Fukuoka Financial : Corporate Governance Report (June 29, 2021)

Corporate Governance Report

Last Update: June 29, 2021

Fukuoka Financial Group, Inc.

Takashige Shibato Director, Chairman & President Contact: Corporate Planning Division, [phone] Securities Code: 8354 https://www.fukuoka-fg.com

The corporate governance of Fukuoka Financial Group, Inc. (the "Company") is described below.

1. 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 improvement of corporate value for investees by strengthening relationships, etc., 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,

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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]

The Company has formulated the "Fukuoka Financial Group Corporate Governance Guidelines" as "the basic views and operational policies regarding corporate governance" and published them on the Company 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 2.6]

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,

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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 the Group Management Principles and Mid-Term Management Plan and published them on the Company 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 "the basic views and operational policies regarding corporate governance" and published them on the Company website. They have also been attached at 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 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" attached to the Notice of Convocation of the Annual Shareholders Meeting, published on the Company website. These 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 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.

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[Principle 4.11.1]

"Views on balance, diversity, and size of knowledge, experience, and ability of the Board of Directors as a whole" of the Company are detailed in Article 5 (Views on Composition of the Board of Directors) of the "Fukuoka Financial Group Corporate Governance Guidelines." Please refer to this source for more information.

[Principle 4.11.2]

The Directors who serve concurrently at other listed companies are as follows. The status of these concurrently held positions are detailed in the "Reference Documents for the Annual Shareholders Meeting" attached to the "Notice of Convocation of the Annual Shareholders Meeting," published on the Company website, etc. Please refer to these sources for more information.

■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.

[Evaluation method]

The evaluation of the Board of Directors was implemented by following the method (procedures) described below.

1. Conducted a questionnaire to evaluate the effectiveness of the Board of Directors with Directors and Executive Officers;
2. Additionally conducted interviews with External Directors to collect a wider range of opinions; and
3. 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
2. • 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.
3. Update on improvement measures on issues pointed out in the evaluations in the prior years
4. • 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.
5. Sharing of awareness on issues and improvement measures
6. • 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
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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]
	Name / Company Name		Number of Shares Owned	Percentage (%)
	The Master Trust Bank of Japan, Ltd. (Trust account)	19,697,500	10.36
	Custody Bank of Japan, Ltd. (Trust account)		13,551,900	7.12
	Nippon Life Insurance Company		4,271,933	2.24
	Meiji Yasuda Life Insurance Company		4,103,870	2.15
	Sumitomo Life Insurance Company		3,790,200	1.99
	The Dai-Ichi Life Insurance Company, Limited		3,523,909	1.85
	Custody Bank of Japan, Ltd. (Trust account 9)		3,495,000	1.83
	Custody Bank of Japan, Ltd. (Trust account 5)		2,729,400	1.43
	Custody Bank of Japan, Ltd. (Trust account 4)		2,660,852	1.39
	JPMorgan Securities Japan Co., Ltd.		2,579,750	1.35
	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

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