Kyushu Financial : Corporate Governance Reports

Corporate Governance
CORPORATE GOVERNANCE	Kyushu Financial Group, Inc.
	Last updated: June 24, 2021
	Kyushu Financial Group, Inc.
	Yoshihisa Kasahara, President and Representative Director
	Phone: [phone]
	Securities code: 7180
	https://www.kyushu-fg.co.jp

This document describes the state of the corporate governance at Kyushu Financial Group, Inc. ("Kyushu Financial")

I. Basic Stance on Corporate Governance and Capital Structure, Business Attributes, and Other Basic Information

1. Basic Stance Updated

The Kyushu Financial Group (the "Group") establishes the Group Management Philosophy (see the attachment), and in order to carry it into action, complies with laws and regulations and ensures appropriate business decision-making and execution of operations as well as endeavors to achieve high degrees of transparency, openness, and soundness of management, thereby enhancing corporate governance.

1. The Group will respond to the trust and expectations of customers and will provide optimal, high-level comprehensive financial services to customers.
2. The Group will grow with local communities and actively contribute to the realization of vibrant communities.
3. The Group will nurture an abundance of creativity and an open-minded organizational culture, continuing to challenge itself to move toward a better future.

In accordance with its basic stance on the corporate governance system stated below, Kyushu Financial has adopted the form as a Company with Audit and Supervisory Committee because it regards the form suitable to accelerate and improve the efficiency of decision making through delegation of authority for further enhancement of discussions regarding medium- to long-term management strategies at the Board of Directors, which consists of 15 Directors (including 5 External Directors), as well as to enhance supervision of the Board of Directors and strengthen corporate governance by establishing an Audit and Supervisory Committee, the majority on which consist of the External Directors, and giving voting rights at the Board of Directors meeting to the Directors who are Audit and Supervisory Committee Members (hereinafter the "Audit and Supervisory Committee Members").

1. We clearly define supervision and execution in order to establish an environment that allows the Board of Directors to focus on the supervision of Directors' performance of duty, thereby ensuring the effectiveness of corporate governance.
2. The Board of Directors delegates decision-making on the execution of individual operations to the Senior Management wherever possible unless it involves matters specified in laws and regulations or the articles of incorporation, or material matters of execution of operations such as policies, strategies, or plans pertaining to Kyushu Financial's management.
3. We have in place and leverage optional internal bodies, including the Group Executive Commission and other various committees, in order to help the Senior Management with prompt and decisive decision-making, thereby ensuring flexible execution of operation and enhancing our corporate governance.
4. We leverage objective views offered by our External Officers wherever possible in order to ensure the fairness and transparency of our decision-making process pertaining to our operation.

We have also developed and published our "Corporate Governance Guidelines" with the aim of achieving the sustainable growth of the Group and increasing our medium- and long-term corporate value. The Group's officers and employees read the Guidelines for a full understanding so that they act accordingly.

(URL：https://kyushu-fg.co.jp/company/governance/)

[Reasons for not applying the principles of the Corporate Governance Code] Updated

[Principle 3-1 (iv)] Policy and Procedure regarding the Dismissal of the Senior Management

[Supplementary Principle 4-1 (iii)] Development and Supervision of Plans for Successors of Chief Executive Officers [Supplementary Principle 4-3 (iii)] Establishment of an Objective, Timely, and Transparent Procedure for Dismissal of CEOs We have established the Nominating and Remuneration Committee in order to ensure fairness and transparency in the decision- making process pertaining to the nomination of and compensation to our Directors (including Audit and Supervisory Committee Members) and Executive Officers (hereafter the "Management"). We have continuously discussed application of the above principles in terms of transparency, openness, and soundness of our management.

[Disclosure pursuant to the principles of the Corporate Governance Code] Updated

(Disclosure pursuant to the principle requiring that specified matters be disclosed) [Principle 1-4]Cross-held Shares

1. Cross-shareholding policy and criteria for exercising voting rights

Article 23 (Cross-held Shares), paragraphs 1 and 3 of the Corporate Governance Guidelines specify our cross-shareholding policy and criteria for exercising voting rights. Please visit our website, where the Article is published. (URL：https://kyushu-fg.co.jp/company/governance/)

-Our Approach to Reduction in Cross-held Shares

The Group holds the review stated in "2. Details of the review concerning cross-held shares" below in accordance with the Corporate Governance Guidelines. If the review has concluded that the necessity of cross-holding certain shares is low, we proceed with their gradual reduction with the consent of the issuers, taking account of any impact on the market.

-Specific Criteria for Exercising Voting Rights

As a rule, the Group exercises its voting rights regarding all proposals in accordance with the Corporate Governance Guidelines. We also discuss whether we agree or disagree with each proposal* that will likely have an impact on the corporate value of our Group and/or investee companies.

* The following are examples of proposals.

-Proposal for appointment of a Director/Auditor; proposal for compensation or retirement bonuses (when there is a governance- related concern [e.g. occurrence of a scandal or poor performance over a certain period])

-Proposal for appropriation of surplus (dividends paid despite a loss; no dividend payment despite a surplus for a certain period) -Proposal for material changes to the articles of incorporation

-Proposal for issuance of new shares

-Proposal for material reorganization (e.g. M&A, business merger) -Proposal for anti-takeover measures, etc.

2. Details of the review concerning cross-held shares

The Group regularly makes qualitative (e.g. the purposes of holding the shares and compliance) and quantitative* evaluation of respective cross-held shares in order to comprehensively determine whether retaining those shares is still relevant, and reports the details of the review to the Board of Directors.

* Formula for quantitative evaluation

Gross income from business (Net interest income + Fee and commissions) + Annual dividend - Expenses - Cost of credit/Book value ≧ Return on shareholders' equity

Please note that, even when the review concludes that a stock fails to meet the quantitative criteria, we may retain the stock if the issuer likely improve its performance through dialogue with us.

We also set the alarm (watching) point to review, as appropriate, each stock that may make market risk come to surface and determine whether to retain it.

We also monitor the details and results of reviews by the Group companies and report them to the Board of Directors and other relevant bodies, and ensure consolidated market risk management in order to enhance our functions as a holding company.

[Principle 1-7] Transactions with Affiliated Parties

Please see Article 20 (Prevention of Transactions Contrary to the Interest of Shareholders) of the Corporate Governance Guidelines published on our website.

(URL：https://kyushu-fg.co.jp/company/governance/)

[Principle 2-6] Fulfillment of Functions as an Asset Owner of Corporate Pensions

-The Group manages the reserves of the corporate pensions through the corporate pension funds offered by Higo Bank and Kagoshima Bank (hereafter the "Funds"). To ensure stable and long-term total earnings for corporate pensions and the payment of pension benefits over the years to come, we have thorough reviews and discussions by the asset management committees, councils, and board of representatives (hereafter the "Bodies") at these Funds and work with investment consultants and asset managers, thereby forming optimum pension assets.

-With regard to the management of reserves, we make the following efforts so that we will serve functions expected to be as an asset owner.

-At the Funds, the Bodies discuss matters regarding managements (e.g., the selection of investment products, allocation of investments, and earnings/risk analysis). Then the Funds appraise investments and manage earnings in accordance with the investment policies they have determined. We also conduct overall evaluations and monitoring of asset managers, taking account of their track records, investment policies, investment systems, and investment processes, among others.

-We select the Funds' employees who are qualified in terms of skills in investments and administration (e.g. Heads of Market, Personnel, and Planning departments; union representatives) as the members of the Bodies at the Funds. Moreover, we assign employees with expertise in investments (e.g. those with experience in market departments) to the position of business managers at the Funds.

In December 2019, the Funds announced that they would adopt the "Principles for Responsible Institutional Investors <>" (hereafter the "SS Code"). In the role of "Institutional investors as asset owners," the Funds will urge asset managers to follow the principles of the SS Code, thereby helping increase the corporate value of investee companies and boosting medium- and long-term return on investment.

[Principle 3-1 (i)] The Group Management Philosophy and Medium-term Management Plan

We have established and published the Group Management Philosophy. The details of the Philosophy are stated in "I. 1. Basic Stance" in this document. The Group Medium-term Management Plan is also published on our website. (URL：https://kyushu-fg.co.jp/company/plan/)

[Principle 3-1 (ii)] Basic Stance on Corporate Governance and Basic Policy

Details are stated in "I. 1. Basic Stance" in this document. Please also refer to Article 3 (Basic Stance of the Group on Corporate

Governance) of the Corporate Governance Guidelines published on our website. (URL：https://kyushu-fg.co.jp/company/governance/)

[Principle 3-1 (iii)] Policy and Procedure for Determining Directors' Remuneration

Please see Article 13 (Compensation to Directors) of the Corporate Governance Guidelines published on our website. (URL：https://kyushu-fg.co.jp/company/governance/)

We also have the Nominating and Remuneration Committee as the advisory body for the Board of Directors concerning the nomination of and compensation to the Management. We follow the processes specified below when we make decisions regarding compensation and other benefits to the Management.

-The total compensation to Directors who are not Audit and Supervisory Committee Members and Executive Officers for each fiscal year is submitted to the Nominating and Remuneration Committee for deliberation and determined by the Board of Directors.

-The individual amount of compensation to Directors who are not Audit and Supervisory Committee Members and Executive Officers is submitted to the Nominating and Remuneration Committee for deliberation and determined by the President within the bounds of the total compensation for the fiscal year determined by the Board of Directors.

-Compensation and other benefits to Audit and Supervisory Committee Members shall be treated separately from those to Directors who are not Audit and Supervisory Committee Members, and determined through discussions among Audit and Supervisory Committee Members within the amount resolved on at the General Shareholders Meeting.

[Principle 3-1 (iv)] Policy and Procedure for Appointment, Dismissal, or Nomination of Directors

Please see Articles 9 (Appointment of Directors [Excluding Those Who Are Audit and Supervisory Committee Members]) and 12 (Appointment of Directors Who are Audit and Supervisory Committee Members) of the Corporate Governance Guidelines published on our website.

(URL：https://kyushu-fg.co.jp/company/governance/)

We have established the Nominating and Remuneration Committee in order to ensure transparency and fairness in the decision- making process pertaining to the nomination of and compensation to the Management, and continuously discuss our policy and procedure for dismissal of Directors, etc.

[Principle 3-1 (v)] Explanation about the Appointment, Dismissal, or Nomination of each Candidate for the Post of Director in nominating them

The reasons for the appointment of individual candidates for the posts of Directors at Kyushu Financial are disclosed in the attachment to the Convocation Notice of the General Shareholders Meeting. Copies of the Convocation Notice of the General Shareholders Meeting are mailed to all shareholders. The Notice is also published on our website.

(URL：https://kyushu-fg.co.jp/ir/stock/shareholders/)

We will also ensure accountability should we dismiss a Director.

[Supplementary Principle 4-1 (i)] Summary of the Scope of Delegation to the Management

Please see Article 8 (Roles of Directors and the Board of Directors), Paragraph 2 of the Corporate Governance Guidelines published on our website.

(URL：https://kyushu-fg.co.jp/company/governance/)

[Principle 4-9] Criteria for independence of an Independent External Director and his/her qualifications

Please see the Attachment (Criteria for Independence of an External Officer) to the Corporate Governance Guidelines published on our website.

(URL：https://kyushu-fg.co.jp/company/governance/)

[Supplementary Principle 4-11 (i)] About the Balance between Knowledge, Experience, and Skills Required of the Board of Directors

Please see Article 7 (Composition of the Board of Directors) and Article 9 (Appointment of Directors [Excluding Those Who Are Audit and Supervisory Committee Members]), Paragraphs 2 and 4 of the Corporate Governance Guidelines published on our website.

(URL：https://kyushu-fg.co.jp/company/governance/)

[Supplementary Principle 4-11 (ii)] Directors Serving as Officers at Other Listed Companies

Our Directors who also serve as officers at other listed companies are disclosed on Page 50 in the Convocation Notice of the General Shareholders Meeting. Copies of the Convocation Notice of the General Shareholders Meeting are mailed to all shareholders. The Notice is also published on our website.

(URL：https://kyushu-fg.co.jp/ir/stock/shareholders/)

[Supplementary Principle 4-11 (iii)] Summary of Analysis and Evaluation of the Overall Effectiveness of the Board of Directors We analyze and evaluate the overall effectiveness of the Board of Directors annually, referring to our Directors' self- assessments. The Board of Directors Meeting held in May 2021 conducted the analysis and evaluation for fiscal 2020 based on self-evaluations of all Directors and Corporate Auditors that encompassed how the Board of Directors is composed and how it operates. The meeting concluded that the overall effectiveness of the Board of Directors is ensured, and agreed that the following are the challenges that should be met to facilitate even more active discussions at Board meetings.

-Review of size and composition for improvement of governance

-Deepening discussions about medium- and long-term themes in order to continuously increase corporate value

-Promoting multifaceted and diversified discussions at the Nominating and Remuneration Committee

[Supplementary Principle 4-14 (ii)] Policy on Training for Directors

Please see Article 14 (Assistance System and Training Policy for Directors), Paragraph 1 of the Corporate Governance Guidelines published on our website.

(URL：https://kyushu-fg.co.jp/company/governance/)

[Principle 5-1] Policy on Constructive Dialogue with Shareholders

Please see Article 21 (Dialogue with Shareholders) of the Corporate Governance Guidelines published on our website. (URL：https://kyushu-fg.co.jp/company/governance/)

2. Capital structure
		Stock ownership by foreign investors			10% to less than 20%
[Status of large shareholders]	Updated
				Name			Number of Shares			Proportion
						Held			(%)
	The Master Trust Bank of Japan, Ltd. (trust account)	27,680,000		6.29
	Iwasaki Ikuei Bunka Zaidan		20,936,070		4.75
	Meiji Yasuda Life Insurance Company		18,568,563		4.22
	Custody Bank of Japan, Ltd. (trust account)		14,646,900		3.32
	The Bank of Fukuoka, Ltd.		12,620,730		2.86
	Takara Kogyo Co., Ltd.		9,088,000		2.06
	Employees' Stock Ownership Association of The Kagoshima Bank, Ltd.	8,059,895		1.83
	Iwasaki Sangyo Co., Ltd.		7,616,887		1.73
	Nippon Life Insurance Company		7,361,812		1.67
	The Dai-ichi Life Insurance Company, Limited	7,209,960		1.63
		Controlling shareholders (excluding the			―――
		parent company)
		Parent company			N/A

Note

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3. Business attributes

Stocks listed on

Fiscal year-end

Industry

(Consolidated) Number of employees atthe end of the previous fiscal year

(Consolidated) Net sales for the previous fiscal year

Number of consolidated subsidiaries atthe end of the previous fiscal year

First Section of the Tokyo Stock Exchange; Main Board of the Fukuoka Stock Exchange

March

Banking

1,000 or more

100 billion to less than 1 trillion

10 to less than 50

4. Policy on the protection of minority shareholders when a transaction, etc. is conducted with the controlling shareholder

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5. Other special circumstances that may have a material impact on corporate governance

There are no other special circumstances that may have a material impact on our corporate governance.