Main Questions and Answers
Part 1: A small meeting with the CEO
Q1

Efforts to boost ROE and future topics

A1

We need to continue to expand risk assets to achieve our target ROE of 6%. For thisreason, we will aim to raise the top line while strategically building up traditional loan assets,such as corporate lending and home loans, as well as venture debt and other assets withrelatively high yields.
Strategies vary by asset class. For example, while we’ve steadily built up balances ofmarket credit investment to date, we’re also considering securing revenues through partial
resale as a future option.
For real estate finance, in addition to lending, we’ve built up assets via REITs and private
investment funds. Henceforth, we also plan to tackle the asset management business via
SFG Real Estate Investment Advisors, a newly established company.
If we can achieve the asset allocation targets of the First Medium-term Business Plan, wemay well be able to achieve net income of 80 billion yen, the level required to increase
ROE to 8% even without taking rising interest rate factors into consideration. Ultimately,with the addition of rising interest rate factors, we expect to achieve ROE exceeding 8%.
An emerging issue in securities investment involves rebuilding portfolios after writing off
assets during 2016-2017 in which we recorded losses on foreign bonds. Under the First
Medium-term Business Plan, we’re working with a policy of further expanding the current
balance of roughly 3 trillion yen in securities. We will continue to build the balance sheet
while appropriately identifying market trends.

Q2

Reasons for efforts in areas such as low-ROA corporate lending

A2

While ROA is low on corporate lending and home loans, these are low-risk assets withwhich we can secure adequate RORA. We expect them to grow even more profitable asinterest rates rise.
To prepare for the future, we review the profitability of assets as a whole by shifting lending
toward more profitable assets and by continually replacing securities to improve yields inthe portfolio building process.
However, the difficulty of raising interest rates on highly competitive home loans is asimple fact.
One option in asset replacement is securitization. We need to seek out optimal solutions
while maintaining a balanced portfolio as a whole—for example, by comparing theprofitability of continuing to hold home-loan assets versus replacing them with other assets
while securing revenues through securitization.

Main Questions and Answers
Q3

A3

Approach to capital controls and capital utilization (M&A, regional bankreorganization) toward 8% ROE
We’re currently conducting deliberations on matters including returns to shareholders,with regard to appropriate capital adequacy levels, on which we will provide additional
explanations, together with results of considerations, in our future IR activities.
With respect to M&As as an option for putting capital to use, there’s room to consider
options such as M&As by Group companies like Shizugin TM Securities and Shizugin
Lease, in addition to the Bank. We would also like to take a forward-looking approach toconsidering investments in highly profitable nonfinancial fields.
As explained previously, in considering regional bank reorganizations, we believe it’s
crucial to carry out investments acceptable to all stakeholders. This outlook remains
unchanged. We need to consider various options while accounting for the changing
environment, including rising interest rates and the growing importance of deposits.

Q4

Appropriate capital adequacy ratio levels

A4

The current capital adequacy ratio remains at the 13% level after accounting for theeffects of the full-scale application of the final Basel III standards. This is about three
percentage points above the regulatory 10.5% for banks operating under uniform
international standards.
The outlook on appropriate capital adequacy differs between managers and investors.
From a management perspective, we believe we need to set aside a certain amount of
buffer capital to continue to provide stable financial intermediary services to customers
in the region. This reflects consideration for past risk events such as the 2008 global
financial crisis and the Great East Japan Earthquake in 2011 and for earthquake andother risks specific to Shizuoka Prefecture.
At the same time, from their viewpoint, investors prefer to see capital efficiently
prioritized as much as possible. We’re proceeding with internal discussions intended toreconcile these two perspectives. We would like to explain this point during briefings oncapital policies in the third quarter and later.

Q5

Use of external capital (insurance) to address earthquake risks

A5

In anticipation of potential damage due to a massive earthquake, we’re calculatingnecessary capital amounts for earthquake risks, divided into direct damage to buildings,
facilities, people, etc. and indirect damage centered on rising credit risk.
Since our estimates show that indirect damage accounts for most of the funds required
to prepare for earthquake risks, the share of direct damage, which is covered by non-life
insurance, is relatively small. We expect the extent controllable using insurance istherefore limited.

Main Questions and Answers
Q6

Outlook on risk diversification through alliances with other regional banks

A6

In the past, nine regional banks from the Kyushu to Tohoku region formed an alliancefor mutual referral of cooperative projects in lending outside their territories and the like,seeking to grow their loan assets and diversify risks. However, since each bank held its
own view on individual projects, we felt that it would be ultimately better for each bank topursue its internal efforts respectively.
Currently, we have joint projects as the arranger in alliances with Yamanashi Chuo Bankand the Bank of Nagoya. We believe these alliances are proceeding well in terms of risk
diversification and for other reasons.
In internal risk management, we are also taking steps to diversify risks through means
including investment in industrial and corporate bonds instead of solely loans.

Q7

A7

Background to establishing SFG Real Estate Investment Advisors and revenue
projectionsSince Shizuoka Bank’s 10th Medium-term Business Plan, we’ve expanded our realestate finance initiatives ranging from real estate nonrecourse loans to mezzanine loans,equity investments, and others.
We’ve expanded equity investments in particular as a business area in which we candraw on our equity capital to secure relatively high earnings, which would be difficult forother companies.
Given this background, we’ve established this real estate investment advisory firm as
the next stage. In the future, we will engage in asset management business at more
upstream levels by leveraging the resources such as real estate networks andspecialized skills we’ve built up to date, rather than simply building up assets.
In the process of seeking out ways to involve the Group in real estate development
projects in the community given the restrictions imposed on the real estate brokeragebusiness under the Banking Act, a staff member who worked in real estate finance foryears proposed launching a new company. This was the impetus for establishing SFG
Real Estate Investment Advisors.
Its business plans call for achieving 50 billion yen in asset size and approximately 500
million yen in revenue in three years and growing the business to generate revenue ofabout 1.0 billion yen in five to six years. However, given the state of development projects
currently under consideration and other conditions, we expect it to show considerable
business growth at a somewhat earlier stage.

Main Questions and Answers
Q8

Market credit investment policies and origination ratio

A8

Our market credit investment assets are nearly at 1 trillion yen, if investments and othertransactions are included. Loans alone make up about 800 billion yen of this total. Ourorigination ratio is about 20%.
While we’re involved in the origination of nearly all real estate nonrecourse loans, theother assets are mainly referred from external sources.
Underlying our efforts in this field is the need to maintain smooth financial intermediaryfunctions, branches, personnel, and other resources in the region to fulfill our roles as aregional financial institution amid changing business conditions. We consider this a fieldin which we can secure revenues for this purpose, and handle transactions such as
market credit investment and asset-building loans in the greater Tokyo area.
While in market credit investment we can increase balances by lowering interest rates,
simply growing balances is not our goal. We’re working to secure risk-appropriate
revenues with an awareness of ROA and RORA.

Q9

Outlook on the competitive environment and risks/returns in the market credit
investment fieldA9

In market credit investment, it’s possible to secure more transactions by lowering
acceptable interest rate levels. But we’re targeting something more than just increasing
the balance haphazardly.
In the phase of rising interest rates in the near future, we will manage market credit
investment by maintaining a certain level of balances and considering generating
revenues from sale of past assets, while replacing transactions with more profitable ones
based on appropriate risk taking.
While we have no clear target balance figures right now, we feel that balances are
growing steadily, as there have been no major risk events through now.
In consideration of burdens like monitoring costs due to higher balances, we want togrow this field over time, concerning matters including staffing and other structuralimprovements.
We recognize that recently there have been numerous low-profit transactions in themarket, like LBO loans and ship finance, but we’re not considering hastily taking up suchtransactions.
We consider this a field that individual banks should approach while maintaining theirown policies and interest rate perspectives as they become more active in the field.

Q10

A10

Describe your targets for not just the final year of the Medium-term Business Plan
but the midpoint two or three years from now as well.
With the First Medium-term Business Plan, we introduced sustainability KPIs andextended the plan’s period from three to five years.
Underlying this is the concept of presenting goals at hand by backcasting from our
medium- to long-term vision and revising plans flexibly in response to changing
environmental conditions to achieve the targets set for the final fiscal year.
For this reason, since presenting the plan as a detailed time series would depart from ourpolicies and outlook regarding the Medium-term Business Plan, we want to adjust thecontent of descriptions in future disclosures and dialogue.

Main Questions and Answers
Part 2: Initiatives to implement sustainability management (efforts to maximize
environmental and human capital)
Q1

A1

Q2

A2

Q3

A3

Q4

A4

Advantages of the customer support options in the Shizuoka Financial Group,
revenue opportunities from the deployment of Shizuoka GX Support
The Group is the only company in Shizuoka Prefecture capable of providing a diverse
range of decarbonization support services on a groupwide basis.
We believe our promotion structure leveraging this advantage is highly effective indeveloping wide-area activities from local initiatives, in cooperation with local governments.
We have begun by offering Shizuoka GX Support first to companies with which we havecredit transactions. More than 300 customers began using it within the first month after its
release.
In the city of Hamamatsu, other financial institutions also provide Shizuoka GX Support totheir customers and share the data collected. We expect business opportunities to expand
as we provide support options other financial institutions do not offer.
Impacts on revenues and the credit portfolio of Scope 3 emissions reduction
policies and analysis results
At the current stage, we have finally completed calculations for Scope 3 emissions.
Initiatives based on the reduction policies and the results of analysis will be taken in thenext step.
We recognize this as an issue and will start considering specific measures.
Measuring the effects of human capital investments
For human capital investments, it’s essential to check how such investment leads
ultimately to profits. We expect these results to appear first in long-term trends over three
to five years.
Rather than evaluating human capital investments by amounts of money for numbersof training sessions or costs, we need to examine how such investments are connected
to strategies and to resulting profits on a timeline.
As we move forward on building the HR portfolio, we believe increases in humanresources such as those ranked highly in in-house certification programs and the valuecreating HR called for in the First Medium-term Business Plan can be used as yardsticks
to measure the effects of human capital investments.
Outlook on hiring costs for building the HR portfolioIn expanding the ranks of strategic human resources such as value-creating and digital
HR, we see a need to promptly verify the validity of the salary structure.
Previously, the salary structure had been unilinear. Currently, we have adopted apartially multilinear structure. We are also considering applying pay tables to enablespecialized human resources to earn remuneration corresponding to actual results.
Salary levels are rising for specialized human resources, centered on digital domains.
We sense the need for a timely review of their remuneration in the Company as well.
A look at results of midcareer hiring shows 57 hires in the last fiscal year. We are on
track to exceed that number this year, with 32 already hired as of the midpoint in the year.
However, we believe building the HR portfolio envisioned for the final year of theMedium-term Business Plan would require us to proceed with hiring about 100 midcareerhires per year. We plan to expand midcareer hiring while considering various means suchas referral hiring and use of alumni networks.

Main Questions and Answers
Q5

Negative effects of revision of the HR evaluation system (decrease in quantitativeevaluation ratio)

A5

In fact, despite concerns that the adoption of the new evaluation system would increase
the number of branches unable to achieve performance targets, most employees see thenew evaluation system in a positive light.
This is a positive approach connected to customer-oriented business operations. We
see no negative consequences at present.

Q6

Efforts to permeate a reform mindset among employees

A6

Following the introduction of sustainability KPIs in the First Medium-term Business Plan,
we’re making various efforts to enable executives and employees to understand ourstrategies and perform their duties with a true sense of growth. These include use ofimpact road maps that connect everyday duties to social impact and My Sustainability
Books in which employees keep notes that reflect their understanding of the Mediumterm Business Plan and connect them to personal growth.
Recently, we have continually held townhall meetings for dialogue betweenmanagement and employees. However, in certain aspects, it would appear that themanagement message is not being fully communicated to employees. We recognize
numerous other remaining issues as well, including the need to overcome barriers
between the Bank and other Group companies.
Efforts to permeate this mindset among employees, apart from opportunities for directcommunication by management, include one-on-one meetings in the workplace. We see
it as especially important for workplace superiors to make time for subordinates andprovide support for career development and job duties.

Q7

Outlook on management diversity and succession plans

A7

We believe diversity refers to human resources who have diverse experiences, not justgender diversity. We consider diversity essential to generating innovation.
Recently through midcareer hiring, in addition to younger employees, human resources
with varied experiences, including midcareer hires in their fifties who have built theircareers with other firms, have come to play active roles in specialized areas.
While these human resources are unlikely to play management roles immediately, wewill continue to develop them as they learn the corporate culture.
Until now, those who have served as presidents and directors of Group companies havebeen typically Shizuoka Bank veterans. From this point forward, we expect to see theappointment of human resources who have established track records in other industries,
through midcareer hiring.
Since numerous representatives of Group companies were reaching retirement age
during the two-year period before and after last year’s transition to a holding-company
structure, we have sought to invigorate the organization by appointing human resourcesfrom the level of head office line heads and branch general managers as presidents.
Some companies at which presidents were promoted from younger human resourceshave shown positive effects such as improved engagement survey scores and businessresults. We plan to continue efforts to make the Group a place where our humanresources with diverse work backgrounds can work with peace of mind, regardless ofage or gender.

Main Questions and Answers
Q8

Difficulty of achieving the KPI of percentage of leadership positions filled by women
(40%)

A8

While the general target for women as a percentage of officers is 30%, since about 40%of Company employees are women, we set this goal because we see it as necessary tomatch this percentage among officers.
Targeting a KPI of 40% in the subsidiary Shizuoka Bank alone may be impractical.
Practically speaking, we wish to achieve this KPI through Groupwide efforts, rather thanat the Bank alone.
The percentage of new hires who are women has grown to about 50%. An importantcurrent topic is increasing the number of female employees more willing to tackle
challenges than at present, while developing all female human resources as a whole.

Q9A governance structure to achieve effective sustainability management

A9

As we make sustainability central to our management, based on the recognized needto consider all projects from a sustainability perspective, we have renamed the executiveorganization responsible for management from the Management Execution Committee
to the Sustainability Committee.
This also facilitates reforms in the executive organization. For example, when launchinga new service, we incorporate sustainability perspectives in deliberations at meetings,
considering whether the service system is sustainable for not just the Group, but thecommunity as well.
We have established specialized committees in each of the areas of the environmentand human capital: we established the Environmental Working Group under theEnvironmental Committee and three working groups—on HR development, DEI, andwellbeing—under the Human Capital Management Committee. Under this structure,details of deliberations in each of these bodies are ultimately reported to the Board ofDirectors.