenue from contracts withcustomers
The Group’s business is predominantly consisted of thebanking business, and the securities brokerage, credit
card, leasing, consulting and other businesses conductedby the Group collectively are limited.
Disaggregation of revenue from contracts withcustomers is as follows:
Millions of Thousands ofyen
U.S. dollars
2022
2022
¥23,823$194,648
5,095
41,6294,911
40,126
4,014
32,797
248
2,026
209
1,708
9,346
76,362603
4,927
24,426
199,575
122,591
1,001,642¥147,017 $1,201,217

2012
Category and number of
27 directors (excluding outside directors) of
persons to be granted stock
YMFG’s subsidiaries, Yamaguchi Bank, Momiji
options
Bank and Kitakyushu Bank
Number of stock options by
192,600 shares of YMFG’s common stockclass of stock*
Grant date
October 31, 2011
Vesting conditions
No vesting conditions set
Target length of service period No target length of service period set
Period for exercise of rights
November 1, 2011—October 31, 2041

Category
Fees and commissions
Deposit and loan and bill discounted business
Exchange business
Securities-related businessAgency business
Safe custody and safe deposit box business
Other businesses
Other income
Income from contracts with customers
Income from other sources
Income from external customers

Note: Stated as the equivalent number of shares.
From the year ended March 31, 2016, the issuance ofstock options to directors of the YMFG subsidiaries

2. Useful information in understanding revenue fromcontracts with customers

Business Strategy
for Value Creation

As described in“Method for recording revenue”under (4)Accounting policies in“2. SIGNIFICANT ACCOUNTINGPOLICIES.”
3. Contract asset and contract liability balances andtransaction price allocated to the remaining
performance obligations(1) Contract asset and contract liability balances
Contract assets and contract liabilities of YMFG and its
subsidiaries are omitted, as their balances have little
significance and have not changed significantly. Revenue
recognized in the year ended March 31, 2022 fromperformance obligations satisfied in prior periods is
immaterial.
(2) Transaction price allocated to the remaining
performance obligations
As for the transaction price allocated to the remaining
performance obligations, YMFG and its subsidiaries haveno significant contracts whose term initially expectedexceeds one year. Accordingly, consideration fromcontracts with customers contains no significant financing
component included in the transaction price.

27. CONSOLIDATED STATEMENTS OFCOMPREHENSIVE INCOME
Amounts of reclassification adjustments and tax effectamounts related to other comprehensive income in theyears ended March 31, 2022 and 2021 were as follows.

July 30, 2014—July 29, 2044

2014
27 directors (excluding outside directors) of
YMFG’s subsidiaries, Yamaguchi Bank, Momiji
Bank and Kitakyushu Bank
225,100 shares of YMFG’s common stock109

Yamaguchi Bank, Momiji Bank and Kitakyushu Bank
(excluding directors who are Audit and Supervisory
Committee members, part-time directors and outside
directors) was discontinued.

About YMFG

Unrealized gains (losses) on availablefor-sale securities
Amount generated during the year
Reclassification adjustments
Before tax effect adjustment
Tax effect amount
Unrealized gains (losses) on availablefor-sale securities
Deferred gains (losses) on hedges
Amount generated during the year
Reclassification adjustments
Before tax effect adjustment
Tax effect amountDeferred gains (losses) on hedges
Remeasurements of defined benefit
plans
Amount generated during the year
Reclassification adjustments
Before adjustment for tax effects
Tax effect amountRemeasurements of defined benefit
plans
Total other comprehensive income

Millions of yen
2022
2021

Thousands of
U.S. dollars
2022¥(38,468)
22,591(15,877)
4,599¥33,907(19,864)
14,043(4,232)$(314,307)
184,582(129,725)
37,577(11,278)

9,811(92,140)

3,544
1,156
4,700
(1,431)
3,269

17,106348
17,454(5,317)
12,13728,957
9,445
38,402(11,692)
26,710(1,265)(13,764)(15,029)
4,578

20,979(20)
20,959(6,384)(10,336)(112,468)(122,804)
37,413(10,451)

14,575(85,391)¥(18,460)¥36,523$(150,821)

28. SEGMENT INFORMATIONBusiness segment information is not presented, as theGroup’s business is predominantly consisted of thebanking business, and the securities brokerage, credit
card, leasing, consulting and other businesses conductedby the Group collectively are limited.
Geographic segment information is not presented, as
domestic income of the Bank and consolidated
subsidiaries and their consolidated assets locatedsubstantially in Japan represent more than 90% of theGroup’s consolidated income and assets.

Management Foundation
Supporting Value Creation

Financial Section

Overseas sales information is not presented, as
overseas sales are less than 10% of the Group’s
consolidated income.

29. RELATED PARTY TRANSACTIONS
Details of the transactions between the consolidated
subsidiaries of YMFG submitting the consolidated financial
statements and related parties are as follows:
Executives and major shareholders of YMFG submitting
the consolidated financial statements (only for individuals),etc.

For the year ended March 31, 2022

Category:
Executive
Kazuo Tsukuda
Name:
Occupation or title:	Director and Audit andRelationship with related party:
Content of transaction:

Supervisory Committee
Member of YMFG
Lender of funds

Lending of funds*
Transaction amount:	¥223 million ($2 million)(average balance)
Loan
Account name:Year-end balance:¥223 million ($2 million)* Conditions for this transaction and for method of deciding thistransaction conditions were the same as general transactions.

For the year ended March 31, 2021

Category:
Executive
Name:
Kazuo Tsukuda
Occupation or title:	Director and Audit andSupervisory Committee
Member of YMFG
Relationship with related party:
Lender of funds
Content of transaction:
Lending of funds*
Transaction amount:	¥223 million (averagebalance)
Account name:Loan
Year-end balance:¥223 million* Conditions for this transaction and for method of deciding thistransaction conditions were the same as general transactions.

Corporate pensions for employees, etc.

For the year ended March 31, 2022

Category:
Corporate pensions
Name:
Retirement benefit trusts
Relationship with related party:	Plan assets on retirement
benefit accounting
Content of transaction:
Return of part of assets
Transaction amount:	¥25,026 million ($204
million)For the year ended March 31, 2021

There was no transaction related to corporate pensions for
employees, etc.

YMFG Integrated Report2022

110

Management Letter

30. PER SHARE DATA
Net assets per share
Net income (loss) per share
Net income per share (diluted)

31. SUBSEQUENT EVENTS
yen
2022
2021
¥2,652.26 ¥2,729.94(53.29)99.63—¥99.59U.S. dollars
2022$21.67(0.44)—(Note) Net income per share (diluted) for the year ended March 31,
2022 is not described, because net loss per share is recorded
although dilutive shares exist.

Net assets per share are calculated based on thefollowing:

Net assets
Amounts excluded from net assets
Stock options
Non-controlling interests
Net assets attributable to common
stock at the year-end
Number of common stock at the yearend used for the calculation of net
assets per share (in thousands)*

Millions of yen
Thousands of
except number of shares U.S. dollars
2022
2021
2022
¥636,344¥681,139$5,199,314
6,465
6,345
52,823
82
117
670
6,383
6,228
52,153629,879

674,794

5,146,491

237,488247,182—* Shares of YMFG held by the Board Benefit Trust (BBT) are shown on
the balance sheets as treasury stock, so are not included in theabove number of common stock at the year-end used for the
calculation of net assets per share. This number of shares held by the
Board Benefit Trust (BBT) was 849 thousand as of March 31, 2022,
and 921 thousand as of March 31, 2021.

Net income (loss) per share is calculated based on thefollowing:

Net income (loss) attributable toowners of the parent
Amount not attributable to commonshareholders
Net income (loss) attributable toowners of the parent for common
stock
Average shares of common stockduring the year* (in thousands)

Millions of yen
Thousands of
except number of shares U.S. dollars
2022
2021
2022
¥(13,006)¥24,958$(106,267)

—

—

—

(13,006)

24,958(106,267)

244,077

250,496—

Diluted net income per share is calculated based on thefollowing:

Net income adjustment attributable toowners of the parent
Increase of shares of common stock
Warrant
Dilutive shares not including calculation
due to no dilutive effectMillions of yen
Thousands of
except number of shares U.S. dollars
2022
2021
2022
¥—

¥—

$—

—
—

118
118

—
—

—

—

—

Name

For the year ended March 31, 2022

Dividends were made in June 2022. Please refer to“22.
NET ASSETS.”

Acquisition of treasury stock

At a Board of Directors meeting on May 13, 2022, YMFG
resolved to acquire common stock issued by YMFG as
follows, based on Article 156 of the Companies Act asapplied by replacing terms pursuant to provisions ofArticle 165-3 of the Act, in accordance with provisions ofArticle 7 of the Articles of Incorporation of YMFG pursuant
to provisions of Article 165-2 of the Act for the purpose ofenhancing shareholder returns and improving capitalefficiency.
1. Resolution at a Board of Directors meeting on May 13,2022(1) Type of shares to be acquired
Common stock of YMFG
(2) Total number of shares to be acquired
20,000,000 shares (maximum)(3) Total acquisition price of the shares¥10,000,000,000 (maximum) ($81,706 thousand)(4) Acquisition period
May 16, 2022 to March 24, 2023
(5) Acquisition method
Market purchases on the Tokyo Stock Exchange

Total amount of
issue
Denomination ofeach bondCoupon rate

Issue price

Redemption price
Maturity date
Use of proceeds

Collateral/guarantee

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8th series of unsecured
9th series of unsecured
subordinated callable bonds subordinated callable bonds(with a non-viability write-off (with a non-viability write-off
clause)clause)(Green Bonds)(Green Bonds)¥2,400 million¥20,000 million¥100 million¥1 million

1. ‌First five years (until
1. ‌First five years (until
October 20, 2027): 1.10%
October 31, 2027): 1.10%
per annum
per annum
2. ‌After five years: Six-month 2. ‌After five years: Mid-rate
Japanese yen TIBOR
for five-year Japanese yen+0.68%
swap + 0.68%¥100 per face value ¥100 of each bond¥100 per face value ¥100 of each bondOctober 20, 2032
October 31, 2032
The proceeds from the issuance of these bonds will be
used by the Banks to finance new and existing loans thatmeet the following eligibility criteria.
1. Renewable energy   ‌Financing for the following renewable energy power
generation projects (both new/existing projects)   i. Solar power generation‌   ii. Biomass
power generation (limited to projects thatuse sustainable feedstock or waste materials)   iii. Wind power generation   iv. ‌Hydro power generation (limited to projects with acapacity less than 25 MW)
2. Green buildings   ‌Financing for projects associated with (1) construction/purchase of new buildings or (2) renovation/rebuildingof existing buildings which have obtained, or arescheduled to obtain, the following certifications   i: LEED: Gold or higher   ii. BREEAM: Excellent or higher   iii. CASBEE: Rank A or higher   iv. BELS: Four stars or higher   v. DBJ Green Building: Four stars or higher
These bonds are not secured by collateral or guarantee
and there are no assets pledged particularly for thesebonds.

For the year ended March 31, 2021

There were no significant subsequent events. Dividends
were made in June 2021. Please refer to“22. NET
ASSETS.”

Issuance of unsecured subordinated bonds (with a
non-viability write-off clause)

Based on the resolution at the board of directors meeting
held on September 26, 2022 for issuance of unsecured
bonds, YMFG determined the following conditions for theissuance on October 14, 2022. Issuance for the 8th and9th series of unsecured callable bonds were completed
on October 20, 2022 and October 31, 2022, respectively.

(*1) Diluted net income per share for the year ended March 31, 2022 is
not described, because net loss per share is recorded although
dilutive shares exist.
(*2) Shares of YMFG held by the ESOP trust and the Board Benefit Trust(BBT) are shown on the balance sheets as treasury stock, so are
not included in the above average shares of common stock during
the year. The average number of shares was 899 thousand in theyear ended March 31, 2022 and 1,103 thousand in the year ended
March 31, 2021.
The ESOP Trust for employee shareholders was terminated in
March 2021.

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Management Letter

Independent auditor’s report
To the Board of Directors of Yamaguchi Financial Group, Inc.:
OpinionWe have audited the accompanying consolidated financial statements of Yamaguchi Financial Group,
Inc. and its consolidated subsidiaries (collectively referred to as “the Group”), which comprise theconsolidated balance sheets as at March 31, 2022 and 2021, the consolidated statements of income, theconsolidated statements of comprehensive income, the consolidated statements of changes in net assets
and the consolidated statements of cash flows for the years then ended , and notes, comprising asummary of significant accounting policies, other explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at March 31, 2022 and 2021, and its
consolidated financial performance and its consolidated cash flows for the years then ended inaccordance with accounting principles generally accepted in Japan.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Consolidated Financial Statements section of our report. We are independent of the Groupin accordance with the ethical requirements that are relevant to our audit of the consolidated financial
statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with theserequirements. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in thecontext of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Appropriateness of the Borrower Classification for Allowance for Loan Losses

113

The key audit matter

How the matter was addressed in our audit

In the consolidated balance sheet of
Yamaguchi Financial Group, Inc., loans andbills discounted (hereinafter referred to as the"Loans") of ¥8,143,997 million wererecognized, accounting for approximately
66.8%, which is a significant portion of the

The primary procedures we performed to assess theappropriateness of the borrower classification of therecipients of management improvement support
initiatives taking into account qualitative factors at
Group banks included the following:(1) Internal control testing

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total consolidated assets. The corresponding
allowance for loan losses was ¥78,208
million. These included the balances of
Yamaguchi Bank, Ltd, Momiji Bank, Ltd
and Kitakyushu Bank, Ltd (hereinafterreferred to as the "Group banks"), all ofwhich are consolidated subsidiaries. Loans of
the Group banks, before eliminations ofintercompany balances of consolidated
subsidiaries, were ¥8,223,908 million and thecorresponding allowance for loan losses was¥78,068 million.
As described in Note 2, "SIGNIFICANTACCOUNTING POLICIES, (4) Accounting
Policies, Allowance for loan losses" to theconsolidated financial statements, the Groupbanks assess their receivables, including theLoans, in accordance with the selfassessment criteria. Based on the results ofthe self-assessments, the Loans are classified
into loans to normal borrowers, etc., and anallowance for loan losses is provided by eachclass, in accordance with the method
specified in the write-off and provisioning
standards, for the expected amount of losses
based on the actual rate of losses from bad
debts and the default probability, or theamount calculated by deducting the amount
expected to be collected through dispositionof collateral or execution of guarantees, etc.
As described in Note “Major accounting
estimates, Allowance for loan losses” to theconsolidated financial statements, in the selfassessment, the borrower classification isdetermined based on the status of theborrower's credit risk, taking into accountqualitative factors including forward-looking
information as well as quantitative factors
including financial information. If certain
conditions are met, such as the existence of areasonable and highly feasible business
improvement plan, the borrowerclassification is determined taking into
account the details of the plan.
In Yamaguchi Prefecture, Hiroshima
Prefecture and the city of Kitakyushu, theprincipal business areas of the Group banks,Management Foundation
Supporting Value Creation

Financial Section

We evaluated the design and operating effectivenessof certain internal controls over the process ofdetermining the borrower classification, focusing on
the following:① Establishment of rules for self-assessment incompliance with the applicable accounting
standards.
② Controls to take into account qualitative factors
in determining the borrower classification.
(2) Evaluation of the appropriateness of the borrowerclassification
We mainly performed the following procedures forborrowers selected based on certain criteria. We
considered not only quantitative factors but also
qualitative factors, including the effects of the
prolonged spread of COVID-19, in our selection.
① We inspected the financial analyses and othermaterials used as a basis for the borrowerclassification to determine whether the
borrower classification was carried out inaccordance with the Group bank’s rules for selfassessment.
② If a business improvement plan has beencreated, we mainly performed the following
procedures to assess the reasonableness andfeasibility of the plan, taking into account the
impact of the prolonged spread of COVID-19.
•

Inspection of the business improvement
plans

•

Inquiry to the assessment departments
about the basis for assumptions included in
the business improvement plans•

Comparison of financial position andoperating results of borrowers with theforward-looking information, including
planned figures③ We inquired of the assessment departments
about the basis for the borrower classification.
We assessed the appropriateness of the borrowerclassification by comprehensively taking into accountthe actual financial status of the borrower, the debt
repayment capacity considering the latest operating
results and cash flows, liquidity position, forwardlooking information including the business
improvement plans, and the effects of the prolonged
spread of COVID-19.

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114

Management Letter

there is uncertainty in the future businessprospect, such as a decline in corporate
profits and a decrease in personal
consumption, due to the effects of the
prolonged spread of COVID-19, in addition
to a declining population, aging population
with low birthrate and a shortage of businesssuccessors. In order to cope with thesecircumstances, the Group banks conductbusiness feasibility assessment activities aspart of measures to develop and revitalize theregional economy. In particular, the Groupbanks designate borrowers who are deemed
to require business improvement support as"recipients of management improvement
support initiatives" and focus on supporting
them. Loans to borrowers designated as“recipients of management improvement
support initiatives” amounted to ¥133,405
million, and the corresponding allowance forloan losses was ¥27,692 million.
The determination of the borrowerclassification for those borrowers designatedas recipients of management improvement
support initiatives takes into accountqualitative factors and depends significantly
on the estimates based on forward-looking
information, such as the reasonableness andfeasibility of the business improvement plans
prepared assuming such support. Suchestimates involve significant uncertainty andrequire a high degree of management
judgment.
We, therefore, determined that evaluation of
the appropriateness of the allowance for loan
losses of the Group banks for recipients ofmanagement improvement support
initiatives, specifically the appropriateness ofthe borrower classification which takes into
account qualitative factors, was the mostsignificant in the audit of the consolidated
financial statements for this fiscal year, andaccordingly, a key audit matter.

115

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Management Foundation
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Financial Section

the preparation and presentation of the other information. the audit and supervisory committeeare
responsible for overseeing the directors’ performance of their duties with regard to the design,
implementation and maintenance of the reporting process for the other information.
Our opinion on the consolidated financial statements does not cover the other information and we do
not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read theother information and, in doing so, consider whether the other information is materially inconsistent
with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears
to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of thisother information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of Management and the audit And Supervisory Committee for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in Japan, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern inaccordance with accounting principles generally accepted in Japan. The audit and supervisorycommittee is responsible for overseeing the directors’ performance of their duties with regard to thedesign, implementation and maintenance of the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’sreport that includes our opinion. Reasonable assurance is a high level of assurance, but is not aguarantee that an audit conducted in accordance with auditing standards generally accepted in Japan
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The riskof not detecting a material misstatement resulting from fraud is higher than for one resulting fromerror, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, while the objective of the audit is not to express an
opinion on the effectiveness of the Group’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

Other Information
The other information comprises the information included in the Integrated Report but does not include
the consolidated financial statements and our auditor’s reports thereon. Management is responsible for

About YMFGYMFG Integrated Report2022

116

Management Letter







Conclude on the appropriateness of management’s use of the going concern basis of accounting
and based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Group tocease to continue as a going concern.
Evaluate whether the presentation and disclosures in the consolidated financial statements are inaccordance with accounting standards generally accepted in Japan, the overall presentation,
structure and content of the consolidated financial statements, including the disclosures, andwhether the consolidated financial statements represent the underlying transactions and events in amanner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remainsolely responsible for our audit opinion.

About YMFGManagement Foundation
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Financial Section

Atsuji Maeno
Designated Engagement Partner
Certified Public Accountant
Yoshinao Abe
Designated Engagement Partner
Certified Public Accountant
Noriyuki Akiyama
Designated Engagement Partner

We communicate with the audit and supervisory committee regarding, among other matters, theplanned scope and timing of the audit, significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.

Certified Public Accountant

We also provide the audit and supervisory committee with a statement that we have complied with
relevant ethical requirements regarding independence, and communicate with them all relationships andother matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.

Tokyo Office, Japan

From the matters communicated with the audit and supervisory committee , we determine those mattersthat were of most significance in the audit of the consolidated financial statements of the current period
and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences ofdoing so would reasonably be expected to outweigh the public interest benefits of such communication.

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KPMG AZSA LLC
November 18, 2022

Notes to the Reader of Independent Auditor’s Report:
This is a copy of the Independent Auditor’s Report and the original copies are kept separately by theCompany and KPMG AZSA LLC.

Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended March 31, 2022 are presented solely for convenience. Our audit also included the translation of
yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis
described in Note 1 to the consolidated financial statements.
Interest required to be disclosed by the Certified Public Accountants Act of Japan
We do not have any interest in the Group which is required to be disclosed pursuant to the provisions of
the Certified Public Accountants Act of Japan.

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Management Letter

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Yamaguchi Bank Financial Statements
NONCONSOLIDATED BALANCE SHEETS (UNAUDITED)NONCONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)March 31, 2022 and 2021

Years ended March 31, 2022 and 2021

Millions of yen

ASSETS
Assets2022
Cash and due from banks

Millions of yen

Thousands of
U.S. dollars
2022

2021

2022

2021

2022

Income$9,817,689

Call loans and bills purchased

50,80624,356415,116

Monetary claims bought

5,443

4,556

44,473

Interest on loans and discounts¥35,360¥36,378$288,912

Trading assets

2,454

1,373

20,051

Interest and dividends on securities

15,39627,928125,795

Money held in trust

25,38625,180207,419

Other interest income

1,325

657

10,826

Securities

861,952

1,174,387

7,042,667

Fees and commissions

10,871

10,87788,823

Trading income

Interest income:

4,541,577

4,374,246

37,107,419

Foreign exchanges

12,993

10,482

106,161

Other assets

163,571

160,869

1,336,481

Other income

7,376

11,60560,266

Tangible fixed assets

36,26541,888296,307

Total income

75,851

98,502619,748

1,069

1,564

8,734

537

729

4,388

2,783

3,060

22,739Intangible fixed assets

2,818

3,185

23,025Prepaid pension cost

19,261

21,146

157,374———

Customers’ liabilities for acceptances and guarantees

29,901

21,470244,309

Allowance for loan losses(28,923)(32,975)(236,318)¥6,925,091¥6,797,387$56,582,173

Total assets

LIABILITIES AND NET ASSETS (SHAREHOLDERS’ EQUITY)¥5,813,976¥5,639,379$47,503,685

Call money and bills sold

Deposits

10,592

84,93886,543

Payables under securities lending transactions

266,663259,166

2,178,797

Trading liabilities

2,109

1,122

17,232

Borrowed money

292,387

292,561

2,388,978Foreign exchanges

7,856

6,194

64,188Other liabilities

67,34050,761550,192

Provision for bonuses

14

34

114

Provision for retirement benefits

120

119

989

Provision for directors’ stock benefits

139

137

1,136

Provision for reimbursement of deposits

327

439

2,672

Provision for customers point services

52

44

433

Deferred tax liabilities

4,083

634

33,361

Deferred tax liabilities for land revaluation

5,436

6,826

44,415

Acceptances and guarantees

29,901

21,470244,3096,500,995

6,363,824

53,117,044

10,006

10,00681,755

380

380

3,105

Retained earnings

390,334

394,051

3,189,264

Total shareholders’ equity

3,274,124Total liabilities
Capital stock
Capital surplus

400,720

404,437

Net unrealized gains on securities

7,653

13,22562,530

Deferred gains or losses on hedges

3,464

476

28,303

Revaluation reserve for land

12,25915,425100,172

Total valuation and translation adjustments

23,37629,126

191,005

Total net assets
Total liabilities, and net assets

119

Thousands of
U.S. dollars¥967,224

Deferred tax assets

Net assets:

Millions of yen¥1,201,587

Loans and bills discounted

Liabilities:

Millions of yen

424,096

433,563

3,465,129¥6,925,091¥6,797,387$56,582,173

Other ordinary income

112

103

915

5,411

10,954

44,211

Expenses
Interest expense:
Interest on deposits
Interest on borrowings and rediscounts
Other interest expense
Fees and commissions payments

4,487

4,705

36,661Other operating expenses

22,84027,902

186,617

General and administrative expenses

22,25424,658

181,829

Impairment losses

3,040

197

24,839Other expenses

13,097

9,287

107,009

Total expenses

70,107

72,101

572,816

Income before income taxes and minority interests

5,744

26,401

46,932Current

(323)

5,711

(2,639)Deferred

3,298

851

26,947

Net income¥2,769¥19,839$22,624

Yen

Yen

U.S. dollars

Amounts per share of common stock:

2022

2021

2022

Net income¥13.84¥99.20$0.11

Cash dividends applicable to the year

47.62

36.23

0.39

Income taxes:

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Momiji Bank Financial Statements
NONCONSOLIDATED BALANCE SHEETS (UNAUDITED)NONCONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)March 31, 2022 and 2021

Years ended March 31, 2022 and 2021

Millions of yen

ASSETS
AssetsCash and due from banks

Millions of yen

Thousands of
U.S. dollars
2022

2022

2021

¥829,668¥734,062$6,778,887

2022

2021

2022

¥21,459¥22,334$175,333

6,603

8,862

53,950

805

740

6,577

Income

734

—

5,997

647

608

5,286

Interest on loans and discounts

4,894

4,673

39,987

Interest and dividends on securities

431,831557,057

3,528,319

2,393,538

2,332,083

19,556,647

Fees and commissions

5,933

6,193

48,476
16,880Loans and bills discounted

Interest income:

Other interest income

Foreign exchanges

12,116

6,101

98,995

Other ordinary income

2,067

3,971

Other assets

83,54091,621

682,574

Other income

8,014

5,539

65,489Tangible fixed assets

32,696

34,677

267,146

Total income

44,881

47,639366,705

Intangible fixed assets

1,912

2,114

15,622

Prepaid pension cost

8,346

18,291

68,192

Deferred tax assets

9,231

11,49275,423Customers’ liabilities for acceptances and guarantees

8,883

8,017

72,579(35,883)(27,213)(293,186)

Interest on deposits

304

403

2,484

¥3,782,153¥3,773,583$30,902,468

Interest on borrowings and rediscounts

160

148

1,307

Other interest expense

181

(0)

1,487

Fees and commissions payments

3,782

3,848

30,901Other operating expenses

13,614

11,795111,235

General and administrative expenses

16,00817,042

130,795

Impairment losses

1,910

183

15,606

Other expenses

13,697

5,132

111,904

Total expenses

49,65638,551

405,719(Loss)Income before income taxes and minority interests(4,775)

9,088(39,014)

Allowance for loan losses
Total assets

LIABILITIES AND NET ASSETS (SHAREHOLDERS’ EQUITY)
Deposits¥3,254,539¥3,209,720$26,591,543

Call money and bills sold

6,487

2,214

53,003

Payables under securities lending transactions

48,296

67,249394,607

Borrowed money

289,806

296,7392,367,890

26

28

212

16,01018,249130,813

Foreign exchanges
Other liabilities
Provision for bonuses
Provision for directors’ stock benefits

—

7

—

112

92

915

Provision for reimbursement of deposits

182

238

1,487

Deferred tax liabilities for land revaluation

4,221

4,419

34,488

Acceptances and guarantees

8,883

8,017

72,5793,628,562

3,606,972

29,647,537

Capital stock

10,00010,00081,706

Capital surplus

54,88959,533

448,476

Retained earnings

89,69996,070732,895

Total shareholders’ equity

154,588

165,603

1,263,077

Net unrealized gains on securities(10,442)(8,394)(85,317)

Deferred gains or losses on hedges

1,277

996

10,434

Revaluation reserve for land

8,168

8,405

66,737

Total liabilities

Total valuation and translation adjustments
Total net assets
Total liabilities, and net assets

121

Thousands of
U.S. dollars

Trading assets
Securities

Net assets:

Millions of yen

Call loans and bills purchased
Money held in trust

Liabilities:

Millions of yen

(997)

1,007

(8,146)

153,591

166,6101,254,931¥3,782,153¥3,773,583$30,902,468

Expenses
Interest expense:

Income taxes:
Current(1,008)2,801(8,236)

Deferred

2,804(1,027)

22,919Net (loss) income(¥6,571)¥7,314($53,697)

Yen

Yen

U.S. dollars

Amounts per share of common stock:

2022

2021

2022

Net (loss) income(¥15.08)¥16.79($0.12)

10.85

8.50

0.09

Cash dividends applicable to the year

YMFG Integrated Report2022

122

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Kitakyushu Bank Financial Statements
NONCONSOLIDATED BALANCE SHEETS (UNAUDITED)NONCONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)March 31, 2022 and 2021

Years ended March 31, 2022 and 2021

Millions of yen

ASSETS
AssetsCash and due from banks
Call loans and bills purchased

Millions of yen

Thousands of
U.S. dollars
2022

2022

2021

¥143,882¥106,607$1,175,603

—

—

—

51,715

48,591

422,543

1,288,793

1,257,209

10,530,215

Foreign exchanges

12,692

11,856

103,701

Other assets

24,322

9,962

198,733

Tangible fixed assets

18,85919,066

154,089

Intangible fixed assets

869

928

7,100

Prepaid pension cost

1,424

1,170

11,635

Securities
Loans and bills discounted

Customers’ liabilities for acceptances and guarantees

13,59912,007111,112

Allowance for loan losses(13,929)(10,614)(113,808)¥1,542,226¥1,456,782$12,600,923

Total assets

LIABILITIES AND NET ASSETS (SHAREHOLDERS’ EQUITY)
Liabilities:

Deposits¥1,293,736¥1,189,817$10,570,602

Call money and bills sold80,827

95,167660,405

Borrowed money

36,63335,609299,314

49

2

400

6,452

5,798

52,725

Foreign exchanges
Other liabilities
Provision for bonuses
Provision for retirement benefits—
10,123

Provision for directors’ stock benefits

109

89

891

22

31

180

2,370

3,751

19,364

Deferred tax liabilities for land revaluation

3,447

3,458

28,164

Acceptances and guarantees

13,59912,007111,1121,438,483

1,346,949

11,753,280

Capital stock

10,00010,00081,706

Retained earnings

75,28577,331

615,124

Total shareholders’ equity

85,28587,331

696,830

Net unrealized gains on securities

10,717

14,73587,564

Revaluation reserve for land

7,741

7,767

63,249150,813

Total liabilities

Total valuation and translation adjustments
Total net assets
Total liabilities, and net assets

123

7
1,213

Provision for reimbursement of deposits
Deferred tax liabilities

Net assets:

—
1,239

18,45822,502

103,743

109,833

847,643¥1,542,226¥1,456,782$12,600,923

Millions of yen

Millions of yen

Thousands of
U.S. dollars

2022

2021

2022

IncomeInterest income:Interest on loans and discounts¥11,195¥11,000$91,470

Interest and dividends on securities

524

574

4,281

Other interest income

134

52

1,095

Fees and commissions

1,893

1,722

15,467

Other ordinary income

662

382

5,409

Other income

585

3,766

4,780

Total income

14,993

17,496

122,502

Interest on deposits

221

307

1,806

Interest on borrowings and rediscounts

71

90

580

Other interest expense

14

3

114

Fees and commissions payments

1,293

1,295

10,565General and administrative expenses

6,647

7,073

54,310

Other expenses

5,046

1,580

41,229Total expenses

13,292

10,347

108,604

Income before income taxes and minority interests

1,701

7,149

13,898Current

1,140

1,877

9,314

Deferred

320

(22)

2,615

Net income¥241¥5,294$1,969

Expenses
Interest expense:

Income taxes:

Yen

Yen

U.S. dollars

2022

2021

2022

Net income¥240,517.08¥5,294,543.73$1,965.17

Cash dividends applicable to the year

2,325,482.97

1,713,650.74

19,000.60

Amounts per share of common stock:

YMFG Integrated Report2022

124

Co-Creating a Beautiful Future for Our Region

Yamaguchi Financial Group, Inc.

Public & Invester Relations office, Corporate Planning Dept.
2-36, 4-chome Takezaki-cho,
Shimonoseki, Yamaguchi 750-8603, Japan
Tel: +81-83-223-5545
Issued in July 2022