COSMOS BANK, TAIWAN Financial Statements …...We have audited the accompanying balance sheets of...

COSMOS BANK, TAIWAN Financial Statements

June 30, 2011 and 2010

(With Auditors’ Report Thereon)

Independent Auditors’ Report

The Board of Directors and Stockholders Cosmos Bank, Taiwan: We have audited the accompanying balance sheets of Cosmos Bank, Taiwan as of June 30, 2011 and 2010, and the related statements of income, changes in stockholders’ equity, and cash flows for the six-month periods then ended. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the Regulations Governing the Auditing of Financial Statements of Financial Institutions by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those standards and regulations require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As stated in note 4(i) to the financial statements, the equity investments accounted for under the equity method amounting to $29,145 thousand and $27,635 thousand as of June 30, 2011 and 2010, respectively, and the related investment income of $9,188 thousand and $7,665 thousand, respectively, recognized for the six-month periods then ended, were based on the investee companies’ unaudited financial statements. As stated in note 4(l) to the financial statements, the Bank signed individual contracts with asset management companies between 2005 and 2006 to sell non-performing loans. Based on the Law Governing Mergers of Financial Institutions and Tai-Cai-Rong-(3)-Zi No. 0913000051 issued by the Ministry of Finance on March 8, 2002, the losses on these sales were amortized using the straight-line method over 5 years. However, it was not in accordance with generally accepted accounting principles in the Republic of China. The unamortized balance was recorded as deferred losses on the sale of non-performing loans. Had these losses not been deferred, the carrying value of the deferred losses as of June 30, 2011 and 2010, would have decreased by $1,435,195 thousand and $5,818,473 thousand, respectively, and retained earnings would have decreased by $1,191,212 thousand and $4,829,333 thousand, respectively. In addition, the loss after tax would have decreased by $1,643,998 thousand and $2,298,580 thousand for the six-month periods ended June 30, 2011 and 2010, respectively.

Note to Readers The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with the accounting principles and practices generally accepted in Taiwan, the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in Taiwan, the Republic of China. The auditors’ report and the accompanying financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, the English and Chinese language auditors’ report and financial statements, the Chinese version shall prevail.

In our opinion, except for the fact that financial statements of certain investees have not been audited as mentioned in the third paragraph, and the effects of the deferred loss on the sale of the non-performing loans mentioned in the fourth paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of Cosmos Bank, Taiwan as of June 30, 2011 and 2010, and the results of its operations and its cash flows for the six-month periods ended June 30, 2011 and 2010, in conformity with the Guidelines Governing the Preparation of Financial Reports by Public Banks, the related financial accounting standards of the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, and of the “Business Entity Accounting Act” and of the “Regulation on Business Entity Accounting Handling”, and accounting principles generally accepted in the Republic of China. KPMG

Mei, Yuan-Chen CPA:

Gau, Wey-Chuan Taipei, Taiwan, R.O.C. August 24, 2011

See accompanying notes to financial statements.

COSMOS BANK, TAIWAN

Balance Sheets

June 30, 2011 and 2010 (Expressed in thousands of New Taiwan dollars)

2011

2010

Percentage Increase

(Decrease) Assets Amount Amount %

Cash and cash equivalents (notes 4(a) and 5) $ 2,001,822 2,253,947 (11) Due from the Central Bank and call loans to banks (notes 4(b)

and 5) 15,503,547 38,212,560 (59) Financial assets at fair value through profit or loss, net (notes 4(c)

and 6) 719,918 630,977 14 Receivables, net (notes 4(d) and 5) 4,680,868 5,671,439 (17) Assets held for sale (note 4(e)) 64,113 - - Discounts and loans, net (notes 4(f) and 5) 67,581,180 62,694,974 8 Available-for-sale financial assets, net (notes 4(g) and 6) 5,641,412 954,809 491 Held-to-maturity financial assets, net (notes 4(h)) 22,300,000 - - Equity investments under the equity method, net (notes 4(i) and 5) 29,145 27,635 5 Other financial assets, net (notes 4(j) and 6) 863,538 1,052,716 (18) Fixed assets, net (note 4(k)) 6,110,028 6,279,570 (3) Intangible assets 121,817 110,161 11 Other assets, net (notes 4(l) and 5) 10,459,308 14,623,015 (28)

Total assets $ 136,076,696 132,511,803 3

2011

2010

Percentage Increase

(Decrease) Liabilities and Stockholders’ Equity Amount Amount %

Due to the Central Bank and other banks (note 4(m)) $ 4,447,175 9,396,715 (53) Financial liabilities at fair value through profit or loss (note 4(c)) 579 901 (36) Securities sold under repurchase agreements (note 4(n)) 2,223,076 30,000 7,310 Payables (note 4(o)) 1,585,190 1,381,261 15 Deposits and remittances (notes 4(p) and 5) 113,784,547 105,453,550 8 Bank debentures (note 4(q)) - 515,000 (100) Accrued pension liabilities (note 4(r)) 158,869 185,122 (14) Other financial liabilities (note 4(q)) 1,086,400 1,630,475 (33) Other liabilities 351,931 545,891 (36)

Total liabilities 123,637,767 119,138,915 4 Capital stock (note 4(u))

Common stock 16,234,639 16,234,639 - Total capital stock 16,234,639 16,234,639 -

Capital surplus Others (note 4(u)) 12,982,918 12,970,567 -

Total capital surplus 12,982,918 12,970,567 - Retained earnings

Special reserve (note 4(u)) 8,467 - - Accumulated deficit (note 4(u)) (16,789,386) (15,850,903) (6)

Total accumulated deficit (16,780,919) (15,850,903) (6) Others

Unrealized gains on financial instruments 2,291 18,585 (88) Total stockholders' equity 12,438,929 13,372,888 (7)

Commitments and contingencies (note 7) Total liabilities and stockholders’ equity $ 136,076,696 132,511,803 3


COSMOS BANK, TAIWAN

Income Statements

For the six-month periods ended June 30, 2011 and 2010 (Expressed in thousands of New Taiwan dollars, except earnings per share,

which are expressed in New Taiwan dollars)

2011

2010

Percentage Increase

(Decrease) Amount Amount % Interest revenue $ 2,570,371 2,786,064 (8) Less: interest expense (note 4(q)) (568,165) (552,701) (3) Net interest 2,002,206 2,233,363 (10) Net revenues (losses) other than interest

Service fee income, net (notes 4(s) and 5) 545,104 659,473 (17) Losses on financial assets and liabilities at fair value through profit

or loss (note 4(c)) (15,364) (6,083) (153) Realized gains on the sale of available-for-sale financial assets 23,876 3,858 519 Income from equity investments under the equity method (note 4(i)) 9,188 7,665 20 Foreign exchange (losses) gains, net (16,643) 28,355 (159) Gain on reversal of asset impairment loss

(notes 4(e)) - 3,506 (100) Other noninterest losses, net (notes 4(e) and (l)) (13,084) (22,210) 41 Loss on the sale of nonperforming loans (note 4(l)) (1,980,720) (2,769, 373) 28

Total net losses other than interest (1,447,643) (2,094,809) 31 Total net revenues 554,563 138,554 300 Provision for loan losses (note 4(f)) 1,131,940 (26,408) 4,386 Operating expenses (note 5 and 10(a))

Personnel (922,127) (893,414) (3) Depreciation and amortization (114,193) (178,333) 36 Others (766,007) (720,607) (6)

Total operating expenses (1,802,327) (1,792,354) (1) Net loss before income tax (115,824) (1,680,208) 93 Income tax benefit (expense) (note 4(t)) 6,774 (898,261) 101 Net loss $ (109,050) (2,578,469) 96

Before Tax

After Tax

Before Tax

After Tax

Loss per share (note 4(v)) $ (0.07) (0.07) (1.03) (1.59)


COSMOS BANK, TAIWAN

Statements of Changes in Stockholders’ Equity

For the six-month periods ended June 30, 2011 and 2010 (in thousands of New Taiwan dollars)

Retained earnings Unrealized valuation gains or Common Capital Special Accumulated losses on financial stock surplus reserve deficit instruments Total

Balance at January 1, 2010 $ 16,234,639 12,961,607 - (13,272,434) 30,497 15,954,309 Employee stock option - 8,960 - - - 8,960 Net loss for six-month period ended June 30, 2010 - - - (2,578,469) - (2,578,469) Unrealized valuation losses on financial instruments - - - - (11,912) (11,912) Balance at June 30, 2010 $ 16,234,639 12,970,567 - (15,850,903) 18,585 13,372,888 Balance at January 1, 2011 $ 16,234,639 12,970,393 - (16,680,336) 12,244 12,536,940 Reserve for securities trading losses transferred to special

reserve - - 8,467 - - 8,467 Employee stock option - 12,525 - - - 12,525 Net loss for six-month period ended June 30, 2011 - - - (109,050) - (109,050) Unrealized valuation losses on financial instruments - - - - (9,953) (9,953) Balance at June 30, 2011 $ 16,234,639 12,982,918 8,467 (16,789,386) 2,291 12,438,929


COSMOS BANK, TAIWAN

Statements of Cash Flows

For the six-month periods ended June 30, 2011 and 2010 (in thousands of New Taiwan dollars)

2011 2010 Cash flows from operating activities:

Net loss $ (109,050) (2,578,469) Adjustments to reconcile net loss to net cash provided by (used in) operating

activities: Depreciation expenses 64,893 93,833 Amortization expenses 50,620 85,748 Provision for loan losses and net recovery of loans 210,570 1,030,526 Stock-based compensation expenses 19,630 17,188 Amortization of discount on convertible bank debentures 49,312 77,575 Income from equity investments under the equity method (9,188) (7,665) Gain on sale and disposal of properties, net (28) (4) Gain on disposal of assets held for sale, net - (6,603) Gain on disposal of investment, net (23,871) (3,788) Gain on reversal of non-financial asset impairment - (3,506) Amortization of loss on the sale of nonperforming loans 1,980,720 2,769,373 Net changes in operating assets and liabilities:

Decrease (increase) in financial assets at fair value through profit or loss 84,273 (482,244) Increase in receivables (287,186) (139,654) (Increase) decrease in deferred income tax assets, net (5,475) 897,912 Decrease (increase) in other financial assets 40,116 (1,482) Increase in other assets (6,588) (26,106) Decrease in financial liabilities at fair value through profit or loss (1,696) (2,827) Decrease in payables (133,957) (914,282) (Decrease)increase in provision for pension cost (27,175) 2,946 Increase in other liabilities 64,844 268,250 Net cash provided by operating activities 1,960,764 1,076,721

Cash flows from investing activities: Acquisition of available-for-sale financial assets (15,107,294) - Proceeds from the sale of available-for-sale financial assets 10,415,413 35,820 Proceeds from the sale of debt instruments with no active market - 13,276 Held-to-maturity financial assets (22,300,000) - Proceeds from the sale of assets held for sale - 55,034 Acquisition of properties (11,495) (1,923) Proceeds from the sale of properties 28 9 Decrease in refundable deposits 14,494 63,625 Acquisition of intangible assets (18,891) (4,637) Decrease (increase) in due from the Central Bank and call loans to banks 18,356,086 (8,188,131) (Increase) decrease in discounts and loans (689,574) 7,488,270 Rebates from the sale of nonperforming loans 59,968 58,750 Cancellation of reacquisition of sold nonperforming loans - 887 Increase in other assets (47,837) (6,113)

Net cash used in investing activities (9,329,102) (485,133) Cash flows from financing activities:

Increase in securities sold under repurchase agreements 2,193,543 30,000 Decrease in other financial liabilities (328,356) (332,970) Increase (decrease) in due to the Central Bank and other banks 78,450 (2,692,441) Increase in deposits and remittances 5,335,611 2,199,944

Net cash provided by(used in) financing activities 7,279,248 (795,467) Net decrease in cash and cash equivalents (89,090) (203,879) Cash and cash equivalents at beginning of year 2,090,912 2,457,826 Cash and cash equivalents at end of half year $ 2,001,822 2,253,947 Supplementary cash flow information

Interest paid $ 478,337 436,631 Income tax paid $ 13,211 104

Supplemental disclosures of non-cash investing and financing activities: Fixed assets transferred to rental assets $ - 161,800 Other assets transferred to fixed assets $ - 16,799 Unrealized loss on valuation of available-for-sale financial instruments at fair

value $ 9,953 11,912 Reserve for securities trading losses transferred to special reserve $ 8,467 -

(Continued)

COSMOS BANK, TAIWAN

Notes to Financial Statements

June 30, 2011 and 2010 (Expressed in thousands of New Taiwan dollars unless otherwise specified)

1 Organization and Operations Cosmos Bank, Taiwan (the “Bank”) engages in banking activities permitted by the Banking Act of the Republic of China (Banking Act). The shares of the Bank have been traded on the Taiwan Stock Exchange (TSE) since June 29, 1998. As of June 30, 2011, the Bank had a main office, an offshore banking unit (OBU), and 48 domestic branches. As of June 30, 2011 and 2010, the Bank had 1,798 and 1,640 employees, respectively. The business of the Bank’s Trust Department includes planning, managing and operating trust business regulated under the Banking Act and Trust Business Regulations of the Republic of China (ROC). In accordance with the Financial Supervisory Commission (FSC) under Jin Guan Yin Guo No. 09900079190 on April 6, 2010, to strengthen the Banks operating capital, to improve the financial structure, and to increase the capital adequacy ratio, the Bank should make a plan to raise capital in cash. According to the resolution of the Board of Directors on May 7, 2010, and the resolution of stockholders’ meeting on June 18, 2010, the Bank will raise capital by a private placement of common shares, and issue a maximum of 1,000,000 thousand shares, with a face value of 10 dollars per share; and the total face value of the private placement should not exceed $10,000,000 thousand. In accordance with the “Directions for Public Companies Conducting Private Placements of Securities”, the private placement of common shares would be settled at 6 dollars per share temporarily. In pursuant to the laws and regulations, the abovementioned private placement of common shares plan should be completed within one year after the resolution of the shareholders’ meeting. However, due to the market condition at the raising capital timing, the Bank did not conduct the plan in time. On January 7, 2011, The FSC under Jin Guan Yin Guo No. 10020000000 requested the Bank to propose practical plans to strengthen the Bank’s capital structure, and according to the resolution of the Board of Directors on May 16, 2011, and the resolution of stockholders’ meeting on June 28, 2011, the Bank will raise the capital by a private placement of common shares, and issue a maximum of 200,000 thousand shares, with a face value of 10 dollars per share; and the total face value of the private placement should not exceed $2,000,000 thousand. The actual issued private placement shares and total face value would be decided by the actual issued price. There is one specific possible investor which is a related party of the Bank, and the issued price would be determined and calculated in accordance with the regulation of “Directions for Public Companies Conducting Private Placements of Securities”. So far as the opinion date, the issued date of private placement of common shares plan is not yet determined and therefore, the plan has not yet been completed.

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2 Summary of Significant Accounting Policies The financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, the English and Chinese language financial statements, the Chinese version shall prevail. The Bank’s financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Public Banks, the Business Entity Accounting Act, the Regulation on Business Entity Accounting Handling, and accounting principles generally accepted in the Republic of China. In preparing financial statements in conformity with these guidelines and principles, the Bank is required to make certain estimates and assumptions that could affect the amounts of allowance for possible losses, reserve for losses on guarantees, property depreciation, impairment loss on assets, valuation of financial instruments at fair value, pension, employee bonuses, directors’ and supervisors’ remuneration, share-based payments, allowance for income tax assets, income tax, and accrued litigation loss. Actual results could differ from these estimates. Since the operating cycle in the banking industry cannot be reasonably identified, accounts included in the Bank’s financial statements are not classified as current or noncurrent. Nevertheless, these accounts are properly categorized according to the nature of each account and sequenced by liquidity. Please refer to Note 4(w) for the maturity analysis of assets and liabilities. The Bank’s significant accounting policies are summarized as follows:

(a) Basis of Preparation

The accompanying financial statements include the accounts of the Head Office, the OBU, and all the branches. All interoffice transactions and balances have been eliminated.

(b) Cash and Cash Equivalents

The Bank considers cash on hand, due from banks, and checks for clearing to be cash and cash equivalents. For the evaluation method of the financial instruments, please refer to Note 4(v).

(c) Securities Purchased/Sold Under Resell/Repurchase Agreements

Securities purchased under resell agreements and securities sold under repurchase agreements are generally treated as collateralized financing transactions. Interest earned on resell agreements or interest incurred on repurchase agreements is recognized as interest income or interest expense over the life of each agreement.

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(d) Financial Assets at Fair Value Through Profit or Loss

The main purpose of the acquisition of financial instruments is to resale or to repurchase within a short period of time. Financial instruments used in derivative transactions that do not qualify for hedge accounting are classified as financial assets or liabilities held for trading. If the fair value of a derivative is a positive number, the derivative is carried as an asset, and if the fair value is a negative number, the derivative is carried as a liability. The Bank adopted trade date accounting for stocks and beneficiary certificates, and settlement-date accounting for the other financial instruments. Please refer to note 4(w).

(e) Available-for-sale Financial Assets Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the financial asset acquisition. When assets are subsequently measured at fair value, the changes in fair value are excluded from earnings and reported as a separate component of stockholders’ equity. The accumulated gains or losses are recognized as earnings when the financial asset is de-recognized from the balance sheet.

Cash dividends are recognized on the ex-dividend date, except for dividends distributed from the pre-acquisition profit, which are treated as a reduction of investment cost. Stock dividends are not recognized as investment income but are recorded as an increase in the number of shares. The total number of shares subsequent to the increase is used for recalculation of cost per share. The difference between the initial cost of a debt instrument and its maturity amount is amortized using the effective interest method, with the amortized interest recognized in profit or loss. If an available-for-sale financial asset is determined to be impaired, a loss is recognized. If the impairment loss on equity securities decreases, this loss is reversed to the extent of the decrease and recorded as an adjustment to stockholders’ equity; and for available-for-sale debt instruments, if the decrease can be objectively related to an event occurring after the impairment loss, it should be reversed through profit or loss. Please refer to note 4(w).

(f) Held-to-maturity Financial Assets Held-to-maturity financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the financial asset acquisition. The net profit and loss of the held-to-maturity investments for the period is reported in income statement when the financial assets are derecognized, impaired or amortized.

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If a held-to-maturity financial asset is determined to be impaired, the impairment loss is recognized and reported in income statement. If the impairment loss decreases, and the decrease can be objectively related to an event occurring after the impairment loss, it should be reversed through profit or loss. Loss reversal is credited to current income and should not be more than the carrying amount had the impairment not been recognized. Please refer to note 4(w).

(g) Financial Assets Carried at Cost

Equity instruments with no quoted market price and whose fair value cannot be reliably measured are stated at cost. If there is an objective evidence that financial assets carried at cost are impaired, the carrying amount of the assets is reduced, and impairment loss is recognized. However, the impairment losses may not be reversed subsequently. Please refer to note 4(w).

(h) Debt Instruments with No Active Market

The amortized cost and interest income of debt investments without an active market are determined by using the effective-interest-rate method. An impairment loss is recognized when there is an objective evidence that the investment is impaired. The impairment loss is reversed if an increase in the investment’s recoverable amount is due to an event which occurred after the impairment loss was recognized; however, the adjusted carrying amount of the investment may not exceed the carrying amount that would have been determined had no impairment loss been recognized for the investment in prior years. Please refer to note 4(w).

(i) Loans and Receivables

Loans and receivables are recognized initially at fair value. Subsequent to initial recognition, loans and receivables are carried at cost less provisions. Loans and receivables are regarded as overdue in the following circumstances: (i) Receivables of principal or interest may not be repaid in accordance with the contract. (ii) Receivables of principal or interest that are overdue for three months or six months.

(j) Allowance for Possible Losses and Reserve for Losses on Guarantees In accordance with the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrual Loans”, the Bank evaluates credit assets on and off the balance sheet, and evaluates the collectability of credit assets in consideration of the overdue periods and their collateral values. Under the abovementioned regulations, the Bank makes 100%, 50%, 10%, and 2% provisions for credit balances deemed uncollectible, highly uncollectible, substandard, and special mention, respectively, as minimum provisions for possible losses. Meanwhile, the Bank makes provisions for credit card receivables in accordance with the

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“Regulations Governing Institutions Engaging in Credit Card Business.” Based on a revised “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrual Loans” on November 18, 2010, the bank should make a 0.5% loan loss reserve for “Normal” credit assets from January 1, 2011. The third amendment of Statement of Financial Accounting Standard (SFAS) No. 34 has taken effect beginning January 1, 2011. The carrying value of loans and receivables within applicable scope as of December 31, 2010 should be measured at amortized cost in which SFAS No. 34 was initially applied. Under the definition of loans and receivables in SFAS No. 34, the objective evidence should be identified first to reveal impairment existing for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If no objective evidence of impairment exists for an individually assessed financial asset, then it should be further included in a set of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment are not required to be assessed collectively because an impairment is recognized or continued to be recognized.

If there is an objective evidence that an impairment loss on financial assets has been incurred, the amount of the loss is recognized and measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate; the amount of the loss should be recognized as bad debt expenses in profit or loss in the current period. The estimation of future cash flows includes the recoverable amount of collateral and related insurance when determining the amount of the loss. The aforesaid object evidences include:

(i) significant financial difficulty of the issuer or obligor; (ii) a breach of contract, such as a default or delinquency in interest or principal payments; (iii) the lender for economic or legal reasons relating to the borrower’s financial difficulty,

granting to the borrower a concession that the lender would not otherwise consider; (iv) The probability that the borrower will enter bankruptcy or other financial reorganization; (v) the disappearance of an active market for that financial asset because of the issuer’s financial

difficulties; (vi) adverse changes in the payment status of the borrowers; and (vii) changes in national or local economic conditions that correlate with defaults on the assets.

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In addition, the Bank may adopt a special reserve as a specified provision to enhance the asset quality. The Bank would write off overdue loans and credits after deducting the estimated recovery amount, and the write-offs are then approved by the Board of Directors.

(k) Overdue Loans

Under Ministry of Finance (MOF) guidelines, the Bank classifies loans and other credits (including accrued interest) overdue for at least six months as overdue loans. However, the following loans are excluded: (1) The borrowers paid by installment after negotiations; or (2) the borrowers negotiated with the Bank through the R.O.C. Unsecured Consumer Financing Debt Negotiation Mechanism and Consumer Debt Clearance regulations.

Overdue loans (except other credits) are classified as discounts and loans, and other overdue credits (such as guarantees, acceptances, and credit card charges) are classified as other financial assets.

(l) Assets Held for Sale

Assets held for sale are initially measured at the lower of the book value of the assets before they were classified as held for sale or the net fair value. An impairment loss is recognized when the net fair value is lower than the book value. The impairment loss is reversed if an increase in the investment recoverable amount is due to an event that occurred after the impairment loss was recognized, and the accumulated impairment loss is debited to net fair value; however, the adjusted carrying amount of the investment may not exceed the carrying amount that would have been determined had no impairment loss been recognized for the investment in prior years. Assets classified as held for sale cannot be depreciated, depleted, or amortized.

(m) Equity Investments under the Equity Method

Investments in which the Bank holds 20% or more of the investees’ voting shares or exercises significant influence over the investees’ operating and financial policy decisions are accounted for by the equity method. The difference between the investment cost and net equity of an investee is tested for impairment at each balance sheet date. If there is evidence indicating that an impairment loss has occurred, then the carrying amount of the investment is reduced to reflect its net realizable value. For long-term equity investment in which the Bank has significant influence and a non-controlling interest, the Bank would evaluate the asset impairment of the investment individually based on its carrying amount. For equity-method investments, stock dividends received are recognized only as increases in the number of shares held, and not as income. Cost of equity investments sold is determined by the weighted-average method.

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(n) Fixed Assets Fixed assets are carried at cost less accumulated depreciation. Major betterments, additions and renewals are capitalized, while repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over service lives initially estimated as follows (plus one year to represent estimated salvage value): (i) buildings: 20 to 60 years; (ii) machinery and equipment: 2 to 5 years; (iii) transportation and communications equipment: 2 to 15 years; (iv) miscellaneous equipment: 2 to 10 years. Properties that have reached their estimated useful lives but are still being used are depreciated over their newly estimated service lives. Upon sale or other disposal of properties, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is credited or charged to net noninterest income.

(o) Intangible Assets Computer software is initially measured at cost and amortized over 5 years.

(p) Leased Assets and Depreciation Fixed assets which were leased to others are stated as leased assets under other assets; rental revenues are recognized as net revenues other than interest in the income statements. Leased assets are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the service lives initially estimated and accounted for as a reduction of net revenues other than interest in the income statements.

(q) Foreclosed Collateral Foreclosed collateral taken over is booked at the acquisition cost stated by the court. Foreclosed collateral is recorded at the lower of cost or net realizable value on the balance sheet date. If collateral assumed is not disposed of within the statutory period, relevant regulations require that the Bank should either apply for an extension of the disposal period or increase its provision for possible losses.

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(r) Deferred Loss on the Sale of Nonperforming Loans In compliance with the Law Governing Mergers of Financial Institutions, loss on the sale of nonperforming loans is amortized using the straight-line method over five years.

(s) Asset Impairment The Bank evaluates impairment on the balance sheet date if an asset (equity investment under the equity method, fixed asset, asset held for sale, goodwill, foreclosed collateral, idle asset, or deferred charges classified under other assets - other) is impaired. If an asset is impaired, its recoverable amount is compared with its carrying amount. If the recoverable amount is lower than the carrying amount, the carrying amount of the asset should be reduced to its recoverable amount, and the reduction should be recognized as impairment loss. After recognizing impairment of assets, the calculation of depreciation or amortization expense should be based on the adjusted book value minus its residual value and amortized in a reasonable and systematic manner over the remaining estimated useful period. The accumulated impairment loss on an asset (except goodwill) recognized in prior years should be reversed if the recoverable amount increases. In addition, the asset carrying amount should be increased to its recoverable amount, but this increase should not exceed the carrying amount of the asset that would have been determined net of depreciation or amortization had no impairment loss been recognized for the asset in prior years.

(t) Bank Debentures For convertible bonds issued, the Bank first determines the carrying amount of the liability component by measuring the fair value of a similar liability (including any embedded non-equity derivatives) that does not have an associated equity component, then determines the carrying amount of the equity component, representing the equity conversion option, by deducting the fair value of the liability component from the fair value of the convertible bonds as a whole. The liability component (excluding the embedded non-equity derivatives) is measured at amortized cost using the effective interest method, while the embedded non-equity derivatives are measured at fair value. When the bank debentures are converted, the Bank wrote-off both the book value of liability and the equity components, and calculated the converted common shares by the conversion of bond’s face value which is divided by the conversion price. Pursuant to a newly released SFAS, transaction costs of bonds issued on or after January 1, 2006, are allocated in proportion to the liability and equity components of the bonds. Transaction costs allocated to the equity component are accounted for as a deduction from equity, net of any income tax benefit.

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(Continued)

(u) Pension Costs The Bank has two types of pension plans: defined benefit and defined contribution. Under the defined benefit pension plan, pension costs are recorded on the basis of actuarial calculations. Unrecognized net transition obligation is amortized over 15 years, and prior service cost and actuarial gains or losses are amortized over the employees’ remaining service years using the straight-line method. Under the defined contribution pension plan, the Bank recognizes its required monthly contributions to employees’ individual pension accounts as current expense during the employees’ service periods.

(v) Share-based Payments The value of compensatory stock options and stock appreciation rights is based on the expected number of shares and the fair value on the grant date, and expense is recognized over the vesting period using the straight-line method. At the same time, adjustment is made to capital surplus – employee stock option for share-based payment, while adjustment is made to liabilities for non-share-based payment. If the grant date is later than the date that an employee who was given the share-based payment awards started working, the fair value of the equity awards on the grant date is estimated, and is recorded as a personnel expense for the period from the start-working date to the grant date. After the grant date is confirmed, the amount recognized as an expense is adjusted to reflect the fair value of the equity awards on the grant date. The old equity instruments replaced by new equity instruments should be treated as the modification of the terms under share-based payments, which may have an effect on the expense that will be recorded. If the fair value of the new instruments is less than the fair value of the old instruments, the original fair value of the equity instruments granted should be treated as expense as if the modification never occurred. If the fair value of the new instruments is more than the fair value of the old instruments, the incremental amount is recognized over the remaining vesting period in a manner similar to the original amount.

(w) Employee Bonuses and Directors’ Remuneration Employee bonuses and directors’ remuneration are accrued in accordance with Interpretation 96 Ji-Mi No. 052 issued by the Accounting Research and Development Foundation in Taiwan and recorded under personnel costs. If the subsequent resolution by the shareholders’ meeting differs from the amount disclosed in the financial statements, it is recognized as a change in estimates and recorded under current-period profit/loss.

10

COSMOS BANK, TAIWAN


(Continued)

(x) Recognition of Interest Revenue and Service Fees Interest revenue on loans is recorded on an accrual basis. Under MOF regulations, no interest revenue is recognized on loans and other credits extended by the Bank that are classified as overdue loans. The interest revenue on those loans is recognized upon collection. The unpaid interest on rescheduled loans should be recorded as deferred revenue (included in other liabilities), and the paid interest is recognized as interest revenue. Service fees are recorded when a major part of the earnings process is completed and revenue is realized. The service fees which are caused by loans or receivables shall be recognized as the interest revenue when it meets a suggestion policy announced by the Bankers Association of the Republic of China. To be more specific, this policy is an individual loan which both corresponds to the nature of compensatory interest income and correlates over a materiality criteria. Overall, the service fees shall be adjusted from the original agreed interest rate to the effective interest rate. Provision for income tax is based on intra-period and inter-period tax allocation. The tax effects of deductible temporary differences, unused tax credits, operating loss carryforwards, and debit of stockholders’ equity adjustments are recognized as deferred income tax assets, and those of taxable temporary differences and credits to stockholders’ equity adjustments are recognized as deferred income tax liabilities. A valuation allowance is provided for deferred income tax assets that are not certain to be realized. Tax credits for personnel training and stock investments are recognized in the current period. Income taxes (10%) on undistributed earnings generated annually since 1998 are recorded as expenses in the year when the stockholders resolve to retain the earnings.

(z) Foreign-currency Transactions

The Bank records foreign-currency transactions in the respective currencies in which these are denominated. Every month-end, foreign currency income and expenses are translated into New Taiwan dollars at the month-end exchange rate. On the balance sheet date, monetary assets and liabilities denominated in foreign currencies are reporting using the month-end exchange rates, and exchange differences are recognized in the income statement. Unrealized exchange differences on nonmonetary financial assets (investments in equity instruments) are a component of the change in their entire fair value. For nonmonetary financial assets and liabilities classified as financial instruments measured at fair value through profit or loss, unrealized exchange differences are recognized in the income statement. For nonmonetary financial instruments that are classified as available-for-sale, unrealized exchange differences are recorded directly under stockholders’ equity until the asset is sold or becomes impaired. Nonmonetary financial instruments that are classified as carried at cost are recognized at the exchange rates on the transaction dates.

11

COSMOS BANK, TAIWAN


(Continued)

(aa) Contingencies

A loss is recognized when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. A footnote disclosure is made of a situation that might result in a possible loss but for which the amount of loss cannot be reasonably estimated.

(ab) Earnings per Share Basic earnings per share are calculated using the net income after taxes minus dividends paid on preferred shares divided by the weighted-average number of common shares outstanding during the period. Newly issued shares through retained earnings or capital surplus, or issued through a resolution of the 2008 shareholders’ meeting or before, should be recalculated. If the measurement date is before the issuance of financial statements, then they should also be recalculated. The employee stock options, MCB and the employee bonuses settled using shares that have yet to be approved by the shareholders’ meeting are deemed to be potential common stock. If the potential common stock possesses diluting effects, then diluted EPS must be disclosed in addition to basic EPS. If diluting effects do not exist, then only basic EPS are required to be disclosed.

(ac) Operating Segments An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

3 Accounting Changes:

(a) Effective January 1, 2011, the Bank adopted the third amendment of SFAS No. 34 “Financial Instrument: Recognition and Measurement.” In accordance with SFAS No. 34, loans and receivables should apply to the regulations of recognition, subsequent evaluation and impairment in SFAS No.34. There was no significant impact on the net loss and EPS for the six-month period ended June 30, 2011 for the adoption of the third amendment of SFAS No. 34.

(b) Effective January 1, 2011, the Bank adopted SFAS No. 41 “Operating Segments”, and the

Standard also supersedes SFAS No. 20 “Segment Reporting”. In accordance with SFAS No. 41, an entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates. The Bank determines and presents operating segments based on the information that is internally provided to the chief operating decision maker. For the six-month

12

COSMOS BANK, TAIWAN


(Continued)

period ended June 30, 2011, such changes in accounting principle did not have any impact on the net income of the Bank’s financial statements.

4 Summary of Major Accounts

(a) Cash and cash equivalents

June 30, 2011 June 30, 2010 Cash on hand $ 1,095,979 1,384,906 Due from banks 720,563 683,030 Checks for clearing 185,280 186,011 $ 2,001,822 2,253,947

(b) Due from the Central Bank and call loans to banks

June 30, 2011 June 30, 2010 Call loans to banks $ 3,041,076 9,369,831 Deposit in the Central Bank 8,150,000 24,700,000 Reserves for deposits - a/c B 3,103,790 2,745,603 Reserves for deposits - a/c A 1,028,046 1,215,081 Deposits 180,635 182,045 $ 15,503,547 38,212,560 As required by law, the reserves for deposits in the Central Bank are calculated by applying the prescribed rates to the average monthly balances of various types of deposit accounts. The use of reserves for deposits - a/c B is restricted by the Central Bank.

(c) Financial instruments at fair value through profit or loss (FVTPL)

June 30, 2011 June 30, 2010 Held-for-trading financial assets

Commercial paper $ - 499,535 Listed companies’ stocks 447,179 - Corporate bonds 150,950 - Government bonds 116,618 131,442 Stock index futures 3,824 - TAIEX options 680 - Forward exchange contracts 458 - Foreign-currency swap contracts 209 -

$ 719,918 630,977

13

COSMOS BANK, TAIWAN


(Continued)

June 30, 2011 June 30, 2010 Held-for-trading financial liabilities

Forward exchange contracts $ 65 194 Foreign-currency swap contracts 514 707 $ 579 901

The Bank engages in derivative transactions mainly to hedge its exchange rate and interest rate exposures. The Bank’s financial hedging policy is to reduce or minimize its market price or cash flow exposures. Outstanding derivative contracts as of June 30, 2011 and 2010, were as follows: June 30, 2011 June 30, 2010 Foreign-currency swap contracts $ 489,634 48,417 Forward exchange contracts 81,880 21,052 Stock index futures contracts 100,854 - TAIEX options contracts 164,000 - The net losses on financial assets held for trading for the six-month periods ended June 30, 2011 and 2010, were $13,284 thousand and $3,761 thousand, respectively. The net losses on financial liabilities held for trading for the six-month periods ended June 30, 2011 and 2010, were $2,080 thousand and $2,322 thousand, respectively.

(d) Receivables, net

June 30, 2011 June 30, 2010 Credit cards $ 3,201,632 3,739,519 Accounts receivable - no recourse 2,943 47,407 Accrued interest 305,420 277,015 Dividends receivable 31,141 - Acceptances 41,805 60,697 Tax refund receivable 76,080 51,237 Accrued income 60,950 78,435 Rental deposits 1,406,550 1,410,700 PEM receivable 895,937 1,449,168 Others 512,568 418,073 6,535,026 7,532,251 Less: allowance for possible losses (1,854,158) (1,860,812)

$ 4,680,868 5,671,439

14

COSMOS BANK, TAIWAN


(Continued)

As of June 30, 2011 and 2010, rental deposits receivable amounting to $1,406,550 thousand and $1,410,700 thousand, respectively, resulted from the relocation to self-owned property, of which, deposits from Prince Motors and Cosmos Construction Management Corporation amounted to $910,700 thousand which is recorded sufficient provision by the Bank, and the repayment agreement is under negotiation. From May 2007 to February 2008, the Bank sold structured notes, which were issued by GVEC Resource Inc. (GVEC), through a specific trust fund amounting to USD 48,920 thousand. PEM Corporation, which GVEC group was subordinated to, was found to have committed fraud by the U.S. Securities and Exchange Commission (SEC). In view of its social responsibility, the Bank’s Board of Directors decided to buy back the structured notes and ask for compensation from PEM Corporation before March 31, 2010. PEM Group invested in life insurance policy products. In order to recover credit rights effectively and to protect stockholders’ equity, the Bank’s Board of Directors had made a resolution on December 21, 2010, to take over all the insurance policies and hold these policies in the form of trust. The Bank completed the transfer procedures of life insurance policies from PEM Group on March 7, 2011. The Bank measured the trusted policy’s cost based on actuarial expert report and minus administration fees, then recognized the cost of trusted policy amounting to $218,386 thousand (USD 7,423 thousand). At the same time, the Bank wrote-off the initial cost and provision of life insurance policy amounting to $433,061 thousand (USD 14,721 thousand). The Bank expects to dispose of the life insurance policies in the next four years. Please refer to note 7(d).

The allowance for possible losses of PEM receivable was measured at the recoverable amount, which was provided by the receiver of PEM Group and external experts. As of June 30, 2011 and 2010, PEM receivable and provision were as follows:

(in thousands of USD/NTD dollars) June 30, 2011 June 30, 2010

USD NTD USD NTD Life insurance policies $ 8,355 240,635 22,144 714,780 Non-life insurance policies 22,752 655,302 22,752 734,388

31,107 895,937 44,896 1,449,168 Less: allowance for possible losses (13,221) (380,781) (20,323) (655,984)

$ 17,886 515,156 24,573 793,184

15

COSMOS BANK, TAIWAN


(Continued)

As of June 30, 2011, the assessment of allowance for possible losses on receivables were as follows:

Items Receivables

(Note 3) Allowance for possible losses

June 30, 2011 June 30, 2011

With the objective evidence of impairment

Individual assessment 2,310,087 1,693,776

Collective assessment

Credit related 73,247 52,022 Non-credit related - -

Without the objective evidence of impairment


Credit related 3,412,259 82,492 Non-credit related 380,015 25,868

Total 6,175,608 1,854,158 Note 1: The amount of receivables excludes the amount of allowance for credit losses and

adjustments for discount (premium). Note 2: The comparison with the prior period is not required in 2011. Note 3: Tax refund receivable and other receivable in a total of $359,418 thousand were excluded

to adopt Statement of Financial Accounting Standards (SFAS) No. 34.

The changes in allowance for possible losses on receivables for the six-month periods ended June 30, 2011 and 2010 were as follows:

For the six-month periods ended

June 30, 2011 June 30, 2010 Opening balance at January 1, 2011 $ 2,325,315 1,825,258 (Reversal provision) provision (26,218) 18,649 Effects of exchange rate changes (9,787) 5,041 Write-offs (435,152) (1,336) Recovery of written-off credits - 13,200 Ending balance at June 30, 2011 $ 1,854,158 1,860,812

The summary of the provision for receivables, discounts, and loans for the six-month periods ended June 30, 2011 and 2010, please refer to note 4(f).

16

COSMOS BANK, TAIWAN


(Continued)

(e) Assets held for sale, net June 30, 2011 June 30, 2010 Land held for sale $ 23,232 - Buildings held for sale 40,881 - 64,113 - Less: accumulated impairment loss - -

$ 64,113 - For the six-month periods ended June 30, 2011 and 2010, the Bank evaluated the net fair value of those assets, and recognized gain on reversal of asset impairment amounting to $0 thousand and $3,506 thousand, respectively. For the six-month periods ended June 30, 2011 and 2010, part of the assets held for sale with carrying amounts of $0 thousand and $48,431 thousand, respectively, were sold by the Bank, and the Bank recognized the disposal gains amounting to $0 thousand and $6,603 thousand, respectively, as net revenues other than interest in the income statements. In addition, part of the assets held for sale with carrying amounts of $0 thousand and $16,799 thousand for the six-month periods ended June 30, 2011 and 2010, respectively, were reclassified to self-use fixed assets, which was approved by the Board of Directors and the FSC.

(f) Discounts and loans, net June 30, 2011 June 30, 2010 Bills negotiated $ 8,677 7,271 Loans

Short-term 33,593,469 34,838,576 Medium-term 16,731,393 17,928,510 Long-term 19,437,360 12,019,577

Overdue loans 543,216 986,773 70,314,115 65,780,707 Less: allowance for possible losses (2,732,935) (3,085,733)

$ 67,581,180 62,694,974 As of June 30, 2011 and 2010, the balances of loans for which accrual of interest revenues was discontinued were $533,013 thousand and $965,956 thousand, respectively. The unrecognized interest revenues on these loans were $39,059 thousand and $66,883 thousand for the six-month periods ended June 30, 2011 and 2010, respectively. For the six-month periods ended June 30, 2011 and 2010, the Bank had written off certain loans after carrying out the required legal procedures.

17

COSMOS BANK, TAIWAN


(Continued)

As of June 30, 2011, the assessment of allowance for possible losses on loans, were as follows:

Items Loans Allowance for possible losses

June 30, 2011 June 30, 2011 With the objective

evidence of impairment

Individual assessment 6,290,856 1,100,531

Collective assessment Secured 188,002 29,530 Unsecured 985,213 743,469

Without the objective evidence of impairment


Corporate finance

Secured 12,473,283 7,309 Unsecured 9,301,567 116,054

Consumer finance

Secured 14,646,573 10,377 Unsecured 26,428,621 725,665

Total 70,314,115 2,732,935 Note 1: The amount of discounts and loans excludes the amount of allowance for credit losses

and adjustments for discount (premium). Note 2: The comparison with the prior period is not required in 2011.

The changes in allowance for possible losses on discounts and loans for the six-month periods ended June 30, 2011 and 2010, were as follows:


June 30, 2011 June 30, 2010 Opening balance at January 1, 2011 $ 3,117,489 2,981,289 (Reversal provision) provision (1,075,001) 13,795 Recovery of written-off credits 1,266,608 932,157 Write-offs (576,161) (841,513) Effects of exchange rate changes - 5 Ending balance at June 30, 2011 $ 2,732,935 3,085,733

The summary of the provision for receivables, discounts, and loans for the six-month periods ended June 30, 2011 and 2010, were as follows:

18

COSMOS BANK, TAIWAN


(Continued)

For the six-month periods ended June 30, 2011 June 30, 2010 (Reversal of provision) provision for possible losses on

discounts and loans $ (1,075,001) 13,795 (Reversal of provision) provision for possible losses on

receivables (26,218) 18,649 Reversal of provision for overdue accounts receivable and

other assets (32,413)

(204)

Provision (reversal of provision) for losses on guarantee 1,692 (5,832) $ (1,131,940) 26,408

(g) Available-for-sale financial assets, net

June 30, 2011 June 30, 2010 Government bonds $ 3,413,113 952,886 Visa Card shares 2,079 1,923 Commercial papers 1,316,982 - Corporate bonds 598,014 - Taiwan listed stocks 249,407 - Financial bonds 61,817 - $ 5,641,412 954,809

(h) Held-to-maturity financial assets, net

June 30, 2011 June 30, 2010 Negotiable certificate of deposits of Central Bank $ 22,300,000 -

(i) Equity investments under the equity method, net

June 30, 2011 June 30, 2010

Carrying

Value

% of Owner-

ship Carrying

Value

% of Owner-

ship Cosmos Insurance Brokers Co., Ltd. $ 29,145 100.00 27,635 100.00

19

COSMOS BANK, TAIWAN


(Continued)

For the six-month periods ended June 30, 2011 and 2010, net income on this investment was $9,188 thousand and $7,665 thousand, respectively. Net income is calculated and recognized in accordance with the unaudited financial statements of the investee companies during the same period. The total assets and capital of the Bank’s subsidiary, Cosmos Insurance Brokers Co., Ltd., were not significant to the Bank, and the Bank did not prepare consolidated financial statements for the six-month periods ended June 30, 2011 and 2010.

(j) Other financial assets, net June 30, 2011 June 30, 2010 Debt instruments with no active market, net $ - 24,677 Financial assets carried at cost, net 769,582 769,582 Others 93,956 258,457 $ 863,538 1,052,716 (i) Debt instruments with no active market were as follows:

June 30, 2011 June 30, 2010 Special-purpose trust beneficiary certificates $ - 24,677

(ii) Financial assets carried at cost were as follows:

June 30, 2011 June 30, 2010

Carrying Value

% of Owner-

ship Carrying

Value

% of Owner-

ship Unlisted common stock with no quoted market price:

CDIB & Partners Investment Holding Ltd. $ 500,000 4.95 500,000 4.95 Taiwan Asset Management Corporation 100,000 0.57 100,000 0.57 Euroc II Venture Capital Corporation 33,263 7.50 33,263 7.50 Financial Information Service Co., Ltd. 49,120 1.23 49,120 1.23 Reliance Securities Investment Trust Corporation, Ltd.

(RSIT) 46,752

12.31

46,752

12.31

Euroc III Venture Capital Corp. 18,357 5.00 18,357 5.00 Taiwan International Future Co. Ltd. 10,250 0.51 10,250 0.51 Taiwan Depository & Clearing Corp. 6,345 0.08 6,345 0.08 Yang-Kuan Asset Management Corporation 3,445 5.74 3,445 5.74 Lien-An Service Co. 1,250 5.00 1,250 5.00 Taipei Forex Inc. 800 0.40 800 0.40 Cosmos Construction Management Corporation (CCMC) - 9.39 - 9.39

$ 769,582 769,582

20

COSMOS BANK, TAIWAN


(Continued)

(iii) Other financial assets were as follows:

June 30, 2011 June 30, 2010 Pledged certificates of deposit $ 78,802 258,351 Deposit of futures and options 12,777 - Others 2,377 106 $ 93,956 258,457

As of June 30, 2011 and 2010, the pledged certificates of deposit of the Bank that composed of the collateral for spot exchange transactions are $28,802 thousand and $238,351 thousand, and the collateral for collections of the National Treasury tax are $50,000 thousand and $20,000 thousand, respectively. Please refer to notes 6(c) and (d).

(k) Fixed assets, net

June 30, 2011

Cost Accumulated depreciation

Accumulated impairment

Net

Land $ 3,972,740 - - 3,972,740 Buildings 2,595,474 548,554 - 2,046,920 Machinery and equipment 1,560,898 1,489,765 - 71,133 Transportation and communications equipment 250,520 241,923 - 8,597 Miscellaneous equipment 309,402 298,968 - 10,434 Prepayments of equipment 204 - - 204 Total $ 8,689,238 2,579,210 - 6,110,028 June 30, 2010

Cost Accumulated depreciation

Accumulated impairment

Net

Land $ 3,995,972 - - 3,995,972 Buildings 2,646,446 507,951 - 2,138,495 Machinery and equipment 1,635,287 1,509,470 - 125,817 Transportation and communications equipment 256,881 247,132 - 9,749 Miscellaneous equipment 318,982 309,445 - 9,537 Total $ 8,853,568 2,573,998 - 6,279,570

The Bank defines each product line as a CGU to test assets, including fixed assets, deferred charges, and intangible assets, for impairment. The recoverable amount of a CGU is its value in use, and the key assumptions on the economic conditions that will occur over the remaining useful life of the CGU, such as estimated future cash flows, are based on each CGU’s operations or objective data on its business cycle. Under the assumption of sustainable operations, the Bank estimated each CGU’s net cash flow for future years.

21

COSMOS BANK, TAIWAN


(Continued)

(l) Other assets, net

June 30, 2011 June 30, 2010 Deferred loss on the sale of nonperforming loans $ 1,435,195 5,818,473 Others:

Prepayments 77,057 93,620 Prepayments of pension 31,609 13,789 Deferred charges 125,405 141,190 Deferred income tax assets, net (note 4(t)) 7,348,051 7,102,088 Refundable deposits 923,100 948,885 Leased assets 468,703 468,703 Less: accumulated depreciation – leased assets (30,786) (28,146) Others 80,974 64,413 9,024,113 8,804,542

$ 10,459,308 14,623,015 (i) Deferred loss on the sale of nonperforming loans

Between 2005 and 2006, the Bank signed contracts to sell the following nonperforming loans: 1) In 2005, the Bank signed contracts with P.I.C.K. Second Fund Co., Ltd. (P.I.C.K.), CMC,

and Hui-Cheng First Asset Management Co., Ltd. to sell nonperforming loans of $820,961 thousand, $6,029,567 thousand, and $1,619,640 thousand, respectively. These transactions, with a selling price of $644,643 thousand, resulted in a loss of $7,825,525 thousand.

2) In 2006, the Bank signed contracts with Yang-Kuan Asset Management Co., Ltd.

(YKAM), ORIX Taiwan Corporation (ORIX), and CMC to transfer and sell to these three companies nonperforming loans of $103,239 thousand, $2,454,035 thousand, and $19,465,842 thousand, respectively. For these transactions, the Bank should receive a payment of $1,140,590 thousand in cash and some YKAM stock at face value. These sales resulted in a loss of $20,882,526 thousand. CMC agreed that if there are proceeds from the sale of nonperforming loans within five years from the contract date, 50% of these proceeds, net of the yield amount, related tax and litigation expenses, and necessary administrative expenditures, should be returned to the Bank. For the six-month periods ended June 30, 2011 and 2010, the Bank received proceeds of $59,968 thousand and $58,750 thousand (treated as a reduction of deferred loss on the sale of nonperforming loans), respectively.

22

COSMOS BANK, TAIWAN


(Continued)

Under the Law Governing Mergers of Financial Institutions, the Bank deferred and amortized all of the losses on the sale of the above nonperforming loans by the straight-line method over five years. The unamortized amounts of $1,435,195 thousand and $5,818,473 thousand as of June 30, 2011 and 2010, respectively, were presented under deferred loss on the sale of nonperforming loans. The amortized amounts of $1,980,720 thousand and $2,769,373 thousand for the six-month periods ended June 30, 2011 and 2010, respectively, were classified as amortization of loss on the sale of nonperforming loans.

(ii) Foreclosed collateral, net

June 30, 2011 June 30, 2010 Foreclosed collateral $ 87,311 87,311 Less: Accumulated impairment (87,311) (87,311) $ - -

(iii) Please refer to note 4(t) for the deferred income tax assets, net. (iv) Leased assets, net:

June 30, 2011 June 30, 2010 Leased assets – land $ 332,135 332,135 Leased assets – buildings 136,568 136,568 468,703 468,703 Less: Accumulated depreciation (30,786) (28,146) $ 437,917 440,557

(m) Due to the Central Bank and other banks

June 30, 2011 June 30, 2010 Due to banks $ 200,000 - Due to Chunghwa Post Co., Ltd. 4,247,175 9,395,805 Due to the Central Bank - 910 $ 4,447,175 9,396,715

(n) Securities sold under repurchase agreements As of June 30, 2011, securities sold for $2,223,076 thousand under repurchase agreements would be purchased for $2,223,505 thousand by July 29, 2011.

23

COSMOS BANK, TAIWAN


(Continued)

As of June 30, 2010, securities sold for $30,000 thousand under repurchase agreements would be purchased for $30,003 thousand by July 2010. As of June 30, 2011 and 2010, available-for-sale financial assets amounting to $2,225,000 thousand and $27,000 thousand (face value) had been sold under repurchase agreements, respectively.

(o) Payables June 30, 2011 June 30, 2010 Accrued expenses $ 419,912 296,881 Accrued interest 247,640 324,249 Payable on funds purchased 11,881 25,944 Checks for clearing 185,280 186,011 Collections payable 53,213 56,829 Acceptance 41,805 60,772 Others 625,459 430,575 $ 1,585,190 1,381,261

(p) Deposits and remittances June 30, 2011 June 30, 2010 Deposits:

Checking $ 864,130 862,440 Demand 11,543,125 9,937,549 Time 37,854,854 22,251,467 Savings 62,495,003 72,368,855 Negotiable certificates of deposit 1,010,700 25,600

Remittances 16,735 7,639 $ 113,784,547 105,453,550

(q) Bank debentures (i) On November 9, 2006, the Board of Directors resolved to publicly issue a subordinated bank

debenture, with the amount not to exceed $7,000,000 thousand, to strengthen the Bank’s capital structure for future growth. This public issuance was approved by the Financial Supervisory Commission (FSC) on November 17, 2006. On December 14, 2006, the Bank issued one 7-year ($4,500,000 thousand) and one 10-year ($2,500,000 thousand) subordinated bank debenture, with interest payable annually at 3% and 3.2%, respectively, and the principal fully repayable on maturity.

24

COSMOS BANK, TAIWAN


(Continued)

Under an original subscription agreement that was signed on December 26, 2007, together with an appendix to the agreement, China Development Industrial Bank Inc. and eight other banks agreed to reduce by 58% the total creditors’ right to the first convertible bank debenture issued in 2006, with a principal of $6,485,000 thousand. The residual amount will be partially paid in cash and partially paid in the Bank’s common shares. Chu Nan Credit-Cooperative Association, Singfor Life Insurance Co., Ltd., and Taipei Sanjhih Hsiang Farmers’ Association subscribed for a subordinated bank debenture issued by the Bank in 2006. However, these subscribers did not sign the subscription agreement. On August 2, 2010, the Taiwan High Court adjudged that the resolution of the meeting for reducing the debenture was effective. Therefore, the Bank paid back 42% of the remaining bank debenture amounting to $216,300 thousand in cash and recognized an after-tax extraordinary gain of $247,921 thousand on September 27, 2010.

June 30, 2010

Cosmos Bank Maturity

Date Rate Par Value Discount Amount Book Value

First subordinated bank

debenture issued in 2006 B 2006.12.14~ 2016.12.14

3.20% annually

$ 515,000 - 515,000

(ii) On December 28, 2007, the Bank privately placed Subordinated Unsecured Mandatory

Convertible Bonds (the Bonds). GE Capital Asia Investments Holdings B.V. and S.A.C. PEI Taiwan Holdings B.V. subscribed for these Bonds, and their holdings amounted to $1,650,000 thousand and $18,150,000 thousand, respectively. The issuance period is five years, and the interest rate is from 4.00% to 6.00%. The coupon interest for year 1 should be fully paid on the issue date, and for year 2 should be fully paid on the first day of year 2. The coupon interest rate of the first two years is 6%. For years 3 to 5, the coupon interest (4%) is payable quarterly from the end of the three months after the first day of year 3. The conversion price upon issuance is NT$2.00 per share, which can be modified anytime using a certain formula. The Bonds can be converted without restrictions between the 31st day of the issuance date and the maturity date. Advance repayment, redemption, purchase, cancellation or amendment of all or part of the Bonds is prohibited under the contract unless the Bank receives a written consent from the bondholders.

25

COSMOS BANK, TAIWAN


(Continued)

The Bank recognized (a) the conversion option as capital surplus – others, which amounted to $15,819,198 thousand ($15,944,124 thousand less $124,926 thousand in transaction cost after income tax) and (b) the accrued interest on the Bonds, which amounted to $3,826,385 thousand ($3,855,876 thousand less $29,491 thousand in transaction cost after income tax), classified as other financial liabilities. For the six-month periods ended June 30, 2011 and 2010, the Bank recognized $49,312 thousand and $77,575 thousand, respectively, in interest. As of June 30, 2011 and 2010, the balance of accrued interest on the Bonds was $902,757 thousand and $1,436,344 thousand, respectively. On October 6, 2009, S.A.C. PEI Taiwan Holdings B.V. convert the Bonds in the amount of $3,630,000 thousand into common stock before the maturity date. The conversion price upon issuance was NT$6.004902 per share, and the Bonds should be converted into 604,506 thousand common shares. As of June 30, 2011 and 2010, GE Capital Asia Investments Holdings B.V. and S.A.C. PEI Taiwan Holdings B.V. hold MCB that have not convert into common stock were $1,650,000 thousand and $14,520,000 thousand (face value), respectively.

(r) Pension plan The Labor Pension Act (the “Act”), which took effect on July 1, 2005, provides for a new defined contribution pension plan. Bank employees subject to the earlier promulgated Labor Standards Law were allowed to choose between the pension mechanism under the Labor Standards Law or the mechanism under the Act. For those employees who chose to be subject to the pension mechanism under the Act, their service years before the enforcement of the Act will be retained. However, those hired on or after July 1, 2005, automatically become subject to the Act. Based on the Act, the rate of the Bank’s required monthly contributions to the employees’ individual pension accounts is 6% of monthly wages and salaries. For the Bank’s employees who chose to continue to be subject to the Labor Standards Law, benefit payments are based on length of service and average monthly salary or wages upon retirement. The Bank has two funds under its defined benefit plan: one for management and the other for nonmanagement employees (“employees”). The Bank makes monthly contributions to the employees’ pension fund, which is managed by the employees’ fund committee and deposited in the committee’s name in the Bank of Taiwan. The pension fund for management is administered by the employees’ pension fund administrative committee and deposited under the committee’s name to an account in the Bank.

26

COSMOS BANK, TAIWAN


(Continued)

On December 6, 2007, the Bank signed with the Bank’s labor union an Employee Benefit Proposal – Early Retirement Plan (ERP), under which the Bank would carry out the pension plan in stages. The Board of Directors approved the ERP on December 11, 2007, and January 15, 2009. For the six-month periods ended June 30, 2011 and 2010, pension expense recognized as a result of the ERP amounted to $4,842 thousand and $11,812 thousand, respectively. As of June 30, 2011 and 2010, ERP pension liability amounted to $158,869 thousand and $185,122 thousand, respectively.

Pension expenses were $36,776 thousand and $44,396 thousand for the six-month periods ended June 30, 2011 and 2010, respectively (among which $35,121 thousand and $31,467 thousand, respectively, belong to pension expenses for the defined contribution plan).

Changes in the employees’ and management’s pension funds were as follows: For the six-month periods ended June 30, 2011 June 30, 2010 Employees’ pension fund

Beginning balance $ 514,111 506,800 Contribution 2,018 2,012 Interest income 1,517 1,695 Ending balance $ 517,646 510,507

Management’s pension fund

Beginning balance $ 377,174 359,190 Contribution 5,783 6,286 Interest income 3,514 5,205 Ending balance $ 386,471 370,681

(s) Service fee income, net

For the six-month periods ended June 30, 2011 June 30, 2010 Service fee income $ 638,624 757,097 Service fee expense (93,520) (97,624) $ 545,104 659,473

(t) Income tax

(i) The statutory tax rates are 17% for the years 2011 and 2010, and the Bank calculated the

basic tax amount in accordance with the Income Basic Tax Act.

27

COSMOS BANK, TAIWAN


(Continued)

(ii) As of June 30, 2011 and 2010, income tax expense (benefit) was calculated as follows:

For the six-month periods ended June 30, 2011 June 30, 2010

Income tax (benefit) expense – current before tax credits $ (1,299) 349 Net changes in deferred income tax expense (benefit):

Loss carryforwards $ (223,550) (423,471) Amortization of goodwill 4,224 4,224 Decrease in allowance for possible losses on loans and

receivables 143,286

161,105

Loss on the transfer of foreclosed collateral to fixed assets 120 120 (Increase) decrease in provision for various losses (693) 7,658 Pension costs 6,488 720 Unrealized foreign exchange gain 8,374 6,872 Decrease (increase) in investment tax credits 3,313 (65) Unrealized valuation loss (gain) on financial instruments 963 (1,021) Effect on deferred income tax of income tax rate change - 1,333,844 Valuation allowance (reversal) for deferred income tax

assets 52,000 (192,074) Deferred income tax expense(benefit) (5,475) 897,912

Income tax (benefit) expense $ (6,774) 898,261 (iii) The income tax computed at the statutory tax rate was reconciled with the income tax

expense for the six-month periods ended June 30, 2011 and 2010, as follows:

For the six-month periods ended June 30, 2011 June 30, 2010

Income tax benefit before income tax at statutory rate $ (19,690) (285,635) Tax-exempt gain on domestic cash dividends (3,158) (131) Interest expense on bank debenture (46,143) (42,543) Tax-exempt (gains) losses from OBU (57) 178 Tax-exempt losses on sale of land - 1,355 Effect on deferred income tax of income tax rate change - 1,333,844 Investment tax credits 3,313 - Valuation allowance (reversal) for deferred income tax

assets 52,000 (192,074) Prior year’s income tax adjustments and others 6,961 83,267 Income tax (benefit) expense $ (6,774) 898,261

28

COSMOS BANK, TAIWAN


(Continued)

(iv) Net deferred income tax assets and liabilities as of June 30, 2011 and 2010, were as follows:

June 30, 2011 June 30, 2010 Deferred income tax assets

Loss carryforwards $ 7,480,215 7,109,632 Allowance for possible losses on loans and

receivables

654,383

713,093 Pension costs 21,634 29,127 Impairment loss 6,864 6,864 Unrealized foreign exchange loss (gain) 3,471 (2,028) Loss on the transfer of foreclosed collateral to fixed

assets

8,766

9,006 Provision for loss 1,471 465 Investment tax credits 8,029 11,342 Unrealized valuation (gain) loss on financial

instruments (241) 680 Amortization of goodwill 4,459 12,907

8,189,051 7,891,088 Less: Valuation allowance (841,000) (789,000) Net deferred income tax assets $ 7,348,051 7,102,088

(v) The Bank’s unused investment tax credits mainly resulted from personnel training

expenditures from the past five years under the original Statute for Upgrading Industries. The useable amount of the unused investment tax credits is limited to 50% of the annual income tax for each year, but is not limited in the expiry year. As of June 30, 2011, the Bank’s unused investment tax credits and their related expiration years were as follows:

Occurrence year Unused investment tax

credits Expiry

year

2007 $ 2,673 (assessed) 2011 2008 3,461 (reported) 2012 2009 1,895 (reported) 2013

$ 8,029 (vi) In accordance with the amendment to the Income Tax Act, taxable losses from the past ten

years as assessed by the authorities may be used to reduce net income in the current year.

29

COSMOS BANK, TAIWAN


(Continued)

As of June 30, 2011, loss carryforwards were as follows:

Accrued Year

Total Credits Granted

Total Tax Credits Granted

Expiry Year

2006 (assessed) $ 4,608,024 783,364 2016 2007 (assessed) 11,400,998 1,938,170 2017 2008 (reported) 13,803,205 2,346,545 2018 2009 (reported) 10,187,530 1,731,880 2019 2010 (reported) 2,624,589 446,180 2020 2011 (estimated) 1,376,915 234,076 2021 $ 44,001,261 7,480,215

(vii) Imputed tax credits are summarized as follows:

June 30, 2011 June 30, 2010 Accumulated deficit for year 1998 and thereafter $ (16,789,386) (15,850,903) Balance of stockholders’ imputed tax credits $ 1,008,302 989,971

(viii) Income tax returns through 2007 have been examined by the tax authorities. The Taipei National Tax Administration will refund 65% of certain withholding taxes. The Bank accepted the refund at this percentage.

(u) Stockholders’ equity

(i) Capital In order to strengthen the operating capital, improve the financial structure, and increase the capital adequacy ratio, according to the resolution of the Board of Directors on May 7, 2010, and the resolution of stockholders’ meeting on June 18, 2010, the Bank will raise capital by a private placement of common shares and issue a maximum of 1,000,000 thousand shares with a face value of 10 dollars per share, and the total face value of the private placement should not exceed $10,000,000 thousand. In accordance with the Directions for Public Companies Conducting Private Placements of Securities, the private placement of common shares would be settled at 6 dollars per share temporarily. In pursuant to the laws and regulations, the abovementioned private placement of the common shares plan should be completed within one year after the resolution of the stockholders’ meeting. However, due to the market condition at the raising capital timing, the Bank did not conduct the plan in time. On January 7, 2011, the Financial Supervisory Commission (FSC) issued an order of the Directive Jin Guan Yin Guo No. 10020000000 to request the Bank to propose practical plans to strengthen the Bank’s capital structure. According to the resolution of the Board of Directors on May 16, 2011, and the resolution of the stockholders’ meeting on June 28, 2011,

30

COSMOS BANK, TAIWAN


(Continued)

the Bank will raise capital by a private placement of common shares, and issue a maximum of 200,000 thousand shares with a face value of 10 dollars per share, and the total face value of the private placement should not exceed $2,000,000 thousand. The actual issued private placement shares and total face value would be decided by the actual issued price. There is one specific possible investor, which is a related party of the Bank. The issued price of the private placement shares would be determined and calculated in accordance with the regulation of “Directions for Public Companies Conducting Private Placements of Securities”. So far as the opinion date, the issued date of private placement of common shares plan is not yet determined and the plan is not yet completed. As of June 30, 2011 and 2010, the Bank had authorized capital stock amounting to $200,000,000 thousand (of which $12,580,000 thousand was reserved for employee stock options). The issued capital amounted to $16,234,639 thousand as of June 30, 2011 and 2010. The face value of each share is 10 dollars.

(ii) Capital surplus Under related regulations, capital surplus may only be used to offset a deficit. However, capital surplus (from issuance in excess of common stock par value, issuance of common stock for combinations, and treasury stock transactions) and donations may be transferred to common stock on the basis of the percentage of shares held by the stockholders. Any capital surplus transfer should be within a certain percentage prescribed by law. Capital surplus was as follows: June 30, 2011 June 30, 2010 Mandatory convertible bonds $ 12,919,012 12,919,012 Issuance of employee stock options 51,194 38,843 Expiration of options 12,712 12,712 $ 12,982,918 12,970,567

(iii) Legal and special reserve 1) Under the Company Act, legal reserve should be appropriated until the reserve equals the

Bank’s paid-in capital. This reserve may only be used to offset a deficit. When the reserve reaches 50% of the aggregate par value of the Bank’s outstanding capital stock, up to 50% thereof may be declared as stock dividends.

2) Under the Law Governing Mergers of Financial Institutions, loss on the sale of

nonperforming loans is amortized using the straight-line method over five years, and a special reserve equal to the loss should be appropriated.

31

COSMOS BANK, TAIWAN


(Continued)

3) In compliance with the “Regulations Governing Securities Firms” and the “Regulations Governing Futures Commission Merchants”, a securities firm and futures commission merchant should recognize a reserve for trading loss. Effective from January 11, 2011, the Financial Supervisory Commission (FSC) revoked the rules regarding the provision for trading losses reserve for securities firms and futures commission merchant contained in the “Regulations Governing Securities Firms” according to FSC Jin-Kuan-Cheng-Chuan No. 0990073857 and Jin-Kuan-Cheng-Chi No. 1000000289, respectively. As of December 31, 2010, the amount of trading losses reserve which securities firms and futures commission merchants had made provision for should be reclassified as special reserve. The special reserve can only be used to offset a deficit or when special reserve reaches 50% of total paid-in capital of which 50% can be capitalized.

The Bank reclassified the reserve for trading loss amounting to $8,467 thousand to special reserve according to the abovementioned modification of regulations as of June 30, 2011.

(iv) Appropriation of earnings and dividend policy

The Bank’s earnings appropriation policy is aligned with its goals to maintain the adequacy of capital and provide for future financial needs. Under the Bank’s Articles of Incorporation (the “Articles”), annual net income, less any losses of prior years, should be appropriated 30% as legal reserve and appropriated as special reserve (booked as a deduction item of stockholders’ equity). The remainder plus unappropriated earnings of prior years should be appropriated 80% as dividends to stockholders, and the remaining 20% should be appropriated as follows: 1) 80% as bonus to stockholders 2) 15% as bonus to employees 3) 5% as remuneration to directors The cash dividends should be at least 10% of the total dividends to be paid/distributed. However, if the cash dividend is less than NT$0.1 per share, the entire dividend should be paid in stock. Under a directive of the Securities and Futures Bureau, the Bank has to appropriate a special reserve from current year’s earnings and the unappropriated earnings generated in prior years that is equal to the debit balance of any stockholders’ equity account (except deficit). The special reserve should be adjusted on the basis of the debit balance of the stockholders’ equity account as of year-end.

32

COSMOS BANK, TAIWAN


(Continued)

In making this appropriation, the Bank should consider its capital adequacy ratio, long-term financial position, and stockholders’ cash needs, and the shareholders’ meeting may decide not to appropriate any dividend and bonus in full or in part. The Banking Act provides that, before the legal reserve equals the Bank’s paid-in capital, annual cash dividends and bonuses should not exceed 15% of paid-in capital. The appropriation of the deficit for the years ended December 31, 2010 and 2009, resolved by the Board of Directors and stockholders on June 28, 2011, and June 18, 2010, respectively, was as follows: 2010 2009 Accumulated deficit, beginning of 2010 and 2009 $ (13,272,434) (21,519,090) Capital decrease to offset accumulated deficit - 19,300,000 Less: Discount on issuing common shares from settlement of debts

-

(1,158,849)

Discount on issuing common shares from conversion of the MCB

-

(2,730,224)

Prior-year net loss (3,407,902) (7,164,271) Accumulated deficit $ (16,680,336) (13,272,434) Information on appropriation of earnings or deficit offsetting will be available on the Market Observation Post System of the Taiwan Stock Exchange (http://mops.twse.com.tw) after the related meetings. The Bank recorded an after-tax loss in the first six months of 2011 and 2010, and therefore is not required to accrue any employee bonuses or directors’ remuneration.

(v) Employee stock option plans and the stock appreciation rights plan for executives To attract and encourage professionals, enhance employees’ loyalty to the Bank, and create maximum benefits to stockholders and the Bank, the Board of Directors approved on May 22, 2008 an employee stock option plan, and the Bank had registered this plan with the FSC. The Bank issued 838,700 thousand units of employee share options, and a unit can convert into one common share of the Bank. As a result, the Bank retained 838,700 thousand new shares of common stock for the plan. The abovementioned plan expired on June 11, 2009, and the Bank’s Board of Directors approved the “2010 regulation on the issuance and subscription of employee stock options” in the meeting of the Board of Directors held on February 25, 2010. Also, the option was approved by the Securities and Futures Bureau, Financial Supervisory Commission, Executive Yuan. The issuance amount of the new employee stock options was 161,391 thousand units, which had considered the effect of capital reduction. Meanwhile, the

http://mops.twse.com.tw/�

33

COSMOS BANK, TAIWAN


(Continued)

Bank’s Board of Directors approved the stock appreciation rights plan for executives on December 22, 2009, and the Bank could settle the stock appreciation rights by the Bank’s common shares or by cash. According to the resolution of the Bank’s Board of Directors’ meeting held on April 26, 2011, the Bank issued the employee stock options amounting to 37,204 thousand shares, which were including the stock option shares substitute for the previously given to several managers on the varies grant date from May 5, 2008 to July 9, 2010, and at an exercise price 8.12 dollars for each share. The modifications of the options for those shares previously given to several managers did not increase the fair value of the original options’ fair value, and the modifications of the options’ terms should be treated as if the modifications never occurred, and the Bank expensed the original fair value of the options. The information on employee benefits from share-based payment transactions for the six-month periods ended June 30, 2011 and 2010, is as follows: For the six-month periods ended June 30, 2011 June 30, 2010 Expenses resulting from equity-settled share-based payment transactions

$ 19,630

17,188

Balance of liabilities resulting from share-based payment transactions

37,581

8,848

Additional paid-in capital resulting from equity-settled share-based payment transactions

12,525

8,960

The information on the Bank’s share-based payment transaction plans as of June 30, 2011, is as follows:

June 30, 2011 Stock appreciation rights

plan of executives Employee stock

option plan Grant date 2009.12.22~2010.12.23 2011.5.3 Grant amount (thousand shares) 20,432 37,204 Vesting period 2009.12.22~2014.12.22 2011.5.3~2015.5.2

34

COSMOS BANK, TAIWAN


(Continued)

The details of the Bank’s employee benefit plan are as follows: June 30, 2011

Stock appreciation

rights plan of executives Employee stock

option plan

Units (thousand

shares)

Exercise price

(dollars)

Units (thousand

shares)

Exercise price

(dollars) Outstanding units as of January 1,

2011 16,571 $ 7.33 - - Given amount during this period

(January 1,2011-June 30,2011) 3,861 7.77 37,204 8.12 Outstanding units as of June 30, 2011 20,432 37,204 June 30, 2010

Stock appreciation

rights plan of executives Employee stock

option plan

Units (thousand

shares)

Exercise price

(dollars)

Units (thousand

shares)

Exercise price

(dollars) Outstanding units as of January 1,

2010 (balance at period-end) 16,571 $ 7.33 6,580 12.36~20.21

The Bank uses the Black-Scholes Option Model and the Binomial-Lattice Option Model to estimate the fair value of the stock appreciation rights plan and employee stock option plan, respectively. The Bank takes into account the following factors: June 30, 2011 Stock

appreciation rights plan of

executives

Employee stock option plan

Exercise price (dollars) $ 7.33~7.77 8.12 Stock price on grant date (dollars) 7.33~7.77 8.12 Weighted-average expected contractual remaining life (years) 4.48~6.48 6.76 Expected share price volatility (%) 47.55~55.68 44~68 Risk-free interest rate (%) 1.19~1.37 1.6

35

COSMOS BANK, TAIWAN


(Continued)

(vi) Unrealized gain or loss on financial instruments The movements as of June 30, 2011 and 2010, of unrealized gain or loss on available-for-sale financial instruments were as follows: For the six-month periods ended June 30, 2011 June 30, 2010 Balance, beginning of year $ 12,244 30,497 Recognized in stockholders’ equity 13,923 (8,054) Transferred to profit or loss (23,876) (3,858) Balance, end of period $ 2,291 18,585

(v) Earnings per share

For the six-month periods ended June 30, 2011 June 30, 2010 Before

income tax After

income tax Before

income tax After

income tax Basic earnings per share (New Taiwan dollars):

Net loss $ (115,824) (109,050) (1,680,208) (2,578,469) Weighted-average number of shares

outstanding (thousands) 1,623,464 1,623,464 1,623,464 1,623,464 Basic earnings per share (New Taiwan

dollars) $ (0.07) (0.07) (1.03) (1.59) There was a net loss as of June 30, 2011 and 2010; thus, the basic loss per share equaled the diluted loss per share as of June 30, 2011 and 2010.

36

COSMOS BANK, TAIWAN


(Continued)

(w) Financial instruments (i) Fair value of financial instruments

June 30, 2011 June 30, 2010

Financial assets Carrying Amount

Estimated Fair Value

Carrying Amount


Non-derivative financial

assets

Cash and cash equivalents $ 2,001,822 2,001,822 2,253,947 2,253,947 Due from the Central Bank

and call loans to banks 15,503,547 15,503,547 38,212,560 38,212,560 Financial assets at fair value

through profit or loss, net 714,747 714,747 630,977 630,977 Receivables, net 4,604,788 4,604,788 5,620,202 5,620,202 Discounts and loans, net 67,581,180 67,581,180 62,694,974 62,694,974 Available-for-sale financial

assets, net 5,641,412 5,641,412 954,809 954,809 Held-to-maturity financial

assets, net 22,300,000 22,300,000 - - Other financial assets, net 863,538 See ii(4) 1,052,716 See ii(4) Refundable deposits 923,100 923,100 948,885 948,885 Derivative financial assets Trading Forward exchange

contracts 458 458 - - Foreign-currency swap

contracts 209 209 - - Stock index futures

contracts 3,824 3,824 - - TAIEX options contracts 680 680 - -

37

COSMOS BANK, TAIWAN


(Continued)

June 30, 2011 June 30, 2010

Financial liabilities Carrying Amount


Carrying Amount



liabilities

Due to the Central Bank and other banks $ 4,447,175 4,447,175 9,396,715 9,396,715

Securities sold under repurchase agreements 2,223,076 2,223,076 30,000 30,000

Payables 1,557,037 1,557,037 1,351,043 1,351,043 Deposits and remittances 113,784,547 113,784,547 105,453,550 105,453,550 Bank debentures - - 515,000 515,000 Other financial liabilities 1,086,400 1,086,400 1,630,475 1,630,475 Derivative financial

liabilities Trading Forward exchange

contracts 65 65 194 194 Foreign-currency swap

contracts 514 514 707 707

(ii) Methods and assumptions applied to estimate the fair value of financial instruments are summarized as follows:

1) For financial instruments measured at fair value through profit or loss and available-for-

sale financial assets, fair value is best determined on the basis of quoted market prices. However, in many instances where there are no quoted market prices for the Bank’s various financial instruments, fair values are based on estimates using other financial data and appropriate valuation methodologies. Relevant valuation methods were listed as follows:

A. Money market short-term notes: TAIBIR 02 published by Taiwan Depository and Cleaning Corporation (TDCC) at balance sheet date is its fair value.

B. Listed stocks and public beneficiary securities: For listed stocks, the closing price at the balance sheet date is the fair value; for open-ended funds, the net asset value of the fund at the balance sheet date is its fair value.

38

COSMOS BANK, TAIWAN


(Continued)

C. Government bonds: Generally, the closing price of GreTai Securities Market at the balance sheet date is its fair value; if there is no transaction of this security, the principle is to use the government bond prices in multiple periods for estimating its fair value. Under special situations where fair value is unavailable, the trading price in recent business days as the reference price.

D. Company bonds: Generally, the closing price of GreTai Securities Market at the balance sheet date is its fair value; if there is no transaction of this security, the principle is to use the latest trading price of GreTai Securities Market in the most recent period of 30 business days. Under special situations where fair value is unavailable, we use the fair value of the bonds provided by GreTai Securities Market as the reference price.

E. Convertible bonds: The closing price of TWSE or GreTai Securities Market at the balance sheet date is its fair value; if there is no transaction of this security, we use the latest trading price in the most recent period as the reference price.

F. Derivatives financial assets: If there are no active market prices for derivative financial instruments, fair values of forward contracts will be calculated using the discounted cash flow method, while values of options are provided by counter-parties. The price of forward foreign exchange agreement is valued at the daily closing value of the spot rate of Taipei Forex, INC. (Reuters’ TAIFX1) plus the swap point (Reuters’ TAIFX2). When the due date comes between the two different market price reporting deadlines, we use the fair value of the spot rate that is calculated from the linear interpolation to measure the fair values of individual contracts. The values of the stock index futures and TAIEX options are calculated using the prices quoted by Taiwan Futures Exchange. The fair value of a cross-currency swap contract is calculated using the prices quoted by Bloomberg. When valuing the foreign exchange SWAP contracts, the Bank divides the contracts according to buying or selling spot rates, and evaluate them in the same way as that of the usual spot transactions. When evaluating the buying or selling forward foreign exchange agreements, the Bank evaluates the transaction in the same way as that of forward foreign transactions.

2) The carrying amounts of short-term financial instruments approximate their fair values

because of the short maturities of these instruments, such as cash and cash equivalents, due from the Central Bank and call loans to banks, net receivables (except tax refund receivable), refundable deposits, due to the Central Bank and other banks, payables (except tax payable), remittances, securities sold under repurchase agreements, and guarantee deposits received.

3) Discounts and loans, cash deposits, and MCB are interest-earning assets and interest-

bearing liabilities. Thus, their carrying amounts represent fair value.

39

COSMOS BANK, TAIWAN


(Continued)

4) If there are trading prices or prices quoted by major market players, the latest trade prices or quoted prices are used as the basis for determining the fair value of debt instruments with no active market, and this kind of instrument would be classified as other financial assets. If equity investments carried at cost consist of unlisted stocks, these investments have no quoted market prices in an active market and their fair value cannot be reliably measured. Thus, the Bank does not disclose their fair value.

5) Other financial liabilities include an appropriate loan fund. They are items that can be

transferred to other banks at any time depending on the business situation. Thus, the carrying amounts of these liabilities represent their fair values.

The abovementioned valuation basis is applied consistently.

(iii) As of June 30, 2011 and 2010, the fair values of financial assets and liabilities determined using quoted market prices or estimated using a valuation method were as follows:

Quoted Market Prices Estimated Market Prices

June 30, June 30, June 30, June 30, Financial assets 2011 2010 2011 2010

Non-derivative financial assets

Cash and cash equivalents $ - - 2,001,822 2,253,947 Due from the Central Bank

and call loans to banks - - 15,503,547 38,212,560 Financial assets at fair value

through profit or loss, net 714,747 630,977 - - Receivables, net - - 4,604,788 5,620,202 Discounts and loans, net - - 67,581,180 62,694,974 Available-for-sale financial

assets, net 5,641,412 954,809 - - Held-to-maturity financial

assets, net - - 22,300,000 - Other financial assets, net - - 863,538 1,052,716 Refundable deposits - - 923,100 948,885

Derivative financial assets Trading

Forward exchange contracts - - 458 - Foreign-currency swap

contracts - - 209 - Stock index futures

contracts 3,824 - - - TAIEX options contracts 680 - - -

40

COSMOS BANK, TAIWAN


(Continued)

Quoted Market Prices Estimated Market Prices

June 30, June 30, June 30, June 30, Financial liabilities 2011 2010 2011 2010


liabilities

Due to the Central Bank and other banks $ - - 4,447,175 9,396,715

Securities sold under repurchase agreements - - 2,223,076 30,000

Payables - - 1,557,037 1,351,043 Deposits and remittances - - 113,784,547 105,453,550 Bank debentures - - - 515,000 Other financial liabilities - - 1,086,400 1,630,475

Derivative financial liabilities Trading

Forward exchange contracts - - 65 194 Foreign-currency swap

contracts - - 514 707 As mentioned above, the gain and loss recognized by the Bank on the valuation of financial instruments at estimated market prices for the six-month periods ended June 30, 2011 and 2010, were a gain of $1,418 thousand and a loss of $4,000 thousand, respectively.

(iv) Fair value hierarchy information of financial instruments was as follow:

June 30, 2011

Items

Total Level 1 (Note 1)

Level 2 (Note 2)

Level 3 (Note 3)

Non-derivative financial instruments

Assets Financial assets at fair value

through profit or loss Investment in stocks $ 447,179 447,179 - - Investment in bonds 267,568 267,568 - -

Available-for-sale financial assets Investment in stocks 251,486 251,486 - - Investment in bonds 4,072,944 3,413,113 659,831 - Others 1,316,982 - 1,316,982 -

41

COSMOS BANK, TAIWAN


(Continued)

June 30, 2011

Items

Total Level 1 (Note 1)

Level 2 (Note 2)

Level 3 (Note 3)

Derivative financial instruments

Assets Financial assets at fair value

through profit or loss $ 5,171 4,504 667 - Liabilities

Financial liabilities at fair value through profit or loss 579 - 579 -

Note 1: Fair value measurement for a financial instrument classified in Level 1 is determined

as the quoted price for an identical financial instrument in an active market. In accordance with the fifth paragraph of SFAS No. 34 “Financial Instruments: Recognition and Measurement”, the definition of active market fulfills all of the following conditions:

a) the products traded in the market are homogeneous; b) willing parties are available anytime in the market; c) price information is available for the public.

Note 2: Fair value measurement for a financial instrument classified in Level 2 is determined as the observable price other than quoted price in an active market including an observable input obtained in an active market, either directly (i.e., as prices) or indirectly (i.e., derived from prices). The examples of observable price are as follows: a) The quoted price for an identical financial instrument in an active market; this

means, the fair value from the occurring market transaction prices for an identical financial instrument should be determined by its characteristics and terms of transaction. The fair value of financial instrument has to be adjusted according to the observable market price of the identical financial instrument. The reasons for adjustments include time lag of the occurring market transaction prices for an identical financial instrument, wherein, the quoted price does not represent the fair value at the measurement date. It also includes the difference of transaction terms for financial instruments, transaction prices involved in related parties, the correlation between the observable transaction prices of identical financial instruments and the market price of held financial instruments.

b) The quoted market price of the same or identical financial instruments in an

inactive market.

42

COSMOS BANK, TAIWAN


(Continued)

c) The fair value is estimated on the basis of the results of a valuation technique, and the market inputs (i.e., interest rate, yield curve, and volatility rate) used were based on obtainable data from the market. An observable input means an input can be derived from market data and can reflect the expectation of market participants when the inputs were used in evaluating the prices of financial instruments).

d) A majority of inputs derived from observable market data, or the input

correlation can be tested based on observable market data.

Note 3: Input for a fair value measurement for a financial instrument classified in Level 3 is not based on obtainable data from the market. An unobservable input, such as volatility for a share option derived from the share’s historical price does not generally represent current market expectations about future volatility.

(v) For the six-month periods ended June 30, 2011 and 2010, the interest revenues for financial

assets and liabilities at fair value were $2,566,597 thousand and $2,779,173 thousand, respectively. The incurred interest expenses were $568,165 thousand and $550,135 thousand, respectively.

(vi) For the six-month periods ended June 30, 2011 and 2010, the adjustments of stockholders’

equity increased and decreased directly from the available-for-sale financial assets amounted to $13,923 thousand and $8,054 thousand, respectively.

(vii) Financial risk information

1) Market risk

The Bank is engaged in investment in interest rate instruments including time certificates of deposit, bonds, notes, and similar financial instruments. As a result, it is exposed to interest rate risk. Since the fair value of these financial instruments is sensitive to the market interest rates, the following is the sensitivity variation for a 0.01% increase in market interest rates.

(in thousands of New Taiwan dollars)

June 30, 2011

Currency Principal Amount

Average Duration (Years)

The Effect on the Fair Value per

Variation of 0.01% New Taiwan Dollars $ 188,851 4.02000 NT$ 71

43

COSMOS BANK, TAIWAN


(Continued)


June 30, 2010

Currency Principal Amount

Average Duration (Years)

The Effect on the Fair Value per

Variation of 0.01% New Taiwan Dollars $ 1,573,477 1.65379 NT$ 266

The Bank monitors profit or loss on investment positions by mark-to-market valuation, and considers investment strategies and investment positioning. The Bank evaluated the market risk of financial instruments using daily value at risk (VaR). VaR is the potential loss in market value of financial instruments held by the Bank within a certain confidence interval for a specified period. As of June 30, 2011 and 2010, the Bank had price risk for holding bonds, notes, interest products, and shares of listed companies. VaR of securities held by the Bank is shown in the table below. The Bank made an assumption that, if there is a 99% level of confidence, there is only a 1% chance that the Bank will incur a loss on its financial instruments within a day. In addition, based on VaR assumptions, there are only 2 out of 200 days when the Bank could face losses on its financial instruments. The average, highest and lowest amounts of the fluctuation of the interest rates or stock prices that were calculated at the daily VaR for the six-month periods ended June 30, 2011 and 2010, were as follows (thousands): For the six-month periods ended June 30, 2011 June 30, 2010

Type of Market Risk Average Highest Lowest Average Highest Lowest Fair value interest rate risk $ 177 1,421 67 6,723 7,559 5,876 Price risk of listed stock

(include hedged position) 10,054 18,368 5,076 - - - The Bank engages in trade financing and foreign currency exchange; thus, it is exposed to exchange risks on differences between spot and forward rates. The Bank’s policy is to have a square position on its forward contracts. If the contract transactions do not square off, all Bank traders are authorized to handle the contracts in accordance with the Cosmos Bank Handling International Financing Transaction Rules. The exchange rate risks and interest rate risks on foreign security investments or other international financing business are hedged by cross-currency swap contracts, and the gains and losses on these contracts are measured at rates quoted by Reuters. These gains and losses are assessed and reported to Bank management regularly in order to adjust the hedge strategy.

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(Continued)

2) Credit risk The Bank is exposed to potential loss due to contract defaults by counter-parties or financial instrument issuers.

The Bank evaluates the creditworthiness of credit applications case by case, taking into account the applicant’s credit history, credit rating and financial condition. As of June 30, 2011 and 2010, about 54% and 46%, respectively, of total loans had been granted, and about 33% and 40%, respectively, had been secured. Collateral, mostly in the form of cash, real estate, marketable securities and other assets, may be required depending on the evaluation result. However, there is no collateral for issuing credit cards. Thus, the Bank evaluates the creditworthiness of credit card holders regularly and modifies the credit facilities if necessary. If the counter-parties or others concerned (e.g., guarantors) break a contract, the Bank will execute its right on the collateral and decrease its credit risk. In addition, the Bank discloses its maximum credit exposure without taking collateral fair value into consideration.

The maximum credit exposure of financial assets is the carrying amounts of financial assets on the balance sheet date.

The amounts of financial contracts with off-balance-sheet credit risks as of June 30, 2011 and 2010, were as follows: June 30, 2011 June 30, 2010 Credit card and cash card commitments $ 83,340,820 83,272,393 Guarantees and letters of credit issued 643,651 392,968 Irrevocable loan commitments 760,854 156,000 Concentration of credit risk exists when counter-parties to financial transactions are individuals or groups engaged in similar activities or activities in the same region, which would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. It is also affected by the nature of the borrowers’ operations. The Bank does not have any significant concentration of transaction with any particular customer or counterparty; however, it has concentration of transaction with several groups and industries. The concentration of the Bank’s credit risk was as follows:

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COSMOS BANK, TAIWAN


(Continued)

June 30, 2011 June 30, 2010

Group Private enterprise $ 25,912,626 26,782,324 Natural person 44,394,883 38,990,072 Non-profit enterprise 6,606 8,311 $ 70,314,115 65,780,707

Industries Wholesale, retail and catering $ 9,475,532 9,846,640 Manufacturing 8,656,410 8,265,437 Finance, insurance and real estate 3,304,095 4,369,401 $ 21,436,037 22,481,478

3) Liquidity risk As of June 30, 2011 and 2010, the liquidity reserve ratios were 29.74% and 29.06%, respectively. The Bank has sufficient equity capital and working capital to execute all contract obligations and has no liquidity risk. The management policy of the Bank is to match the contractual maturity profile to the interest rates for its assets and liabilities. Because of uncertainties regarding the transaction conditions, however, the maturities did not fully match the interest rates, resulting in gaps that may potentially give rise to gain or loss. The Bank applied appropriate ways to group assets and liabilities. The maturity analysis of assets and liabilities was as follows:

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(Continued)

June 30, 2011 Due after Due after Due after Due after One Month Three Months Six Months One Year Due in Up to Three Up to Up to Up to Due after

One Month Months Six Months One Year Seven Years Seven Years Total Assets

Cash and cash equivalents $ 2,001,822 - - - - - 2,001,822 Due from the Central Bank and

call loans to banks 9,285,073 1,746,858 2,893,242 906,184 672,190 - 15,503,547 Financial assets at fair value

through profit or loss 719,918 - - - - - 719,918 Available-for-sale financial assets 1,318,537 20,749 - 61,817 4,240,309 - 5,641,412 Held-to-maturity financial assets 12,000,000 4,000,000 6,300,000 - - - 22,300,000 Equity investments under the

equity method - - - - - 29,145 29,145 Financial assets carried at cost - - - - - 769,582 769,582 Receivables 1,440,809 415,494 566,448 1,153,413 2,955,789 3,073 6,535,026 Discounts and loans 6,396,145 8,273,548 12,693,184 14,830,438 18,960,747 9,160,053 70,314,115 Other financial assets - others 13,366 28,954 50,152 244 10,002 17,803 120,521 Foreclosed collateral - - 1,869 - 85,442 - 87,311 Refundable deposits 2,793 706 3,732 13,585 902,284 - 923,100

Liabilities Due to the Central Bank and other

banks 457,060 335,667 1,077,626 2,576,822 - - 4,447,175 Financial liabilities at fair value

through profit or loss 579 - - - - - 579 Securities sold under

repurchase agreements 2,223,076 - - - - - 2,223,076 Payables 598,710 145,229 122,424 278,966 399,940 39,921 1,585,190 Deposits and remittances 13,518,108 23,084,472 21,176,058 32,322,763 23,683,146 - 113,784,547 Other financial liabilities 2,695 163,205 163,604 499,945 256,951 - 1,086,400

June 30, 2010 Due after Due after Due after Due after One Month Three Months Six Months One Year Due in Up to Three Up to Up to Up to Due after

One Month Months Six Months One Year Seven Years Seven Years Total Assets

Cash and cash equivalents $ 2,253,947 - - - - - 2,253,947 Due from the Central Bank and

call loans to banks 13,974,711 5,485,377 16,413,162 1,842,353 496,957 - 38,212,560 Financial assets at fair value

through profit or loss 630,977 - - - - - 630,977 Available-for-sale financial assets 18,163 8,597 - - 928,049 - 954,809 Debt instruments with no active

market - - - 24,677 - - 24,677 Equity investments under the

equity method - - - - - 27,635 27,635 Financial assets carried at cost - - - - - 769,582 769,582 Receivables 1,473,519 567,591 714,942 1,376,109 3,395,849 4,241 7,532,251 Discounts and loans 6,824,247 8,002,382 13,019,034 18,128,848 15,729,226 4,076,970 65,780,707 Other financial assets - others 123,091 103,587 32,536 415 11 30,292 289,932 Foreclosed collateral - - 1,869 - 85,442 - 87,311 Refundable deposits 3,044 830 2,701 86,557 855,753 - 948,885

Liabilities Due to the Central Bank and other

banks 682,671 803,117 5,212,556 2,698,371 - - 9,396,715 Financial liabilities at fair value

through profit or loss 901 - - - - - 901 Securities sold under

repurchase agreements 30,000 - - - - - 30,000 Payables 493,665 167,827 152,984 209,118 357,667 - 1,381,261 Deposits and remittances 12,621,498 20,226,448 22,899,238 31,377,607 18,328,759 - 105,453,550 Bank debentures - 515,000 - - - - 515,000 Other financial liabilities 6,311 161,811 167,227 497,066 798,060 - 1,630,475

47

COSMOS BANK, TAIWAN


(Continued)

4) Fair value interest rate risk and cash flow interest rate risk

When market interest rates change, the cash flows on floating-interest-rate assets will also fluctuate, and the Bank may suffer risks due to any adverse interest rate changes. Thus, the Bank used cross-currency swap contracts to reduce risks from adverse changes in market interest rates.

(viii) Risk control and hedge policy

The Bank documents its risk management policies, including overall operating strategies and risk control philosophy. Each business unit, when engaged in its operations, it must abide by the risk management policies and hedging policies as approved by the Board of Directors in order to implement risk management, strengthen businesses, and limit risks that may arise from operation to an acceptable level. The Bank’s risk management polices and other policies are regularly adjusted to match the amendment of the Bank’s overall organization structure, operating plan, management targets, and strategy. The Board of Directors periodically monitors and checks the Bank’s risk management policy along with the availability and execution performance of strategies in order to appropriately ensure and manage the Bank’s risk.

5 Related-party Transactions

(a) Related parties

Related Party Relationship with the Bank S.A.C. PEI Taiwan Holdings B.V. Main stockholder S.A.C. PEI Asia Investments Holdings II S.à r.l.

(“Lux. Co. II”) Parent company of S.A.C. PEI Taiwan

Holdings B.V. S.A.C. PEI Asia Investment Holdings I S.à r.l.

(“Lux. Co. I”) Parent company of Lux. Co. II

S.A.C. Private Equity Investors, L.P. (“S.A.C. PEI”)

Parent company of Lux. Co. I

S.A.C. Private Equity GP, L.P. (“S.A.C. PEI GP”) Partnership with S.A.C. PEI GE Capital Asia Investments Holdings B.V.

(“GE Asia Holdings”) Main stockholder

General Electric Capital Corporation (GECC) Affiliate of GE Asia Holdings GE Capital Taiwan Holdings Inc. (“GE Holdings”) Affiliate of GE Asia Holdings General Electric International Inc. (GEII) Affiliate of GE Asia Holdings GE Processing Services Pty Limited

(“GE Australia”) Affiliate of GE Asia Holdings

GE Capital Thailand Affiliate of GE Asia Holdings GE Money Taiwan Ltd. Affiliate of GE Asia Holdings

48

COSMOS BANK, TAIWAN


(Continued)

Related Party Relationship with the Bank Cosmos Insurance Brokers Co., Ltd. 100%-owned investee Others The Bank’s chairman, president, managers

and their relatives with a kinship of up to the second degree of consanguinity with the chairman and president

Note: The Bank disclosed related-party transactions as of June 30, 2011, and the transactions with

non-related parties as of June 30, 2011, were not included in the balance sheet as of June 30, 2011.

(b) Significant transactions between the Bank and related parties

(i) Loans, deposits


June 30, 2011

June 30, 2011

Interest Rate Revenue

(Expense) Amount % (%) Amount Loans $ 37,930 0.05 1.29~18.25 285 Deposits $ 214,358 0.19 0~5.91 (2,728)

For the six-month periods

ended June 30, 2010

June 30, 2010

Interest Rate

Revenue (Expense)

Amount % (%) Amount Loans $ 17,366 0.03 1.04~18.25 98 Deposits $ 177,166 0.17 0~5.69 (1,466)

49

COSMOS BANK, TAIWAN


(Continued)

(i) Loans

For the six-month periods ended June 30, 2011 (in thousands of New Taiwan dollars)

Loan Classification

Type Account Volume (Number of Names) Highest Balance Ending

Balance Normal Loans

Nonperforming Loans Collateral

Differences in Transaction Terms

from Those for Unrelated Parties

Consumer loans for employees 8 $ 10,219 9,890 9,890 - Real estate; some loans had no collateral

None

Self-use housing mortgage loan 10 29,113 28,040 28,040 - Real estate None Other loans 1 703 - - - Time deposit None

For the six-month periods ended June 30, 2010

Loan Classification

Type Account Volume (Number of Names) Highest Balance Ending

Balance Normal Loans

Nonperforming Loans Collateral

Differences in Transaction Terms

from Those for Unrelated Parties

Consumer loans for employees 7 $ 3,075 1,941 1,941 - Real estate; some loans had no collateral

None

Self-use housing mortgage loan 9 16,345 15,425 15,425 - Real estate None

In accordance with sections 32 and 33 of the Banking Act of the Republic of China, no unsecured credit shall be extended by the Bank to any interested party, and for any secured credit extended by the Bank to any interested party, the terms of such extended credit shall not be more favorable than those terms offered to other same-category customers. However, the foregoing rule on unsecured credit shall not apply to consumer loans and loans extended to the government.

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COSMOS BANK, TAIWAN


(Continued)

(ii) Personnel secondment service agreements The Bank signed a personnel secondment service agreement with GEII, and quarterly paid GEII the personnel secondment fees for the period from January 1, 2009, to December 31, 2010. The agreement was expired on the date of December 31, 2010. In a consideration of business requirement, the Bank extended the agreement from January 1, 2011 to December 31, 2012, in accordance with the resolution of the 5 th meeting of the 7 th session of the Bank’s Board of Directors. The Bank may terminate the agreement at any time by giving a one-month prior written notice to GEII. For the six-month periods ended June 30, 2011 and 2010, the secondment fees amounted to $14,200 thousand and $14,559 thousand, respectively, and were recorded under other administrative and management expenses. As of June 30, 2011 and 2010, the payables from personnel secondment fees amounting to $8,371 thousands and $8,084 thousands, respectively, were recorded under expenses payable.

(iii) The Bank obtained from GE Capital Thailand the right to use NAOS for $15,115 (USD400) thousand. For the six-month periods ended June 30, 2011 and 2010, the Bank amortized the right in the amount of $1,512 thousand, classified as depreciation and amortization.

(iv) To improve its car loan operations, the Bank signed a car loan acquisition contract with GE Money to buy car loans and a contract for the purchase from Mega International Commercial Bank of a car loan served by GE Money amounting to $2,383,050 thousand for $2,478,188 thousand, with a premium rate of about 4%. The transaction price was calculated using the future cash flow model. In addition, according to car loan acquisition contract, GE Money should be responsible for the car loan loss excess of 1.5% of the principal balance and implementing the collection of overdue car loans. The expenses arising in collections should be afforded by the Bank. GE Money and the Bank agreed to set June 30, 2011 as a cut-off date for car loan losses.

As of June 30, 2011 and 2010, the balance of car loans were $4,493 thousand and $51,012 thousand, respectively. As of June 30, 2011, the overdue car loans of the Bank sold back to GE Money were recognized as other receivables that amounted to $78,682 thousand and with a provision of $20,320 thousand. The Bank will execute the settlement procedures of the car loans with GE Money in the third quarter of 2011.

(v) Fee income

The Bank, Cosmos Insurance Broker Co., Ltd., and other insurance companies signed contracts for three-party cooperative promoting and marketing to sell insurance products through the channels of the Bank. The Bank’s channel fee income from the abovementioned transactions was $95,593 thousand and $81,459 thousand for the six-month periods ended June 30, 2011 and 2010, respectively. Moreover, Cosmos Insurance Broker Co., Ltd and the Bank signed a lease contract. The Bank recognized both lease revenues which amounted to $60 thousand for the six-month periods ended June 30, 2011 and 2010.

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COSMOS BANK, TAIWAN


(Continued)

6 Pledged Assets (a) The Government bonds with a carrying value of $52,600 thousand as of June 30, 2011, were

recorded as the following: (i) financial instruments at fair value through profit or loss that amounted to $33,300 thousand, (ii) available-for-sale financial assets which amounted to $17,100 thousand, (iii) refundable deposits of $2,200 thousand The Government bonds with a carrying value of $52,100 thousand as of June 30, 2010, were recorded as available-for-sale financial assets of $49,300 thousand, and refundable deposits which amounted to $2,800 thousand. Both the government bonds had been placed with the court as guarantee deposits in line with the Bank’s request for court approval to seize and sell the properties of the Bank’s debtors to satisfy the debtors’ obligations to the Bank.

(b) As of June 30, 2011 and 2010, the Bank had provided government bonds (recorded as available-

for-sale financial assets, net) with carrying value of $220,000 thousand as the reserve and deposits for guarantee of the Bank’s operating business.

(c) As of June 30, 2011 and 2010, certificates of foreign exchange time deposit of $28,802 thousand

and $238,351 thousand (recorded as other financial assets, net), respectively, had been provided as collateral for spot exchange transactions.

(d) As of June 30, 2011 and 2010, the Bank provided a Central Bank certificate of deposit amounting

to $50,000 thousand and $20,000 thousand, respectively, (recorded as other financial assets, net) as the collateral for collections of treasury tax.

7 Commitments and Contingencies

In addition to the disclosures in note 4(w), the commitments as of June 30, 2011, were as follows: (a) The Bank leases from unrelated parties the premises occupied by its branches under operating

lease agreements expiring on various dates until February 28, 2016. The leases also require the payment of monthly, quarterly, semiannually or annually rentals, or a refundable rental deposit. Refundable deposits on these leases amounted to $882,321 thousand as of June 30, 2011.

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COSMOS BANK, TAIWAN


(Continued)

Future minimum annual rentals on these leases as of June 30, 2011, were as follows:

Period Amount

2011.07.01~2011.12.31 $ 102,970 2012.01.01~2012.12.31 143,569 2013.01.01~2013.12.31 96,153 2014.01.01~2014.12.31 40,653 2015.01.01~2015.12.31 11,741

$ 395,086

(b) Significant outstanding purchase contracts

Item

Contract amount

Prepayment

Payable

Banking information and operating systems $ 93,209 41,024 52,185 Premises improvements, water and electricity,

and air conditioning 14,501 267 14,234 $ 107,710 41,291 66,419

(c) The Bank’s ex-chairman, Sheng-Fa Hsui, and ex-vice chairman, Xian-Rong Hsui, were prosecuted

for involvement in illegal events. With the exception of the insider trading portion, which is still being tried, the defendants have been ruled by the Taipei District Court to be in violation of the Banking Act and sentenced. The Bank is now being managed by a new management team, which uses high standards to administer the Bank, and would not be influenced by this legal case.

(d) The Bank sold structured notes, which were issued by GVEC Resources Inc. (GVEC), through a specific trust fund, amounting to USD48,920 thousand. PEM Corporation, a member of the GVEC group, was found to have committed fraud by the U.S. Securities and Exchange Commission (SEC). Due to social responsibility, the Bank’s Board of the Directors’ meeting approved buying back the structured notes from the investors and asked for compensation from PEM Corporation. Please see notes 4(d). Since HSBC Bank USA did not take the management responsibility of entrusting GVEC assets, the Bank hired a USA law firm to file a lawsuit against HSBC Bank USA for an indemnity. As of August 24, 2011, the lawsuit was still waiting for the judgment by the courts.

(e) The Bank’s ex-employees disagreed with the calculation method of pension payment and asked the Bank to pay higher pensions. The lawsuits were lodged with the courts, and these lawsuits requested $5,952 thousand. As of August 24, 2011, the lawsuits were in the process of judgment by the courts.

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COSMOS BANK, TAIWAN


(Continued)

8 Major Casualty Losses: None. 9 Significant Subsequent Events: None.

10 Others

(a) Personnel, depreciation and amortization expenses

For the six-month period

ended

For the six-month period

ended June 30, 2011 June 30, 2010

Personnel expenses Salaries $ 802,186 718,768 Insurance 56,905 45,292 Pension 36,776 44,396 Others 26,260 84,958

Depreciation expenses 64,893 93,833 Amortization expenses 50,620 85,748

For the six-month periods ended June 30, 2011 and 2010, the depreciation on leased assets amounted to $1,320 thousand and $1,248 thousand, respectively, recorded as reductions of rental revenue under net revenues other than interest in the income statements.

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COSMOS BANK, TAIWAN


(Continued)

(b) Trust business under the Trust Law

(i) Trust-related items, as shown in the following balance sheets, trust property list, and income statement

Balance Sheets of Trust Accounts

June 30, 2011 and 2010

Trust Assets 2011 2010 Cash in bank $ 205,146 186,519 Short-term investments

Bonds 60,968 53,174 Common stock 115,716 159,361 Mutual funds 30,118,611 27,826,968 Structured products 869,905 2,422,811 Exchange traded fund (ETF) 16,934 9,006

Accounts receivable Notes receivable 11,686 8,521 Accounts receivable - 6,355 Other accounts

receivable 1,686 19,566 Real property 16,200 16,200 Intangible assets

Superficies 984,534 984,534 Prepaid account

Prepaid expenses - 1,599,793 Prepaid taxes 14 187 Other prepaid - 5,116,000

Offset against business tax payable 970 80 Other assets

Deferred expenses - 572,222 Refundable deposits 360 360 Trust assets $ 32,402,730 38,981,657


Trust Liabilities 2011 2010

Account payables

Accrued expenses $ 4,152 13,159 Other payables 157,479 383

VAT tax payables 194 27,295 Advance receipts

Advance real estate receipts - 7,432,877

Advanced revenues 11,686 8,374 Other advance

receipts 167 273 Receipts under custody

Property tax 224 - Land tax 2,809 -

Suspense credits - 294 Other liabilities 1,500 1,000 Trust capital

Money 31,182,134 30,471,320 Real property 16,200 16,200 Superficies 984,534 984,534

Accumulated earning 41,651 25,948

Trust liabilities $ 32,402,730 38,981,657

55

COSMOS BANK, TAIWAN


(Continued)

Trust Property List June 30, 2011 and 2010


Investment Items 2011 2010 Cash in bank $ 205,146 186,519 Short-term

Mutual funds 30,118,611 27,826,968 Bonds 60,968 53,174 Common stock 115,716 159,361 Structured products 869,905 2,422,811 Exchange traded fund (ETF) 16,934 9,006

Real property Others 16,200 16,200

Intangible assets Superficies 984,534 984,534

$ 32,388,014 31,658,573

Statements of Income on Trust Accounts For the six-month periods ended June 30, 2011 and 2010


2011 2010

Revenues Investment revenues $ 234 - Interest revenues 546,001 461,258 Rental revenues 11,463 11,436 Other revenues 600 1,219 Income from trading properties 163,680 139,840 Revenues from beneficiary certificates 721,978 613,753

Expenses Sales expenses (339) (464) Management fees (6,741) (4,809) Operating expenses－housing taxes (55) - Levies (196) - Other expenses (1,221) - Expense from beneficiary certificates (8,552) (5,273) Net income before tax 713,426 608,480 Income tax expenses - - Net income $ 713,426 608,480

56

COSMOS BANK, TAIWAN


(Continued)

Note: The above statements of income are for the business of the trust division, and the amounts are not included in the profit and loss of the Bank.

(ii) Nature of trust business operations under the Trust Law: Please refer to note 1.

(c) Average amount of, and average interest rate on, interest-earning assets and interest-bearing liabilities, and significant foreign currency financial assets and liabilities were summarized as follows:

(i) Average balance was calculated as the daily average balances of interest-earning assets and

interest-bearing liabilities. Average amount of, and average interest rate on, interest-earning assets and interest-bearing liabilities for the six-month periods ended June 30, 2011 and 2010, were as follows:

For the six-month periods

ended June 30, 2011 Average Average Balance Rate (%)

Interest-earning assets

Cash and cash equivalents – due from banks $ 645,571 0.12 Due from the Central Bank and call loans to banks 19,864,702 0.75 Financial assets at fair value through profit or loss (excluding stocks and funds) 267,272 2.85 Securities bought under resale agreements 246,200 0.50 Receivables of credit cards 2,915,047 10.30 Discounts and loans (excluding overdue loans) 67,969,521 6.65 Available-for-sale financial assets (excluding stocks and funds) 3,648,930 1.15 Held-to-maturity financial assets 17,212,983 0.83 Other financial assets – other (excluding stocks) 122,107 0.59 Other assets 28,802 0.13

Interest-bearing liabilities Due to the Central Bank and other banks 4,400,388 1.29 Securities sold under repurchase agreements 2,119,893 0.52 Demand deposits 11,234,552 0.10 Savings – demand deposits 25,837,778 0.36 Time deposits 38,238,120 1.14 Savings – time deposits 35,864,416 1.20 Other financial liabilities (Note) 1,121,968 8.86

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COSMOS BANK, TAIWAN


(Continued)

For the six-month period ended June 30, 2010 Average Average Balance Rate (%)

Interest-earning assets

Cash and cash equivalents – due from banks $ 577,811 0.02 Due from the Central Bank and call loans to banks 34,326,587 0.58 Financial assets at fair value through profit or loss (excluding stocks and funds) 178,045 4.90 Receivables of credit cards 3,346,359 10.19 Discounts and loans (excluding overdue loans) 67,906,598 7.28 Available-for-sale financial assets (excluding stocks and funds) 955,407 2.07 Debt instruments with no active market 29,004 0.70 Other financial assets – other (excluding stocks) 258,232 0.26

Interest-bearing liabilities

Due to the Central Bank and other banks 11,392,295 1.03 Securities sold under repurchase agreements 166 0.35 Demand deposits 9,041,334 0.07 Savings – demand deposits 24,390,512 0.33 Time deposits 18,615,705 0.96 Savings – time deposits 51,276,031 1.07 Bank debentures 515,000 3.20 Other financial liabilities (Note) 1,664,777 9.40 Note: Based on the accounting rule, the Bank’s Subordinated Unsecured Mandatory Convertible

Bonds (MCB) has been taken apart into two components of liability and stockholder’s equity, and approximately $12,920,000 thousand was recorded as stockholders’ equity account for the six-month periods ended June 30, 2011 and 2010 which resulted in a high average interest rate on the financial liabilities. The actual coupon rate is 4% for the six-month period ended June 30, 2011.

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COSMOS BANK, TAIWAN


(Continued)

(ii) The Bank’s significant foreign currency assets and liabilities as of June 30, 2011 and 2010,

were as follows:

June 30, 2011 June 30, 2010 Foreign

currency amount

Currency

rate

TWD

amount

Foreign currency amount

Currency

rate

TWD

amount Financial assets:

USD $ 173,061 28.8020 4,984,498 148,428 32.2780 4,790,975 HKD 22,080 3.7011 81,721 32,800 4.1466 136,007 GBP 652 46.2819 30,186 612 48.5849 29,738 AUD 6,153 30.9190 190,258 8,097 27.5622 223,167 SGD 219 23.4544 5,127 963 23.1069 22,249 CHF 42 34.5472 1,444 63 29.8318 1,882 JPY 229,328 0.3583 82,164 342,516 0.3643 124,782 CAD 590 29.8157 17,604 576 30.7703 17,717 NZD 4,027 23.8797 96,171 5,692 22.3751 127,352 CNY 1,954 4.4562 8,709 1,154 4.7555 5,485 EUR 6,763 41.7514 282,381 3,817 39.4792 150,688

Financial liabilities: USD 153,232 28.8020 4,413,390 109,007 32.2780 3,518,519 HKD 22,267 3.7011 82,413 30,764 4.1466 127,567 GBP 624 46.2819 28,873 601 48.5849 29,211 AUD 6,119 30.9190 189,204 8,119 27.5622 223,764 SGD 183 23.4544 4,295 749 23.1069 17,313 JPY 73,464 0.3583 26,321 254,203 0.3643 92,609 CAD 618 29.8157 18,437 524 30.7703 16,135 NZD 4,026 23.8797 96,129 5,667 22.3751 126,796 EUR 6,758 41.7514 282,168 4,813 39.4792 190,017

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COSMOS BANK, TAIWAN


(Continued)

(d) Asset quality, concentration of credit extensions, interest rate sensitivity, profitability, and maturity analysis of asset and liabilities (i) Asset quality

Period June 30, 2011 June 30, 2010

Items Nonperforming

Loans (Note 1)

Loans Ratio of

Nonperforming Loans (Note 2)

Allowance for Possible Losses

Coverage Ratio (Note 3)

Nonperforming Loans

(Note 1) Loans

Ratio of Nonperforming Loans (Note 2)



Corporate Banking

Secured $ 1,917,433 16,069,149 11.93% 143,580 7.49% 753,912 18,976,275 3.97% 305,283 40.49% Unsecured 58,008 12,117,611 0.48% 1,163,762 2,006.21% 751,704 10,511,208 7.15% 1,431,915 190.49%

Consumer Banking

Housing mortgage (Note 4) 44,096 10,478,995 0.42% 15,613 35.41% 97,380 4,900,821 1.99% 6,984 7.17% Cash card 424,728 23,333,672 1.82% 1,328,369 312.76% 544,913 27,991,911 1.95% 1,227,697 225.30% Small-scale credit loans (Note 5) 21,123 4,038,625 0.52% 73,511 348.02% 31,155 1,502,494 2.07% 107,577 345.29%

Other (Note 6) Secured 30,806 4,146,992 0.74% 7,533 24.45% 41,951 1,704,716 2.46% 3,766 8.98% Unsecured 1,100 129,071 0.85% 567 51.54% 28,569 193,282 14.78% 2,511 8.79%

Total loans 2,497,294 70,314,115 3.55% 2,732,935 109.44% 2,249,584 65,780,707 3.42% 3,085,733 137.17%

Nonperforming

Receivables (Note 1)

Receivables

Ratio of Nonperforming




Nonperforming Receivables

(Note 1) Receivables

Ratio of Nonperforming




Credit cards 16,052 3,220,138 0.50% 132,850 827.60% 30,115 3,770,967 0.80% 68,696 228.11% Factored accounts receivable without recourse (Note 7) 3 2,942 0.11% 115 3,430.41% 331 47,460 0.70% 87 26.22% Amounts of executed contracts on negotiated debts not

reported as nonperforming loans (Note 8) 1,171,979 1,505,407 Amounts of executed contracts on negotiated debts not

reported as nonperforming receivables (Note 8) 5,059 6,539 Amounts of executed debt settlement program and

rehabilitation program not reported as nonperforming loans (Note 9) 91,097 112,591

Amounts of executed debt settlement program and rehabilitation program not reported as nonperforming receivables (Note 9) 4,804 2,531

Note 1: Nonperforming loans are reported to the authorities and disclosed to the public, as required by the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/ Non-accrued Loans.”

Nonperforming credit card receivables are reported to the authorities and disclosed to the public, as required by the Banking Bureau’s letter dated July 6, 2005 (Ref. No. 0944000378). Note 2: Ratio of nonperforming loans: Nonperforming loans ÷ Outstanding loan balance.

Ratio of nonperforming credit card receivables: Nonperforming credit card receivables ÷ Outstanding credit card receivables balance. Note 3: Coverage ratio of loans: Allowance for possible losses for loans ÷ Nonperforming loans.

Coverage ratio of credit card receivables: Allowance for possible losses for credit card receivables ÷ Nonperforming credit card receivables. Note 4: The mortgage loan is for house purchase or renovation and is fully secured by housing that is purchased (owned) by the borrower, the spouse or the minor children of the borrowers. Note 5: Based on the Banking Bureau’s letter dated December 19, 2005 (Ref. No. 09440010950), small-scale credit loans are unsecured, involve small amounts, and exclude credit cards and cash cards. Note 6: Other consumer banking loans refer to secured or unsecured loans that exclude housing mortgages, cash cards, credit cards and small-scale credit loans. Note 7: As required by the Banking Bureau in its letter dated July 19, 2005 (Ref. No. 094000494), factored accounts receivable without recourse are reported as nonperforming receivables within three months after the factors or insurance companies refuse to

indemnify Banks for any liabilities on these accounts. Note 8: The amounts of executed contracts on negotiated debts that are not reported as nonperforming loans or receivables are reported in accordance with the Banking Bureau’s letter dated April 25, 2006 (Ref. No. 09510001270). Note 9: The amounts of the executed debt settlement program and rehabilitation program not reported as nonperforming loans or receivables are reported in accordance with the Banking Bureau’s letter dated September 15, 2008 (Ref. No. 09700318940).

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COSMOS BANK, TAIWAN


(Continued)

(ii) Concentration of credit extensions June 30, 2011


Rank Business Groups’ Standard Industrial Classification and Symbol

Total Amount of Credit Endorsement or Other

Transactions

Percentage of the Bank’s Equity (%)

1 A Group-014841 Retail Sale of Automobiles in Specialized Stores $ 2,522,694 20.28

2 B Group-013010 Motor Vehicles Manufacturing 1,766,357 14.20

3 C Group-016499 Other Financial Intermediation 1,349,304 10.85

4 D Group-016899 Other Real Estate 652,500 5.25

5 E Group-016499 Other Financial Intermediation 464,759 3.74

6 F Group-012831 Electric Wire and Cable Manufactory 438,309 3.52

7 G Group-015911 Films Manufacturing 425,602 3.42

8 H Group-015510 Short-term Stay Service 390,000 3.14

9 I Group-013510 Electricity Providers 349,768 2.81

10 J Group-016499 Other Financial Intermediation 300,000 2.41

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COSMOS BANK, TAIWAN


(Continued)

June 30, 2010 (in thousands of New Taiwan dollars)

Rank Business Groups’ Standard Industrial Classification and Symbol

Total Amount of Credit Endorsement or Other

Transactions

Percentage of the Bank’s Equity (%)

1 A Group-014841 Retail Sale of Automobiles in Specialized Stores $ 2,977,719 22.27

2 B Group-013010 Motor Vehicles Manufacturing 1,812,179 13.55

3 C Group-016499 Other Financial Intermediation 1,398,086 10.45

4 D Group-016899 Other Real Estate 993,958 7.43

5 K Group-016499 Other Financial Intermediation 989,184 7.40

6 E Group-016499 Other Financial Intermediation 699,759 5.23

7 G Group-015911 Films Manufacturing 460,817 3.45 8 F Group-012411 Iron and Steel Smelting 444,558 3.32 9 I Group-013510 Electricity Providers 405,371 3.03

10 L Group-016499 Other Financial Intermediation 255,512 1.91

Note 1: Ranked by the total amount of credit, endorsement, or other transactions; list

excludes government-owned or state-run enterprises. If the creditor is a group enterprise, the Bank would express the amount of credit by aggregating the total credit of this group enterprise, indicated with the symbol of the enterprise and industrial classification. The Bank would further identify the industry in which the group enterprise has the most exposure. The industrial classification refers to the Industrial Classification Standard of the Directorate General of Budget, Accounting and Statistics (DGBAS).

Note 2: Group enterprise refers to a group of corporate entities as defined by Article 6 of the

“Supplementary Provisions to the Taiwan Stock Exchange Corporation’s Rules for Review of Securities Listings.”

Note 3: The total amount of credit, endorsement, or other transactions is the sum of various

loans (including import and export negotiations, discounts, overdrafts, unsecured and secured short-term loans, margin loans receivable, unsecured and secured medium-term loans, unsecured and secured long-term loans, and overdue loans), exchange bills negotiated, factored accounts receivable without recourse, acceptances, and guarantees.

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COSMOS BANK, TAIWAN


(Continued)

(iii) Interest rate sensitivity information 1)

Interest Rate Sensitivity

June 30, 2011


Items 1 to 90 Days 91 to 180 Days 181 Days to One Year Over One Year Total

Interest-rate-sensitive assets $ 98,041,276 3,182,291 1,225,464 7,460,249 109,909,280 Interest-rate-sensitive

liabilities

57,709,013

42,646,756

13,709,580

1,752,345

115,817,694 Interest rate sensitivity gap 40,332,263 (39,464,465) (12,484,116) 5,707,904 (5,908,414) Net worth 12,591,232 Ratio of interest-rate-sensitive assets to liabilities (%) 94.90 Ratio of interest rate sensitivity gap to net worth (%) (46.92)


June 30, 2010



Interest-rate-sensitive assets $ 78,887,986 16,844,670 2,001,232 3,878,381 101,612,269 Interest-rate-sensitive

liabilities

63,111,030

37,436,861

8,025,727

3,232,232

111,805,850 Interest rate sensitivity gap 15,776,956 (20,592,191) (6,024,495) 646,149 (10,193,581) Net worth 14,315,053 Ratio of interest-rate-sensitive assets to liabilities (%) 90.88 Ratio of interest rate sensitivity gap to net worth (%) (71.21)

Note 1: The above amounts included only New Taiwan dollar amounts held by the head office and branches

of the Bank (i.e., excluding foreign currency).

Note 2: Interest-rate-sensitive assets and liabilities are interest-earning assets and interest-bearing liabilities with revenues or costs affected by interest rate changes.

Note 3: Interest rate sensitivity gap = Interest-rate-sensitive assets － Interest-rate-sensitive liabilities. Note 4: Ratio of interest-rate-sensitive assets to liabilities = Interest-rate-sensitive assets/Interest-rate-

sensitive liabilities (in New Taiwan dollars).

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(Continued)

2)

Interest Rate Sensitivity June 30, 2011

(in thousands of U.S. dollars)

Items 1 to 90 Days 91 to 180 Days 181 Days to

One Year Over One Year Total

Interest-rate-sensitive assets $ 137,877 1,919 - - 139,796 Interest-rate-sensitive liabilities 15,925 113,838 12,095 - 141,858 Interest rate sensitivity gap 121,952 (111,919) (12,095) - (2,062) Net worth 16 Ratio of interest-rate-sensitive assets to liabilities (%) 98.55 Ratio of interest rate sensitivity gap to net worth (%) (12,887.50)


June 30, 2010



Interest-rate-sensitive assets $ 110,898 6,662 - - 117,560 Interest-rate-sensitive

liabilities 15,899 82,873 7,910 - 106,682

Interest rate sensitivity gap 94,999 (76,211) (7,910) - 10,878 Net worth (33) Ratio of interest-rate-sensitive assets to liabilities (%) 110.20 Ratio of interest rate sensitivity gap to net worth (%) (32,963.64)

Note 1: The above amounts included only U.S. dollar amounts held by the head office, domestic branches,

OBU and overseas branches of the Bank, and excluded contingent assets and contingent liabilities. Note 2: Interest-rate-sensitive assets and liabilities are interest-earning assets and interest-bearing liabilities

with revenues or costs affected by interest rate changes. Note 3: Interest rate sensitivity gap = Interest-rate-sensitive assets － Interest-rate-sensitive liabilities. Note 4: Ratio of interest-rate-sensitive assets to liabilities = Interest-rate-sensitive assets/Interest-rate-

sensitive liabilities (in U.S. dollars).

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COSMOS BANK, TAIWAN


(Continued)

(iv) Profitability

(Unit: %)

Items

For the six-month periods ended June 30,

2011

For the six-month periods ended June 30,

2010

Return on total assets Before income tax (0.17) (2.50) After income tax (0.16) (3.83)

Return on equity Before income tax (1.85) (22.92) After income tax (1.75) (35.17)

Net income ratio (19.66) (1,860.98)

Note 1: Return on total assets = Income before (after) income tax/Average total assets. Note 2: Return on equity = Income before (after) income tax/Average equity. Note 3: Net income ratio = Income after income tax/Total net revenues. Note 4: Income before (after) income tax was the income for the six-month periods ended

June 30, 2011 and 2010. Note 5: The above profitability ratios are expressed annually.

(v) Maturity analysis of assets and liabilities 1)

Maturity Analysis of Assets and Liabilities June 30, 2011


Total Remaining Period to Maturity

1-30 Days 31-90 Days 91-180 Days 181 Days- 1 Year Over 1 Year

Main capital inflow on maturity $ 127,692,522 41,383,231 10,382,854 16,062,169 16,823,500 43,040,768

Main capital outflow on maturity 152,460,496 17,252,134 31,314,814 27,215,296 39,205,188 37,473,064

Gap (24,767,974) 24,131,097 (20,931,960) (11,153,127) (22,381,688) 5,567,704

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(Continued)





Main capital inflow on maturity $ 120,348,615 24,203,516 13,290,008 29,820,165 21,458,959 31,575,967

Main capital outflow on maturity 150,693,975 16,858,056 27,891,574 34,030,463 37,097,265 34,816,617

Gap (30,345,360) 7,345,460 (14,601,566) (4,210,298) (15,638,306) (3,240,650)

Note: The above amounts include only New Taiwan dollar amounts held by the head office and domestic branches of the Bank (i.e., excluding foreign currency).

2)

Maturity Analysis of Assets and Liabilities

June 30, 2011




Main capital inflow on maturity $ 203,230 128,918 19,898 5,362 5,000 44,052

Main capital outflow on maturity 158,472 125,004 10,331 8,505 12,116 2,516

Gap 44,758 3,914 9,567 (3,143) (7,116) 41,536





Main capital inflow on maturity $ 149,929 110,776 26,683 10,970 - 1,500

Main capital outflow on maturity 149,929 85,364 8,515 7,853 7,927 40,270

Gap - 25,412 18,168 3,117 (7,927) (38,770)

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(Continued)

Note 1: The above amounts include only U.S. dollar amounts held by the head office, domestic branches and OBU of the Bank.

Note 2: If overseas assets are above 10% of total assets of the Bank, it is necessary to provide supplementary

disclosure information. (vi) Capital adequacy ratio

(Unit: in thousands of New Taiwan dollars)

Year

Items June 30,

2011 June 30,

2010

Eligible Capital

Tier 1 capital $ 7,777,474 7,246,791 Tier 2 capital 5,309,034 6,316,091 Tier 3 capital - - Eligible capital 13,086,508 13,562,882

Risk-weighted Assets

Credit risk Standardized approach 68,426,594 69,229,460 Internal rating-based approach - - Securitization - 12,400

Operational risk

Basic indicator approach 12,102,251 14,257,214 Standardized approach/Alternative standardized approach - -

Advanced measurement approach - -

Market risk Standardized approach 2,677,508 1,610,644 Internal model approach - -

Risk-weighted assets 83,206,353 85,109,718 Capital adequacy ratio 15.73 15.94 Ratio of tier 1 capital to risk-weighted assets (%) 9.35 8.52 Ratio of tier 2 capital to risk-weighted assets (%) 6.38 7.42 Ratio of tier 3 capital to risk-weighted assets (%) - - Ratio of common stock to total assets (%) 11.93 12.25 Leverage (%) 6.35 6.06

Note 1: Eligible capital and risk-weighted assets are calculated under the “Regulations Governing the

Capital Adequacy Ratio of Banks” and the “Explanation of Methods for Calculating the Eligible Capital and Risk-Weighted Assets of Banks.”

Note 2: Formulas used were as follows:

1) Eligible capital = Tier 1 capital + Tier 2 capital + Tier 3 capital. 2) Risk-weighted assets = Risk-weighted assets for credit risk + Capital requirements for

operational risk and market risk x 12.5. 3) Capital adequacy ratio = Eligible capital ÷ Risk-weighted assets. 4) Ratio of Tier 1 capital to risk-weighted assets = Tier 1 capital ÷ Risk-weighted assets.

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COSMOS BANK, TAIWAN


(Continued)

5) Ratio of Tier 2 capital to risk-weighted assets = Tier 2 capital ÷ Risk-weighted assets. 6) Ratio of Tier 3 capital to risk-weighted assets = Tier 3 capital ÷ Risk-weighted assets. 7) Ratio of common stock to total assets = Common stock ÷ Total assets. 8) Leverage＝Tier 1 capital ÷ Adjusted average assets [Average Assets – Deduction from

Tier 1 capital (“Goodwill,” “Deferred loss on sale of nonperforming loans” and the amount that should be deducted from Tier 1 capital according to the “Explanation of Methods for Calculating the Eligible Capital and Risk-Weighted Assets of Banks”)].

Note 3: Under the regulation on capital adequacy ratios, the Bank had to use the standardized

approach to calculate its credit risks and had to reduce its Tier 1 capital when its operating reserve and allowance for possible losses became insufficient. The Bank calculated its capital adequacy ratios by referring to “The Expected Loss Interpretation of the Banking Bureau,” previous loss experience, property risk, and risk-related developments and also reported them to the supervisors from the Banking Bureau.

11 Operating Segment Financial Information – Reporting Department

For the six-month period ended June 30, 2011 Consumer

banking department

Corporate banking

department

Branch banking

department

Treasury

department

Other

department

Total

Revenues Net interest revenues $ 1,593,252 280,870 311,317 55,378 (238,611) 2,002,206 Net revenues (losses) other than

interest 180,653 28,397 318,765 7,769 (2,507) 533,077 Inter-department revenue

(expense) (6,825 ) 21,036 (3,863 ) - (10,348 ) Total net revenues

- 1,767,080 330,303 626,219 63,147 (251,466 )

2,535,283

Expenses

Operating expenses (595,574) (170,435) (643,889) (25,119) (367,310) (1,802,327) Provision for loan losses 858,554 288,533 (14,345 ) - (802 ) Total expenses

1,131,940 262,980 118,098 (658,234 ) (25,119 ) (368,112 ) (670,387

Net gains (losses) before provision for loan losses

)

2,030,060 448,401 (32,015) 38,028 (619,578) 1,864,896 Distribution from head office (293,027) (82,995) (215,555) (24,988) 616,565 - Loss on the sale of nonperforming

loans (1,672,858 ) (307,608 ) (254 ) - - (1,980,720Net gains (losses)

) $ 64,175 57,798 (247,824) 13,040 (3,013) (115,824)

June 30, 2011 Consumer

banking department

Corporate banking

department

Branch banking

department

Treasury

department

Other

department

Total Gross assets $ 31,829,915 29,086,722 20,453,402 45,305,574 9,401,083 136,076,696

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(Continued)

For the six-month period ended June 30, 2010 Consumer

banking department

Corporate banking

department

Branch banking

department

Treasury

department

Other

department

Total

Revenues Net interest revenues $ 1,834,712 330,465 297,375 41,241 (270,430) 2,233,363 Net revenues (losses) other than

interest 209,824 45,781 378,287 (731) 41,403 674,564 Inter-department revenue

(expense) (1,640 ) 22,577 (14,290 ) - (6,647 ) Total net revenues

- 2,042,896 398,823 661,372 40,510 (235,674 )

2,907,927

Expenses

Operating expenses (562,703) (186,568) (565,170) (17,055) (460,858) (1,792,354) Provision for loan losses 164,742 (254,108 ) 62,122 - 836 (26,408Total expenses

) (397,961 ) (440,676 ) (503,048 ) (17,055 ) (460,022 ) (1,818,762

Net gains (losses) before provision for loan losses

)

1,644,935 (41,853) 158,324 23,455 (695,696) 1,089,165 Distribution from head office (360,686) (105,958) (215,366) (13,684) 695,694 - Loss on the sale of nonperforming

loans (2,363,909 ) (405,210 ) (254 ) - - (2,769,373Net gains (losses)

) $ (1,079,660) (553,021) (57,296) 9,771 (2) (1,680,208)

June 30, 2010 Consumer

banking department

Corporate banking

department

Branch banking

department

Treasury

department

Other

department

Total Gross assets $ 35,992,813 34,429,124 12,600,258 40,912,860 8,576,748 132,511,803

(a) The interpretation for primary business of abovementioned reporting department was as follows:

(i) Consumer banking department: The department mainly provides loan business for consumer

or micro corporate, including cash card, credit card, personal loan, and micro corporate loan, etc.

(ii) Corporate banking department: The department mainly provides financial service for large-

scale corporate and semi-scale corporate. (iii) Branch banking department: The department mainly provides service for deposits and

remittances, wealth management, and mortgage loan of general customer (which also promotes and sells products for consumer and corporate banking department).

(iv) Treasury department: The department mainly manages assets, liabilities, and foreign

exchange, and make transactions for bonds, bills, securities, or other financial instruments. (v) Other department: The department summaries other departments that not been reported as

individual such as financial institution department and management department of head office.

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(b) The bank does not distribute deferred income tax assets, income tax expenses or profits, and extraordinary gains or losses into the reported departments. The profits and losses of operating departments have been measured by net profits or losses before income taxes. The reported amount was consistent with the report be used by operating decision-maker, and the amount be used for one basis of performance consideration.

(c) The interpretation for accounting policy of operating department were as follows:

(i) The accounting policy of operating department is the same with note 2.

(ii) The inter-department revenue or expense came from the transactions among the internal

departments, and the transaction prices were calculated in consideration of the internal transfer price and the standard cost of the seller department.

(iii) Distribution from the head office was allocated to reporting departments by the revenue of

each department or the number of each department’s employees. The amounts of distribution from the head office were as follows:

1) The internet expense of the MCB. 2) The difference after sum up internal transfer revenue and expenses. 3) The operating expenses of the head office. 4) The other revenue and cost which cannot be attributed to any operating department.

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