Outside Directors Roundtable Discussion

We will support the enhancement of corporate value from a higher vantage point and contribute to the development of regional economies to realize our long-term vision.

A financial institution rooted in the leading Yokohama region

Three years have passed since the creation of a management structure led by President Kataoka. Last year, in the final year of the previous mediumterm management plan, the announcement of the change of trade name was also a big topic. What is your assessment of the management structure and opinion on the change of trade name?

Akiyoshi: Looking back on the past year, I appreciate that the positive attitude of each executive officer in the Board of Directors and Management Committee has increased year by year. I was impressed by President Kataoka himself taking the lead to raise awareness of the new medium-term management plan and enthusiastically communicating with employees about its intentions and content. I feel that the proactive attitude toward discussion and communication has become stronger with each passing year, and I believe that employees' understanding of management has also deepened. As for the trade name change, we took it very seriously when it was discussed by the Board of Directors in FY2024 after full preparation. The name Concordia is not widely recognized by the public, and I agree with the use of the brand-name “Yokohama” to clearly show we want to focus on the region. I think it will be easy for customers to understand, and I expect it will spread quickly.
Yoda: The Board of Directors has often discussed what the composition of shareholders should be. As a regional financial institution, we have long wanted to increase the number of individual shareholders. I believe that this change in trade name will allow us to more clearly demonstrate that we are a financial institution with roots in the leading Yokohama region. I also admire the active two-way communication between executives and employees. Especially in the previous mediumterm management plan, it was a great achievement that we were able to logically explain to stakeholders inside and outside the company the guidelines and specific actions for the enhancement of corporate value using the logic tree.

Succession plan and compensation reform supporting the Group's management

Please tell us about the discussions of the Compensation and Personnel Committee, including the management executives succession plan (successor training plan).

Akiyoshi: Since 2017, the Company had maintained the same compensation system and standards for directors and executive officers but last year the system was revised. There were three main aims for revising it. The first is that as megabanks and major regional banks are reviewing their systems and standards, our standards have fallen behind, so we should set them at a level that is comparable to those of top regional banks. The second is to further increase incentives for performance, and the third is to make the evaluation method simpler and easier to understand. Regarding the succession plan for FY2024, we interviewed 24 eligible employees to discuss evaluation criteria and training policies. In preparation for FY2025, we will continue to discuss the selection of candidates and training methods. We also work closely with President Kataoka and the presidents of the subsidiary banks to continue discussions on policies regarding the composition of officers.
Yoda: As outside directors, we have actively expressed our views on the need to review the compensation system to a level comparable to that of the industry. It is also a companywide important mission to link the Company's performance with the performance of individuals and to increase the number of human resources who feel involved in the Company. As part of this effort, the Bank of Yokohama, one of the Group's major subsidiaries, introduced a compensation system based on its own stocks for executive employees who meet certain requirements. I would like to continue discussions on how to create a system that encourages employees to feel involved.

Mr. Ishii, you have been involved in the management of the Bank of Yokohama as an outside director and now you will participate in the management of the Yokohama Financial Group as an outside director. How do you intend to be involved in management?

Ishii: The Bank of Yokohama and the Yokohama Financial Group operate an integrated Board of Directors, and I have seen the Group's management up close. As an outside director, I would like to support the Group so that it can take appropriate risks as it moves toward the enhancement of corporate value. Fortunately, I have experience in management in the three fields of banking, securities and insurance, and I would like to contribute to the growth of the Company as we expand our functions.
Looking closely at the Group's management, I feel that the corporate culture is gradually changing throughout the Group. Dialogue is expanding through the logic tree, and employees are becoming more aware of the enhancement of corporate value. As a result, the membership rate of employee stock ownership plan has increased.

Towards the realization of our “ideal state 10 years from now” that reflects employeesʼ opinions

The period of the previous medium-term management plan was positioned as “three years to accelerate reforms and realize results.” Looking back, what is your assessment of this?

Akiyoshi: The deepening and expansion of the solution business has led to an increase in earnings, and we are making steady investments in human capital, including the development of human resources who will be responsible for the solution business. The results of this are reflected in our business performance. As symbolized by THE KANAGAWA BANK and L&F Asset Finance, we also made steady progress in utilizing capital for growth. On the other hand, we recognize that securing sales personnel by shifting employees in charge of head office and administration to sales is still a work in progress. Developing human resources and strengthening profitability are two sides of the same coin. In a world with interest rates, the question is how to expand quality assets. We believe that securing high-quality human resources who can work with customers will lead to the expansion of highquality assets and earnings.
Yoda: I feel the same way. We clearly articulated our vision of being a “solution company,” “rooted in the community,” and “selected,” by customers, and we share a common direction. As a result, we were able to steer a firm course toward the realization of our vision. Developing and securing human resources requires a long-term perspective, and while we are making steady progress in reviewing our personnel system, we recognize that this is an ongoing issue.

The new medium-term management plan was considered through back casting and is positioned as “Three years to make a leap into the future.” What kind of discussions were held by the Board of Directors?

Akiyoshi: If you only consider the period of 3 years, what you can do will be limited. First, we drew up “our ideal state 10 years from now” as a comprehensive financial group that can contribute to the local community. We then discussed the plan for the first three years to realize our ideal state in stages, and we were able to incorporate steady growth strategies into the new medium-term management plan. We are satisfied with the results.
Yoda: As part of the process of considering the new mediumterm management plan, we once again conducted a survey of employees and nearly 90% of them responded. It was an opportunity for both the management and employees to be reminded of their own strengths, and I learned again that employees at sales sites place great importance on relationships with customers. I was also impressed by the positive attitude of many employees when asked about taking certain risks to grow.
Akiyoshi: The responses to the survey show that many of our employees recognize that we have a lot of transactions with high-quality customers. This is another indication of the strength of the market that we are based in and our superiority in terms of our operating base. However, as we are in a highly competitive area, the share of loans and deposits is not necessarily high compared to other regional banks. Conversely, there is still room for further growth, and I believe that management needs to consider and implement concrete measures for future growth.

The future of regional finance built on relationship banking and human resource development

In the new medium-term management plan, the term “relationship banking” is emphasized. What kind of discussions did you have about strengthening relationships?

Akiyoshi: In to expand high-quality assets, we need to understand what kind of management issues small & medium sized businesses, our largest customers, face and how they want to grow. The premise of understanding is dialogue, and relationships are an essential element. In addition, we will not be able to satisfy our customers unless we make highquality proposals. We restated that we need to strengthen our relationship banking in order to deepen and expand the solution business.

Yoda: We expect our employees to be trusted by our customers and to have the necessary expertise to give advice. To this end, it is essential to develop human resources capable of providing accurate advice and consultation services.

Ishii: Solutions and relations are two sides of the same coin. The ideal is to build a win-win relationship in which the customer's corporate value increases as a result of us accompanying the customer, which leads to our development and the growth of our employees.

What strengthening measures are you taking to acquire and develop the necessary human resources?

Yoda: Staff shortages are a common problem in Japan, regardless of the industry. The competition for specialized talent in particular tends to be fierce, and it is important for us to become a company that people want to continue working in even after they have acquired expertise. In addition, the proportion of young employees is increasing at sales sites such as sales branches, and it is necessary to devise training methods. Managers are also busy, so it is necessary to create a company-wide system that allows them to find time. In order to have high-quality dialogue with customers, we should further improve the efficiency of our business operations.

Ishii: More than ever, we should be aware that personnel expenses are not a cost but an “investment.” Compensation is important, but job satisfaction is just as important. We would like to clarify the skills required for work and support the creation of an environment that employees are highly motivated to work in, including reskilling. In order to achieve these goals, we need to utilize the diverse skills of each employee. There is no need for everyone to be able to do everything. Visualizing the “skills required for the desired position” and “career roadmap” can make it easier for employees to set their own goals. In the future, I hope that we will be able to visualize the skills and aspirations of all employees, not just officers, and use that knowledge to build an optimal team. In order to respond to diversifying ways of working and career formation, it is important to clearly identify the target image and the path to follow. If you can't see it, you can't aim for it.

Akiyoshi: I think it's just as you two said. When I listen to the voices of employees, I can feel that everyone from young employees to managers is quite busy. When everyone is very busy, it makes it difficult to talk to each other. In such a situation, psychological safety is easily damaged, and if their manager is exhausted, young people will not want to become managers either. I feel that it is necessary to focus on the development of younger employees as well as the development of managers. For subordinates, their managers should be one of the role models they aspire to. I believe that if we can create such a structure, we can aim for a higher level as an organization.

Yoda: An organization that does not embrace and manage diversity cannot win the race for talent. We have been running the “Tsubaki” Project for about three years to promote the activities of women. Since the content of the project is meaningful, some people have recently expressed the opinion that it would be better to allow male employees to participate. In fact, to build a truly diverse organization, it is essential that all employees, regardless of gender, think and act independently about their own careers and ways of working. I believe there are two sides to leadership. One is leadership in leading the group, and the other is leadership in how you lead your professional life. After all, I feel that individuals are required more than ever to be independent professionals, and the importance of self-management is increasing.

Akiyoshi: I think there are many employees who want to develop the community since they are working at a regional financial institution. Clearly demonstrating to employees and those who are considering joining the company that we are an organization that can realize such ideas will lead to higher motivation for workers. It is important to be aware of what needs to be done in order to achieve this, and to steadily implement it. I believe that this will consequently be a force to attract excellent human resources.

Nurturing the future of the comprehensive financial group through new growth strategies and sophistication of governance

L&F Asset Finance was brought into the group by acquiring stocks in Sumitomo Mitsui Trust Loan & Finance as a strategic investment and implementing a name change. What kind of discussions did you have when exchanging opinions?

Akiyoshi: We repeatedly discussed why we needed this company and whether it was a service that the bank could not provide. We found that this business specializes in real estate loans and can accept loans that are difficult for ordinary financial institutions such as banks to handle. We believe we can expect synergies in areas that the bank lacks know-how and generate significant growth for the Group as a whole.

Yoda: I agree. Due to the specialization and uniqueness of its businesses, it is a unique risk asset in the Group's RORA by asset class, and it has expanded our business portfolio.

Ishii: We believe that it will also be a big plus for the business of each bank. The discussions provided an opportunity to confirm that it is in line with the solution business we are aiming to become, and I feel that this project will lead to a further deepening and expansion of the solution business. We assessed that it can be effectively used as a means to solve problems in local communities.

As part of the sophistication of governance, the Company transitioned to a company with an audit and supervisory committee. What kind of discussions did you have on this? Also, are there any issues that need to be addressed to further strengthen governance?

Akiyoshi: I believe that we have been able to build a sufficient governance system even with the conventional managementtype structure, but we also need to look ahead to adding functions other than banking as a comprehensive financial group. The transition to a company with an audit and supervisory committee is part of that preparation. This is not a sudden change to a monitoring-type structure, but it should be done in stages, and I think this was a good timing for the transition.

Yoda: The transition to a company with an audit and supervisory committee was not decided suddenly. The appropriate governance structure continues to be discussed annually by the Board of Directors. We recognize the need to strengthen our monitoring functions step by step.

Ishii: There was no problem with the previous system, but this transition is one option to evolve governance. I think it is appropriate to start with the transition to a company with an audit and supervisory committee as a way to take the next step while taking advantage of the benefits we have had so far.

Please give a final message to stakeholders.

Akiyoshi: Our greatest mission is to contribute to the development of regional economies while enhancing corporate value. At present, we are a financial group mainly composed of banks, but we would like to further improve the financial services and solution functions that we can provide for our customers and develop together with stakeholders as a comprehensive financial group.

Yoda: Our Vision of “a solution company rooted in communities and selected as a partner to walk together” is clear, and we would like to continue to make efforts toward that. The company will also change its name to Yokohama Financial Group in October. We want to be more approachable and contribute to the development of the region.

Ishii: It is our mission to enhance the strength of the region. The growth and self-actualization of each employee ultimately leads to the development and enrichment of the local community as a whole. We would like to create a virtuous cycle in which every stakeholder can benefit in cooperation with local residents.