Fukuoka Financial : Corporate Governance Report(June 29, 2023)

Corporate Governance Report

Last Update: June 29, 2023

Fukuoka Financial Group, Inc.

Hisashi Goto Director & 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]

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]

In accordance with its seventh Mid-Term Management Plan, which began in FY2022, the Company is implementing a variety of measures based on the pillars of its human resources strategy: "form a strategic human resources portfolio by acquiring and developing human resources capable of executing business strategies" and "facilitate the success of diverse human resources by providing them with respect and support."

For more information regarding the Company's human resources strategy, including its "Human Resources Development Policy" and "Internal Environment Improvement Policy," the status of specific initiatives, and

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various indicators and targets to visualize it, please refer to the Company's securities report, which is available on the Company's website.

(Securities report) https://www.fukuoka-fg.com/investor/library/securities.html (in Japanese)

Note: Please refer to the section entitled "2 Sustainability-related Concepts and Initiatives."

[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/investorimage/data/20220523_shukei7.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 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

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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 it 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 securities report and integrated report, which are available on the Company's website.

[Investment in human resources and intellectual property, etc.]

In support of the management strategy it has adopted to facilitate the achievement of its long-term vision, the Company is also committed to investing in intellectual property and human capital in accordance with its "DX Strategy" and "Human Resource Strategy."

With regard to its "DX Strategy," the Company is striving to fundamentally transform its conventional banking businesses (Minna Bank, iBank, etc.) with digital technology. In terms of its "Human Resource Strategy," the Company considers its employees to be assets that are the source of its corporate value as it strives to "form a strategic human resources portfolio by acquiring and developing human resources capable of executing business strategies" and "facilitate the success of diverse human resources by providing them with respect and support." Specific information regarding the statuses of these efforts can be found in the Company's securities report and integrated report, which are available on the Company's website.

[Enhancing the quality and quantity of disclosure related to climate change]

As it aims to facilitate the achievement of the SDGs, the Company has identified "environmental protection" as a focus item. In particular, the Company views response to climate change risk as an important element of its management strategy and has accordingly expressed its support for the TCFD recommendations as it endeavors to understand and assess the impact climate change risk may have on the Group and expand its disclosure of such information. Specific information regarding the statuses of these efforts can be found in the Company's securities report and integrated report, which are available on the Company's website.

(Securities report) https://www.fukuoka-fg.com/investor/library/securities.html (in Japanese)

Note: Please refer to the section entitled "2 Sustainability-related Concepts and Initiatives." (Integrated report) https://www.fukuoka-fg.com/en/investorimg/pdf/2023_03_annualreport.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

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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, a skills matrix illustrating the knowledge, experience, abilities, and other attributes deemed necessary to the Board of Directors in light of the Company's management strategy, along with such attributes possessed by the current Directors, is included in the "Reference Documents for the Annual Shareholders Meeting" attached to the Notice of Convocation of the Annual Shareholders Meeting and is published on the Company's website. The matrix is also attached to the end of this report. Please refer to this source for more information.

(The Notice of Convocation of the Annual Shareholders Meeting) https://www.fukuoka-fg.com/investor/stock/meeting.html

[Principle 4.11.2]

Directors concurrently serving on the boards of other listed companies and their status of concurrent service as of the date of submission of this report are shown below.

■ Directors

Takashige Shibato

DAIICHI KOUTSU SANGYO Co., Ltd. (External Director since June 2008)

RKB MAINICHI HOLDINGS CORPORATION (External Director since June 2018)

Nishi-Nippon Railroad Co., Ltd. (External Director serving as an Audit & Supervisory Committee Member since June 2020)

Toshiya Kosugi

NIKKO COMPANY (External Audit & Supervisory Board Member since June 2023) Nobuko Ishibashi

Kamigumi Co., Ltd. (External Director since June 2019)

Takamatsu Construction Group Co., Ltd. (External Audit & Supervisory Board Member since June 2019 and External Director since June 2022)

[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 FY2021 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. In addition to the questionnaire, conducted interviews with External Directors to obtain a broader range of opinions
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