九州フィナンシャルグループ（7180） – [Delayed]Corporate Governance Reports

Corporate Governance CORPORATE GOVERNANCE Kyushu Financial Group, Inc. Last updated: December 28, 2021 Kyushu Financial Group, Inc. Yoshihisa Kasahara, President and Representative Director Phone: 096-326-5588 Securities code: 7180 https://www.kyushu-fg.co.jp This document describes the state of the corporate governance at Kyushu Financial Group, Inc. (“Kyushu Financial”) I. Basic Stance on Corporate Governance and Capital Structure, Business Attributes, and Other Basic Information 1. Basic Stance Updated The Kyushu Financial Group (the “Group”) establishes the Group Management Philosophy (see the attachment), and in order to carry it into action, complies with laws and regulations and ensures appropriate business decision-making and execution of operations as well as endeavors to achieve high degrees of transparency, openness, and soundness of management, thereby enhancing corporate governance. 1. The Group will respond to the trust and expectations of customers and will provide optimal, high-level comprehensive 2. The Group will grow with local communities and actively contribute to the realization of vibrant communities. 3. The Group will nurture an abundance of creativity and an open-minded organizational culture, continuing to challenge itself financial services to customers. to move toward a better future. In accordance with its basic stance on the corporate governance system stated below, Kyushu Financial has adopted the form as a Company with Audit and Supervisory Committee because it regards the form suitable to accelerate and improve the efficiency of decision making through delegation of authority for further enhancement of discussions regarding medium- to long-term management strategies at the Board of Directors, which consists of 15 Directors (including 5 External Directors), as well as to enhance supervision of the Board of Directors and strengthen corporate governance by establishing an Audit and Supervisory Committee, the majority on which consist of the External Directors, and giving voting rights at the Board of Directors meeting to the Directors who are Audit and Supervisory Committee Members (hereinafter the “Audit and Supervisory Committee Members”). 1. We clearly define supervision and execution in order to establish an environment that allows the Board of Directors to focus on the supervision of Directors’ performance of duty, thereby ensuring the effectiveness of corporate governance. 2. The Board of Directors delegates decision-making on the execution of individual operations to the Senior Management wherever possible unless it involves matters specified in laws and regulations or the articles of incorporation, or material matters of execution of operations such as policies, strategies, or plans pertaining to Kyushu Financial’s management. 3. We have in place and leverage optional internal bodies, including the Group Executive Commission and other various committees, in order to help the Senior Management with prompt and decisive decision-making, thereby ensuring flexible execution of operation and enhancing our corporate governance. 4. We leverage objective views offered by our External Officers wherever possible in order to ensure the fairness and transparency of our decision-making process pertaining to our operation. We have also developed and published our “Corporate Governance Guidelines” with the aim of achieving the sustainable growth of the Group and increasing our medium- and long-term corporate value. The Group’s officers and employees read the Guidelines for a full understanding so that they act accordingly. (URL：https://kyushu-fg.co.jp/company/governance/) [Reasons for not applying the principles of the Corporate Governance Code] Updated [Principle 3-1 (iv)] Policy and Procedure regarding the Dismissal of the Senior Management [Supplementary Principle 4-3 (3)] Establishment of an Objective, Timely, and Transparent Procedure for Dismissal of CEOs We have described our policy for appointment of Directors (including Audit and Supervisory Committee Members) in Articles 9 (Appointment of Directors [Excluding Those Who Are Audit and Supervisory Committee Members]) and 12 (Appointment of Directors Who are Audit and Supervisory Committee Members) of the Corporate Governance Guidelines published on our website. However, we have not formulated the policy and procedure for dismissal of the senior management (including CEO). Nevertheless, Kyushu Financial has established the Nominating and Remuneration Committee and the matters regarding appointment and dismissal of management are referred to the committee, increasing transparency and fairness in the decision-making process pertaining to the nomination of and compensation. [Supplementary Principle 4-1 (3)] Development and Supervision of Plans for Successors of Chief Executive Officers Kyushu Financial has not formulated a succession plan. Nonetheless, we are developing successor candidates based on the training policy for the Directors (including Audit and Supervisory Committee Members) stated in Article 14 (Assistance System and Training Policy for Directors), Paragraph 1 of the Corporate Governance Guidelines published on our website, and the Board of Directors, through comments by Directors, confirms the development status of candidates for the next Representative Directors as needed. We will continue to discuss application of the above principles in terms of transparency, openness, and soundness of our management. [Supplementary Principle 4-10 (1)] Authority and Roles of Nominating and Remuneration Committee Kyushu Financial has the Nominating and Remuneration Committee (hereinafter the “Committee”) as the advisory body for the Board of Directors in order to make our decision-making process fairer and more transparent, thereby helping improve our corporate governance, through focused discussions and exchanges of opinions with Representative Directors and External Officers about matters pertaining to the nomination of and compensation to the management (Directors [including Directors who are Audit and Supervisory Committee Members] and Executive Officers). The Committee is consulted regarding matters such as appointment and dismissal of management and compensation to the management, and seeking prior consultation with the Nominating and Remuneration Committee is built into the decision-making process, when submitting matters regarding nomination of and compensation to the Company’s management to the Board of Directors. The Committee met four times in fiscal 2020 and three times in fiscal 2021 as of the end of September and had sufficient discussions on matters regarding nomination of and compensation to the management, thereby contributing to the strengthening of independence and objectivity of the functions and accountability of the Board of Directors. The Committee currently consists of four persons—two Representative Directors and two Independent External Directors—and is headed by the President and Representative Director. External Officers account for a majority in the Committee and we will continue to review the composition of the members. [Disclosure pursuant to the principles of the Corporate Governance Code] Updated (Disclosure pursuant to the principle requiring that specified matters be disclosed) [Principle 1-4] Cross-held Shares 1. Cross-shareholding policy and criteria for exercising voting rights Article 23 (Cross-held Shares), paragraphs 1 and 3 of the Corporate Governance Guidelines specify our cross-shareholding policy and criteria for exercising voting rights. Please visit our website, where the Article is published. (URL：https://kyushu-fg.co.jp/company/governance/) -Our Approach to Reduction in Cross-held Shares The Group holds the review stated in “2. Details of the review concerning cross-held shares” below in accordance with the Corporate Governance Guidelines. If the review has concluded that the necessity of cross-holding certain shares is low, we proceed with their gradual reduction with the consent of the issuers, taking account of any impact on the market. -Specific Criteria for Exercising Voting Rights As a rule, the Group exercises its voting rights regarding all proposals in accordance with the Corporate Governance Guidelines. We also discuss whether we agree or disagree with each proposal* that will likely have an impact on the corporate value of our Group and/or investee companies. * The following are examples of proposals. -Proposal for appointment of a Director/Auditor; proposal for compensation or retirement bonuses (when there is a governance-related concern [e.g. occurrence of a scandal or poor performance over a certain period]) -Proposal for appropriation of surplus (dividends paid despite a loss; no dividend payment despite a surplus for a certain period) -Proposal for material changes to the articles of incorporation -Proposal for issuance of new shares -Proposal for material reorganization (e.g. M&A, business merger) -Proposal for anti-takeover measures, etc. 2. Details of the review concerning cross-held shares The Group regularly makes qualitative (e.g. the purposes of holding the shares and compliance) and quantitative* evaluation of respective cross-held shares in order to comprehensively determine whether retaining those shares is still relevant, and reports the details of the review to the Board of Directors. * Formula for quantitative evaluation Gross income from business (Net interest income + Fee and commissions) + Annual dividend – Expenses – Cost of credit/Book value ≧ Return on shareholders’ equity Please note that, even when the review concludes that a stock fails to meet the quantitative criteria, we may retain the stock if the issuer likely improve its performance through dialogue with us. We also set the alarm (watching) point to review, as appropriate, each stock that may make market risk come to surface and determine whether to retain it. We also monitor the details and results of reviews by the Group companies and report them to the Board of Directors and other relevant bodies, and ensure consolidated market risk management in order to enhance our functions as a holding company. [Principle 1-7] Transactions with Affiliated Parties Please see Article 20 (Prevention of Transactions Contrary to the Interest of Shareholders) of the Corporate Governance Guidelines published on our website. Target: 12% or higher Target: 5.5% or higher Result: 11.3% [40 persons] Result: 4.2% [14 persons] (URL：https://kyushu-fg.co.jp/company/governance/) [Supplementary Principle 2-4 (1)] Ensuring Diversity in Appointment of Core Human Resources (1) Promotion of Female Participation In April 2021, Higo Bank and Kagoshima Bank formulated the Second Action Plan based on the Act on the Promotion of Female Participation and Career Advancement in the Workplace for realizing a workplace environment that would motivate all female employees, enable them to continue their respective carriers, and demonstrate their abilities, and set forth goals for appointing them to managerial positions. Based on the fiscal year action plan, we will continue to develop a workplace environment that allows all employees to fully demonstrate their individuality and ability by holding individual interviews and group training sessions, offering opportunities for information exchange, and operation of an in-house nursery school. (Ratio of female employees in managerial positions: targets and results [as of September 2021]) [Higo] [Kagoshima] The banks have been evaluating well-motivated, capable human resources for promotion in a fair manner irrespective of their gender. In order to further promote female participation, we intend to increase the number of female managers, the starting point for future executives, by boosting their abilities as well as by developing a female-friendly working environment and raising awareness by supporting their carrier development. Based on the fiscal year action plan, we will continue to develop a workplace environment that allows all employees to fully demonstrate their individuality and ability by holding individual interviews and group training sessions, offering opportunities for information exchange, and operation of an in-house nursery school. (2) Hiring Foreign Employees A total of 11 foreigners are working at Higo Bank (six) and Kagoshima Bank (five) together as of the end of September 2021. Amid anticipated market contraction due to population decline in Japan, there is a rising need to deepen ties with foreign countries from a long-term perspective. Kyushu Financial, through the hiring of foreign workers, aims to implement measures that would popularize the acceptance of foreign labor throughout the local region, while strengthening our business framework in growing Asia. In the most recent three years, Higo Bank newly hired three foreigners while Kagoshima Bank hired one, and the banks plan to continue with such hiring. (3) Mid-Career Recruitment Kyushu Financial Group has three full-time employees (two males [one mid-career recruitment and one new graduate] and one female [mid-career recruitment]), 41 employees on dispatch from Higo Bank and 31 from Kagoshima Bank. Kyushu Financial Group hires regular employees to improve its expertise and diversity for the following purposes. (i) Hire highly specialized human resources for the future business strategy and business expansion as well as for strengthening of governance structure in order to further accelerate the speed of implementation and contribute to the business of Kyushu Financial. (ii) Hire our own employees and combine them with dispatched employees to develop a diverse corporate culture and promote vitalization of Kyushu Financial as a whole. (iii) Increase the name recognition of Kyushu Financial Group through the hiring activities of Kyushu Financial and generate synergies with hiring activities at its subsidiary banks to realize high quality hiring at the Group as a whole. In 2021, Kyushu Financial Group hired a total of three full-time employees (one new graduate and two mid-career recruitment). Kyushu Financial for the first time hired a new graduate (a science major from a graduate school) for full-time position, of whom we intend to develop as part of its digital human resource by assigning the person to a specialized department. Of the two employees hired in mid-career recruitment, one is a securities audit specialist and the other is a digital human resource, as Kyushu Financial focused on hiring of digital human resources (two out of three) in 2021. In its hiring plan for fiscal 2022, Kyushu Financial Group plans to hire one person each for 1. Accounting Operation (accounting and taxation knowledge, bookkeeping), 2. Real Estate Investment, 3. Risk Management Experience (market, credit, cyber), 4. In-house Lawyer, and 5. Digital Specialist (experience in app development and database development) for a total of five persons, mainly in mid-career recruitment. (4) Human Resource Development Policy, In-House Environment Development Policy The basic strategy of the personnel department is “improving personnel development and engagement” and it aims to realize the goal by combining the two pillars of “developing human resources for realizing value co-creation” and “respecting diversity and improving job satisfaction.” In “developing human resources for realizing value co-creation,” we aim to implement new growth support measures, which would make the human resources more flexible and energetic, such as systems for transfer and trying out a new post in addition to the support for human resource development in new fields, as well as initiatives that would extend the fields in which employees can thrive to the entire group. In “respecting diversity and improving job satisfaction,” we, as a group, will implement initiatives for improving employee engagement so as to raise the job satisfaction of individual employees and realize diverse workstyle and workplace environment. For details, see the Integrated Report published on our website. (URL: https://kyushu-fg.co.jp/english/ir/library/disclosure/) Developing human resources and boosting engagement (pp.63–66) [Principle 2-6] Fulfillment of Functions as an Asset Owner of Corporate Pensions -The Group manages the reserves of the corporate pensions through the corporate pension funds offered by Higo Bank and Kagoshima Bank (hereafter the “Funds”). To ensure stable and long-term total earnings for corporate pensions and the payment of pension benefits over the years to come, we have thorough reviews and discussions by the asset management committees, councils, and board of representatives (hereafter the “Bodies”) at these Funds and work with investment consultants and asset managers, thereby forming optimum pension assets. -With regard to the management of reserves, we make the following efforts so that we will serve functions expected to be as an asset owner. -At the Funds, the Bodies discuss matters regarding managements (e.g., the selection of investment products, allocation of investments, and earnings/risk analysis). Then the Funds appraise investments and manage earnings in accordance with the investment policies they have determined. We also conduct overall evaluations and monitoring of asset managers, taking account of their track records, investment policies, investment systems, and investment processes, among others. -We select the Funds’ employees who are qualified in terms of skills in investments and administration (e.g. Heads of Market, Personnel, and Planning departments; union representatives) as the members of the Bodies at the Funds. Moreover, we assign employees with expertise in investments (e.g. those with experience in market departments) to the position of business managers at the Funds. In December 2019, the Funds announced that they would adopt the “Principles for Responsible Institutional Investors <>” (hereafter the “SS Code”). In the role of “Institutional investors as asset owners,” the Funds will urge asset managers to follow the principles of the SS Code, thereby helping increase the corporate value of investee companies and boosting medium- and long-term return on investment. [Principle 3-1 (i)] The Group Management Philosophy and Medium-term Management Plan We have established and published the Group Management Philosophy. The details of the Philosophy are stated in “I. 1. Basic Stance” in this document. The Group Medium-term Management Plan is also published on our website. (URL：https://kyushu-fg.co.jp/company/plan/) [Principle 3-1 (ii)] Basic Stance on Corporate Governance and Basic Policy Details are stated in “I. 1. Basic Stance” in this document. Please also refer to Article 3 (Basic Stance of the Group on Corporate Governance) of the Corporate Governance Guidelines published on our website. (URL：https://kyushu-fg.co.jp/company/governance/) [Principle 3-1 (iii)] Policy and Procedure for Determining Directors’ Remuneration Please see Article 13 (Compensation to Directors) of the Corporate Governance Guidelines published on our website. (URL：https://kyushu-fg.co.jp/company/governance/) We also have the Nominating and Remuneration Committee as the advisory body for the Board of Directors concerning the nomination of and compensation to the Management. We follow the processes specified below when we make decisions regarding compensation and other benefits to the Management. -The total compensation to Directors who are not Audit and Supervisory Committee Members and Executive Officers for each fiscal year is submitted to the Nominating and Remuneration Committee for deliberation and determined by the Board of Directors. -The individual amount of compensation to Directors who are not Audit and Supervisory Committee Members and Executive Officers is submitted to the Nominating and Remuneration Committee for deliberation and determined by the President within the bounds of the total compensation for the fiscal year determined by the Board of Directors. -Compensation and other benefits to Audit and Supervisory Committee Members shall be treated separately from those to Directors who are not Audit and Supervisory Committee Members, and determined through discussions among Audit and Supervisory Committee Members within the amount resolved on at the General Shareholders Meeting. [Principle 3-1 (iv)] Policy and Procedure for Appointment, Dismissal, or Nomination of Directors Please see Articles 9 (Appointment of Directors [Excluding Those Who Are Audit and Supervisory Committee Members]) and 12 (Appointment of Directors Who are Audit and Supervisory Committee Members) of the Corporate Governance Guidelines published on our website. (URL：https://kyushu-fg.co.jp/company/governance/) We have established the Nominating and Remuneration Committee in order to ensure transparency and fairness in the decision-making process pertaining to the nomination of and compensation to the Management, and continuously discuss our policy and procedure for dismissal of Directors, etc. [Principle 3-1 (v)] Explanation about the Appointment, Dismissal, or Nomination of each Candidate for the Post of Director in nominating them The reasons for the appointment of individual candidates for the posts of Directors at Kyushu Financial are disclosed in the attachment to the Convocation Notice of the General Shareholders Meeting. Copies of the Convocation Notice of the General Shareholders Meeting are mailed to all shareholders. The Notice is also published on our website. (URL：https://kyushu-fg.co.jp/ir/stock/shareholders/) We will also ensure accountability should we dismiss a Director. [Supplementary Principle 3-1 (3)] Sustainability Initiatives As a financial institution firmly rooted in the local region, the Kyushu Financial Group considers a sustainable local community a key premise for its sustainable growth. Our long-term vision, as expressed in the Group’s 3rd Medium-Term Management Plan, is the “evolution into a Group that co-creates regional value, building a better future together with customers, local communities, and employees.” We are working to “pivot to a sustainable business model” toward achievement of this long-term vision. In February 2019, the Group issued its “Sustainability Declaration,” and simultaneously the Group’s Higo Bank and Kagoshima Bank formulated the “Overall Sustainability Concept.” Under these, we work toward the realization of a sustainable local community. We also recognize that creating a sustainable community should come not only from social contribution activities but also through the business. In September 2020, we signed the PRB (Principles for Responsible Banking), reaffirming that our business strategy is in alignment with the SDGs. Going forward, we are working to expand the positive impact of our financial functions (and, conversely, reduce negative impacts) on the economy, environment, and society. We have identified “sustainability materiality,” important challenges shared across the Group that should be tackled so that we can improve our business’s alignment with the SDGs, do business in a way that is considerate of our impact on the economy, environment, and society, and secure sustainability for the local community and for the Group and have been implementing initiatives for solving the issues. In investment in human capital, we have set forth the personnel strategy of “improving personnel development and engagement” as part of the 3rd Medium-Term Management Plan, and are working to “developing human resources for realizing value co-creation” and “respecting diversity and improving job satisfaction.” For details, see the Integrated Report published on our website. (URL: https://kyushu-fg.co.jp/english/ir/library/disclosure/) -3rd Group Medium-Term Management Plan: “Reform” (pp. 21–24) -Efforts related to sustainability of Kyushu Financial from the perspective of improving corporate value Efforts for SDGs through business (pp. 25, 26) Efforts for achieving SDGs through financial functions (pp. 27, 28) -Investment in human capital and intellectual properties Developing human resources and boosting engagement (pp.63–66) Kyushu Financial Group regards environmental issues, including climate change, as important management challenges, and in June 2019, it declared its support for the TCFD recommendations. The Group is striving for transparent disclosure based on the TCFD recommendations for disclosure. For details, see the Integrated Report published on our website. (URL: https://kyushu-fg.co.jp/english/ir/library/disclosure/) -Response to climate changes (disclosure based on the TCFD recommendations) (pp. 29–31) [Supplementary Principle 4-1 (1)] Summary of the Scope of Delegation to the Management Please see Article 8 (Roles of Directors and the Board of Directors), Paragraph 2 of the Corporate Governance Guidelines published on our website. (URL：https://kyushu-fg.co.jp/company/governance/) [Principle 4-9] Criteria for independence of an Independent External Director and his/her qualifications Please see the Attachment (Criteria for Independence of an External Officer) to the Corporate Governance Guidelines published on our website. (URL：https://kyushu-fg.co.jp/company/governance/) [Supplementary Principle 4-10 (1)] Authority and Roles of Nominating and Remuneration Committee Kyushu Financial has the Nominating and Remuneration Committee (hereinafter the “Committee”) as the advisory body for the Board of Directors in order to make our decision-making process fairer and more transparent, thereby helping improve our corporate governance, through focused discussions and exchanges of opinions with Representative Directors and External Officers about matters pertaining to the nomination of and compensation to the management (Directors [including Directors who are Audit and Supervisory Committee Members] and Executive Officers). For the roles and composition of the Committee, see “Reasons for not applying the principles of the Corporate Governance Code.” [Supplementary Principle 4-11 (1)] About the Balance between Knowledge, Experience, and Skills Required of the Board of Directors Please see Articles 7 (Composition of the Board of Directors), 9 (Appointment of Directors [Excluding Those Who Are Audit and Supervisory Committee Members]), Paragraphs 2 and 4, and 12 (Appointment of Directors Who are Audit and Supervisory Committee Members), Paragraph 2 of the Corporate Governance Guidelines published on our website. (URL：https://kyushu-fg.co.jp/company/governance/) From the perspective of the medium- to long-term value creation to realize its co-creation vision of “evolution into a regional value co-creation Group that creates a better future together with customers, local communities, and employees,” Kyushu Financial identified the 10 skills of corporate management, sales, market investment, legal, risk management, financial affairs, accounting, regional industry promotion, global business, personnel, human resource development, SDGs, ESG, and DX, technology and prepared a skill matrix that lists knowledge, experience, and ability of each Director. Among these items, we listed seven fields in which we expect contributions from External Directors—corporate management, market investment, legal and risk management, regional industry promotion, SDGs, ESG, and DX, technology. The skills matrix is included in the last page of this report. [Supplementary Principle 4-11 (2)] Directors Serving as Officers at Other Listed Companies Our Directors who also serve as officers at other listed companies are disclosed on Page 50 in the Convocation Notice of the General Shareholders Meeting. Copies of the Convocation Notice of the General Shareholders Meeting are mailed to all shareholders. The Notice is also published on our website. (URL：https://kyushu-fg.co.jp/ir/stock/shareholders/) [Supplementary Principle 4-11 (3)] Summary of Analysis and Evaluation of the Overall Effectiveness of the Board of Directors We analyze and evaluate the overall effectiveness of the Board of Directors annually, referring to our Directors’ self-assessments. The Board of Directors Meeting held in May 2021 conducted the analysis and evaluation for fiscal 2020 based on self-evaluations of all Directors and Corporate Auditors that encompassed how the Board of Directors is composed and how it operates. The meeting concluded that the overall effectiveness of the Board of Directors is ensured, and agreed that the following are the challenges that should be met to facilitate even more active discussions at Board meetings. -Review of size and composition for improvement of governance -Deepening discussions about medium- and long-term themes in order to continuously increase corporate value -Promoting multifaceted and diversified discussions at the Nominating and Remuneration Committee [Supplementary Principle 4-14 (2)] Policy on Training for Directors Please see Article 14 (Assistance System and Training Policy for Directors), Paragraph 1 of the Corporate Governance Guidelines published on our website. (URL：https://kyushu-fg.co.jp/company/governance/) [Principle 5-1] Policy on Constructive Dialogue with Shareholders Please see Article 21 (Dialogue with Shareholders) of the Corporate Governance Guidelines published on our website. (URL：https://kyushu-fg.co.jp/company/governance/) 2. Capital structure Stock ownership by foreign investors 10% to less than 20% [Status of large shareholders] Updated Name Number of Shares Held Proportion (%) The Master Trust Bank of Japan, Ltd. (trust account) Iwasaki Ikuei Bunka Zaidan Meiji Yasuda Life Insurance Company Custody Bank of Japan, Ltd. (trust account) The Bank of Fukuoka, Ltd. Takara Kogyo Co., Ltd. Employees’ Stock Ownership Association of The Kagoshima Bank, Ltd. Iwasaki Sangyo Co., Ltd. Nippon Life Insurance Company The Dai-ichi Life Insurance Company, Limited 27,680,000 20,936,070 18,568,563 14,646,900 12,620,730 9,088,000 8,059,895 7,616,887 7,361,812 7,209,960 6.29 4.75 4.22 3.32 2.86 2.06 1.83 1.73 1.67 1.63 Controlling shareholders (excluding the parent company) ――― Parent company N/A Note ――― 3. Business attributes Stocks listed on Fiscal year-end Industry March Banking (Consolidated) Number of employees at the end of the previous fiscal year 1,000 or more First Section of the Tokyo Stock Exchange; Main Board of the Fukuoka Stock Exchange (Consolidated) Net sales for the previous fiscal year 100 billion to less than 1 trillion Number of consolidated subsidiaries at the end of the previous fiscal year 10 to less than 50 ――― 5. Other special circumstances that may have a material impact on corporate governance There are no other special circumstances that may have a material impact on our corporate governance. 4. Policy on the protection of minority shareholders when a transaction, etc. is conducted with the controlling shareholder II. State of business management bodies pertinent to business decision-making, execution, and supervision and other corporate governance frameworks 1. Matters pertaining to the structure of bodies and organizational operation, etc. Organizational form Company with Audit and Supervisory Committee Chairperson of the Board Chairperson of Kyushu Financial (except when he/she also serves as the President) [Directors] Number of directors specified in the articles of incorporation Updated 20 Term of office of directors specified in the articles of incorporation 1 year Number of directors Updated 15 Appointment of External Directors Yes Number of External Directors Updated 5 Number of External Directors designated as independent officers Updated 5 Relations with the Company (1) Updated Katsuaki Watanabe Yuji Nemoto Kenichi Sekiguchi Katsuro Tanaka Yuko Tajima Name Attribute Relations with the Company (*) f h g d c e i a b j k from another company from another company from another company from another company from another company *Classified into the following items *“○” means the director presently falls or has recently fallen under the category; “△” means the director fell under the category in the past * “●”means a close relative of the director presently falls or has recently fallen under the category; “▲” means a close relative of the director fell under the category in the past Executive of a listed company or its subsidiary a Executive or non-executive director of the parent company of a listed company b Executive of a fellow subsidiary of a listed company c d Person or executive of a company whose major trading partner is a listed company e Major trading partner of a listed company or executive of a major trading partner thereof f Consultant, accounting expert, or legal expert who receives a large sum of money or any other financial benefits other than executive compensation from a listed company g Major shareholder of a listed company (In case the major shareholder is a corporation, executive of the corporation) h i Executive of a listed company’s trading partner who is not classified into d, e, or f above (applicable only to the person) Executive of an entity with which a listed company has exchanged personnel as External Officers (applicable only to the person) Executive of an entity to which a listed company makes donations (applicable only to the person) j Relations with the Company (2) Updated k Other Name Audit and Supervisory Committee Member Independent Officer Note to the Classified Item Reason for Appointment Katsuaki Watanabe Yes Auditor at Sumitomo Electric Industries, Ltd. Yuji Nemoto Yes Professor at Toyo University Katsuaki Watanabe has a great wealth of experience as well as a broad view and extensive knowledge that he has acquired as a manager at a major manufacturing business. We have decided that he would provide a neutral and objective view necessary to supervise the overall operation of the Group, and thus we have had him on board as an External Director. He meets the criteria for independence specified by the stock exchanges and fulfills the Criteria for Independence of an External Officer that we have established. Yuji Nemoto engages in regional policies as a university professor and has a great wealth of experience as well as a broad view and extensive knowledge as an expert in public policy, urban development, and regional development. We have decided that he would provide a neutral and objective view necessary to supervise the overall operation of the Group, and thus we have had him on board as an External Director. He meets the criteria for independence specified by the stock exchanges and fulfills the Criteria for Independence of an External Officer that we have established. Kenichi Sekiguchi has a great wealth of experience as well as a broad view and extensive knowledge that he has acquired as a manager at a major financial institution. We have decided that he would provide a neutral and objective view necessary to conduct audits that ensure the sound management of the Group, and thus we have had him on board as an External Director who is an Audit and Supervisory Committee Member. He meets the criteria for independence specified by the stock exchanges and fulfills the Criteria for Independence of an External Officer that we have established. Katsuro Tanaka has a great wealth of experience as well as a broad view and extensive knowledge that he has acquired as an attorney. We have decided that he would provide a neutral and objective view necessary to conduct audits that ensure the sound management of the Group, and thus we have had him on board as an External Director who is an Audit and Supervisory Committee Member. He meets the criteria for independence specified by the stock exchanges and fulfills the Criteria for Independence of an External Officer that we Special Advisor at Meiji Yasuda Life Insurance Company Auditor at Hulic Co., Ltd. The Group has capital ties with Meiji Yasuda Life Insurance Company. Meiji Yasuda Life also has regular transactions with Higo Bank and Kagoshima Bank, both of which are the Group’s wholly owned subsidiaries. The appointee himself has no special interest in the Group. Senior Managing Partner at TMI Associates, Attorney Our wholly owned subsidiary Kagoshima Bank has a contract for legal advisory services with TMI Associates that the appointee jointly run as Senior Managing Partner. The appointee himself has no special Kenichi Sekiguchi Yes Yes Katsuro Tanaka Yes Yes interest in the Group. have established. Partner Attorney at Sawayaka Law Office Director at the Chiba Bank, Ltd. Auditor at Tokio Marine & Nichido Life Insurance Co., Ltd. Yuko Tajima has a great wealth of experience as well as a broad view and extensive knowledge that she has acquired as a public prosecutor and an attorney. We have decided that she would provide a neutral and objective view necessary to conduct audits that ensure the sound management of the Group, and thus we have had her on board as an External Director who is an Audit and Supervisory Committee Member. She meets the criteria for independence specified by the stock exchanges and fulfills the Criteria for Independence of an External Officer that we have established. Yuko Tajima Yes Yes Audit and Supervisory Committee [Audit and Supervisory Committee] Composition of the Committee and attributes of the chairperson Updated All Committee Members (persons) Full-time Committee Member (persons) Internal Director (persons) External Director (persons) Chairperson 5 1 2 3 Internal Director Directors and employees who assist duties of the Audit and Supervisory CommitteeUpdated Yes Matters regarding independence of the said Directors and employees from non-executive directors Updated Kyushu Financial has established the Office of Audit and Supervisory Committee as the department that helps the Audit and Supervisory Committee and its members with their duty, and appropriately assigns employees who serve as assistants thereto. Some of them are dedicated staff, while others work also for different departments. Kyushu Financial places these employees under the command of the Audit and Supervisory Committee and its Members in order to ensure their independence from Directors who are not Audit and Supervisory Committee Members. Kyushu Financial has established the Rules concerning Employees Serving as Assistants to the Audit and Supervisory Committee and Directors Who are Audit and Supervisory Committee Members. The rules specify that the Audit and Supervisory Committee and its members are asked in advance to give their opinions regarding the appointment, performance evaluation, or transfer of, or disciplinary action against the employees who assist with their duty and such opinions are respected. How Audit and Supervisory Committee, Financial Auditors, and the internal audit unit work together Updated The Audit and Supervisory Committee Members have experience and insight related to finance and accounting. They meet our Financial Auditors regularly or as necessary to receive reports and exchange opinions as part of their efforts to work closely with the Financial Auditors. The Members also work closely with the Audit Division, which is our internal audit department, and request the Division to conduct an investigation or take other necessary actions in order to ensure efficient and effective audits. The Audit Division regularly or as necessary reports to the Board of Directors the results of internal audits in the Group, along with the evaluations of the Group’s internal management process that are based on these audit results. If the Division obtains any cases or problems that may have material effects on our operation, it promptly reports them to the Board of Directors and the Audit and Supervisory Committee. It also works with the Financial Auditors for internal control pertaining to financial reporting. [Discretionary committees] Any discretionary committee equivalent to a nomination committee or a compensation committee Updated Yes How discretionary committees have been set up, their composition, and attributes of chairpersons Updated Name of Committee Internal Director (persons) External Director (persons) External Expert (persons) Other (persons) Chairperson All Committee Members (persons) Full-time Committee Member (persons) Nominating and Remuneration Committee Nominating and Remuneration Committee Discretionary Committee Equivalent to a Nomination Committee Discretionary Committee Equivalent to a Compensation Committee Note 4 4 0 0 2 2 2 2 0 0 0 Internal Director 0 Internal Director We have the Nominating and Remuneration Committee as the advisory body for the Board of Directors in order to make our decision-making process fairer and more transparent, thereby helping improve our corporate governance, through focused discussions and exchanges of opinions with Representative Directors and External Officers about matters pertaining to the nomination of and compensation to the Management. [Independent Officers] Number of independent officers 5 Other matters regarding independent officers We designate all external officers as independent officers if they qualify. [Incentives] Measures taken in relation to the provision of incentives for Directors Introduction of a performance-linked compensation plan Note to the applicable itemUpdated Compensation for our Representative Directors, Directors who are Senior Managing Executive Officers or above, and full-time Directors (excluding External Directors) consist of the basic compensation (fixed compensation) and earnings-based bonus (performance-linked compensation). The payment of the earnings-based bonus (performance-linked compensation) shall be based on the consolidated net income, which indicates the overall state of the Group’s operation. It is paid according to the compensation quota table for each level of the consolidated net income. The payment criteria of the performance-linked compensation are submitted to the Nominating and Remuneration Committee for deliberation and determined by the Board of Directors. Those entitled to stock options Note to the applicable item ――― [Compensation to Directors] Disclosure status (of individual compensation for Directors) Note to the applicable item Updated Individual amounts of compensation are not disclosed. The total amount of compensation Kyushu Financial paid to its Directors and Corporate Auditors in fiscal 2020 is as follows. Total annual compensation for 11 Directors (excluding External Directors): 134 million yen (including performance-linked compensation of 17 million yen) Total annual compensation for 2 Corporate Auditors (excluding External Auditors): 14 million yen Total annual compensation for 5 External Directors and Auditors: 34 million yen Any policy on how to finalize the amounts of compensation or how to calculate the amountsUpdated Yes Disclosed details of the policy on how to finalize the amounts of compensation or how to calculate the amounts Compensation, bonuses, and other financial benefits in exchange for the performance of duty that our Directors receive from us shall be determined by the resolution of our General Shareholders Meeting. The 6th Annual Shareholders Meeting held on June 18, 2021 passed a resolution setting annual remuneration for Directors who are not Audit and Supervisory Committee Members at 300 million yen or less (including 36 million yen to External Directors who are not Audit and Supervisory Committee Members) and remuneration to Directors who are Audit and Supervisory Committee Members at 120 million yen or less. We have set forth the following policy for deciding the details of compensation and other benefits for individual Directors who are not Audit and Supervisory Committee Members by the resolution of the Board of Directors. -Compensation and other benefits to Directors who are not Audit and Supervisory Committee Members (excluding External Directors) are systematically determined in such a way that operational decision-making and supervision fully function, and a certain part of it is decided according to how much the Director has contributed to the performance of the delegated field or department. -Compensation and other benefits to respective Directors are determined by the Board of Directors through a fair and transparent deliberation within the amount resolved on at a General Shareholders Meeting in accordance with the system set forth in the preceding paragraph. Opportunities to appropriately involve External Directors with this process for advice are provided. Kyushu Financial’s executive compensation and other benefits consists of the basic compensation (fixed compensation) and earnings-based bonus (performance-linked compensation). The Board of Directors Meeting held in June 2021 passed a resolution setting forth that Representative Directors, Directors who are Senior Managing Executive Officers or above, and full-time Directors receive the basic compensation and earnings-based bonus, while Directors who are Audit and Supervisory Committee Members and other Directors who are not Audit and Supervisory Committee Members receive the basic compensation alone. The payment ratio of the earnings-based bonus (performance-linked compensation) to the executive compensation and the payment criteria of the earnings-based bonus (performance-linked compensation) are submitted to the Nominating and Remuneration Committee for deliberation and determined by the Board of Directors. The details determined in the concerned fiscal year are as follows. A. The payment ratio of basic compensation (fixed compensation) to earnings-based bonus (performance-linked compensation) is 75:25. B. The payment of the earnings-based bonus (performance-linked compensation) shall be based on the consolidated net income, which indicates the overall state of the Group’s operation. It is paid according to the compensation quota table for each level of consolidated net income. The compensation quota is set from 60 million yen to 120 million depending on the level of consolidated net income. Compensation and other benefits for Executive Officers consists of the basic compensation and earnings-based bonus and those entitled to the earnings-based bonus (performance-linked compensation) and payment criteria are determined by the Board of Directors Meeting. [Support System for External Directors] Updated The Corporate Planning Division assists External Directors who are not Audit and Supervisory Committee Members with their duty, and the Office of Audit and Supervisory Committee assists Directors who are Audit and Supervisory Committee Members with theirs. Board meeting documents are provided to External Directors ahead of the meeting, and the Corporate Planning Division, which handles administrative work for the Board of Directors, gives them explanations about the documents before the meeting. External Directors also visit our subsidiaries’ branches in order to provide opportunities for employees there to exchange opinions. 2. Matters pertaining to such functions as the execution of operations, audits and supervision, nomination, and determination of compensation (summary of the current corporate governance framework) Updated (1) Board of Directors; Our Board of Directors is defined as the decision-making body for matters specified in laws and regulations or the articles of incorporation and for the execution of the Group’s material operations. Matters to be discussed and standards for monetary amounts have been established and specified in the Rules for the Board of Directors in order to distinguish supervision and execution. (2) Group Management and Execution Council The Group Management and Execution Council consists of Representative Directors and Senior Managing Executive Officers or above, and deliberates and makes decisions on matters delegated by the Board of Directors and discusses material matters concerning the Group’s operation. The Council promotes in-depth and active discussions toward prompt and decisive decision-making. (3) Committees under the Group Management and Execution Council The following committees individually hold regular discussions on matters for which they are responsible in order to effectively, efficiently, and promptly address the Group’s cross-organizational issues. – Comprehensive Budgeting Committee The Comprehensive Budgeting Committee discusses the Group’s overall budget, progress toward goals, and cross-organizational issues, among others, based on the medium-term management plan. – ALM Committee The ALM Committee discusses the management of and policy on the Group’s comprehensive risk, credit risk, market risk, and liquidity risk, along with matters regarding Group-wide revenue management, investments, and procurement. – CR Committee The CR Committee discusses how well the Group’s operational risk management and crisis management is working. The Committee also examines the effectiveness and appropriateness of the Group’s control environment for legal compliance and discusses cross-organizational issues pertaining to compliance with laws and regulations. -Organizational Capability Improvement Committee The committee discusses matters regarding organizational integration of Kyushu Financial Group, improvement of governance, human resource-related policies, formulation of strategies, their realization, and verification of their effects. – New Business Development Committee The New Business Development Committee discusses matters concerning new businesses expected to help increase the Group’s consolidated revenue, the exploration of new revenue sources, and new domestic and overseas markets in our business domains. – Digital Innovation Committee The Digital Innovation Committee discusses matters concerning the development and implementation of policies and strategies regarding how to take advantage of digital technologies adopted to change the Group’s marketing and business processes and how to develop the infrastructure for these technologies. The Committee also examines the effects brought about by the implementation of these policies and strategies. -Sustainability Promotion Committee We grasp the status of implementation of the measures related to sustainability of our Group on a regular basis, and have cross-organizational discussions on measures that contribute to sustainability of the Group, customers, and the region. (4) Executive Officers We have introduced the executive officer system in order to separate the “functions of business decision-making and supervising Directors’ performance of duty,” for which Directors should be responsible, and the “function of executing operations,” for which Executive Officers should be responsible. The separation has led to clear definitions of Directors’ and Executive Officers’ roles and responsibilities, systematically enabling flexible and efficient execution of operations. (1) Supervision by the Board of Directors Our Board of Directors consists of 10 Directors, who are financial experts and have developed their careers in the Group, and 5 independent External Directors, who supervise the overall operation of the Group from a neutral and objective perspective. The Board primarily makes decisions regarding matters specified in laws and regulations or the articles of incorporation as well as the execution of material operations pertaining to the Group’s business, and supervises the performance of Directors’ duty. (2) Audit by Audit and Supervisory Committee In our framework, Audit and Supervisory Committee Members attend important meetings (including the Board of Directors meetings, the Group Management and Execution Council, and other committees) and hold regular report and interview session with the Audit Division and risk management departments in accordance with the audit policy and audit plan formulated each fiscal year. Furthermore, the Committee Members with considerable knowledge about corporate management, including finance, conduct monitoring and inspection related to financial audits. (3) Internal audit The Audit Division of Kyushu Financial is independent from the audited departments. The Division audits the appropriateness and effectiveness of the internal management system, which covers risk management, in accordance with the audit policy and plan for the fiscal year. The Division also reports the details of internal audits to the Board of Directors, the Group Management and Execution Council, and the Audit and Supervisory Committee. (4) Financial audit We have a financial audit contract with Deloitte Touche Tohmatsu LLC that has been executed pursuant to the Companies Act and the Financial Instruments and Exchange Act so that Deloitte conducts audits accordingly. (1) Nominating and Remuneration Committee We have the Nominating and Remuneration Committee as the advisory body for the Board of Directors in order to make our decision-making process fairer and more transparent, thereby helping improve our corporate governance, through focused discussions and exchanges of opinions with Representative Directors and External Officers about matters pertaining to the nomination of and compensation to the Management. (2) Nomination of Management -We consult the Nominating and Remuneration Committee about candidates for the posts of Directors who are not Advisory and Supervisory Committee members. Then the candidates are selected by the Board of Directors and appointed at the General Shareholders Meeting in accordance with the articles of incorporation. -We consult the Nominating and Remuneration Committee about candidates for the posts of Audit and Supervisory Committee Members. Then, with the consent of the Audit and Supervisory Committee, the candidates are selected by the Board of Directors and appointed at the General Shareholders Meeting in accordance with the articles of incorporation. -We consult the Nominating and Remuneration Committee about candidates for the posts of Executive Officers, and then the candidates are appointed at a Board of Directors meeting. (3) Remuneration for Management The 6th Annual Shareholders Meeting held on June 18, 2021 passed a resolution setting annual remuneration for Directors who are not Audit and Supervisory Committee Members at 300 million yen or less (including 36 million yen to External Directors who are not Audit and Supervisory Committee Members) and remuneration to Directors who are Audit and Supervisory Committee Members at 120 million yen or less. At Kyushu Financial, the Board of Directors and Audit and Supervisory Committee Members have the authority to finalize the policy on the determination of the amounts of compensation and other benefits to the Management and Corporate Auditors or of how to calculate the amounts. The details of the authority and the scopes of their discretion are as stated below. -Compensation and other benefits to Directors who are not Audit and Supervisory Committee Members shall be determined by the Board of Directors through a fair and transparent deliberation within the amount resolved on at the General Shareholders Meeting. Opportunities to appropriately involve External Directors with this process for advice are provided. -Compensation and other benefits to Audit and Supervisory Committee Members shall be treated separately from those to Directors who are not Audit and Supervisory Committee Members, and determined through discussions among Audit and Supervisory Committee Members within the amount resolved on at the General Shareholders Meeting. Based on the delegation resolution by the Board of Directors, President and Representative Director of Kyushu Financial decides the concrete details of individual compensation amounts of Directors who are not Audit and Supervisory Committee Members and Executive Officers. The authority is regarding evaluation and distribution of the basic compensation of each of Directors who are not Audit and Supervisory Committee Members and Executive Officers as well as of the earnings-based bonus (performance-linked compensation) based on the performance of respective operations they are in charge. The reason for delegating the authority is because the President and Representative Director is the most appropriate to grasp the performance of Kyushu Financial in a comprehensive manner and evaluate Directors who are not Audit and Supervisory Committee Members and Executive Officers. To ensure appropriate execution of the authority, proposals concerning the total annual compensation for Directors who are not Audit and Supervisory Committee Members and Executive Officers is submitted to the Nominating and Remuneration Committee for deliberation and determined by the Board of Directors every fiscal year. Proposals concerning individual compensation for them is submitted to the Committee for deliberation and determined by President and Representative Director, with the total compensation amount for the fiscal year as the upper limit decided at the Board of Directors Meeting. 3. Reason for the adoption of our current corporate governance framework Please see “I. 1. Basic Stance” in this document for the reason why we have adopted the current system. III. Status of measures concerning shareholders and other stakeholders 1. Efforts to revitalize the General Shareholders Meeting and facilitate the exercise of voting rights Updated Note Early mailing of the Convocation Notice of the General Shareholders Meeting In addition to mailing the notice of the meeting ahead of the statutory deadline, we publish the notice on our website and disclose it at the Tokyo Stock Exchange in order to make sure that our shareholders have ample time to read all proposals. Scheduling the General Shareholders Meeting for a date on which few other shareholders meetings are held The 6th Annual Shareholders Meeting was held on June 18, 2021. Exercising voting rights by an electronic means We have introduced an online voting system. Participation in an electronic platform for the exercise of voting rights and other efforts to improve the environment for the exercise of voting rights by institutional investors We use the electronic platform designed for institutional investors to exercise their voting rights. The platform is run by ICJ, Inc. Preparing the notice of the meeting (summary) in English We publish the notice of the meeting in English on our website and make it available at the Tokyo Stock Exchange and on the platform for exercising voting rights. Other 2. Status of IR-related activities Updated We make the following efforts to ensure that the Shareholders Meeting proceeds with clarity and transparency for our shareholders. -The notice of the meeting includes a list of candidates with their photos. -Business reports are explained using visuals projected onto a screen. -In addition to the main venue, satellite venues are set up in order to stream the meeting live for as many local shareholders as possible. Note Briefing by Representative Preparing and publishing our disclosure policy Please see Article 25 (Ensuring Appropriate Disclosure of Information and Transparency) of the Corporate Governance Guidelines published on our website. (URL：https://kyushu-fg.co.jp/company/governance/) Holding regular briefing sessions for individual investors We have been holding briefing sessions for individual investors since fiscal 2016. Yes Holding regular briefing sessions for analysts and institutional investors We hold semiannual briefing sessions for analysts and institutional investors where President and Representative Director and General Manager of Corporate Planning Division provide explanations about our business strategies and financial condition. In June this year, in response to the coronavirus infections, we streamed the video of the briefing on our website and held individual meetings, including telephone conferences. Holding regular briefing sessions for overseas investors We hold briefings for overseas investors through conferences organized by a securities company. The conference scheduled last year was cancelled due to the Yes N/A coronavirus infections. Publishing IR materials on our website We publish information about our financial results, timely disclosure information, and documents used at corporate recruiting sessions, among others, on our website. In addition to the annual report, Kyushu Financial discloses financial summary reports, Annual Securities Report, Integrated Report, and company briefing materials in English. Establishing IR-related departments (staff) IR departments: Public Relations and IR Division 3. Status of efforts toward sustainable relations with stakeholders Updated Note Establishing our determination to maintain sustainable relations with stakeholders in the internal rules Please see Chapter 3 (Ensuring Shareholders’ Rights and Equality) and Chapter 4 (Appropriate Cooperation with Stakeholders Other Than Shareholders) of the Corporate Governance Guidelines published on our website. (URL：https://kyushu-fg.co.jp/company/governance/) Environmental actions and CSR initiatives [Our efforts toward a sustainable society] The Group works to help develop a sustainable local economy and society in accordance with its Management Philosophy. To put greater efforts into this initiative, we have adopted the perspectives of the Sustainable Development Goals (SDGs) a