ふくおかフィナンシャルグループ（8354） – [Delayed] Corporate Governance Report (December 27, 2021)

Corporate Governance Report Last Update: December 27, 2021 Fukuoka Financial Group, Inc. Takashige Shibato Director, Chairman & President Contact: Corporate Planning Division, +81-92-723-2502 Securities Code: 8354 https://www.fukuoka-fg.com The corporate governance of Fukuoka Financial Group, Inc. (the “Company”) is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic Views The Group’s management principles state the Group’s goal to become a financial group that creates value for all stakeholders, including shareholders, customers, local communities and our employees, and the Group’s basic management policy is based on the same view. (The Group’s Management Principles) Fukuoka Financial Group aims to become a financial group that creates value for all stakeholders by: Enhancing perception and taking action without fear of failure, Pursuing high quality for future progress, and Bolstering people’s optimum choice. Under these Group management principles, the Company, as a holding company to govern the Group, mainly consists of the core subsidiary banks, is working toward the realization of highly effective corporate governance for the purpose of optimizing the management resources of the Group and administering the Group as a whole in a sound and appropriate manner. [Reasons for Non-compliance with the Principles of the Corporate Governance Code] [Principle 1.4] ■Basic Policies on cross-shareholding investments and examining the propriety of retaining them The Company has set forth the following basic policies with regard to cross-shareholding investments. “The basic policies specify that cross-shareholding investments aim for maintaining and strengthening stable and long-term business relationships with customers or maintaining and strengthening cooperative relationships in business operations, and these investments are conducted on a limited basis only when it is determined that they contribute to the mid- to long-term creation of higher corporate value of the Group.” The Group, as a regional financial institution, retains holdings on a limited basis only when the rationality behind its retention can be confirmed, such as cases in which seeking the resolution of management issues and through cross-shareholding investments lead to the development of the regional economy and simultaneously can improve the corporate value of the Group. Based on this view, the rationality behind the retention of all stocks is verified regardless of whether they are listed or unlisted when the Group considers the acquisition of shares for cross-shareholding investments, or upon performing yearly reviews of holdings, and the Board of Directors receives and confirms reports on the results of verifications reviewing the holdings of listed stocks. Specifically, after verifying the significance and economic rationality behind holding each stock, the Group thereafter verifies whether or not it can be rationally explained as contributing to the improvement of the corporate value of the Group. If the rationality of its holding is not recognized as a result of this verification, investees by strengthening relationships, etc., improvement of corporate value for – 1 – the stock will not be retained. Economic rationality is verified from the perspective of whether the RORA (Return on Risk-weighted Assets) of each stock, calculated based on earnings generated through transactions, etc., meets the criteria for RORA that has been calculated based on the target ROE of the Company. ■Basic views on the exercise of voting rights The Company’s basic views on the exercise of voting rights on cross-shareholding investments are as follows. “The exercise of voting rights on shares for cross-shareholding investments is performed after a comprehensive determination is made on whether or not it would contribute to the mid- to long-term growth of the issuing company and enhancement of shareholder value. Voting rights are, in principle, exercised for all agenda items upon reaching a decision of approval or disapproval with regard to each issuing company and agenda item.” The Group confirms the performance, ROE standard, dividend payout ratio, etc., for each cross-shareholding investment, and then reaches a decision on the approval or disapproval for each agenda item based on the view detailed above. Within these, the following selection of agenda items, which may potentially have a significant impact on the mid- to long-term growth of the issuing company and enhancement of shareholder value, are designated as “important agenda items.” Decisions to approve or disapprove proposals related to these agenda items are made with particular care. “Important agenda items” ・ Dissolution ・ Business Transfer ・ Merger ・ Company Split ・ Share Exchange ・ Share Transfer ・ Other agenda items that are suspected to be contrary to the mid- to long-term growth of the issuing company and enhancing shareholder value [Disclosure Based on the Principles of the Corporate Governance Code] This section, including content contained therein regarding the Tokyo Stock Exchange’s new Prime Market segment, is presented in accordance with the revised Corporate Governance Code released in June 2021. The Company has formulated the “Fukuoka Financial Group Corporate Governance Guidelines” as its “basic views and operational policies regarding corporate governance” and published them on its website. These guidelines have also been attached at the end of this report. https://www.fukuoka-fg.com/companyimage/data/20200626_cg.pdf Please refer to the Company website or the section at the end of this report with regard to the content, etc., detailed in these guidelines for the matters of disclosure as contained in each of the following items. [Principle 1.7] “Procedures when engaging transactions with related parties” of the Company are detailed in Article 17 (Transactions with Related Parties) of the “Fukuoka Financial Group Corporate Governance Guidelines.” Please refer to this source for more information. [Principle 2.4.1] [Views on ensuring diversity, human resource development policy, and internal environment improvement strategy] As a management strategy aimed at facilitating the achievement of its long-term vision, the Company is committed to “maximizing the power of its human resources.” To fully utilize this power and establish sustainable growth throughout the organization, the Company has been implementing a variety of measures based on two universal axes: “flexible and rapid development and acquisition of diverse human resources in accordance with business strategies” and “improvement of employee engagement in response to external environmental changes.” Specific details regarding the statuses of these initiatives are included in the – 2 – Company’s integrated report, which is available on its website. Please refer to this source for more information. [Self-directed and measurable goals, including the promotion of women, foreign nationals, and mid-career hires] To ensure that it can respond to changes in its business environment, the Company is stepping up efforts aimed at promoting diversity, facilitating early and self-directed development of expertise, and career advancement. These initiatives include the promotion of active participation from women; the recruitment of experienced professionals in global and digital fields; and diversity management aimed at ensuring the largest possible variety of skills, experiences, and cultures. The Company has been promoting active participation from women since a particularly early stage, implementing various measures based on the opinions of female project team members regarding topics such as systems, training, awareness and environment. Information regarding the statuses of these measures, which include the establishment and steady pursuit of a clear target ratio of managerial positions filled by women, is included in the Company’s integrated report, which is available on its website. In addition, the Company is responding to diversifying customer needs and rapid changes in its business environment stemming from the use of digital technology by focusing on the acquisition of a varied range of personnel with global and digital experience, as well as the swift development of well-versed personnel across a wide spectrum of specialties. More information regarding the statuses of efforts targeting the acquisition of these human resources can be found in the Company’s integrated report, which is available on its website. Moving forward, the Company will continue striving to secure further diversity and expertise in accordance with its business strategies. (Integrated Report) https://www.fukuoka-fg.com/investorimage/ir_pdf/tougou/202110/all.pdf [Principle 2.6] The Fukuoka Financial Group Corporate Pension Fund is responsible for the payment, operation, and other management of pension assets related to the defined benefit corporate pension plan at the Company. The Corporate Pension Fund is managed by personnel who maintain sufficient operational knowledge and have experience in the treasury divisions at subsidiary banks, and the Group has established the Asset Management Committee composed of members well versed in operational and risk management affairs, etc., as an advisory body that regularly deliberates on topics such as basic operational policies and specific operational procedures. In addition, while paying sufficient attention to the independence of the corporation pension fund and protecting employees, etc., rights to benefits, and considering that its operation may potentially impact the financial standing of the Company, the Company has established the Pension Committee composed of Directors, Executive Officers, and general managers in charge of divisions of corporate planning, treasury, risk management, and personnel as a body for performing comprehensive discussions on retirement benefits. The Pension Committee has established a system to realize stable asset formation for beneficiaries and proper management of the corporate pension fund by leveraging expertise to monitor operational performance and risk related to operations, and provide advice, proposals, and information for the corporate pension fund. [Principle 3.1 (1)] The Company has formulated Group Management Principles and a Mid-Term Management Plan, and made both of these documents available through its website. Please refer to these sources for more information. (Group Management Principles) https://www.fukuoka-fg.com/en/vision/01.html (Mid-Term Management Plan) https://www.fukuoka-fg.com/en/files/items/11213/File/Sixth_Mid_Term_MP.pdf [Principle 3.1 (2)] The Company has formulated the “Fukuoka Financial Group Corporate Governance Guidelines” as “basic views and operational policies regarding corporate governance” and published them on its website. These guidelines have also been attached to the end of this report. Please refer to this source for more information. [Principle 3.1 (3)] “Policies and procedures on determining the compensation of the Directors” of the Company are detailed in Article 10 (Policies on Determining Compensation for Directors, etc.) of the “Fukuoka Financial Group – 3 – Corporate Governance Guidelines” and in “1. Organizational Composition and Operation [Director Remuneration] under II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management” of this report. Please refer to this source for more information. [Principle 3.1 (4)] The Company’s policies on election of senior management, procedures on election and dismissal of senior management, and policies and procedures in nominating candidates for Directors are detailed in Article 7 (Policies on Nominating Candidates for Director (excluding Director serving as Audit & Supervisory Committee Member)), Article 9 (Policies on Nominating Candidates for Director serving as Audit & Supervisory Committee Member), and Article 15 (Roles of Advisory Committee) of the “Fukuoka Financial Group Corporate Governance Guidelines.” Please refer to these sources for more information. The Company’s policies on dismissal of senior management are based on the reasons for disqualification established under the internal rules titled the “Executive Officers Regulations” set forth by the Board of Directors, and if this case arises, dismissal may be determined by the decision of the Board of Directors. [Principle 3.1 (5)] The individual reasons for election and nomination of Directors are detailed in the “Reference Documents for the Annual Shareholders Meeting,” which is attached to the Notice of Convocation of the Annual Shareholders Meeting and available on the Company’s website. These bases are also detailed in “1. Organizational Composition and Operation [Directors] under II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management” of this report. Please refer to these sources for more information. (The Notice of Convocation of the Annual Shareholders Meeting) https://www.fukuoka-fg.com/en/investor/stock/meeting.html [Principle 3.1.3] [Sustainability initiatives] As its aims to achieve its long-term vision, the Company has recognized that challenges surrounding sustainability, such as social and environmental challenges faced by local communities, represent important management issues. Accordingly, the Company is implementing initiatives throughout its entire organization that are designed to contribute to SDG achievement. More specific information regarding the statuses of these initiatives can be found in the Company’s integrated report, which is available on its website. [Investment in human resources and intellectual property, etc.] As part of the management strategy it has adopted in pursuit of its long-term vision, the Company is investing in intellectual property and human resources to facilitate “digital transformation” (DX) and “maximize the capabilities of its human resources.” With regard to “digital transformation,” the Company is striving to fundamentally transform its conventional banking businesses (Minna Bank, iBank, etc.) with digital technology. To “maximize the capabilities of its human resources,” the Company takes care to view its employees as the source of its corporate value. At the same time, it endeavors to establish sustainable growth throughout its organization by implementing initiatives aimed at flexibly and rapidly developing and securing diverse human resources in line with its business strategies and improving employee engagement in response to external environmental changes. Specific information regarding the statuses of these efforts can be found in the Company’s integrated report, which is available on its website. [Enhancing the quality and quantity of disclosure related to climate change] As it aims to facilitate achievement of the SDGs, the Company has identified “environmental protection” as a focus item. Accordingly, it views climate change response as a top priority as it implements its management strategy. To ensure that its stakeholders receive clear and understandable explanations regarding the impact that climate change-related risks and earnings opportunities have on its business activities and earnings, the Company expressed its support for, and pledged compliance with, the TCFD recommendations, in August 2020. In keeping with these recommendations, it includes the results of scenario analyses concerning physical and transition risks associated with climate change in its integrated report and discloses them through its website. Moving forward, the Company will continue to enhance the quality and quantity of its disclosure in line with the TCFD recommendations. – 4 – (Integrated Report) https://www.fukuoka-fg.com/investorimage/ir_pdf/tougou/202110/all.pdf [Principle 4.1.1] “Summary of delegation to management” of the Company is detailed Article 4 (Roles and Responsibilities of the Board of Directors) of the “Fukuoka Financial Group Corporate Governance Guidelines.” Please refer to this source for more information. [Principle 4.9] “Criteria for Independence” of the Company is detailed in the Appendix to the “Fukuoka Financial Group Corporate Governance Guidelines,” the “Fukuoka Financial Group Criteria for Independence.” Please refer to this source for more information. [Principle 4.10.1] As advisory bodies for its Board of Directors, the Company has established the Group Nominating Advisory Committee, which deliberates on matters related to the nomination of candidates for positions in top management or as Directors (including succession planning), and the Group Compensation Advisory Committee, which considers matters related to the remuneration of personnel serving as Directors or in top management positions. Independent External Directors hold majorities in the memberships of both advisory committees, thereby ensuring independence, objectivity, and transparency in decision-making processes related to nomination and remuneration. Additionally, the Company has established a system that enables committees with Independent External Directors serving as members to appropriately participate in, and provide advice concerning, the nomination of Directors while considering perspectives such as gender diversity and expertise. Please refer to Articles 7, 10, 14, and 15 of the “Fukuoka Financial Group Corporate Governance Guidelines” for more information about the Company’s views regarding the jurisdictions and roles of these advisory committees and the levels of independence facilitated by their membership compositions. [Principle 4.11.1] The Company’s “views regarding proper balance between the knowledge, experience, abilities, diversity, and size of its Board of Directors” and its “policies and procedures for the appointment of Directors” are set forth in Article 5 (Views on Composition of the Board of Directors), Article 7 (Policies on Nominating Candidates for Directors [excluding Directors serving as Audit & Supervisory Committee Members]), and Article 9 (Policies on Nominating Candidates for Directors serving as Audit & Supervisory Committee Members) of the “Fukuoka Financial Group Corporate Governance Guidelines.” Please refer to this source for more information. In addition, please refer to the skills matrix attached to this report, which lists the knowledge, experience, abilities, and other attributes of the Company’s current Board of Directors while indicating the extent to which the Company believes its Board of Directors should possess these attributes in light of its management strategy. [Principle 4.11.2] The following Directors are concurrently serving on the boards of other listed companies. For more information, please refer to the “Reference Documents for the Annual Shareholders Meeting,” which are attached to the Notice of Convocation of the Annual Shareholders Meeting and available for review on the Company’s website. ■Directors Takashige Shibato, Yasuhiko Yoshida, Toshiya Kosugi, and Nobuko Ishibashi (The Notice of Convocation of the Annual Shareholders Meeting) https://www.fukuoka-fg.com/en/investor/stock/meeting.html [Principle 4.11.3] Article 11 (Evaluation of Effectiveness of the Board of Directors) of the “Fukuoka Financial Group Corporate Governance Guidelines” stipulates that the Board of Directors of the Company shall analyze and evaluate the effectiveness of the Board as a whole on an annual basis, and regularly disclose the summary of the evaluation. The method and results of evaluation of the effectiveness of the Board of Directors as a whole for FY2020 are as follows. – 5 – [Evaluation method] The evaluation of the Board of Directors was implemented by following the method (procedures) described below. i) Conducted a questionnaire to evaluate the effectiveness of the Board of Directors with Directors and Executive Officers; ii) Additionally conducted interviews with External Directors to collect a wider range of opinions; and iii) Based on the results of i) and ii), analyzed and evaluated the effectiveness of the Board of Directors as a whole, and implemented sharing of awareness on issues, discussions on improvement measures, etc. The evaluation method in general and the details of the questionnaire were decided based on a review from the objective perspective of external experts. [Evaluation results (summary)] 1. Overall evaluation – We verified that the Board of Directors was properly operated pursuant to the Corporate Governance Guidelines and that the effectiveness of the Board of Directors as a whole is ensured. 2. Update on improvement measures on issues pointed out in the evaluations in the prior years – Based on the issues pointed out in the evaluations in the prior years, we transitioned to a company with an audit & supervisory committee last year in order to further enhance the effectiveness of the Board of Directors, streamlined the Board of Directors by reducing the number of Directors, and raised the ratio of External Directors. In addition, we worked, on an ongoing basis, to narrow down points and improve preparation of materials for discussions when submitting proposals to the Board of Directors, management conferences, etc., as well as promote opinion exchanges between the External Directors and executive members. – Through these initiatives, we verified that discussions at the Board of Directors, management conferences, etc., have been vitalized and that the quality of discussions has also been making steady progress. 3. Sharing of awareness on issues and improvement measures – We shared the awareness that it is important to further promote discussions on themes that we will need to tackle from a medium- to long-term perspective toward improvement of sustainable corporate value in the future. – We confirmed that we will flexibly set up opportunities for information sharing and opinion exchanges, either officially or unofficially, and that we will continue to improve the quality of the provision of information for discussions by executive members. These initiatives aim for deepening discussions on medium- to long-term risks and business opportunities in light of the rapidly changing business environment, including issues over sustainability and the spread of novel coronavirus disease (COVID 19), as well as for making better use of the insight of External Directors in various discussions. – Through these initiatives, we will further improve effectiveness of corporate governance and thereby create higher mid- to long-term corporate value. [Principle 4.14.2] “Directors Training Policies” of the Company are detailed in Article 12 (System of Assisting Directors and Training Policies) of the “Fukuoka Financial Group Corporate Governance Guidelines.” Please refer to this source for more information. [Principle 5.1] “Policies on Constructive Dialogue with Shareholders” of the Company are detailed in Article 18 (Dialogue with Shareholders) of the “Fukuoka Financial Group Corporate Governance Guidelines.” Please refer to this source for more information. 2. Capital Structure Foreign Shareholding Ratio From 20% to less than 30% [Status of Major Shareholders] – 6 – Number of Shares Owned 19,697,500 13,551,900 4,271,933 4,103,870 3,790,200 3,523,909 3,495,000 2,729,400 2,660,852 2,579,750 Percentage (%) 10.36 7.12 2.24 2.15 1.99 1.85 1.83 1.43 1.39 1.35 Name / Company Name The Master Trust Bank of Japan, Ltd. (Trust account) Custody Bank of Japan, Ltd. (Trust account) Nippon Life Insurance Company Meiji Yasuda Life Insurance Company Sumitomo Life Insurance Company The Dai-Ichi Life Insurance Company, Limited Custody Bank of Japan, Ltd. (Trust account 9) Custody Bank of Japan, Ltd. (Trust account 5) Custody Bank of Japan, Ltd. (Trust account 4) JPMorgan Securities Japan Co., Ltd. Controlling Shareholder (except for Parent Company) Parent Company – None Supplementary Explanation ■ Status of major shareholders In a Report of Large-Volume Holding made available for public inspection on February 5, 2021, it was reported that Nomura Securities Co., Ltd. and its one joint holder hold shares as of January 29, 2021. However, this differs from the information recorded in the shareholder register, and since the Company is unable to confirm the actual number of shares held, it is not included in the Status of Major Shareholders above. In a Report of Large-Volume Holding made available for public inspection on March 19, 2021, it was reported that BlackRock Japan Co., Ltd. and its eight joint holders hold shares as of March 15, 2021. However, this differs from the information recorded in the shareholder register, and since the Company is unable to confirm the actual number of shares held, it is not included in the Status of Major Shareholders above. In a Report of Changes made available for public inspection on May 11, 2021, it was reported that Sumitomo Mitsui Trust Asset Management Co., Ltd. and its one joint holder hold shares as of April 30, 2021. However, this differs from the information recorded in the shareholder register, and since the Company is unable to confirm the actual number of shares held, it is not included in the Status of Major Shareholders above. 3. Corporate Attributes Listed Stock Market and Market Section Tokyo Stock Exchange First Section, Fukuoka Stock Exchange Existing Market March Fiscal Year-End Type of Business Number of Employees (consolidated) as of the End of the Previous Fiscal Year Sales (consolidated) as of the End of the Previous Fiscal Year Banks 1000 or more Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year From 10 to less than 50 From ¥100 billion to less than ¥1 trillion – 7 – 4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder – Not applicable. 5. Other Special Circumstances which may have Material Impact on Corporate Governance II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management 1. Organizational Composition and Operation Organization Form Company with an Audit & Supervisory Committee [Directors] Maximum Number of Directors Stipulated in Articles of Incorporation Term of Office Stipulated in Articles of Incorporation Chairperson of the Board Number of Directors Appointment of External Directors Number of Outside Directors Number of Independent Directors 15 persons 1 year President 12 persons Appointed 4 persons 4 persons Outside Directors’ Relationship with the Company (1) Name Attribute Masahiko Fukasawa From another company From another company Toshiya Kosugi Academic Hideo Yamada Nobuko Ishibashi Lawyer * * Relationship with the Company* a b c d e f g h i j k Categories for “Relationship with the Company” ”○” when the director presently falls or has recently fallen under the category; “△” when the director fell under the category in the past “●” when a close relative of the director presently falls or has recently fallen under the category; “▲”when a close relative of the director fell under the category in the past * a. Executive of the Company or its subsidiaries b. Non-executive director or executive of a parent company of the Company c. Executive of a fellow subsidiary company of the Company – 8 – d. A party whose major client or supplier is the Company or an executive thereof e. Major client or supplier of the listed company or an executive thereof f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a director/kansayaku g. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f) legal entity) (the director himself/herself only) i. Executive of a company, between which and the Company outside directors/kansayaku are mutually appointed (the director himself/herself only) j. Executive of a company or organization that receives a donation from the Company (the director himself/herself only) k. Others Outside Directors’ Relationship with the Company (2) Membership of Audit & Supervisory Committee Designation as Independent Director ○ Name Masahiko Fukasawa Supplementary Explanation of the Relationship Reasons of Appointment Mr. Masahiko Fukasawa has held positions as the Japan Representative (concurrently served as Chairman of Korea Office) and the Chairman of China Office of A.T. Kearney. He has served as the Joint Representative of Asian Region and the Joint Representative of Japan from February 2014 and Managing Director of AlixPartners Asia, LLC from January 2021. As such, he possesses extensive practical experience and specialized knowledge in consulting on management strategy and business revitalization of a wide variety of companies. Additionally, he meets all the requirements of independence criteria set forth by the Company, and there is no issue with his independence. He has been elected as External Director in the expectation that he will supervise Directors and management of the Company from an independent and objective standpoint while utilizing his extensive practical experience and insight accumulated so far to provide opinions, guidance, and advice to our top management in a timely and appropriate manner, thereby contributing to the medium- to long-term There are no advisory contracts, consulting transactions or business relationships between AlixPartners Asia, LLC, to which Mr. Masahiko Fukasawa belongs, and the Group. Mr. Masahiko Fukasawa as an individual maintains a stationary relationship as a general depositor with a subsidiary of the Company, but descriptions of the details of this transaction are omitted as they have been judged to have no impact on the decisions of shareholders and investors in light of their scale and characteristics. There are no other advisory contracts, consulting contracts, or business relationships between Mr. Masahiko Fukasawa as an individual and the Group. – 9 – Toshiya Kosugi ○ improvement of the corporate value of the Group. He meets all requirements of the independence criteria set forth by the Tokyo Stock Exchange, and has been registered as an Independent Director, having no potential conflict with the interests of general shareholders. Mr. Toshiya Kosugi has held managerial positions of personnel and general affairs divisions at Uniden Corp. and Apple Inc. and other major domestic and foreign companies. He currently serves as Representative Partner of Truth, Human Science & Management Organization Laboratory LLC. He also serves as professor at a graduate school. As such, he possesses extensive practical experience and specialized knowledge in organizational reform, development, and management of human resources. Additionally, he meets all the requirements of independence criteria set forth by the Company, and there is no issue with his independence. He has been elected as External Director in the expectation that he will supervise Directors and management of the Company from an independent and objective standpoint while utilizing his extensive practical experience and insight accumulated so far to provide opinions, guidance, and advice to our top management in a timely and appropriate manner, thereby contributing to the medium- to long-term improvement of the corporate value of the Group. He meets all requirements of the independence criteria set forth by the Tokyo Stock Exchange, and has been registered as an Independent Director, having no potential conflict with the interests of general shareholders. Although Mr. Hideo Yamada has never been directly involved There are no advisory contracts, consulting transactions or business relationships between Truth, Human Science & Management Organization Laboratory LLC, to which Mr. Toshiya Kosugi belongs, and the Group. Mr. Toshiya Kosugi as an individual maintains a stationary relationship as a general depositor with a subsidiary of the Company, but descriptions of the details of this transaction are omitted as they have been judged to have no impact on the decisions of shareholders and investors in light of their scale and characteristics. There are no other advisory contracts, consulting contracts, or business relationships between Mr. Toshiya Kosugi as an individual and the Group. Hideo Yamada ○ ○ There are no donations or business relationships – 10 – between Waseda University, to which Mr. Hideo Yamada belongs, and the Group. Mr. Hideo Yamada as an individual maintains a stationary relationship as a general depositor with a subsidiary of the Company, but descriptions of the details of this transaction are omitted as they have been judged to have no impact on the decisions of shareholders and investors in light of their scale and characteristics. There are no other advisory contracts, consulting contracts, or business relationships between Mr. Hideo Yamada as an individual and the Group. There are no advisory contracts, consulting transactions or business relationships between Kobe City Law Office, to which Ms. Nobuko Ishibashi belongs, and the Group. Ms. Nobuko Ishibashi as an individual maintains a stationary relationship as a general depositor with a subsidiary of the Company, but descriptions of the details of this transaction are omitted as they have been judged to have no impact on the decisions of shareholders and investors in light of their – 11 – in the management of a corporation, he possesses extensive practical experience and advanced capabilities and insight in the corporate management strategies, finance and accounting fields gained through his extensive career including Professor of Graduate School of Business and Finance of Waseda University. Additionally, he meets all the requirements of independence criteria set forth by the Company, and there is no issue with his independence. He has been elected as External Director serving as an Audit & Supervisory Committee Member in the expectation that he is able to provide valuable advice to the Board of Directors and conduct objective and neutral audits of the Company to ensure legal compliance and appropriateness of business executions of the Company by utilizing his extensive practical experience and professional insight, thereby contributing to the establishment of a quality corporate governance structure that responds to social trust. He meets all requirements of the independence criteria set forth by the Tokyo Stock Exchange, and has been registered as an Independent Director, having no potential conflict with the interests of general shareholders. Although Ms. Nobuko Ishibashi has never been directly involved in the management of a corporation, she possesses extensive practical experience and advanced capabilities and insight in legal affairs in general as an attorney. Additionally, she meets all the requirements of independence criteria set forth by the Company, and there is no issue with her independence. She has been elected as External Director serving as an Audit & Supervisory Committee Member in the expectation that she is able to Nobuko Ishibashi ○ ○ scale and characteristics. There are no other advisory contracts, consulting contracts, or business relationships between Ms. Nobuko Ishibashi as an individual and the Group. provide valuable advice to the Board of Directors and conduct objective and neutral audits of the Company to ensure legal compliance and appropriateness of business executions of the Company by utilizing her extensive practical experience and professional insight, thereby contributing to the establishment of a quality corporate governance structure that responds to social trust. She meets all requirements of the independence criteria set forth by the Tokyo Stock Exchange, and has been registered as an Independent Director, having no potential conflict with the interests of general shareholders. [Audit & Supervisory Committee] Committee’s Composition and Attributes of Chairperson Audit & Supervisory Committee All Committee Members Full-time Members Inside Directors Outside Directors 3 1 1 2 Chairperson Director within the Group Appointment of Directors and/or Staff to Support the Supervisory Committee Appointed Matters Related to the Independence of Such Directors and/or Staff from Executive Directors In order to enhance the efficiency and effectiveness of the Audit & Supervisory Committee’s duties, the Board of Directors has established the Office of Audit & Supervisory Committee as an organization responsible for supporting the duties and has assigned designated staff members who possess the knowledge and ability necessary to assist in audit duties. The Office of Audit & Supervisory Committee shall be established under the supervision of the Audit & Supervisory Committee, and any personnel changes of the persons in charge of the Office shall require sufficient discussions with the Audit & Supervisory Committee in advance. Cooperation among Supervisory Committee, Accounting Auditors and Internal Audit Departments The Company’s Audit & Supervisory Committee, Accounting Auditor, and Internal Audit Department maintain a close relationship of mutual cooperation detailed as follows. These audits are also conducted in conjunction with the in-house departments of the Company in charge of internal control functions to facilitate efficient and effective audits. (Audits by Audit & Supervisory Committee) The Audit & Supervisory Committee of the Company is composed of three Audit & Supervisory Committee Members including two External Directors, and the Office of Audit & Supervisory Committee is set up with designated staff as a supporting organization. The Audit & Supervisory Committee Member who possesses – 12 – considerable insight on finance and accounting is introduced in the following. Mr. Hideo Yamada acquired a Master of Business Administration (MBA) at the Keio University Graduate School of Business Administration, and possesses considerable insight, as evident in his professional expertise in corporate management strategies as a Professor of Graduate School of Business and Finance of Waseda University. The Audit & Supervisory Committee audits Directors’ job performance as a whole by attending Board of Directors meetings, the Group Management Conference and other important meetings, holding hearings with Headquarters and Group companies, including subsidiary banks, performing site visits to branches of subsidiary banks, and inspecting important documents. In addition, as detailed in the following, the Audit & Supervisory Committee maintains a close relationship of mutual cooperation with the Internal Audit Department, Accounting Auditor, and Audit & Supervisory Committees of subsidiary banks, actively exchange opinions and information, and endeavor to ensure efficient and effective audits by the Audit & Supervisory Committee. ○Internal Audit Department In addition to receiving regular reports on the status of internal audits of the Board of Directors, etc., hearings are conducted every month in principle, and investigations and explanations are requested as necessary. ○Accounting Auditor In addition to receiving regular explanations/reports and exchanging opinions on the status of accounting audits, including explanations of audit plans and reports on interim/annual audit results, the Accounting Auditor also performs site visits as necessary. ○Audit & Supervisory Committees of subsidiary banks In principle, reports are received every month on the status of audits by Audit & Supervisory Committees at subsidiary banks, and the Audit & Supervisory Committees endeavor to understand the internal controls of the Group as a whole. (Accounting Audits) Regarding accounting audits, the Company has commissioned Ernst & Young ShinNihon LLC to perform audits pursuant to the Company Law and audits pursuant to the Financial Instruments and Exchange Act. (Internal Audits) The Company has established the Internal Audit Division as the department in charge of internal audits independent from the other divisions in the Group. In order to maintain internal control, based on the “Internal Audit Policy” and “Audit Regulations” determined by the Board of Directors, the Company endeavors to invest more audit resources in areas with relatively high risk and conduct risk-based audits for each division of the Company and each Group company. Audit results of the Company and each Group company are regularly reported to the Board of Directors. In addition, the Internal Audit Division maintains a close relationship of mutual cooperation with the Audit & Supervisory Committee and Accounting Auditor. [Voluntary Establishment of Nomination/Remuneration Committee] Voluntary Establishment of Committee(s) Corresponding to Nomination Committee or Remuneration Committee Established Committee’s Name, Composition, and Attributes of Chairperson Committee’s Name All Committee Members Full-time Members Inside Directors Outside Directors Committee Corresponding to Nomination Committee Committee Corresponding to Remuneration Committee Group Nominating Advisory Committee 6 Group Compensation Advisory Committee 6 0 2 4 – 13 – 0 2 4 Outside Experts Other Chairperson Supplementary Explanation 0 0 0 0 Director within the Group External Director – An overview of the Group Nominating Advisory Committee and Group Compensation Advisory Committee (including member composition, election method, advisory matters, etc.) is detailed in Chapter 2 Section 4 (Establishment of Group Compensation & Nominating Advisory Committee) of the “Fukuoka Financial Group Corporate Governance Guidelines.” Please refer to this source for more information. – The composition of each committee as of the date of submission of this report is as follows. (Group Nominating Advisory Committee) Director, Chairman & President Director & Deputy President External Director External Director External Director External Director (Group Compensation Advisory Committee) Director, Chairman & President Director & Deputy President External Director External Director External Director External Director Takashige Shibato Yasuhiko Yoshida Masahiko Fukasawa (Chairperson) Toshiya Kosugi Hideo Yamada Nobuko Ishibashi Takashige Shibato (Chairperson) Yasuhiko Yoshida Masahiko Fukasawa Toshiya Kosugi Hideo Yamada Nobuko Ishibashi The Company designates all External Directors that meet the requirements of the independence criteria as Independent Director. [Independent Directors] Number of Independent Directors 4 persons Matters relating to Independent Directors [Incentives] Incentive Policies for Directors Other Supplementary Explanation From the perspective of clarifying management responsibility and incentives for improving business performance, the Company has introduced performance-linked compensation for Directors among the Directors of the Company who serve concurrently as Director of The Bank of Fukuoka, Ltd. (hereinafter referred to as “Fukuoka Bank”), a consolidated subsidiary of the Company, in addition to their base compensation. This performance-linked compensation is determined based on the level of net income attributable to Fukuoka Bank. The Group Compensation Advisory Committee shall, in response to consultation from the Board of Directors, deliberate on the general framework of compensation for each level of net income attributable to Fukuoka Bank based on “Policies on Determining Compensation for Directors, etc.,” and the Board of Directors of Fukuoka Bank shall make final decisions with full respect for the Committee’s deliberation. – 14 – Recipients of Stock Options Supplementary Explanation – [Director Remuneration] Supplementary Explanation Disclosure of Individual Directors’ Remuneration No Individual Disclosure The total amount of compensation paid by the Company and its consolidated subsidiaries to Directors and Audit & Supervisory Board Members of the Company in FY2020 is as follows. The total amount of annual compensation for 7 Directors (excluding Audit & Supervisory Committee Members and External Directors): 422 million yen (including performance-linked compensation of 69 million yen) The total amount of annual compensation for 1 Audit & Supervisory Committee Member (excluding External Directors): 15 million yen The total amount of annual compensation for 1 Audit & Supervisory Board Member (excluding External Audit & Supervisory Board Members): 5 million yen The total amount of annual compensation for four External Directors and External Audit & Supervisory Board Members: 41 million yen (including performance-linked compensation of 2 million yen) (Note) The Company transitioned from a company with an audit & supervisory board to a company with an audit & supervisory committee as of June 26, 2020. (Note) Performance-linked compensation represents the total amount of the performance-linked compensation paid by the consolidated subsidiaries of the Company to those who serve concurrently as Directors of the consolidated subsidiaries for the year under review. Policy on Determining Remuneration Amounts Established and Calculation Methods Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods The Company has set forth the policies on determining details of individual compensation, etc., for Directors (excluding Directors serving as Audit & Supervisory Committee Members) by a resolution of the Board of Directors as follows. [Basic policies] Compensation for Directors (excluding Directors serving as Audit & Supervisory Committee Members) of the Company shall be determined based on the “Policies on Determining Compensation for Directors, etc.” set forth in Article 10 of the Corporate Governance Guidelines within the scope of the total monthly compensation for all Directors resolved at the Annual Shareholders Meeting. —Policies on Determining Compensation for Directors, etc. (Article 10 of the Corporate Governance Guidelines)— (1) A system of Compensation for Directors shall be set appropriately so that it serves as a healthy incentive for Directors and Executive Officers, which would eventually lead to the sustainable growth of the Group. (2) Compensation for Directors shall be determined in overall consideration of the roles and responsibilities of each Director and Executive Officer, in addition to considering the Company’s mid to long-term business performance and economic and social conditions. (3) The Group Compensation Advisory Committee shall, in response to the consultation from the Board of Directors, deliberate on Compensation for Directors based on the policies set forth in this Article, and the Board of Directors shall make final decisions with full respect for the Committee’s deliberation. – 15 – [Specific policies based on basic policies] (1) Policy on determining amounts of individual compensation, etc. (excluding performance-linked compensation, etc. and non-monetary compensation, etc.), and calculation methods (including policy on determining the timing or conditions for granting compensation) – – The Group Compensation Advisory Committee shall, in response to the consultation from the Board of Directors, deliberate on the base compensation, based on the “Policies on Determining Compensation for Directors, etc.” The Board of Directors shall respect the Committee’s deliberation and determine the officer compensation system based on the Policies on Determining Compensation for Directors, etc., and the base compensation is paid pursuant to the system. Individual base compensation shall be paid monthly with a fixed amount. (2) Policy on determining the ratio of amounts of fixed compensation and performance-linked compensation, etc., to amounts of individual compensation, etc. – Individual compensation paid by the Company to Directors shall be base compensation only. (3) Methods for determining the details of individual compensation, etc., for Directors (when delegating Directors all or part of the determination of the details of individual compensation, etc., their names, positions, responsibilities, and the details of the authority to be delegated shall be included) – The Group Compensation Advisory Committee shall, in response to the consultation from the Board of Directors, deliberate on the details of individual compensation, etc. for Directors, based on the “Policies on Determining Compensation for Directors, etc.” The Board of Directors shall respect the Committee’s deliberation and determine the officer compensation system, and the details of individual compensation, etc. for Directors based on the system. – The Group Compensation Advisory Committee shall, in response to the consultation from the Board of Directors, deliberate on the base compensation for External Directors among individual compensation, etc. for Directors, based on the “Policies on Determining Compensation for Directors, etc.” The Board of Directors shall delegate to the Chairman & President the responsibility to make final decisions on the specific details with full respect for the Committee’s deliberation, and the Chairman & President who has received such delegation shall make final decisions. [Supporting System for Outside Directors] The Business Management Group of the Corporate Planning Division, provides assistance as a secretariat office to External Directors, such as distributing meeting materials in advance and providing information on management. In addition, with regard to External Directors serving as Audit & Supervisory Committee Members, the Office of Audit & Supervisory Committee has been established and the Company has assigned designated staff to provide assistance to Audit & Supervisory Committee Members. [Retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.)] Information on retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.) Date when former role as president/ CEO ended – – Name Responsibilities (Full/part time, with/without Term Job title/ position – – – Number of retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.) Others The Company does not have the system of retaining Counselors and Advisers. Employment terms compensation, etc.) – 0 – 16 – 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) The Company has appointed four highly independent External Directors to fully perform supervisory functions within the Board of Directors, while the Audit & Supervisory Committee, composed of three Audit & Supervisory Committee Members, audits the status of the Directors’ job performance appropriately. In this way, a sufficiently effective governance system has been established, and therefore the current organizational design of a company with an audit & supervisory committee has been adopted. In addition, the Company has implemented the following initiatives in order to further enhance and strengthen the governance system. ・ An Executive Officer system is adopted for quick management decision making and strengthening business execution function of the Board of Directors. ・ The Office of Audit & Supervisory Committee is established to assist the Audit & Supervisory Committee Members in their job performance as a means to improve the efficiency and effectiveness of the professional duties performed by the Audit & Supervisory Committee. An overview of the corporate governance system of the Company is as follows. (1) Management organization/business organization (Board of Directors, Directors) The Board of Directors consists of 12 Directors (including 4 External Directors) as of the date of submission of this report, and shall make decision on basic guidelines related to Group management, as well as matters stipulated by laws, ordinances and the Articles of Incorporation. The Board shall also make decisions on important matters concerning business management of subsidiary banks, business and affairs of the Group, while overseeing the job performance of Directors and Executive Officers. (Audit & Supervisory Committee, Audit & Supervisory Committee Members) The Audit & Supervisory Committee consists of three Audit & Supervisory Committee Members (including two External Directors) as of the date of submission of this report, and based on the basic policies and audit plan for the Group-wide audit, shall audit Directors’ job performance and examine the status, etc., of business conditions and assets of the Group as a whole. (Office of Audit & Supervisory Committee) To fully perform the audit functions of the Audit & Supervisory Committee, staff (two as of the date of submission of this report) are exclusively designated to support the Audit & Supervisory Committee. (Group Nominating Advisory Committee, Group Compensation Advisory Committee) To enhance transparency and fairness of our group management, the Group Nominating Advisory Committee and Group Compensation Advisory Committee, an advisory body to the Board of Directors, shall discuss matters related to the election/dismissal and the compensation of Directors. (Group Management Conference) The Group Management Conference consists of 7 Executive Directors (chaired by the President) (also attended by full-time Audit & Supervisory Committee Members), and based on basic guidelines stipulated and matters entrusted by the Board of Directors, shall discuss important matters related to business and affairs of the Group, including group management and operational planning. (Group Risk Management Committee) The Group Risk Management Committee consists of 7 Executive Directors and general managers of departments/offices in charge (chaired by the President) (also attended by full-time Audit & Supervisory Committee Members), and shall discuss and report on matters related to asset portfolio management, compliance, and counter-financial crime management, in addition to carrying out discussions concerning each of the risk management systems of the Group as a whole. (Group IT Special Committee) The Group IT Special Committee consists of 7 Executive Directors and general managers of departments/offices in charge (chaired by the President) (also attended by full-time Audit & Supervisory Committee Members), and to strengthen the IT governance system of the group as a whole, shall discuss matters related to IT strategy, system risk management, and investment in IT systems. – 17 – (Executive Officers) For quick decision-making of the Board of Directors and strengthening business execution functions, 20 Executive Officers (including 7 serving concurrently as Director) as of the date of submission of this report are elected and delegated the execution of business by a resolution of the Board of Directors. (2) Internal audits, audits by Audit & Supervisory Committee, and accounting audits (Internal audits) The Internal Audit Division has been established as the department in charge of internal audits independent from the other divisions in the Group, and based on the “Internal Audit Policy” and “Audit Regulations” determined by the Board of Directors, the Company endeavors to invest more audit resources in areas with relatively high risk and conduct risk-based audits for each division of the Company and each Group company. Audit results of the Company and each Group company are regularly reported to the Board of Directors. In addition, the Internal Audit Division maintains a close relationship of mutual cooperation with the Audit & Supervisory Committee and Accounting Auditor. (Audits by Audit & Supervisory Committee) The Audit & Supervisory Committee maintains a close relationship of mutual cooperation with the Internal Audit Department, Accounting Auditor, and Audit & Supervisory Committees of subsidiary banks, actively exchanges opinions and information, and endeavors to ensure efficient and effective audits. (Accounting Audits) Ernst & Young ShinNihon LLC is commissioned to perform accounting audits. The Certified Public Accountants who perform accounting audits and the composition of assistants involved in the Company’s accounting audits are as follows. – Certified Public Accountants Designated Limited Liability Partner, Engagement Partner: Noboru Miura, Yoshihiro Fujii, Takeshi Nagasato – Assistants involved in the Company’s accounting audits Certified Public Accountants: 19 persons, 51 other persons 3. Reasons for Adoption of Current Corporate Governance System The Company has appointed four highly independent External Directors to fully perform supervisory functions within the Board of Directors, while the Audit & Supervisory Committee, composed of three Audit & Supervisory Committee Members, audits the status of the Directors’ job performance appropriately. In this way, a sufficiently effective governance system has been established, and therefore the current organizational design of a company with an audit & supervisory committee has been adopted. III. Implementation of Measures for Shareholders and Other Stakeholders 1. Measures to Vitalize the General Shareholder Meetings and Smooth Exercise of Voting Rights Early Notification of General Shareholder Meeting Allowing Electronic Exercise of Voting Rights Participation Voting Platform Providing Convocation Notice in English in Electronic Supplementary Explanations The Notice of Convocation of the 14th Annual Shareholders Meeting held on June 29, 2021 was sent on June 7 (one week prior to the date legally required). The Company has adopted a system allowing the exercise of voting rights in writing and electronic exercise of voting rights. The Company uses an electronic voting platform operated by ICJ, Inc. Reference documents in English are posted on the Company website and provided through the electronic voting platform. – 18 – The Company posts the convocation notice on the Company website, etc., by the day before it is sent, provides explanation materials, etc., using video and audio presentation, and distributes a video recording of the Annual Shareholders Meeting to facilitate shareholders’ understanding. Other 2. IR Activities Supplementary Explanations Explanation by Representative Preparation and Publication of Disclosure Policy Regular Investor Briefings for Individual Investors Regular Investor Briefings for Analysts Institutional Investors Regular Investor Briefings for Overseas Investors and Posting of IR Materials on Website Establishment of Department and/or Manager in Charge of IR “Basic Views on Information Disclosure” of the Company are detailed in Article 20 (Basic Views on Information Disclosure) of the “ Fukuoka Financial Group Corporate Governance Guidelines” published on the Company website. Please refer to this source for more information. The Company regularly holds corporate briefings for individual investors. The Company regularly holds corporate briefings for analysts and institutional investors. The Company regularly visits overseas investors and provides explanations on the business performance and management strategies for each fiscal term. In addition to posting materials from corporate briefings and video/audio files on the Company website, the Company also posts securities reports, integrated reports, annual reports, and the historical data of financial information, etc. The Corporate Planning Division is in charge of IR activities and staff members in charge are assigned. Yes Yes Yes 3. Measures to Ensure Due Respect for Stakeholders Stipulation of Internal Rules for Respecting the Position of Stakeholders Supplementary Explanations ○Sustainability policy FFG defined its CSR policy at the time of its founding, and has since practiced “CSR Management” that promotes sustainable growth of stakeholders through offering various values, while aiming for sustainable development of FFG. In 2020, FFG developed its new “Sustainability Policy” in keeping with and evolving the concepts of the CSR policy, and established a Group-wide framework designed to contribute to the achievement of SDGs. The new policy relates to the very busin