FUBON PLUS RADIATING POSITIVE ENERGY...Fubon Financial HoldingIn NT$ Million 2009 2010 2011 Total...
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Transcript of FUBON PLUS RADIATING POSITIVE ENERGY...Fubon Financial HoldingIn NT$ Million 2009 2010 2011 Total...
Table of Contents
Financial Highlights 02Awards and Achievements 04Message to Shareholders 06Corporate & Investment Banking 20Financial Markets 24Consumer Finance 28Wealth Management 32Investment Management 36Insurance 40Fubon Bank (Hong Kong) 44Corporate Citizenship 48Fubon Group Members 54Corporate Governance 56Financial Statements 59
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2011 Annual Report
Forward-thinking and solid in its approach, Fubon Financial is a key generator of positive momentum in the financial services sector. By offering the best financial services to Chinese communities in Asia and building a robust organization, we continue to move closer to our vision of becoming one of Asia’s first-class financial institutions.
FUBON PLUSRADIATING POSITIVE ENERGY
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2011 Annual Report
Fubon Financial Holding
In NT$ Million 2009 2010 2011
Total Assets 3,060,253 3,452,775 3,618,135
Shareholders’ Equity 208,468 217,390 233,683
Net Income 19,938 19,905 30,543
Earnings Per Share (NTD) 2.47 2.33 3.39
Book Value Per Share (NTD) 25.65 25.40 25.93
Return on Equity (%) 11.3% 9.3% 13.50%
Return on Assets (%) 0.8% 0.6% 0.90%
Figure above are the consolidated results of Fubon Financial Holding Co. and its subsidiaries.
2009
Shareholders’ Equity
208,468
2010 217,390
2011 233,683
2009
Total Assets
3,060,253
2010 3,452,775
2011 3,618,135
2009
Net Income
19,938
2010 19,905
2011 30,543
Financial Highlights
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Taipei Fubon Bank
In NT$ Million 2009 2010 2011
Net Interest 11,640 12,210 13,944
Commissions and Fee Revenues, Net
4,733 7,310 8,144
Other Revenues 5,629 3,022 3,368
Operating Expenses 12,419 13,614 13,891
Pre-Provision Profit 9,583 8,928 11,565
Provision for Bad-Debt Losses
3,937 1,020 1,060
Net Income 5,222 7,281 9,054
Fubon Securities
In NT$ Million 2009 2010 2011
Brokerage Commissions 4,632 4,514 3,951
Net Interest Income 981 1,402 1,326
Profit from Trading Securities, Net
564 645 94
Total Revenues 8,576 9,635 10,388
Operating Expenses 4,582 5,440 5,638
Net Income 2,408 2,124 2,672
*Consolidated financial statements
Fubon Asset Management
In NT$ Million 2009 2010 2011
Operating Revenue 464 475 564
Operating Expenses 349 398 499
Net Income (After Tax) 66 89 -28
AUM (average) 122,162 158,607 160,446
Fubon Insurance
In NT$ Million 2009 2010 2011
Direct Written Premium 21,305 22,171 24,287
Net Written Premium 15,444 16,802 18,224
Underwriting Profit 1,292 1,361 1,661
Investment Income 1,068 1,740 1,927
Net Income 1,371 2,676 3,078
Net Claim Ratio 49.66% 52.32% 57.14%
Net Expense Ratio 35.01% 36.81% 37.00%
Net Combined Ratio 84.67% 89.13% 94.14%
Retention 68.91% 72.75% 72.58%
Fubon Life
In NT$ Million 2009 2010 2011
First Year Premium (1) 189,900 305,738 219,886
Investment Income 49,996 46,489 54,321
Operating Revenue 500,456 417,265 387,282
Operating Costs 476,300 399,818 363,758
Net Income 10,870 6,626 10,104
First Year Premium (2) 205,730 310,201 222,834
Interest-Sensitive 121,283 148,882 27,163
Investment-Linked 15,830 4,463 2,948
Traditional 68,617 156,856 192,723
(1) Excluding Investment-Linked (2) Including Investment-Linked
Fubon Bank (Hong Kong)
In HK$ Million 2009 2010 2011
Net Interest Income 1,143 853 636
Net Fees and Commission Income
210 257 221
Other Operating Income 68 28 210
Operating Expenses 954 856 933
Operating Profit before Gains and Impairment Losses
466 282 134
Impairment Losses 552 47 -52
Profit for the Year 23 266 280
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2011 Awards and Achievements
EuromoneyFubon Financial ▓ Most Convincing and Coherent Strategy in Taiwan ▓ Most Convincing and Coherent Strategy in Insurance Industry – 2nd PlaceTaipei Fubon Bank ▓ Best Private Bank in Taiwan – 3rd Place
AsiamoneyFubon Financial ▓ Best Domestic Bank in TaiwanTaipei Fubon Bank ▓ Best Private Bank in Taiwan – 3rd Place among US$1-5m AUMFubon Securities ▓ Best Domestic Brokerage House in Taiwan – 3rd Place
Global FinanceTaipei Fubon Bank ▓ Best Trade Finance Provider in TaiwanFubon Financial ▓ Best Investment Bank in Taiwan
The AssetFubon Financial ▓ Corporate Award – Platinum Award ▓ Best Domestic Investment Bank in TaiwanTaipei Fubon Bank ▓ Best Trade Finance Bank in Taiwan ▓ Best SME Bank in Taiwan ▓ Best Private Bank in TaiwanFubon Securities ▓ Best Brokerage House in Taiwan
World FinanceTaipei Fubon Bank ▓ Best Banking Group 2011 in Taiwan ▓ Best Private Bank 2011 in TaiwanFubon Life ▓ World Finance Insurance Company of the Year 2011, Taiwan
Corporate Governance AsiaFubon Financial Chairman Daniel M. Tsai ▓ Asia’s Best CEO (Investor Relations) ▓ Asian Corporate Director Recognition AwardFubon Financial ▓ Best Corporate Investor Relations ▓ Best CSR ▓ One of Asia’s Best Companies for Corporate Governance
IR MagazineFubon Financial ▓ Best Corporate Governance and Disclosure in Taiwan ▓ Best Investor Relations in “Banks & Financial Services” Sector
CommonWealth MagazineFubon Financial ▓ Best CSR in Financial IndustryFubon Life ▓ Most Admired Insurance Company – 1st Place ▓ Golden Service Award 2011 – Insurance Category – 1st PlaceFubon Insurance ▓ Most Admired Insurance Company – 2nd Place
Fubon Securities ▓ Most Admired Securities Company – 2nd Place
Wealth MagazineTaipei Fubon Bank ▓ Luxury Brand Survey - Preferred domestic bank – 3rd PlaceFubon Life ▓ Luxury Brand Survey - Preferred insurance company – 2nd Place ▓ Brand Customers Most Likely to Choose Again – 1st PlaceFubon Securities ▓ Luxury Brand Survey - Preferred brokerage house – 1st Place ▓ Luxury Brand Survey - Best Practice Partnership Brokerage house – 1st Place ▓ Luxury Brand Survey - Preferred brokerage house – 2nd Place
Next Magazine–Top Services AwardsTaipei Fubon Bank ▓ Banking – 2nd PlaceFubon Life ▓ Life Insurance – 2nd Place
Risk Management, Insurance & FinanceFubon Insurance ▓ Best Insurance CompanyFubon Life ▓ Graduate Employment Survey - The Most Admired Life Insurance Company ▓ Graduate Employment Survey - The Most Admired Employer in the Life Insurance Industry
Business TodayTaipei Fubon BankEvaluation of Wealth Management Banks ▓ 1st Place for Best Risk Management ▓ 2nd Place for Best Product Provider ▓ 2nd Place for Wealth Preservation ▓ 3rd Place for Best Wealth Management ▓ 3rd Place for Best Performance ▓ 3rd Place for Best Professional Service ▓ 3rd Place for Best Customer ReliabilityBrand Appeal among Businesspeople ▓ 2nd Place in Banking Industry ▓ 2nd Place for Internet BankingFubon Securities ▓ Brand Appeal among Businesspeople – 3rd Place in Brokerage IndustryFubon Life ▓ Brand Appeal among Businesspeople – 3rd Place in Industry
Business NextFubon Financial ▓ Top Green Brands 2011 – Financial Industry – 1st PlaceFubon Insurance ▓ Digital Services – 1st Place in Insurance Industry
13th Faith, Hope, and Love Awards of InsuranceFubon Insurance ▓ Distinguished Contribution Award for Social Responsibility ▓ Distinguished Profession Award for Non-Life Insurance Company ▓ Distinguished Policy Designer Award for Non-Life Insurance ▓ Distinguished Representative Office Award for Non-Life Insurance ▓ Distinguished Profession Award for Non-Life Insurance ▓ Distinguished Policy Designer Award for Non-Life Insurance – Nominated ▓ Distinguished Contribution Award for Insurance Education – Nominated
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Fubon Life ▓ Distinguished Product Creativity Award for Life Insurers ▓ Distinguished Profession Award for Life Insurance Company ▓ Distinguished Sales Strategy Award for Insurance Marketing ▓ Distinguished Representative Office Award for Life Insurance ▓ Distinguished Professional Sales Award for Life Insurance ▓ Distinguished Award for Insurance Career Achievement ▓ Distinguished Contribution Award for Social Responsibility – Nominated ▓ Distinguished Award for Integrated Marketing Communications – Nominated ▓ Distinguished Contribution Award for Insurance Education – Nominated ▓ Distinguished Representative Office Award for Life Insurance – Nominated ▓ Distinguished Profession Award for Life Insurance – Nominated ▓ Distinguished Award for Social Contribution – Nominated
4th Taiwan Insurance Best PerformanceFubon Insurance ▓ Best Customer Service ▓ Best Staff Training ▓ Best Product Innovation ▓ Best E-commerce ▓ Best Risk Management ▓ Best Community ServiceFubon Life ▓ Best Customer Service – Nominated ▓ Best Staff Training – Nominated ▓ Best Risk Management – Nominated
Factors Chain InternationalTaipei Fubon Bank ▓ Best Service Quality Factoring in Taiwan
TFF–Bloomberg Best Fund AwardsFubon Asset Management ▓ Best One-year and Three-year Fund in the Domestic Mid/Small Cap Equity Fund Category – Fubon Elite Fund ▓ Best Ten-year Fund in the Domestic Equity Value Fund Category – Fubon Value FundFubon Securities Investment Services ▓ Best Three-year Foreign Equity Fund from Greater China - GAM Star China Equity USD Acc Fund
Lipper Fund Award Fubon Asset Management ▓ Best Three-year Fund for “Equity Taiwan Small and Mid Cap” – Fubon Elite FundFubon Securities Investment Services ▓ Best Three-year Fund in the China Equity Category – GAM Star China Equity USD Acc Fund
Taiwan Stock Exchange Corporation (TWSE)Fubon Securities ▓ Ranked First in Domestic Enterprise IPO Filings in 2011 ▓ Ranked 1st approved Filings for Foreign Enterprise Listings of Taiwan Depositary Receipts ▓ Biggest Creator of Market Value in Domestic IPOs
Sports Affairs CouncilFubon Financial ▓ Sports Promotion Awards – Competition Sponsorship Golden AwardMinistry of the InteriorFubon Charity Foundation ▓ Outstanding National Social Welfare and Charity FoundationTaipei Fubon Bank Charity Foundation ▓ Outstanding National Social Welfare and Charity Foundation
Ministry of Foreign Affairs, Republic of China (Taiwan)Fubon Cultural & Educational Foundation ▓ Commendation for Financial Assistance to Japan following the March 11 Earthquake
Ministry of EducationFubon Cultural & Educational Foundation ▓ Certificate of Appreciation for Scholarship Program that Instilled a Passion for Education
Bank of New York MellonFubon Bank (Hong Kong) ▓ Straight Through Processing Award
VISA Hong Kong LimitedFubon Bank (Hong Kong) ▓ Highest Retail Sales Volume ▓ Outstanding Retail Sales Volume Growth – Gold Prize
MasterCard WorldwideTaipei Fubon Bank ▓ Best Contribution of the YearFubon Bank (Hong Kong) ▓ The Highest Growth Rate in 2011 Number of Open Cards in Hong Kong – 2nd Runner Up
Television Broadcasts LimitedFubon Bank (Hong Kong) ▓ 2011 TVB Most Popular TV Commercial Awards – Citation for Excellence
MerComm, Inc.Fubon Bank (Hong Kong) ▓ 2011 International ARC (Annual Report Competition) Awards – Bronze Winner – Overall Annual Report: Banks: Regional
Hong Kong Council of Social ServiceFubon Bank (Hong Kong) ▓ Caring Company Logo
The Community ChestFubon Bank (Hong Kong) ▓ 2011/2012 Corporate and Employee Contribution Programme – Bronze Award
Employees Retraining BoardFubon Bank (Hong Kong) ▓ The 3rd ERB Manpower Developer Award Scheme – Manpower Developer
National Taiwan UniversityFubon Cultural & Educational Foundation ▓ Certificate of Appreciation for Helping NTU and Caring for Society
School of Professional and Continuing Studies, National Taiwan UniversityFubon Life ▓ Sustainable Development in Human Resource Training Award
Department of Culture Affairs, Taipei City GovernmentFubon Art Foundation ▓ Winner of 15th Taipei Culture Award
British Standards InstitutionFubon Financial ▓ Corporate Social Responsibility Report verified by both AA1000 and GRI G3.1 assurance standards
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Dear Shareholders,
The investment climate was extreme-ly challenging both domestically and overseas in the second half of 2011, when the European debt crisis brought the global economy to a standstill. But Fubon Financial still had an out-standing year, thanks to an effective diversification strategy, the continued pursuit of strong growth and steady expansion, and enhanced risk man-agement. Fubon Financial was themost profitable company in Taiwan’s financial services sector for the third year in a row with record after-tax net income of NT$30.543 billion and earn-ings per share of NT$3.39.
Fubon Financial went public on De-cember 19, 2001. In the 10 years since then, we have dedicated ourselves to strengthening our roots in Taiwan, of-fering customers the best and most professional financial services in the industry and maximizing shareholder value while adhering to our core values — integrity, sincerity, professionalism and innovation.
Over the next 10 years, further cultivat-ing the domestic market will remain akey focus. But Fubon Financial alsointends to aggressively expand into Greater China and build the most com-plete financial services platform in the regional market, steadily moving us closer to the goal of becoming one of Asia’s first-class financial institutions.
Record-high Income Again Leads Industry The global economy ground to a halt in the second half of 2011 as the European debt crisis intensified. Ex-ternal demand stalled, causing a precipitous decline in Taiwan’s export growth, and the pervasive econo- mic gloom led domestic companies to significantly reduce their capital
expenditures. As a result of these and other factors, Taiwan’s economic growth fe l l to 4.04% in 2011, from 10.72% in 2010.
Despite the challenging environment, Fubon Financial had another outstand-ing year, benefiting from outstanding results posted by subsidiaries TaipeiFubon Bank and Fubon Life, an in-crease in cash dividend income, and gains from the sale of Fubon Multime-dia Technology. Our after-tax income of NT$30.543 billion, up 53.4% from 2010, and EPS of NT$3.39, were both the highest in the industry for the thirdconsecutive year. Return on assets(ROA) and return on equity (ROE) were 0.9% and 13.5% respectively.
Fubon Financial also saw total assets rise 4.8% in 2011, driven by the contin-ued asset growth of Fubon Life. As of the end of December, the holding com-pany’s assets totaled NT$3.618 trillion, ranking Fubon Financial as the second biggest publicly listed financial holding company by assets in Taiwan.
Fubon Financial’s Key Profit CentersFubon Life and Taipei Fubon Bankwere Fubon Financial’s main sources of income in 2011. Fubon Life’s after-tax income rose 52.5% to NT$10.104 billion. It was the highest of any Fubon subsidiary and accounted for 33% of the holding company’s after-tax earn-ings. Taipei Fubon Bank’s after-tax income grew 24.4% to NT$9.054 bil-lion, and contributed 30% of Fubon Financial’s after-tax earnings.
Taipei Fubon Bank’s loan business grew 10.6% year-on-year, well above the industry average. Fee income rose 11%, the result of steady growth in the net interest spread and net interest margin through effective control of the Bank’s deposits-to-loans ratio. Though
mutual fund sales were affected bymarket volatility in the second halfof the year, the Wealth Management Group’s fee income still rose 14.3%, buoyed by a balanced growth strategy and a shift in the sales mix of insur-ance products, with traditional policy sales posting robust growth.
Efforts by Fubon Life to adjust its prod-uct mix also came to fruition in 2011,with first-year premium and total pre-mium ranking second in market share. First-year premium totaled NT$222.8 billion, or a 22.4% share of the do-mestic market, and was bolstered by strong growth in traditional policies paid for in installments, which account-ed for 23.2% of FYP, up from 10.4% in 2010. Total premium rose 16.8% to NT$368.2 billion. Although traditional and foreign cur-rency policies carried greater weight in the company’s overall product mix, Fubon Life was nonetheless able to maintain its cost of liability at 4.16%. Return on investment rose slightly to3.8% despite the market’s volatility because of timely investment and hedging strategies.
A Complete Range of Financial Services Fubon Bank (Hong Kong) became awholly owned subsidiary of Fubon Fi-nancial in 2011 after being successfully privatized and delisted from the Hong Kong exchange on June 8, 2011. The move has given the Bank added flex-ibility in helping Fubon Financial build a presence in the Greater China market.
The only Taiwanese-invested bank in Hong Kong, the Bank’s after-tax in-come rose 5.1% in 2011 to HK$280million. It will continue to pursue itslong-term development by capitalizing on opportunities presented by the in-ternationalization of China’s renminbi,
Message to Shareholders
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Daniel M. TsaiChairman Fubon Financial
Fubon Financial was the most profitable company in Taiwan’s financial services sector for the third year in a row with record after-tax net income of NT$30.543 billion and earnings per share of NT$3.39.
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Richard M. TsaiVice ChairmanFubon Financial
We have dedicated ourselves tostrengthening our roots in Taiwan, offering customers the best and mostprofessional financial services in theindustry and maximizing shareholdervalue while adhering to our core values- integrity, sincerity, professionalismand innovation.
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optimizing customer service and en-hancing operating efficiency.
Fubon Insurance’s after-tax income in 2011 grew 15.0% year-on-year to NT$3.08 billion, and its written pre-mium market share of 21.6% ledthe industry for the 30th consecutiveyear. Direct written premium totaled NT$24.29 billion, representing a 9.5% YoY growth rate that far outpaced the industry average. Fubon Insurance’s net combined ratio was a strong 94%.
Fubon Securities delivered outstand-ing results in 2011 despite the Taiwan stock exchange’s poor performance. After-tax income grew 30% in 2011 to NT$2.67 billion, well ahead of its main competitors, and its share of the securi-ties brokerage market reached 6.08%.
Dual-pronged Banking Strategy in ChinaFubon Financial has progressivelyexpanded into the Greater China mar-ket, hoping eventually to build the mostcomplete financial services platformin the region. In the banking sector, we have followed a dual-pronged strategy acquiring stakes in Chinese Banks and establishing branches in China.
At the end of 2008, Fubon Financial acquired a stake in Xiamen City Com-mercial Bank (now Xiamen Bank)through Fubon Bank (Hong Kong), be-coming the first Taiwanese-investedfinancial institution to buy a stake ina Chinese bank. After a two-year re-organization process and efforts tostrengthen its asset quality, Xiamen Bank posted record after-tax income in 2011 of 378 million renminbi, up 177% from 2010. The Bank’s nonperforming loan ratio fell to 1.03%, from 1.47% a year earlier, and its NPL coverage ra-tio rose to 359.7%, from 213.5% the year before.
Xiamen Bank extended its reach be-yond the city of Xiamen for the first time in 2010 by opening a branch in Fuzhou, and in March 2011 it added another outlet in Quanzhou. Two months later, a new branch was launched in Chong-qing, the first Xiamen Bank branch to be located outside Fujian province. In the future, new branches will be added in Zhangzhou, Tianjin and Nanchang, creating a network that will position the Bank as the financial gateway to the West Coast of the Taiwan Strait and help it better cultivate local clients and serve Taiwanese-invested businesses based in the region.
In terms of Fubon Financial’s ownbranch strategy, Taipei Fubon Bankgained its first foothold in China in De-cember 2011 when it formally opened a representative office in Suzhou. After the office has been opened for a year, it can apply to the financial regulatory agencies in both Taiwan and China to become a branch, which would enable it to provide China-based Taiwanesebusinesses and local Chinese cus-tomers the most specialized financial services.
Gaining Footholds in China’s Insurance Market Fubon Insurance’s China subsidiary, Fubon Property & Casualty Insurance Co., Ltd., formally opened in October 2010, becoming the first Taiwanese-invested insurer to obtain a business license in China after the landmark cross-strait Economic Cooperation Framework Agreement took effect a month earlier. The company, head-quartered in Xiamen, had writtenpremium of 48.89 million renminbi in 2011, ranking ninth among 18 insur-ers in the city. Sixty percent of therevenue was derived from automobile insurance, a market that has given foreign-invested insurers fits, as Fubon
Property & Casualty successfully ap-ply its parent company’s wealth ofexperience in the field in Taiwan to the Fujian market.
In November 2011, Fubon Property & Casualty Insurance received prepara-tory approval from the China Insurance Regulatory Commission to set up a branch in Chongqing. The Chongqing branch then obtained final approval to open from the regulatory agency in March 2012, becoming Fubon Property & Casualty Insurance’s first branch and the first Taiwanese-invested P&C in-surer in the Sichuan province city. This important beachhead will be dedicatedto providing Taiwanese businessesin Chongqing and city residents out-standing insurance services.
In the life insurance sector, Fubon Life and Nanjing Zijin Investment Holding signed a letter of intent in October 2010 to open a joint venture called “Fubon Zijin Life,” to be headquartered in Nan- jing. In March 2011, the companies ap-plied to the China Insurance Regulatory Commission for preliminary approval.
Fubon Financial also relied on a part-nership to make inroads into China’s fund management market. Fubon As-set Management and China-based Founder Securities Co. set up a joint venture called Founder Fubon Fund Management Co. that opened in Bei-jing on July 25, 2011. It was the first fund management joint venture set up by companies from Taiwan and China and has already launched its first fund.
Developing a Strong Presence in VietnamBullish on Vietnam’s economic po-tential, Fubon Financial has made the country an important target of over-seas expansion. We currently offerbanking, life insurance, and property &
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casualty insurance services in Ho Chi Minh City (including Binh ThanhDistrict), Hanoi, Binh Duong prov-ince, Dong Nai province, and Danang.Our goal is to emulate our success in Taiwan by providing a completerange of banking services to localconsumers and Taiwanese-invested businesses in Vietnam and eventually emerge as their preferred banking and insurance partner.
The journey into Vietnam began inJune 2008, when Taipei Fubon Bank opened a branch in Hanoi. That was followed in October 2009 by the acqui-sition of Chinfon Commercial Bank’s two branches in Vietnam, giving TaipeiFubon Bank three locations (Hanoibranch, Ho Chi Minh City sub-branch, and Binh Thanh branch) in the country, the most of any Taiwan-based bank.
Fubon’s insurance arms have also ag-gressively developed a presence in the Southeast Asian country. Fubon Insurance established wholly owned subsidiary Fubon Insurance (Vietnam) Co. in 2008, and then added a Hanoi branch in June 2009 and a branch in Binh Duong province in May 2010. An-other outlet was established in Dong Nai province in August 2011 and ap-proval was received in March 2012 to set up a branch in Danang.
Fubon Life’s wholly owned subsidiary in Vietnam – Fubon Life Insurance (Viet-nam) Co. – opened in Hanoi in March 2011, and it later opened a branch in Ho Chi Minh City. The moves helped propel Fubon Life into the ranks of regional life insurers in Asia.
Controlling Risk to Keep Capital Structure StrongIn the process of expanding Group op-erations, Fubon Financial has remainedextremely attentive to risk manage-ment, maintaining a strong capitalstructure and a level of asset qualitythat exceeds the market average. In 2011, our capital adequacy ratio was 141.2%, far above the legally mandated 100%. Taipei Fubon Bank’s BIS ratio was 13.48% as of the end of 2011, an
indication of the bank’s strong capital position. Despite steady loan growth,however, the Bank’s nonperformingloan ratio fell to 0.26%, from 0.32% a year earlier, well below the industry average of 0.43%. To meet a new reg-ulation that took effect in January 2012 requiring banks to set aside at least 1% of their total outstanding loans as loan-loss reserves, the Bank increased its coverage ratio to 335.55% by the end of 2011, well above the 251.83% cover-age ratio averaged by the industry.
The strength of our operating perfor-mance and asset quality was reflected in positive ratings from credit rating agencies. Taiwan Ratings Corp. an-nounced on November 15, 2011 thatFubon Financial’s long-term ratingremained at “twAA” and its short-term rating remained at “twA-1+,” with the company’s outlook stable. The ratings clearly reflected Fubon’s superior profit-generating capability and asset quality relative to others in the industry.
Earning Recognition for Corporate Governance, CSRFubon Financial puts a high priorityon corporate governance. We werenot only Taiwan’s first publicly listed company to introduce an independent board director system but also the first domestic financial organization to have at least one-third of its board compos-ed of independent directors, settingthe standard for corporate gover-nance. At present, of the 13 members on Fubon Financial’s board, four are independent, a ratio of over 30%, and a majority are outside directors, helping us stand out as a benchmark for cor-porate governance in Taiwan and in the
region and earn recognition from sev-eral prestigious financial journals.
Aside from being honored by Euro-money for “Best Corporate Governance” in Taiwan’s banking and financial sec-tor for six consecutive years and as one of the “Best Managed Companies” in Asia’s banking and financial sector for three straight years, Fubon Financial was named by Corporate Governance Asia for the third year in a row in 2011 as one of the “Best of Asia” for corpo-rate governance. The company alsoreceived a Platinum Award for cor-porate governance from The Assetin 2011.
Fubon Financial’s long-term commit-ment to transparency in managinginvestor relations also earned rec-ognition from IR Magazine, winning awards in 2011 for “Best Corporate Governance and Disclosure – Taiwan” and for “Best Investor Relations” in the banking & financial service sector in Greater China.
These outstanding corporate gover-nance practices also helped FubonFinancial Chairman Daniel M. Tsaiearn an “Asian Corporate DirectorRecognition Award” for Taiwan fromCorporate Governance Asia for thesecond straight year in 2011, estab-lishing him as a leader in corporate social responsibility and environmen-tal management.
In its 2011 survey of Taiwan’s topcorporate citizens, CommonWealth Magazine honored Fubon Financial’s enduring dedication to corporate gov-ernance and efforts to care for society
Rating Agency Type
Rating AgencyCredit Rating
OutlookEffective
DateLong-term Short-term
International
Standard & Poor’s
BBB+ A-2 stable 2011 / 11 / 14
Moody’s Baa1 stable 2012 / 2 / 6
DomesticTaiwan
Ratings Corp.twAA twA-1+ stable 2011 / 11 / 15
The ratings of various rating agencies in 2011 were as follows:
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by naming the company as the top corporate citizen among large compa-nies (with revenues over NT$10 billion) in the financial sector.
“Fubon Financial’s corporate citizen-ship ranking has risen consistently over the years, indicating the continued dili-gence of the entire company, from top to bottom, in meeting its CSR commit-ment. Every policy related to CSR must be approved by a board resolution, reflecting both how high of a priorityCSR is to Fubon Financial’s top execu-tives and how deeply CSR has become ingrained as a core corporate value throughout the company,” the maga-zine wrote.
Outstanding Performance of Subsidiaries Widely RecognizedFubon Financial was also named Taiwan’s “Best Domestic Bank” byAsiamoney, and Group subsidiaries amassed numerous accolades of their own. Taipei Fubon Bank was honored as “Best Trade Finance Bank” in Taiwanfor the third year in a row and “BestInvestment Bank” in Taiwan for the sec-ond straight year by Global Finance. It was also cited as Taiwan’s “Best Trade Finance Bank,” “Best SME Bank” and “Best Private Bank” by The Asset.
Fubon Life was honored by Common- Wealth Magazine as Taiwan’s “Most Admired Company” in the insurancesector for the third consecutive yearand as the winner of the “Golden Service Award” for the life insurance industry. It was named “2011 Insurance Company of the Year” for Taiwan by London-based journal World Financeand grabbed six awards at the 13th
“Faith, Hope and Love Awards of In-surance.” Fubon Insurance garnered seven awards at the “Faith, Hope and Love Awards,” including the “Distin-guished Policy Designer Award,” and another six at the Taiwan Insurance Best Performance Awards.
Fubon Securities’ top-notch under-writing results again drew recognitionas the company was named by TheAsset as “Best Brokerage House” in
Taiwan for the second year running, and it remained Taiwan’s only integrat-ed securities firm to have captured the prestigious honor. CSR: Getting Everybody InvolvedFubon Financial has actively engaged in social welfare activities for many years through four major foundations. We also have established a FubonVolunteer Association and offeredincentives such as paid leave for volun-teering, creating a spirit of “giving back to society what is reaped from society” within the organization in the process of helping fulfill our corporate social responsibility.
The Fubon Charity Foundation has long provided emergency relief and assis-tance and also helped economically disadvantaged children realize their dream of getting an education through its “Making Friends with Love” cam-paign, launched in 2002. To date, the initiative has helped 112,850 students stay in school.
The Fubon Cultural & Educational Foun-dation’s top priorities are caring for teenagers, promoting better parent-child relationships, and connectingTaiwan with the rest of the world. Itrecently instituted an innovative “Young Voice, Young Life, Young Career” cam-paign to help meet those goals.
The Fubon Art Foundation is devoted to fostering cultural citizens and infus-ing art into people’s daily lives through campaigns that strengthen cultural roots, promote humanism, and bring art to life. The Taipei Fubon Bank Char-ity Foundation is dedicated to caring for the physical and mental well-being of the elderly, encouraging people with disabilities to grow artistically and ath-letically, and helping the economically disadvantaged escape poverty.
Fubon Financial has also extended a helping hand when natural disastersstrike, both at home and overseas.Following the massive earthquake and tsunami that devastated north-ern Japan on March 11, 2011, Fubon
encouraged employees to donate aday’s pay to disaster rescue and relief ef forts, raising NT$21,112,579. Our subsidiaries pitched in another NT$20 million, bringing the total contributed to NT$41,112,579.
Steadily Gaining a Foothold in Greater ChinaTaiwan’s economy is expected to main-tain stable growth momentum in 2012, helped by a moderate recovery in the United States, effective measures to bring the European debt crisis under control, and the gradual easing of fears that growth in China will fall dramati-cally. If there are no major economicshocks on the horizon, we estimatethat Taiwan’s GDP will grow at a rate of 3.5%-4% this year. The key development strategies and goals for 2012 for each of our six busi-ness groups are as follows:
1. Corporate & Investment BankingGroup: The Group will focus domes-tically on expanding its customerfranchise and increasing cross-selling and share of wallet among core clients. As China’s banking sector gradually opens to Taiwanese financial institu-tions, Taiwanese-invested companies in southern and eastern China will still be targeted, but new initiatives will betaken to solicit Chinese enterprises and cooperate with Chinese banks to broaden sources of income. Corporate and investment banking services will be delivered through the Group’s Asia-Pacific platform (serving Taiwan, Hong Kong, China, Vietnam and the UnitedStates) and with the help of FubonSecurities and the Financial Markets Group.
2. Financial Markets Group: TheGroup will focus on developing CNY hedging models and anticipates intro-ducing CNY exotic products. New forex products involving G7 currencies will be offered, and opportunities in CNH (Chinese offshore yuan) trading will be explored. CNH FX Swaps, interest rate swaps, and “dim sum bonds” are ex-pected to be of particular interest in
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building profit-generating and interna-tional trading capabilities.
3. Consumer Finance Group: Themortgage division will concentrateon raising the relative weight of home equity loans in its product mix, and on-line and bank referral channels will be strengthened to complement major ex-isting distribution channels, including brokers, developers, and the Wealth Management Group. On the consumer credit side, new targeted and seasonal promotions are being planned that will create a buzz and generate higher de-mand for credit, especially during peak spending periods. The Fubon Bank Card, targeted at high-wealth clients and business people, will be the credit card division’s main focus, but the Fu-bon Fortune Card brand will also be freshened to establish Fubon as the credit card brand offering the greatest rewards.
4. Wealth Management Group: Sup-ported by the RAM (Risk Allocation Management) that can alert custom-ers to their portfolio risk at any time, asset allocations will focus on saving /protection-oriented insurance plans, bond and balanced funds, conser-vative f ixed income products and semidiscretionary individually man-aged trusts. Getting customers to use the e-trading platform, strengthening mobile bank trading functions and money management content, and de-signing tablet computer Apps will also be top priorities. Fubon Securities will continue to promote its overseas equity and fund sub-brokerage business,
and life insurance products will be made a key segment of the company’s product mix. Fubon Asset Manage-ment will concentrate on fixed income products and will pursue a higher QFII quota to be able to issue related ETFs and Greater China funds. Anticipating a further relaxation in restrictions, the Group’s next step, once legal restric-tions are eased, will be to issue purely China funds, helping the firm emergeas the asset manager of choice inGreater China.
5. Investment Management Group: With the economic outlook for 2012relatively cloudy, the Group plans to expand its holdings of relatively high-income, highly rated fixed incomeassets and will carefully tackle the challenge of an appreciating Taiwan dollar. Investing in high-dividend blue chip stocks and income-oriented real estate, which should lower the riskfrom a potential economic slowdownand improve investment returns, will also remain high priorities.
6. Insurance Group: Fubon Life willconcentrate on “pursuing stability.”Business divisions and distribution channels will be expanded and better staffed, and the competitiveness of in-house salespeople and outside agents will be enhanced. New initiatives will be taken to further cultivate bancassur-ance channels and strengthen sales of products with higher margins. The innovative “Fubon House” and cloud computing technology will be used to create a convenient “Fubon living cir-cle” featuring more localized services.
Because policy growth in the non-life market is expected to slow, Fubon Insurance plans to strengthen product differentiation, further diversify its dis-tribution system, develop the potential of e-commerce, and take full advan-tage of its relative edge in claims and loss prevention services.
In April 2011, the Fubon Group cele-brated its 50th anniversary, and Fubon Financial completed its 10th year as a publicly listed company at the end of the year. Building on those milestones, we hope to create the foundation for another outstanding 50 years by con-tinuing to stress governance and risk management, strengthen our pres-ence in Taiwan and steadily expand into Greater China.
Daniel M. TsaiChairman, Fubon Financial
Richard M. TsaiVice Chairman, Fubon Financial
Corporate Center
Information Technology Center
Corporate & Investment Banking
Financial Markets
Consumer Finance
Wealth Management
Investment Management
Insurance
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Jerry Harn President,Taipei Fubon Bank
Peng-Yuan Cheng Chairman,Fubon Life
Victor KungPresident, Fubon Financial
Benny Chen Chairman,Fubon Securities
Thoman Liang Managing Director,Fubon Bank ( Hong Kong )
Tsan-Ming Shih Chairman, Fubon Insurance
Management Team
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Dynamic Fubon : Creating Value
Taiwan’s Most Profitable FHC Fubon Financial led all domestic financial holding companies in net income ( NT$30.543 billion ) and EPS ( NT$3.39 ) for the third year in a row in 2011.
Dynamic Fubon : Promoting Cooperation
The Benchmark for Corporate Governance Fubon Financial puts a premium on corporate governance and consistently sets “firsts” in the field, earning the company widespread recognition at home and abroad.
Dynamic Fubon : Broadening Horizons
Leading the Industry into the Greater China MarketFirmly rooted in Taiwan, Fubon Financial is building the most complete financial services platform in the industry across Greater China, a major step forward on our way to becoming one of Asia’s first-class financial institutions.
Growing Bigger, Expanding AbroadIn 2011, the Corporate & Invest-ment Banking Group successfully launched strategies to develop new trade finance niches and expand its clientele, supported by its ability to gauge the pulse of markets and unearth opportunities generated by the financial opening between Taiwan and China. The initiatives led to steady growth in credit assets and deposits. At the same time, the Group continued to strengthen its presence in the Greater China market, establishing a representative office in Suzhou. This new foothold, added to three existing bank branch-es in Vietnam and one each in HongKong and Los Angeles, extendedthe corporate banking network’s reach in economies where there are high concentrations of Taiwanese-invested businesses.
New efforts were also made to seg-ment clients based on their sizeand sector and then provide them with a full range of tailored financialservices through a single relation-ship manager backed by specialized marketing and product teams.
Thriving in a Fiercely Competitive MarketThe momentum from Taiwan’srobust economic growth in 2010carried over to the first quarter of
2011, when Taiwan’s economy grew 6.16%. In the second quarter, how-ever, the adverse shocks of Japan’s massive earthquake and tsunami on March 11 and the European sover-eign debt crisis began to take their toll. Gradual money tightening poli-cies adopted in emerging markets to combat inflationary pressures only compounded the slowdown in domestic growth.
In the second half of the year, the United States created a debt scare of its own when it threatened to de-fault on its debt, dragging downequity markets around the world.With the global economy mired in un-certainty, Taiwan’s economy turned sluggish. Companies became lesswilling to invest, and some wereforced to downsize their workforcesor furlough employees, limitinggrowth in private consumption. This second-half slump capped domes-tic economic growth for the year at 4.04%. Though facing a weak stock market, a low interest rate environ-ment, and intense competition, theCorporate & Investment BankingGroup still performed extremely well through strategies aimed at deep-ening relationships with existingcustomers, developing new clients and effectively controlling credit risk. The commercial banking operation’s outstanding loan balance to public
and private enterprises remained the highest among private banks in 2011, with a market share of 3.48%. The Group’s factoring business ben-efited from an improved economy in the first half of the year and an increase in cross-strait trade finance business to grab the top spot in the industry with a 21.2% market share, after ranking second with an 18.3% share in 2010. Moreover, the Group’s specialized expertise earned the recognition of a number of prestigious international financial journals, being named, for example, as Taiwan’s “Best Trade Finance Bank” by Global Finance for the third year in a row and as Taiwan’s “Best Trade Finance Bank” and “Best SME Bank” by The Asset. Factors Chain International honored Taipei Fubon Bank as “Best Service Quality Factoring” in Taiwan.
In investment banking, the Group’s 7.9% share of the domestic syn-dicated loan market ranked fif th among all banks in Taiwan and first among private banks, and its 14.6% share of the transaction volume on the GreTai Emerging Stock Market ranked third in the industry. It alsoranked third in IPO underwritingand fifth in SPO underwriting by value with market shares of 12.9% and 5.3%, respectively. This strong performance also won its share of accolades. Fubon Financial was
Corporate & Investment Banking
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Fubon Financial is striving to becomethe Corporate & Investment Bank of choice in Greater China.
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named “Best Investment Bank” in Taiwan by Global Finance and “Best Domestic Investment Bank” in Taiwan by The Asset. Fubon Securities was honored by TaiwanStock Exchange Corp. as No.1among securities underwriters in “Domestic Enterprise IPO Filings” and “Approved Filings for Foreign Enterprise Listings of Taiwan De-positary Receipts” and also as the
“Biggest Creator of Market Value in Domestic IPOs.”
In terms of overall performance,operating revenues edged slightly higher in 2011 despite the weak stock market, narrowing interest rate spreads and regulatory changes requiring higher provisions. Net in-come (after provisions) exceeded the budgeted target and even grew
slightly from 2010 because of tight cost controls, effective credit risk management, a reduction in provi-sion costs and the recovery of big non-performing loans.
Domestic Consolidation, Greater China ExpansionSeveral unfavorable factors, such as uncertainty over the recovery of de-mand in the U.S., continuing worries over the creditworthiness of Euro-pean debt, and China’s tightening of its banking system, have resulted in a short-term period of consolida-tion for the global economy and could even result in recession. This external slowdown will adversely affect Taiwan’s exports and private investment and likely leave domes-tic economic growth in 2012 about the same as in 2011 or even slightlylower. Despite the chal lengingenvironment, the Corporate & In-vestment Banking Group expects to capitalize on Fubon Financial’s brand advantage and continue to exploit its banking channels and securities underwriting resources to generate strong results. Premium commercial and investment banking products and services will be offered to clients through Fubon’s extended platform (covering Taiwan, Hong Kong, China, Vietnam and the United States) and the Group’s highly specialized mar-keting and product teams.
▲ Taipei Fubon Bank led all domestic private banks in syndicated loan share in 2011.
▲ Annual off-site meeting helped spark new strategies and forge consensuses.
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The following strategies are be-ing adopted to further solidify theCorporate & Investment BankingGroup’s operations:
Business Expansion: At home, the Group intends to solidify its recur-ring income stream by expanding its customer base. Initiatives targeted at core clients will also be taken to in-crease “ share of wallet ” and cross-selling revenues. Overseas, Greater China is expected to be a growing priority with the gradual liberaliza-tion of cross-Taiwan Strait policies. Aside from a continued emphasis on Taiwanese-invested companies in southern and eastern China, the Group will solicit Chinese enterprisesand develop cooperative relationswith Chinese banks to broaden sources of income.
Product Planning and Operational Performance: Actively broadening
renminbi-denominated activities andaccelerating the growth in scaleof the renminbi business to satisfy customer needs are top priorities in 2012. The Group will also focus on enhancing the operation effective-ness of its overseas branches in two ways: 1) by accelerating the develop-ment of core systems at overseas branches to make operations moreconvenient and support regionaldevelopment and 2) by further opti-mizing product and customer service processes and improving overseas operating models.
Risk Management and Asset Quality: The Group intends to enhance over-seas business surveying and credit analysis capabilities and consolidate operating processes and systems, ensuring that its service capabilities will be uniform at home and abroad. An initiative to develop an LGD / EAD model that more concretely assess-es the cost of risk will be expedited to strengthen credit portfolio man-agement and increase returns on risk. To be better prepared to absorb shocks from economic volatility in the future, the Group is also devel-oping a risk protection system that will have a more sensitive advance warning system to quickly reflect in-dustry changes and help strengthen loss provision preparations. As ofthe end of December 2011, the
Corporate & Investment BankingGroup had a nonperforming loan ra-tio of only 0.41%, an indication that asset quality remained stable.
Internal Management and Human Resources: Continued emphasis will be placed on internal training, the recruitment of external talent, and a talent incubation program to create a large, high-caliber pool of talented specialists capable of supporting the personnel needs of overseas expan-sion. These initiatives should give the Group a clear competitive edge over the mid- and long-term.
Anchored on a foundation that con-tinues to get stronger, the Corporate & Investment Banking Group has seen earnings grow steadily in re-cent years. Facing an uncertain global economy and sluggish eco-nomic growth at home in 2012, the Group will continue to solidify its position in the domestic market by strengthening core infrastructure and broadening its customer base. The push into Greater China will also be accelerated to help Fubon achieve its ambition of becoming the preferred corporate banking group amongTaiwanese-invested businessesthroughout the Asia-Pacific region.
▲ Fubon Forum
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Innovative Services, Bold InitiativesIn a year of extreme volatility in glob-al financial markets, the Financial Markets Group stuck to its core prin-ciples of controlling risk, innovating new products and diversifying ser-vices. Undaunted by sluggish marketconditions, the Group’s treasurymarketing business saw revenues grow 26% year-on-year, buoyed by 25% growth in interest-rate deriva-tive revenues. The Group issued 55% more warrants than the year before, backed by its ability to quickly identify market trends, and it made its pres-ence felt in the FINI market only a year after getting involved in the business.
In 2012, the Financial Markets Group will focus on developing its franchisebusiness and providing domestic and overseas clients unrivaled prod-ucts and services, hoping ultimately to establish Fubon as the leader in the financial markets arena.
Treasury Marketing – Shooting for No. 1Treasury sales represent one of the most important sources of franchise business revenue. The Financial Mar- keting Group’s Treasury Marketing Unit has constantly challenged it-self over the years to sharpen itsexpertise and has established itself as one of the leaders in the indus-try, especially in creating a strong
client franchise in Greater China in collaboration with the Corporate & In-vestment Banking Group. It has also consistently delivered outstanding results, and 2011 was no exception.
The TMU intends to redouble its fo-cus on its people, its clients and its trading operations in 2012 and strengthen the caliber of TMU teammembers, consolidate its client franchise, capitalize on market op-portunities and align initiatives withproduct design. These strategies will help the unit offer an even morecomprehensive portfolio of financial services and establish itself as amarket leader.
FX: Building Expertise – and a Leading BrandDetermined efforts to cultivate spe-cialized expertise have elevated the Group’s technical and pricing capa-bilities in forex options to prominentpositions in the market. In 2011, the Group strengthened efforts to expand its foothold in the GreaterChina inter-bank market making business, and it established itself as the forex quotes provider of choice to more than 10 Taiwanese banks with FX operations.
After Taiwan’s Financial Supervi-sory Commission announced that overseas branches and OBUs of domestic banks could engage in
spot renminbi business, the Finan-cial Markets Group completed an offshore “CNH” ( offshore renminbi in Hong Kong ) platform. It also plans to gradually build infrastructure for a next-generation foreign exchange platform linking OBUs, Hong Kong and Vietnam to expand and diversify product ranges.
The Group will pursue a number of strategies in 2012 to strengthen the forex business, including roundingout its second-generation exotic product line to create more diverse profit opportunities. Also, the rangeof products quoted and servicesoffered will be broadened, and an aggressive push will be made to gain a stronger foothold in the Greater China market-making business, all with an eye toward becoming the FX market’s leading brand.
Interest-rate Derivatives: Poised to Become a Major Market MakerThe Group’s interest-rate deriva-tives business continued to develop structured products in 2011. Initia-tives were also taken to capitalize on opportunities in Greater China, such as completing related systems and applying for the necessary operating licenses. Because of these effortsand the Group’s ability to effec-tively anticipate shifts in the market, interest-rate derivative revenues rose 25% from a year earlier.
Financial Markets
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Treasury market and brokerage growth, and innovative productsand diversified services are Grouppriorities.
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One major trend is likely to dominate the interest-rate derivative market in2012. Continuing uncertainty over European debt will likely lead to most countries embracing monetary policies that keep interest rates low, leading to reduced interest-rate vola-tility. With this in mind, the Group will build on its existing strengths and replicate past models of success to expand business volume, enhance quoting capabilities and trading skills and continue to develop new struc-tured products. At the same time, renewed efforts will be made to pen-etrate the Greater China market and expand inter-bank market-making opportunities, hoping to solidify theGroup as one of the major marketmakers in interest-rate products.
Bond Business: Maximizing Gains through Flexible Trading In 2011, trading volume on the dom-estic bond market fell precipitously,
and volatility was the lowest it had been in many years. In the first half of the year, the cost of money rose and the interest spread narrowed because of the central bank’s hikein interest rates, adding further challenges to bond trading opera-tions. The Financial Markets Group still managed, however, to minimizerisk by closely monitoring marketmovements. 2012 is likely to see heightened risk awareness in the market, which will put a premium on risk management. Also, international economic condi-tions will continue to drive capital flows and influence global interest rate trends. To remain a steady con-tributor of profits to the Fubon Group in this uncertain environment, the Financial Markets Group will actively participate in the bond and related derivatives markets and enhancecustomer acquisition strategies,
while also cultivating new talent to promote sustainable growth.
Equity Derivatives: Building Market Share and a Profit ModelThe warrants business soared in2011, thanks to an optimal tradingsystem, a robust product line andnonstop marketing campaigns. Morethan 1,000 warrants were issued during the year, more than triple the number issued in 2009, and the trad-ing volume of warrants issued grew to a 6.1% market share.
Changes on the Taiwan stock ex-change are expected in 2012, includ-ing the opening of day trading ofwarrants. Because investors aregrowing increasingly familiar withthe product, the number of people trading warrants is expected to rise. To capitalize on this opportunity, the Financial Markets Group expectsto aggressively expand its equity
▲ The Financial Markets Group holds a press conference to promote warrants trading.
2011 Annual Report
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derivative business and apply a va-riety of hedging tools to enhance earnings. Together with convertible bond and index-linked derivatives, these product lines underpin a sus-tainable business model for future growth.
The FINI Market: Gaining Visibility, Creating a Professional Brand The Financial Markets Group repo-sitioned its FINI business in 2011 to focus on fundamental research and redesigned various products andservices to highlight the advantages and distinguishing features of do-mestic brokerage firms. In addition, an increase in research investment, closer collaboration between equity sales and analysts, and the integra-tion of the Corporate & InvestmentBanking Group’s capital market resources will create niches that will help generate new clients. Follow-ing a year-long restructuring and
recruitment campaign, the FINI team has fully taken shape and armed itself with the necessary skills to welcome new challenges in 2012.
The domestic economy will continue to be affected by global economic conditions this year, and many ex-pect a reshuffling of FINI marketplayers, with some foreign securities firms pulling out as a result of disap-pointing financial performances and new competitors jumping in. Some domestic peers plan to increase their market share by offering new types of services. Within this highly com-petitive environment, the Group’s main priorities will be to strengthen Fubon’s visibility in FINI circles and build a professional brand based on the new operating model, hopefully resulting in gains in market share and profitability.
Thriving in a Time of UncertaintyThe Financial Markets Group may have felt the effect of financial mar-ket volatility and sluggish domestic economic conditions in 2011, but its operations remained aligned with predetermined strategies. In 2012, aside from continuing to grow fran-chise business revenue, the Group will also put a premium on strength-ening the Treasury Marketing Unit’sprof it-generating capabil ity andhelp it emerge as a market leader.
Initiatives will also be taken to capi-talize on opportunities in Greater China and extend the Group’s reach, increase inter-bank interest-rate and FX business revenue, and better con-trol bond-trading risk. Other targets include revamping the Group’s brand image in the equity derivative and FINI brokerage markets, and enhancing its status in other markets. Though market prospects remain uncertain for 2012, the Financial Markets Group remains committed to improving profitability and setting new stan-dards for performance with the help of timely strategies, continuing inno-vation, and outstanding services.
▲ Fubon Forum
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Fubon Financial’s Main Profit EngineTaiwan’s economy was beset by growing uncertainty in 2011, result-ing in a decline in the stock market that eroded wealth and underminedconsumer confidence. In this dif-ficult environment, however, the Consumer Finance Group reinforced r isk management mechanisms,strengthened customer segmenta-tion strategies, launched innovative marketing campaigns and optimized cross-selling synergies to generate outstanding results in the credit card and personal loan businesses.
The ongoing eurozone debt crisisis expected to weaken economicgrowth momentum in 2012, which will likely further dampen consumer sentiment and intensify competi-tion in the marketplace. Despite these challenges, the Consumer Finance Group remains committedto pursuing steady profit growth through sound management andgreater attentiveness to customers’ needs, and it anticipates sustaining its role as Fubon Financial’s leadingprofit engine by demonstrating its dynamism and ability to execute.
Improved Asset Quality through a Balanced StrategyThough uncertainty grew as 2011progressed and the government
took steps to curb speculation in residential property and restrain mortgage lending, the generally sta-ble domestic economy still sustained consumption and investment activ-ity. Taipei Fubon Bank’s consumer loan business adopted a balancedstrategy that relied on pursuingsteady profit growth, strengthen-ing asset quality, and diversifyingproducts and services to satisfy customers’ many borrowing needs. The Bank’s outstanding mortgagebalance rose 3.31%, which com-pared favorably with a decline of2.08% averaged industry-wide, and its outstanding consumer loan bal-ance rose 42.5%, easily outpacing the 11.40% growth seen in 2010.
The Bank’s mortgage businesscontinued to focus on providing cus-tomers with mortgage options that best met their needs and proposed fund uses and on offering differenti-ated pricing and credit conditions tailored to their financial status and available collateral. At the same time, the Bank collaborated with Fubon Insurance to promote “excess of loss earthquake insurance,” giving cus- tomers an additional value-added op-tion to better protect their property.
In terms of consumer credit, the Bank instituted a management mod-el oriented toward customer needs.
Several initiatives were taken to cater to the financing needs of different consumer segments, including strengthening product design and packaging, adopting risk-differen-tiated pricing, enhancing product promotion and visibility, and diver-sifying distribution channels. Also, promotions were again launched to coincide with peak seasonal de-mand for cash, including during the Lunar New Year holiday, the tax filing season, and the start of school, lead-ing to sharp rises in consumer loan demand.
Enhancing Brand Loyalty through Innovative CampaignsCompetition in Taiwan’s credit card market intensified in 2011, but Taipei Fubon Bank’s credit card team was up to the challenge. Strong emphasis was given to satisfying cardholders’ daily needs, developing partnerships with high-traffic retailers, and pursu-ing innovative campaigns, initiatives that resulted in a record NT$128.3 billion being charged on Fubon cards during the year.
Among the Bank’s many promo-tional activities, the “Fubon Gourmet Group,” launched in 2010, contin-ued to thrive in 2011. The network expanded to more than 1,000 partic-ipating restaurants and food outlets, and a new package of restaurant
Consumer Finance
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The Consumer Finance Group’s success is based on innovation and a brand image that has built loyalty.
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discounts exclusively for Fuboncardholders was introduced in con-nection with the creation of new special municipalities in Taiwan, a promotion that became the market’s benchmark. Another retail discount promotion, the “Fubon Easy Living Campaign,” was launched in co-operation with over 1,000 vendors involved in fashion, accessories, hair styling, housewares and even art performances. Some campaigns, di-rected at more targeted audiences, provided even more refined services and benefits. The Bank collaborated with Johnnie Walker, for example, in inviting VIPs to attend exclusive tasting sessions, and joined with top cosmetics brands in reward
campaigns targeted at women, cre-ating a sense of exclusivity among Fubon cardholders.
The “Fubon Fortune Card” sent shock waves through the industry whenit was introduced in June 2010,offering a 0.5% cash rebate on every purchase made and taking theunprecedented step of giving away 32-inch LCD TVs to new cardhold-ers who met spending targets. The incentives proved highly attractive, and 200,000 of the cards were is-sued in less than a year, the most of any Taipei Fubon Bank card in such a short period. New incentives were added in 2011 to enhance card loyal-ty, including a buy-one get-one-free
promotion for movies and discounts to major concerts. At year’s end, a campaign rewarding new cardhold-ers who met spending targets with small refrigerators thrust the card back into the spotlight.
The Bank launched another card in July 2011 designed to save car own-ers money — the “Fubon Car Savings Card.” The card offers cash rebates on gasoline, car-related goods and car insurance along with free parking and discounts on maintenance. Pre-mium credit cards have also become a major driver of growth. The Bank issued co-branded cards with several partners in late 2010 and in 2011, in-cluding the “Sogo Department Store Co-brand Titanium Card,” the “Tai Mall Co-brand Titanium Card,” and
▲ The Fubon Fortune Fun Party
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the “Dream Mall Co-brand Titanium Card.” The par tnerships helped strengthen Fubon’s presence in the high-spending consumer segment and created benefits for all stake-holders — the Bank, its partners and cardholders.
The Bank also launched two major innovative promotional campaigns in 2011 that drew a tremendous re-sponse and energized the brand’s image. The first, the “Fubon Fortune Fun Party,” was held from March to May in collaboration with FamilyMart, the convenience store chain with the densest network in Taiwan, and gave cardholders the chance once a day to draw their cash rebate rate for the month at any of the chain’s Fami-ports, with the highest rate drawn the effective rate. The promotion drew widespread media coverageand further enhanced the Fubonbrand image. Then, during the peak spending season in July and Au-gust, the Bank launched a “Sign for Rewards” campaign that offered an iPad2 to any cardholder who accu-mulated 20 signed credit card slips with pre-designated authorization code numbers. Consumers em-braced the challenge and charged an incredible 3.3 times as much as during the same two months a year earlier, prompting competitors to roll out similar programs of their own.
2012: Strengthen Segmentation, Exploit Cross-Selling SynergiesWith competition only expected to intensify in 2012, satisfying customer needs will remain the Consumer Finance Group’s number one priori-ty, and special efforts will be made to provide more tailored services based on customer profiles. By strength-ening customer segmentation and capitalizing on operating synergies, the Group expects to sustain strong profit growth momentum.
The mortgage division will continue to consolidate its assets, lower operat-ing costs and enhance value-added while also lowering risk and widening products’ interest spreads through segmented risk management strate-gies. The consumer credit division will continue to embrace a philosophy of putting the customer first, and put a priority on product design, risk-basedpricing, and process streamlining while maximizing the clout of its pro-motional campaigns.
The credit card division’s marketing strategy will focus more closely on targeting and better understanding the needs of specific customer seg-ments, such as VIPs, young adults and women, and offering them dif-ferentiated products and services,which will help strengthen CRM (cus-tomer relationship management).
Ultimately, the Consumer FinanceGroup intends to more actively tap into new markets and develop in-novative products and marketing strategies that strengthen its brand advantage.
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Steady Growth One Step at a TimeGlobal investment markets facedthree major challenges in 2011 — a rise in inflation, currency wars and the European sovereign debt crisis — all of which dampened investor sentiment. Amid this difficult envi-ronment, the Wealth Management Group continued to embrace sound planning strategies and made it a point to share asset allocation andrisk diversification concepts withclients to help minimize their assets’exposure to financial turbulence. As a result of this sound portfolio ad-vice and emphasis on stringent risk management, the assets of wealthmanagement clients handled by Taipei Fubon Bank were up 4.8% year-on-year as of November 2011. Fubon Securities had an impressive 6.08% share of the securities broker-age market, and its total earnings easily led the sector.
Fubon Asset Management ended the year with assets under management of NT$149.4 billion and stood out as the industry’s benchmark for innova-tion in several areas. Not only did it secure a QFII quota, it also set up a joint venture in China called Founder Fubon Fund Management Co., for-mally gaining a foothold in China’s fund management market. Fubon Asset Management also became the first QFII from Taiwan to launch a
Chinese A-shares ETF when it listed the Fubon SSE180 ETF, strengthen-ing its overseas product line.
Upgrading the e-Commerce PlatformThe Wealth Management Group’ssecurities and futures operations have developed a stable, user-friend-ly e-trade platform that is earning the trust of clients and maximizingefficiency. In 2011, the share of to-tal trades made by Fubon clients through the e-trade system rose 10%, and just over 70% of all futures trades were conducted online. The number of futures trades made through the Fubon Securities mo-bile trading platform rose 126%, an indication of the growth potential of mobile trading services and their appeal to investors. With that poten-tial in mind, Fubon Securities and affiliate Taiwan Mobile collaborated to create a Fubon stock market app on Taiwan Mobile’s “match” value-added service portal. This new service is expected to extend the Group’s reach to the younger gen-eration and business people and provide investors with fast, conve-nient mobile trading services.
Taipei Fubon Bank has also put a priority on getting customers to use the e-trading platform and geared initiatives to different market seg-ments, including new and existing
online banking customers. Taipei Fubon Bank has also put a priority on getting customers to use the e-trading platform, gearing preferential banking services, such as foreign exchange, fund and cash transac-tions, to new and existing online banking customers. The Bank also launched mobile trading services for smartphones, offering clients even broader, more convenient mo-bile banking services and financial information.
Building an Unrivaled Wealth Management BrandTaipei Fubon Bank’s Wealth Man-agement division has five majoroperating strategies: tightly control-ling risk, enhancing service quality and renovating branches, strength-ening customer segmentation and deepening customer relationships,retaining talented people, and pro- moting the e-trading platform. Variousapproaches have been taken to meet these goals. The Bank’s exclusive RAM (risk allocation management) system helps clients safeguard theirwealth in a volatile environment.New campaigns to strengthen ser-vice quality have been introduced, optimizing service processes and deepening customer relationships. An effective system of qualitative and quantitative incentives and rigorous training programs have also been in-stalled to enhance the overall caliber
Wealth Management
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Taipei Fubon Bank helps clients manage risk, a key part of its expert Wealth Management advice.
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and competitiveness of the Bank’steam of financial professionals. These efforts have earned wide-spread recognition at home and from prestigious financial journals abroad.Taipei Fubon Bank earned the top prize for “Best Risk Management”in 2011 from the Taiwan-basedweekly Business Today in 2011 and was also given honorable mention for “Best Products,” “Best Wealth Management,” “Best Performance,” and “Most Trusted Brand.” Its Private Banking services were also widely honored, with Taipei Fubon Bankbeing named “Best Private Bank” in Taiwan by The Asset for the second consecutive year in 2011 and Tai-wan’s “Best Domestic Private Bank” by Euromoney and Asiamoney.
The Wealth Management Group’s securities brokerage business pri-oritizes client benefit above all else. It is constantly striving to increase
sales agents’ depth of engagement with customers and strengthen the management of key performance indicators, such as new client devel-opment and employee recruitment, the deepening of client relationships,and dormant account activation.Once this “depth” is achieved, efforts are made to forge greater “breadth.” Customer service initiatives are tak-en to improve customer satisfaction and consolidate the securities bro-kerage business’s competitive edge. Meanwhile, strategic analysis provid-ed by Fubon Securities Investment Services’ crack research team has helped the Group gain recognition as an investment consultant clients can trust.
To help institute more rigorous in- ternal controls over business op-erations, training for distribution channel managers and sales agents has been stepped up to improve their awareness of legal compli-
ance and internal control concepts, strengthening the company’s overall operating structure. In recognition of these efforts to reach out to cus-tomers and solidify the organization internally, Fubon Securities was named “Best Brokerage House” in Taiwan for the second year running in 2011 by The Asset and ranked second among securities firms in CommonWealth Magazine’s 2011 “Most Admired Company” survey.
On the asset management side, Fubon Asset Management earned acclaim for its skill in managing its domestic equity funds. Its Fubon Elite Fund was named the best one-year and three-year fund in the Domestic Mid/Small Cap Equity Fund category at the 2011 TFF-Bloomberg Best Fund Awards and the best three-year fund for “Equity Taiwan Small and Mid Caps” at the 2011 Lipper Fund Awards.
In a year when no entries made the grade for one-year, three-year and five-year funds among domestic equity “value” funds at the 2011 Best Fund Awards, the Fubon Value Fund was named best 10-year fund in the category.
Overall, companies in Fubon’s WealthManagement Group delivered strong performances in 2011, earning plenty of recognition in domestic and inter- national financial media. With the help of the Group’s strategic planning
▲ Founder Fubon Fund Management Co. opened in Beijing amid great fanfare on
July 25, 2011.
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guidance, clients gained a stron-ger grasp of wealth management concepts and saw their assets bet-ter protected, helping increase the companies’ earnings. These effortsultimately generated income for clients and enhanced the Wealth Management Group’s brand.
Eyeing the Greater China RegionThe Wealth Management Groupencompasses many elements, from securities brokerage and banking to a strong Greater China research team and expert asset management and product development teams. As cross-strait regulations become more liberalized, these stakeholders will build on Fubon’s solid wealth management foundation in Taiwan to search for suitable partners in pen-etrating the Greater China market and designing wealth management products catering to the region’s special characteristics. The Group
leads the industry in developinga presence in Greater China and building a comprehensive financial services structure that offers clients more diversified and convenient in-vestment options.
CSR: Serving Communities, Helping the DisadvantagedAside from being active on the busi-ness side, the Wealth Management Group aggressively sponsored and participated in numerous charitable activities in 2011, including many held by the Fubon Group, such as Fubon Blood Donation Day and “Ex-changing Secondhand Goods for Love.” The securities division’s vol-unteer association expressed its concern for others when it accom-panied the If Kids Theater troupe to Hualien, where the group per-formed for patients at Mennonite Christian Hospital.
Fubon Asset Management par-ticipates in a program launched by “Taiwan Rice Farmer Company,” the first company in Taiwan formed entirely with capital put up by rice farmers. Under the company’s land adoption plan in Jiaosi in Yilan County, Fubon Asset Management financially supports the cultivation of a 1-hectare rice paddy to safeguardthe production of Taiwan’s high-quality rice. It donated the plot’s first harvest of 2,400 kilograms of rice to the Taipei Fubon Bank Charity Foun-dation in lieu of a planned monetary
donation. The Wealth Management Group will also continue to harness the passion and love of Fubon em-ployees in spreading the message of philanthropy through diverse activi-ties and live up to its responsibility as a corporate citizen by creating the greatest benefit possible through charitable campaigns.
2012 is expected to present many economic challenges, but the Wealth Management Group will face them with a positive attitude and clear strategic directions. The Group hopes to deepen its foothold in Tai-wan, expand into Greater China, successfully execute major strate-gies, and develop innovative and effective sales channels and prod-ucts, all to provide clients with more diverse and innovative wealth man-agement options. At the same time, the professional foundation for the wealth management business will be strengthened and deepened by solidifying its pool of top talent and providing that talent with more com-prehensive training. Backed by the Fubon Group’s longstanding values — integrity, sincerity, professional-ism and innovation — the Wealth Management Group looks forward to creating even greater value for its clients and society and aspires to emerge as the wealth management team clients feel is most worthy of their trust.▲ The “Fubon 50th Anniversary Lucky
Draw Campaign” held by Fubon Se-
curities in 2011.
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Building Expertise in the Pursuit of Excellence The Investment Management Group draws on the expertise, resources and competitive advantages ofFubon Financial subsidiaries FubonLife, Fubon Insurance, and Fubon Financial Venture Capital to plan and execute investment strategies tailored to this specific needs of each Fubon Subsidiary. Econometric models and other special operating systems are used to effectively di-versify and manage different types of risk, an approach that optimizes investment allocations and returns as well as risk diversification and contributes to the stability of Fubon Financial’s long-term finances and sustainable operations.
Fubon Insurance and Fubon LifeInvestment Income Sets New High Fubon Life capitalized on its strong operating foundation and commit-ment to excellence to again deliver outstanding investment results in 2011. It had NT$1.61 trillion in assets under management as of the end of the year, up 13% from a year earlier, and investment income was a record NT$55.2 billion. Assets managed by Fubon Insurance also grew steadily to NT$62 billion as of the end of 2011.
After many years of strong perform-ances, Fubon Insurance and Fubon
Life have assumed leadership posi-tions in the market and within the industry, and their comprehensive product ranges and diverse market-ing channels have generated large, steady cash flows. These funds pro-vide a solid foundation on which the Investment Management Group can make use of its expertise and create a diverse range of asset liability man-agement-driven portfolios that are tailored to the prevailing economic environment and corporate goals.
At the same time, fluctuations in in-terest and exchange rates, credit conditions and the overall economic and political environment are closely monitored, and this vigilance, along with Fubon’s internal early-warningrisk control system, enables theGroup to adjust portfolio alloca-tions and investment strategies in a timely, flexible manner. These initia-tives strengthen asset utilization and effectively diversify investment risk, ensuring that Fubon Insurance and Fubon Life can meet their commit-ments to their customers.
Fubon Life received widespread rec-ognition for its achievements from prominent international financial jour-nals in 2011, including being named by World Finance as the “Insurance Company of the Year” in Taiwan. At home, it was again honored as
the most admired company in the domestic insurance industry in CommonWealth Magazine’s “Most Admired Company” survey, and also ranked atop the industry in two of the survey’s 10 criteria — “operating performance” and “financial capac-ity.” These accolades highlighted Fubon Life’s long-term commitments to asset liability management and the nurturing of investment exper-tise, commitments that have driven Fubon Life to consistently surpass itself and outpace the investment performance of its rivals, while also earning the recognition of business and academic circles in successive annual evaluations.
Financial Outlook and ChallengesThe eurozone debt crisis and con-tinued deleveraging in developed economies are likely to affect the global economy in 2012 and weaken international trade growth. Though emerging economies remain in rel-atively good financial shape, their markets are not big enough to stim-ulate global economic activity on their own, suggesting a marked slowdown in growth worldwide. On the exchange rate side, the U.S. dollar weakened in 2011 as the Fed-eral Reserve maintained its loose monetary policy. But with the U.S. economy expected to improve this year, the greenback may trade in a
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The Investment ManagementGroup’s core strategies includea renewed emphasis on fixed income assets, more efficient funduse and a long-term approach.
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wider range, a factor that needs to be carefully accounted for when consid-ering overseas investments. These trends, along with political upheaval in the Middle East, are all variables that could hinder or derail continued growth. As a result, economic fore-casts for 2012 have been relatively
conservative, with most pointing to further slowdowns in growth.
The structural changes taking place in Western economies will also af-fect the domestic economy. Export momentum across all sectors has slowed, and attitudes toward private
investment and consumption have turned conservative because of un-certainty over mid-term economic prospects. These unfavorable trends have led Taiwan’s official statistics bureau to revise downwards its fore-cast for 2012 GDP growth several times. On the more positive side, the high-tech sector continues to in-novate and create new markets, and a global race to upgrade industrial bases has stimulated demand for information communication technol-ogy products and new machinery, contributing some momentum to ex-ports. At the same time, after a period of tight monetary measures, China seems to be loosening the reins and may change its priority from control-ling inflation to stimulating growth. That should drive demand higher in emerging Asian markets and help the domestic economy pull out of its dol-drums with gradually higher growth rates as the year progresses.
The financial investment environ-ment in 2012 remains shrouded in uncertainty, primarily because sev-eral countries and regions across the globe are facing different challenges and have adopted contrasting fiscal and monetary policies in response. Europe and the United States have pursued austerity measures to re-duce fiscal deficits but also must consider the need to stabilize labor
▲ Groundbreaking ceremony for Fubon Life’s Dwen-Nan Office Building
▲ Fubon Financial funded a series of “Fubon Sustainability Lectures” held by National
Taiwan University.
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markets. Emerging markets are vul-nerable to asset bubbles and bigswings in commodity prices butmust still sustain relatively high eco-nomic growth. This expanding pool of often conflicting economic vari-ables has made forecasting more difficult and will seriously test the abilities of investment institutions to read global economic and political trends. In this age of rapid financial and economic change, Fubon Life has invested primarily in treasury bills, corporate bonds and financial bonds with steady yields, supple-mented by high-dividend blue-chip stocks and real estate holdings, to generate optimal results.
In 2012, Fubon Insurance and Fubon Life’s investment strategy will ac-count for the wide disparities in regional economies and the lack of clarity in economic prospects for the global economy. Domestic and foreign fixed-income assets with relatively high yields and solid credit ratings will be the prime targets, and moves will be made to meet the challenge of an appreciating Taiwan dollar. Increasing holdings of blue-chip stocks with high dividends and income-oriented real estate will also be a priority and is expected to minimize risk from economic down-swings, increase investment returns, and sustain both companies’ steady
investment performance over the long term.
Direct InvestmentUnearthing New Profit OpportunitiesOur direct investment division cre-ates new promising enterprises through joint ventures or invests in companies that have the potential to be consistently profitable. Our main investment targets include:
(1) emerging high-tech industries, such as the biomedical, cloud com-puting, key material, and information technology and optoelectronics sec-tors; (2) emerging sectors promoted by the government, such as cultural and creative industries, tourism, and green energy; (3) large-scale government projects including basic infrastructure; (4) emerging channel businesses; and (5) financial servic-es-related enterprises.
As of the end of 2011, direct invest-ment totaled NT$7.21 bill ion. Ofthat, NT$3.57 billion was invested in infrastructure, NT$173 million was in digital media and channel sales businesses and NT$652 million was in biomedical companies. The Group also had NT$8 million invested in the energy sector, NT$503 million in environmental engineering com-panies, NT$117 million in the IT/
high-tech sector, NT$1.068 billion in financial service-related enterprises, and NT$1.122 billion in other venture capital areas.
Though many of the strategies pur-sued in 2011 will be continued this year, new initiatives will be taken toexpand investment in Taiwanesecompanies, especially those involved in sectors that the government plans to nurture into future stars. Invest-ment will be primarily directed toward the biomedical, services, and cultural and creative sectors, and efforts will also be made to capitalize on the trend among domestic enterprises to upgrade their operations and con-tribute to those initiatives.
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Fubon InsuranceReaching New Heights through Constant InnovationFubon Insurance celebrated its 50th anniversary in 2011 by having one of its best years in history. Written premium rose by 9.5% and market share was 21.6%, both 10-year highs. The company has consis-tently offered a complete range of products and outstanding services backed by the Fubon Group’s core values — integrity, sincerity, profes-sionalism, and innovation — and its unwavering pursuit of customer sat-isfaction, commitment to corporate social responsibility and creation of shareholder value has made Fubon Insurance the brand most trusted by customers and the general public.
Steadily Creating Value, No. 1 for 30 YearsFubon Insurance relies on a compre-hensive range of risk management services and flexible product mar-keting and distribution strategies to deliver consistently strong results. In 2011, direct written premium to-taled NT$24.29 billion, carving out a 21.6% market share that led the industry for the 30th consecutive year. At the same time, steady under-writing strategies and appropriatecost controls helped the company’s underwriting performance ascend to the level investors expected.
Strong at Home, Expanding Aggressively AbroadA fixture in the domestic market for 50 years, Fubon Insurance has 73 branches and liaison offices around Taiwan and is actively developing a more diversified cross-selling sys-tem that will give consumers an even wider variety of channels through which to access the company’s broad range of services.
In recent years, Fubon Insurance has aggressively extended its reach to markets abroad. Its subsidiary based in Xiamen, China — Fubon Property & Casualty Insurance Co., Ltd. — opened in October 2010. A year later, in November 2011, pre-paratory approval was received to set up a branch in Chongqing. In Vietnam, Fubon Insurance (Viet-nam) Co., Ltd. opened an office in Dong Nai province to complement a network that already included a head office in Ho Chi Minh City and branches in Hanoi and Binh Duong province. Preliminary ap-proval was received in December to open a branch in Danang. Fubon Insurance also has an insurance broker in Thailand, representative offices in Beijing, Shanghai, and the Philippines, and liaison offices in Malaysia and Indonesia, giving it widespread coverage through- out Asia.
This drive to expand overseas in step with the times, backed by Fubon Insurance’s expertise, has not only provided more customers with out-standing insurance options but also embraced Fubon Financial’s vision of becoming one of Asia’s first-class financial institutions. By extending its presence overseas and innovating at home, Fubon Insurance continuesto pursue the goal of giving evenmore consumers blanket protec-tion with an unparalleled range of insurance services.
The Benchmark for Excellence through InnovationAnchored by a sound financial struc-ture and a commitment to sustain-able operations, Fubon Insurance regularly rolls out innovative services to solidify its unrivaled product range, reflecting its dedication to protecting the property and well-being of the general public, families and busi-nesses. The company’s customer-oriented service attitude, whichstresses empathy and a “volunteer spirit,” helps deepen relationships with customers and is an expression of corporate social responsibility.
Fubon Insurance’s “Integrated Risk Management Consulting Services” geared to corporate clients offer customized loss prevention, disaster recovery and business continuity
Insurance
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Fubon Life and Fubon Insurance work hand-in-hand in creating a new future for the insurance industry.
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planning options that help custom-ers reduce and control risk. Similarly innovative and attentive services, guided by a commitment to provide “heartfelt service worth trusting,” are offered to individuals and house-holds. They include “Extended Saturday Claims Periods,” “24/7Accident Handling,” “Text Message Claims Notification,” and “Instant Micro-claim Reimbursement.” Ser-vices on mobile phone platformswere added to the mix in 2011. All of these services were unprecedented in the industry when first introduced.
Fubon Insurance has maintained a competitive advantage atop the do-mestic insurance industry for years largely because of its determined pursuit of innovation and dedication to customer satisfaction, and those attributes again earned widespread recognition in 2011. Fubon Insur-ance dominated the prestigious Taiwan Insurance Best Performance Awards, sweeping all six general
insurance awards for excellence in “Best Customer Service,” “Best Product Innovation,” “Best Commu-nity Service,” “Best Staff Training,” “Best E-Commerce,” and “Best Risk Management.”
Driven by its spirit of innovation and steady business philosophy, Fu-bon Insurance expects to provide customers even more outstanding services and pursue its corporate social responsibility with more vigor in 2012 to set a benchmark for excel-lence in the P&C insurance sector.
Fubon LifeForging Asia’s Top Life Insurance BrandFubon Life’s management team fully exploited the company’s competitive strengths in 2011, and growth mo-mentum accelerated with the support of Fubon Financial’s deep resources. Fubon Life’s expertise and reputa-tion for public service have become deeply rooted in people’s minds, in evidence when the company was named by CommonWealth Magazine as the “Most Admired Company” in Taiwan’s insurance sector in 2011 for the third consecutive year. Forits unwavering pursuit of service excellence, Fubon Life also won CommonWealth Magazine’s “Golden Service Award” in the life insurance category. The brand’s reputation for excellence received international recognition as well, when Fubon Life was named by World Finance as the
“Insurance Company of the Year” in Taiwan.
Strengths in Evidence in Outstanding Year Fubon Life had a terrific year in 2011, ranking second in market share in both first-year premium and total premium. First-year premium totaled NT$222.8 billion, for a 22.4% mar-ket share, and total premium was NT$368.2 billion. As of the end of 2011, total assets were NT$1.79 tril-lion, and after-tax profit for the year rose 52% to NT$10.10 billion, result-ing in an EPS of NT$4.78, once again highlighting Fubon Life’s importance as one of Fubon Financial’s key profit centers.
Fubon Life continued to rely on a diversified marketing strategy involv-ing sales, bancassurance and other marketing channels to fully satisfy customers’ far-ranging financial and insurance services needs and desirefor a one-stop shopping experi-ence. Sales initiatives focused on organizational development goals that including increasing staff and strengthening the caliber of the com-pany’s people, improving employee retention, and establishing “entre-preneurial” niches under a career development training program that encouraged sales agents to act as entrepreneurs within the organiza-tion. Bancassurance distribution thrived in 2011, with a market share of 28% that was tops in the industry.
▲ World Finance named Fubon Life as the “Insurance Company of the Year” in Taiwan in 2011.
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Efforts will continue to be made to further cultivate bank branches and provide greater resources to ban-cassurance partners so that the banks, customers, and Fubon Life will all benefit. As for other marketing channels, Fubon Life continues to develop innovative operating models that strengthen distribution and gen-erate robust sales growth.
Innovating with a Finger on Society’s PulseFubon Life has always focused on building the most comprehensive product line in the industry and more recently has adjusted product strate-gies in response to economic trends. As Taiwan’s population has aged and the elderly population grown, for ex-ample, Fubon Life has introduced a series of products tailored to retirees, including pension insurance, senior citizen medical insurance and long-term care protection, which facilitateretirement planning. As markets
trend toward slower growth and alow interest rate environment, Fubon Life has offered unit-linked insurance plans in discretionary trust accounts and strengthened its line of tradi-tional policies to encourage people to better plan for and protect them-selves against risk. Finally, with 2012 the Year of the Dragon, which usually means a higher birth rate in Taiwan,Fubon Life will introduce specialproducts geared toward protecting women and their babies.
Fubon Life is dedicated to providing professional, sophisticated services guided by a commitment to put-ting customers’ needs first and the relentless pursuit of perfection. In 2012, initiatives will be taken to ex-pand the Fubon House project and build community-based “Fubon liv-ing circles” through the integration of Fubon Group resources to provide customers with localized services that exceed their expectations. Tech-nology will also be a top priority, with 2012 having been designated as “Fubon Life Cloud Computing Year.” Exclusive Fubon Life mobile apps of-fering even more timely and efficient service will be introduced and give Fubon services boundless reach.
Taking the Taiwan Experience OverseasFubon Life carefully scouts potential overseas markets and opportunities and then draws on its successfulexperience in Taiwan to help foreign
subsidiaries build local brands and actively cultivate local markets through professional marketing channels. In March 2011, subsid-iary Fubon Life Insurance (Vietnam) Co., Ltd. formally opened, a mile-stone that helped Fubon Life join the ranks of regional life insurers. In China, Fubon Life joined with Fubon Insurance in signing a letter of in-tent with Nanjing Zijin Investment Co. to launch a joint venture called Fubon Zijin Life, and an application for preparatory approval of the com-pany was submitted to the China Insurance Regulatory Commission in March 2011.
Looking to the year ahead, the globaleconomy still faces several chal-lenges. But Fubon Life will stick to its steady, pragmatic approach and strict management of risk to capital-ize on new opportunities and create a new dynamic for the company. In the face of growing public recognition and rising expectations, Fubon Life will also continue to offer custom-ers a complete range of insurance and financial planning options and strengthen service quality by striving for excellence and putting the cus-tomer first. At the same time, public welfare will remain a priority. Every effort will be made to become the best possible corporate citizen and the life insurance partner of choice among local consumers, creating a win-win-win situation for policyhold-ers, the company and shareholders.
▲ Fubon Insurance dominated the
Taiwan Insurance Best Performance
Awards, taking six honors.
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Managing for Stability and Sustainable GrowthThe global economy faced a wide range of uncertainties in the year of 2011. Among the key events were the earthquake and tsunami in Ja-pan in March, the downgrade of U.S. credit rating in August, and the neg-ative impact on global asset markets from the European sovereign debtcrisis throughout the year. Theglobal economic outlook remained subdued as the global supply chains were disrupted by various natural disasters and economic growth in emerging countries moderated. In addition, China’s prudent monetary policies tightened market liquidity and increased funding costs in the banking industry.
Against this backdrop of challenging economic conditions, Fubon Bank (Hong Kong) Limited (“the Bank”) continued to adopt a growth-yet-pru-dent strategy in 2011. We believed that our robust risk management framework and focus on financial prudence would allow us to weather the risks and achieve satisfactory performance. While we exercised strict cost control measures, we continued to invest in information technology infrastructure to enhance our customer experience and im-prove operational efficiency. The Bank’s capital and liquidity positions
remained strong and costs were well managed. The further integration and collaboration with our parent company, Fubon Financial Holding Co., Ltd. (“Fubon Financial”), not only allowed us to maximize revenue and reduce costs, but also provided us with a strong foundation to achieve steady growth.
Increase in Earnings demonstrated the success of the Bank’s Growth-yet- Prudent StrategyNotwithstanding the global eco-nomic uncertainties and intensecompetition in the financial sector, we continued to make progress in improving our financial performancein 2011. We generated a net profitof HK$280 million amid the volatile market conditions in 2011, a 5% in-crease from HK$266 million for theyear of 2010. The results demon-strated the success of our strategies of financial prudence, enhancing risk management and developing strong client relationships.
Gross interest income rose by 5%to HK$1,254 million in 2011, under- pinned by the higher average inter-est-earning assets resulting from the increase in mortgage business and commercial lending. Nevertheless, gross interest expense soared 80% to HK$618 million as driven by the
keen competition for deposits, which led to enduring high deposit costs in 2011. As a result, net interest income declined by HK$216 million or 25% to HK$636 million while net interest margin narrowed by 47 basis points to 1.09% from 1.56% for 2010.
Non-interest income amounted to HK$431 million in 2011, represent-ing an increase of HK$145 million when compared with 2010. Normal-ized non-interest income grew 3% and normalized ratio of non-interest income to total operating income reached 31.59%, versus 25.09% a year ago. Operating expenses was 9% higher than in 2010 whereas normalized operating expenses re-duced 4% year-on-year. Normalized cost to income ratio was 88.82% for 2011.
Enhanced Risk Management con-tinued to improve Asset QualityFurther improvement in the credit environment, accompanied with our robust risk management framework and prudent credit management supported the Bank’s comparatively conservative loan growth. There was a write back of impairment losses on advances to customers of HK$80 million for the full year of 2011 when compared with the charge for im-pairment losses of HK$10 million in 2010. The impaired loans ratio
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Fubon Bank ( Hong Kong ) stands out as an essential part of FubonFinancial’s strategy in GreaterChina.
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dropped to 0.33% as of 31 Decem-ber 2011 (0.66% as of 31 December 2010). The coverage of impaired loans improved from 96% at 31 December 2010 to 97% at 31 De-cember 2011.
Benefiting from the robust economic growth in China, Xiamen Bank deliv-ered a strong performance with the Bank’s share of profits amounted to
HK$91 million. After accounting for impairment charges, other gains and tax charge, registered profits after taxation stood at HK$280 million. Return on average assets increased 3 basis points to 0.46% and return on average equity improved 22 basis points to 5.53% for 2011.
Total assets slightly reduced by 2% to HK$60 billion as at 31 December
2011. As at 31 December 2011, gross advances to customers rose 11% to HK$32 billion whereas customer de-posits decreased moderately from HK$46 billion to HK$44 billion. As a result, the loan-to-deposit ratio in-creased to 70.47% from 61.22% asat 31 December 2010. The Bank’scapital and liquidity positions re-mained strong. The capital adequacy ratio was 15.89% as at 31 Decem-ber 2011 (18.23% at 2010 year-end). The average liquidity ratio stood at a healthy level of 49.37% for 2011.
Poised to Capitalize the Opportunities arisen from RMB Liberalization and Achieve Sustainable GrowthReflecting our efforts to enhance our customer experience, we soft-launched Fubon Business Online in the second half of 2011. This new e-banking service caters to our ▲ The Causeway Bay Branch formally opened in May 2011.
▲ Fubon Bank (Hong Kong) is building a larger local presence with high-quality financial products and services.
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corporate clients by providing them a full range of cash management services. Our strategic partnership with China Life Insurance (Overseas) Company Limited (“China Life”) con-tinued to allow us to offer customers exclusive and diversified insurance products from China Life and record promising results. The liberalization of Renminbi (“RMB”) created new op-portunities and boosted the demand for RMB products and services. In August 2011, the Bank reached another important milestone by be-coming the first Taiwanese-invested bank approved by the People’s Bank of China to participate in China’s inter-bank bond market using RMB.
Following the successful privatization by Fubon Financial, the Bank was of-ficially delisted from the Hong Kong Stock Exchange on 8 June 2011 and became a wholly owned subsidiary of Fubon Financial. The privatizationfacilitates closer integration be-tween the Bank and Fubon Financial and provides Fubon Financial with greater flexibility in supporting the Bank’s future business development. Moreover, the Bank will be able to le-verage the resources and expertise of Fubon Financial in order to better serve our customers with enhanced products and services and also to strengthen our banking franchise in Hong Kong.
In the face of a rapidly changingeconomic environment, we will con-tinue to adopt a prudent approach to capture new business opportunities while minimizing risks and costs. The opening up of the China market and further relaxation of RMB business has offered the Hong Kong financialsector vast opportunities. As theBank intends to continue playing an important role in Fubon Financial’s Greater China business strategy, we will stand ready to capitalize on newopportunities to offer customersdiversified RMB products and ser-vices. Furthermore, we will continue to invest in IT infrastructure and en-hance our Internet platform to further our relationships with customers. We believe that the policies and mecha-nisms that we have put in place for
reinforcing our risk management control capabilities will also enable us to maintain stability and pursue sustainable growth.
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Dynamic Fubon : Spreading Warmth
Spreading Love – One Step at a TimeFubon Charity Foundation Fubon Cultural & Educational Foundation Fubon Art Foundation Taipei Fubon Bank Charity Foundation
Founded in 1988, the Fubon Charity Foundation remains passionate about helping underprivileged members of society. Core initiatives include the “Making Friends with Love” campaign, which helps children stay in school, “Fubon Volunteer Association” ac-tivities, and emergency rescue and assistance programs. Over the past 23 years, the Fubon Charity Founda-tion has left its mark in every corner of society and emerged as an impor-tant vehicle through which the FubonGroup practices corporate socialresponsibility.
The foundation’s “Emergency Relief Fund” has helped individuals and fami-lies facing emergencies with timely financial assistance, covering living, medical and even funeral expenses. Support has been provided in many forms over the years, including through individual financial assistance, medi-cal fund accounts, the 921 educationfund, the Fubon Insurance micro-insurance program, and a scholarship plan for children who had a parent die while trying to help others after Ty-phoon Morakot.
The Fund has relied on a referral net-work to build a personal emergency reporting system that of fers those in need links to resources available through government agencies and private organizations. The network
also arranges for Fubon volunteers to visit individuals or families facing emergencies, ensuring that Fubon’s commitment to give back to society and serve disadvantaged groups ex-tends to all those in need. In 2011, theFund contributed NT$18,873,532 inassistance, benefiting more than 4,000 individuals and families.
The “Making Friends with Love” cam-paign, the Foundation’s core cause, pools resources raised from the public and Fubon employees to help children from economically disadvantaged fam-ilies continue their education. In 2011, NT$124,030,800 was raised, helping 17,226 students stay in school. Over-all, the program has helped 112,850 children since its inception in 2002. Other major initiatives in 2011 were as follows:
• “Spreading Love” Apple Baumkuchen Campaign: Joined with baked goods vendor PaiPai Enterprise and celebrity Wu Dan-ru to raise NT$1.5 million for 10 elementary schools in Kao-hsiung City and Pingtung County.
• “Let Love Soar” Campaign: Raised NT$2,290,674
• “Fubon Charity Auction”: Raised NT$2,768,601
• “Exchanging Points for Love” Campaign: Teamed with Taipei Fubon Bank to raise NT$2,770,950 from Bank’s cardholders; proceeds donated to 12 social welfare groups
Since being founded in 2003, the“Fubon Volunteer Association” has
encouraged and mobilized Fubon’s people to participate in social welfare activities. Today, the association has 23 branches around Taiwan that ex-press, through their actions, the Fubon Group’s commitment to giving back to society. 2011 was no exception. The as-sociation held two blood drives to mark the Fubon Group’s 50th anniversary that collected 6,825 bags, or 1.7 mil-lion cc, of blood. Association branches organized 15 special activities for poor families, economically disadvantaged students, senior citizens and disabled persons, and eight “Volunteer Edu-cation” seminars were held at whichprominent individuals shared their work and service experiences to helpFubon volunteers grow and improve the caliber of volunteer activities.
At the same time, the association sup-ported a number of initiatives launched by Fubon Group foundations, includ-ing the “2011 Fubon Social Welfare ambassador” campaign, the “We De-liver Green! Classroom” campaign in collaboration with Federal Express, and the “1919 Love to Walk” event. In all, Fubon volunteers contributed 8,161 hours of service.
The Fubon Charity Foundation has earn-ed widespread acclaim and support over the years for its efforts, and it was honored in 2011 as an “outstand-ing” social welfare foundation by the Ministry of the Interior in the agency’s triennial assessment of philanthropic groups. In the future, the Foundation will continue to extend its warmth and caring to all parts of Taiwan and remain a positive force in bettering society.
Fubon Charity Foundation
▲ This class was one of many held as part of the “We Deliver Green! Class-room” campaign.
▲ A press conference is held to promote the “Spreading Love” Apple Baumkuchen Campaign.
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In the many years it has helped teen-agers reach their potential, the Fubon Cultural & Educational Foundation has learned that adults are not the only ones who have dreams. Adolescents harbor many youthful dreams, that may lack maturity but are heartfelt and pure. Because these dreams are often crushed by existing constraints or a lack of resources, the Foundation de-cided in 2011 to launch a “Youth Dream Project” that helps all teenagers brave-ly pursue dreams that are inspired by their own ambitions and extend into the communities they live in.
Embracing the concept, a group of prominent Taiwanese artists, including hair stylist Sun-hua Chen, photogra-pher Liang Su, scenographer Huang I-ju, and visual designer Aaron Nieh, formed a volunteer group and invited 39 celebrities to model for a series of provocative photos in support of the initiative. The works were displayed at the “2011 Celebrity Charity Photo Exhibition” and then auctioned, with the proceeds going to the Foundation to set up a “Realizing Dreams Project” and fund teenagers’ dreams.
For over 20 years, the Fubon Cultural & Educational Foundation has organized several activities to help teenagers in three major areas that culminated more recently in a “Young Voice, Young Life, Young Career” campaign. “Young
Voice” refers to cultivating media lit-eracy among teenagers. “Young Life” emphasizes life education to help teen-agers learn to appreciate life. “Young Career” helps adolescents identify their interests and strengths and find their life’s vocation as early as possible. This comprehensive education program has enhanced the competitiveness of Taiwan’s next generation.
Now entering this eighth year, the “Young Voice Awards” serve as a platform for teenagers to express themselves cre-atively. Aside from holding an annual awards ceremony, the Foundation also organizes audio-video workshops and encourages young people to show concern for those around them by observing and recording aspects of their daily lives. In 2011, four carefully designed workshops, rich in content, were held on creative imaging, pho-tography, documentary-making and reporting. Through the process of working closely with instructors, the participants courageously explored their own potential. They gained the abil-ity to express their personal feelings and those of the people they cared for, and ultimately became experts on their own lives and masters of their own minds.
Since 2010, the Foundation has orga-nized annual activities in Taipei related to World TED x Youth Day. Through
live online broadcasts of the event, Taiwanese teenagers have been able to share their different life stories with people around the world.
Another major Foundation cause hasbeen helping developmentally delayed children. Those efforts were sustained in 2011, when the Foundation collab-orated with Taitung Christian Hospital on an “early treatment” campaign and invited superstar singer Chang Hui-mei to make commercials promoting the concept. It also helped raise fundsto deepen the hospital’s reach into remote areas, helping even more de-velopmentally delayed children who often lack access to treatment.
The Foundation has also pushed itselfto fulfill its responsibility as a global citizen by giving teenagers more ex-posure to the outside world and byextending its philanthropic reachabroad. Following a massive earth-quake and tsunami in Japan on March 11, 2011, the Foundation immediately responded with emergency aid. Efforts to sponsor children in Sri Lanka or-phaned by a massive tsunami in 2004, provide essential medical assistance and protection to street children in the Democratic Republic of Congo, and build medical facilities, wells and schools in Mozambique and Lesotho are also ongoing. Volunteer medical missions have also been sent periodi-cally to Mozambique to provide free health care.
▲ A creative imaging workshop is held as part of the “Young Voice Awards” program.
▲ The “Youth Dream Project” brought Puyuma teenagers in touch with themselves and their indigenous culture.
Fubon Cultural & Educational Foundation
2011 Annual Report
51
Ever s ince i t was establ ished in 1997, the Fubon Art Foundation has subscribed to a mission statement that focuses on “sharing” art. This guiding principle has informed such events as the annual “Very Fun Park” contemporary art exhibition in Taipei City’s Eastern District and the Fubon Lectures with their lively discussions on life aesthetics. It is also behind the foundation’s publication of “Art Map” magazine and a cooperative project to produce the radio show “Fun Art Radio.” Fubon Art Foundation is dedi-cated to sponsoring artistic creativity, promoting art education and elevating the quality of life for everyone, by mak-ing art more real world-oriented and an integral part of life.
2011 marked the centennial of the es-tablishment of the Republic of China and the 50th anniversary of Fubon Corp. As part of its celebrations to com-memorate these events, the foundation sought to both showcase innovation and surpass previous events. To that end, “Very Fun Park” was expanded to include 100 display points that it is es-timated attracted more than 350,000 visitors. In addition to continuing its exhibition project on the campus of National Chengchi University, the foun-dation also decided to go beyond the confines of Taipei, extending its art sharing mission to Kaohsiung — where the atrium garden, main hall, corridors, sales areas and Observation Wheel at Dream Mall were all used as to show-case brilliant works of art. At New Year, the foundation also displaying a work made of feathers by artist Yu Wen-fu at the World Trade Center mall in
Causeway Bay, Hong Kong. Such apopular location ensured that the work was able to convey the true beauty of art to as large an audience as possible.
In 2011, the Fubon Lectures programinvolved more than 100 free semi-nars and fee-charging classes. These addressed a wide range of subjects, ranging from literature, cuisine and ar-chitecture to design, culture and innovation, cinema and a workshop se-ries. At one talk given by internationally renowned Japanese architect Toyo Ito, about 800 people registered to take part in a 24-hour period. The lecture giv-en by writer Lin Xi attracted participants from Taiwan, Hong Kong and China, an indication that the Fubon Lectures have become an event people are willing to travel great distances to attend.
In addition to the independently orga-nized lecture classes, efforts were also made to organize cooperative projects with the private sector. Examples in-clude a series of talks during Taiwan Designers’ Week and a selective guide to the golden horse Film Festival. By keeping up to date with current events, the Fubon Lectures have been able to provided art lovers with relevant infor-mation about ongoing activities. In the10 years since they were launched, the lectures have developed a reputa-tion for their impressive understanding of the cultural pulse of Taiwan. They have also attracted more than 60,000members and held nearly 1,200 life aesthetics classes.
The Fubon Art Foundation has made use of the rich artist resource plat-form at its disposal to develop and design public relations gifts for the
Fubon Group. It also signed an exclu-sive sponsorship deals with UFO Radio to produce the program “Fun Art Ra-dio” and published the eastern district life magazine “Art Map,” all of which promote the foundation’s vision that art is an indispensable part of life.
The hard work of Fubon Art Foundation over the past 15 years was recognizedby Taipei City Government in 2011 when it received the 15th Taipei Culture Award for “outstanding contributions to the long-term nurturing of culture, promotion of cultural diversity, focus on Taiwanese identity and promotion of Taipei on the international stage.”
Over the next year, the foundation will continue to focus on ongoing projects, but also has a number of new objec-tives, including a plan to expand the number of free lectures and working to become an even broader platform for the promotion and exchange of art and culture.
By establishing a database and sys-tematically recording the names andbio data of speakers and artists, together with pictures, text and audio-visual data, the Fubon Art Foundation is working toward establishing its own dedicated AV platform. This would en-able the foundation to better overcome the limits of time and space, and makeit possible to share intriguing com-binations of art and life with an even wider audience. Fubon Art Foundation remains as passionate and driven as when it was first established and we believe that energy combined with a belief in beauty and a mission to share our vision with as many people as pos-sible makes for an exciting future.
▲ The Fubon Art Foundation won a Taipei Culture Award in 2011.
▲ The “Fubon Lectures” series invited renowned Japanese architect Toyo Ito to be one of the lecturers.
Fubon Art Foundation
2011 Annual Report
52
Since its inception in 2003, the Taipei Fubon Bank Charity Foundation has been deeply committed to caring for the elderly, the physically and men-tally challenged, and the economically disadvantaged and has actively sup-ported social welfare activities, all while putting a premium on using resources where they are most needed. With the strong backing of the Fubon Group, the Foundation has been named an “outstanding” social welfare founda-tion three straight times (in 2005, 2008 and 2011) by the Ministry of the Interior in the agency’s triennial assessment of philanthropic groups.
Initiatives to help senior citizens in2011 continued to focus on promot-ing healthy and active aging. TheFoundation opened its 12th “Taipei Fubon Bank Day Care Center” in asmall town in Hualien County, and over 200 senior citizens were able to en-joy the Taipei International Flora Expo through the “Happy Train” program, which encourages the elderly to get out and about.
The “Giving Family Caregivers aBreather” excursions continued tothrive, with 19 outings organized during the year. The trips helped caregivers regain their energy and build a mutual support network. The Foundation also continued to work with the Taitung branch of Mackay Memorial Hospi-tal to deliver meals on weekends and holidays to seniors living alone on the
outlying Green and Orchard islands. It also arranged to donate rice grown in an organic rice paddy “adopted” by Fubon Asset Management to the elder-ly to convey the company’s concern for their well-being.
The Foundation won further recogni-tion for its “healthy and active aging” philosophy when the Interior Ministry invited it for the second consecutive year to help organize the “Amazing 100 Old Timers Challenge,” held inconjunction with the Double Ninth Festival and the country’s centennial celebrations. The contest honors se-nior citizens who are talented or have contributed to society.
The Foundation’s “Taipei Fubon Bank Artistic Achievement Awards for the Disabled” was held for the fifth time and encouraged participants to dis-cover their true selves by breaking through restraints. The competition, which drew a record 500-plus entries, gave expression to an incredible array of talent, from drawing and handicrafts to singing and dancing. The “All Love Orchestra,” composed of Achievement Award-winning musicians, performed at universities, high schools and spe-cial schools and at the Taipei Lantern Festival, and resonated emotionally with audiences as usual. The group, which has now played over 100 con-certs since being launched in 2005, made a special appearance at the Tai-pei Zhi-Shan Senior Home, bringing
warmth and boundless energy to se-nior citizens there.
Since 2003, the Foundation has used the Fubon Group’s financial expertise to create savings programs in as-sociation with local governments to help second-generation members of low-income families escape poverty. The plan helps participants accumu-late tangible and intangible assets, in part through seminars on investing and managing money, and the Fubon employees who lead the seminars also strengthen their professional ca-pabilities through the experience. The program continued in Pingtung County in 2011 and was introduced for the first time in Chiayi and Taitung counties. The Foundation was also invited to the 16th Korea-Taiwan-Japan Conference of Non-Governmental Social Welfare Organizations to share its successful experience in managing the asset ac-cumulation plan.
Meanwhile, the Foundation has co-organized the “1919 Love Movement, Fubon Emergency Household Relief Plan” with the Chinese Christian Relief Association for the past six years. It has raised NT$145 million during thattime to provide comfort and emer-gency assistance to about 1,000families every year who have fallen on hard times because of unforeseen circumstances.
▲ The awards ceremony of the 2011 “Taipei Fubon Bank Artistic Achieve-
ment Awards”
▲ Senior citizens celebrate the Double Ninth Festival with a trip to the Taipei Flora Expo.
Taipei Fubon Bank Charity Foundation
2011 Annual Report
53
Corporate Governance
Fubon Financial Holding Co., Ltd. (“Fubon Financial”) follows the guidelines laid out in Taiwan’s “Corporate Governance Best-Practice Principles for Bills Finance Companies.” We strive to maintain high ethical standards and an ef-fective accountability mechanism, and insist on strict corporate governance practices in every area of the business.
The conscientiousness and honesty that is evident throughout our operation guarantees the long-term interests of the company and our shareholders. Fubon Financial firmly believes that robust corporate governance practices can form a strong foundation for business development, whether by providing the highest-quality products and services or by generating high returns for shareholders.
Fubon Financial’s dedication to corporate governance has been widely rec-ognized by prominent international financial journals. In 2011, we received a “Recognition Award” for corporate governance in Taiwan from Corporate Gov-ernance Asia for the third year in a row, and a Platinum Award for corporate governance from The Asset.
Fubon Financial elected an additional member to its board in 2011, bringing the total to 13. Of those, four seats are reserved for independent directors, a ratio of over 30%. Three other board members represent the Taipei City gov-ernment, meaning that more than half of the board’s members are outside directors. This relative independence contributes to the effective supervision of the company’s management and manifests Fubon Financial’s sustained determination and effort to strengthen corporate governance.
An “Audit Committee,” which fulfills the functions of supervisors, a “Compen-sation Committee,” and a “Corporate Governance Committee” have also been established under the board. It is hoped that this governance system based on functional committees can strengthen the board’s supervisory role.
The Audit Committee’s main responsibilities include setting or revising inter-nal control systems and assessing the effectiveness of internal systems and compliance programs. It carefully reviews the company’s financial statements on a regular basis and monitors the company’s management of tangible and potential risk, while also verifying that communications between our internal auditors and certified public accountants remain smooth.
2011 Annual Report
56
The Compensation Committee, composed entirely of independent board directors, is mainly responsible for setting, evaluating and reviewing the per-formance of Fubon Financial directors and executives and the system which their compensation is based.
The Corporate Governance Committee, composed of all of the board’s in-dependent directors and two representatives from the largest corporate shareholder, is primarily responsible for helping the board recruit, nominate, and verify independent director candidates. It also contributes and makes suggestions related to board operations and management issues, with an eye toward strengthening the board’s functions.
2011 Annual Report
57
Responsibility Statement
We confirm that to the best of our knowledge:
The consolidated financial statements included in this annual report, prepared in accordance with ROC GAAP, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
The management report included in this annual report includes a fair review of the development and performance of the business and the po-sition of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
On behalf of the Board, which approved the making of the responsibility statement for the Company at a meeting of the Board on March 23, 2012.
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2011 and 2010(With Independent Auditors’ Report Thereon)
Note to Reader The accompanying consolidated 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 the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to review such consolidated financial statements are those generally accepted and applied in the Republic of China. The auditors’ review 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’ review report and financial statements, the Chinese version shall prevail.
Independent Auditors’ Review Report
The Board of Directors Fubon Financial Holding Co., Ltd.: We have audited the accompanying consolidated balance sheets of Fubon Financial Holding Co., Ltd. and its subsidiaries (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the years ended December 31, 2011 and 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to issue an option on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards and the “Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants” of the Republic of China. Those standards 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 consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Fubon Financial Holding Co., Ltd. and its subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended, in conformity with the “Principles for Compiling the Financial Statements of Financial Holding Companies”, the letter Jin-Guan-Jian-Pao No.10001602331 issued by Financial Supervisory Commission ,Executive Yuan ,R.O.C. on August 23, 2011, and Republic of China generally accepted accounting principles. As described in note 3, starting from January 1, 2011, the Company’s subsidiaries Fubon Insurance and Fubon Life Insurance adopted Republic of China Statement of Financial Accounting Standards (SFAS) No.40 “Insurance Contract”, the interpretation letter Jin-Guan-Pao No.09802506492 of revised “Principles for Compiling the Financial Statement of Insurance Companies” issued on December 30, 2009 and the interpretation letter Jin-Guan-Pao No.09802513192 of revised “Regulations Governing the Setting Aside of Various Reserves by Insurance Enterprise” issued on December 28, 2009. In accordance with accounting standards and regulations, informations of Insurance Contract should be classified, evaluated and disclosed. As a result, net income and earnings per share increased by NT$1,541,162 thousand and NT$0.17 for the year ended December 31, 2011, respectively. As described in note (40)-(3) , in accordance with the letter Jin-Guan-Jian-Pao No.10001602331 issued by Financial Supervisory Commission, Executive Yuan, R.O.C. on August 23, 2011, the Company’s subsidiary Fubon Life Insurance should adjust the transactions of available-for-sale financial assets and restate the financial statements of 2010. As a result, the Company’s unrealized gain on financial assets under stockholders’ equity increased by NT$1,994,649 thousand and retained earnings decreased by NT$1,994,649 thousand on January 1, 2011. March 23, 2012
See accompanying notes to consolidated financial statements.
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2011 and 2010
(expressed in thousands of New Taiwan dollars)
Assets 2011 2010 Change of percentage
Cash and cash equivalents (notes 4, 35 and 36) $ 218,464,919 162,952,443 34 Due from Central Bank and call loans to banks (note 5) 78,798,417 105,494,062 (25) Financial assets measured at fair value through profit or loss
(notes 6, 35 and 36) 78,921,506 67,919,021 16 Bonds and bills purchased under resell agreements (notes 7
and 35) 28,068,404 12,738,731 120 Receivables, net (notes 8 and 27) 114,304,254 140,335,745 (19) Loan, net (notes 9 and 35) 1,158,339,862 1,047,249,519 11 Available-for-sale financial assets, net (notes 10 and 36) 889,556,526 820,183,865 8 Held-to-maturity financial assets, net (notes 11 and 36) 457,502,518 488,285,908 (6) Investments under equity method, net (note 12) 3,604,895 2,323,033 55 Other financial assets, net (notes 13 and 25) 172,386,914 204,426,823 (16) Debt investments in non-active market (note 14) 277,585,811 277,887,274 - Real estate investments, net (notes 15 and 35) 68,494,654 56,471,833 21 Fixed assets, net (note 36) 32,516,807 27,211,160 19 Intangible assets, net (note 16) 13,805,271 13,823,967 - Other assets, net (notes 17, 27, 35 and 36) 25,784,458 25,471,782 1
Total Assets $ 3,618,135,216 3,452,775,166 5
Liabilities and Stockholders’ Equity 2011 2010 Change of percentage
Due to Central Bank and other banks $ 72,362,875 78,587,683 (8) Commercial paper payable, net (notes 19 and 36) - 4,599,072 (100) Financial liabilities measured at fair value through profit or
loss (note 18) 35,869,058 35,954,660 - Bonds and bills sold under repurchase agreements (notes 7 and
35) 27,260,155 27,617,545 (1) Payables (note 27) 68,599,547 85,617,447 (20) Deposits (notes 20 and 35) 1,293,430,787 1,299,524,186 - Bonds payable (notes 21 and 38) 101,539,435 92,507,828 10 Other borrowings (notes 22 and 36) 3,269,333 5,235,000 (38) Other financial liabilities (notes 13 and 25) 175,614,571 189,019,808 (7) Reserve for operations and other liabilities (note 23) 1,583,714,753 1,395,051,690 14 Other liabilities (notes 24 and 26) 22,792,020 16,786,805 36
Total liabilities 3,384,452,534 3,230,501,724 5 Total stockholders’ equity (note 28)
Common stock 90,137,379 85,583,663 5 Capital surplus 54,968,575 54,416,660 1 Retained earnings:
Legal reserve 25,953,363 23,962,851 8 Special reserve 1,669,704 1,285,676 30 Un-appropriated retained earnings 43,757,286 30,057,143 46
Total retained earnings 71,380,353 55,305,670 29 Equity adjustments
Cumulative foreign currency translation adjustments (1,283,925) (1,966,016) 35 Unrealized gain on financial assets 18,894,095 24,279,998 (22) Net loss from unrecognized pension cost (356,651) 157,101 (327)
Total equity adjustments 17,253,519 22,471,083 (23) Treasury stock (57,144) (387,548) 85 Minority interest - 4,883,914 (100)
Total stockholders’ equity 233,682,682 222,273,442 5 Total Liabilities and Stockholders’ equity $ 3,618,135,216 3,452,775,166 5
See accompanying notes to consolidated financial statements.
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2011 and 2010
(expressed in thousands of New Taiwan dollars)
Assets 2011 2010 Change of percentage
Cash and cash equivalents (notes 4, 35 and 36) $ 218,464,919 162,952,443 34 Due from Central Bank and call loans to banks (note 5) 78,798,417 105,494,062 (25) Financial assets measured at fair value through profit or loss
(notes 6, 35 and 36) 78,921,506 67,919,021 16 Bonds and bills purchased under resell agreements (notes 7
and 35) 28,068,404 12,738,731 120 Receivables, net (notes 8 and 27) 114,304,254 140,335,745 (19) Loan, net (notes 9 and 35) 1,158,339,862 1,047,249,519 11 Available-for-sale financial assets, net (notes 10 and 36) 889,556,526 820,183,865 8 Held-to-maturity financial assets, net (notes 11 and 36) 457,502,518 488,285,908 (6) Investments under equity method, net (note 12) 3,604,895 2,323,033 55 Other financial assets, net (notes 13 and 25) 172,386,914 204,426,823 (16) Debt investments in non-active market (note 14) 277,585,811 277,887,274 - Real estate investments, net (notes 15 and 35) 68,494,654 56,471,833 21 Fixed assets, net (note 36) 32,516,807 27,211,160 19 Intangible assets, net (note 16) 13,805,271 13,823,967 - Other assets, net (notes 17, 27, 35 and 36) 25,784,458 25,471,782 1
Total Assets $ 3,618,135,216 3,452,775,166 5
Liabilities and Stockholders’ Equity 2011 2010 Change of percentage
Due to Central Bank and other banks $ 72,362,875 78,587,683 (8) Commercial paper payable, net (notes 19 and 36) - 4,599,072 (100) Financial liabilities measured at fair value through profit or
loss (note 18) 35,869,058 35,954,660 - Bonds and bills sold under repurchase agreements (notes 7 and
35) 27,260,155 27,617,545 (1) Payables (note 27) 68,599,547 85,617,447 (20) Deposits (notes 20 and 35) 1,293,430,787 1,299,524,186 - Bonds payable (notes 21 and 38) 101,539,435 92,507,828 10 Other borrowings (notes 22 and 36) 3,269,333 5,235,000 (38) Other financial liabilities (notes 13 and 25) 175,614,571 189,019,808 (7) Reserve for operations and other liabilities (note 23) 1,583,714,753 1,395,051,690 14 Other liabilities (notes 24 and 26) 22,792,020 16,786,805 36
Total liabilities 3,384,452,534 3,230,501,724 5 Total stockholders’ equity (note 28)
Common stock 90,137,379 85,583,663 5 Capital surplus 54,968,575 54,416,660 1 Retained earnings:
Legal reserve 25,953,363 23,962,851 8 Special reserve 1,669,704 1,285,676 30 Un-appropriated retained earnings 43,757,286 30,057,143 46
Total retained earnings 71,380,353 55,305,670 29 Equity adjustments
Cumulative foreign currency translation adjustments (1,283,925) (1,966,016) 35 Unrealized gain on financial assets 18,894,095 24,279,998 (22) Net loss from unrecognized pension cost (356,651) 157,101 (327)
Total equity adjustments 17,253,519 22,471,083 (23) Treasury stock (57,144) (387,548) 85 Minority interest - 4,883,914 (100)
Total stockholders’ equity 233,682,682 222,273,442 5 Total Liabilities and Stockholders’ equity $ 3,618,135,216 3,452,775,166 5
See accompanying notes to consolidated financial statements.
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2011 and 2010
(expressed in thousands of New Taiwan dollars)
Assets 2011 2010 Change of percentage
Cash and cash equivalents (notes 4, 35 and 36) $ 218,464,919 162,952,443 34 Due from Central Bank and call loans to banks (note 5) 78,798,417 105,494,062 (25) Financial assets measured at fair value through profit or loss
(notes 6, 35 and 36) 78,921,506 67,919,021 16 Bonds and bills purchased under resell agreements (notes 7
and 35) 28,068,404 12,738,731 120 Receivables, net (notes 8 and 27) 114,304,254 140,335,745 (19) Loan, net (notes 9 and 35) 1,158,339,862 1,047,249,519 11 Available-for-sale financial assets, net (notes 10 and 36) 889,556,526 820,183,865 8 Held-to-maturity financial assets, net (notes 11 and 36) 457,502,518 488,285,908 (6) Investments under equity method, net (note 12) 3,604,895 2,323,033 55 Other financial assets, net (notes 13 and 25) 172,386,914 204,426,823 (16) Debt investments in non-active market (note 14) 277,585,811 277,887,274 - Real estate investments, net (notes 15 and 35) 68,494,654 56,471,833 21 Fixed assets, net (note 36) 32,516,807 27,211,160 19 Intangible assets, net (note 16) 13,805,271 13,823,967 - Other assets, net (notes 17, 27, 35 and 36) 25,784,458 25,471,782 1
Total Assets $ 3,618,135,216 3,452,775,166 5
Liabilities and Stockholders’ Equity 2011 2010 Change of percentage
Due to Central Bank and other banks $ 72,362,875 78,587,683 (8) Commercial paper payable, net (notes 19 and 36) - 4,599,072 (100) Financial liabilities measured at fair value through profit or
loss (note 18) 35,869,058 35,954,660 - Bonds and bills sold under repurchase agreements (notes 7 and
35) 27,260,155 27,617,545 (1) Payables (note 27) 68,599,547 85,617,447 (20) Deposits (notes 20 and 35) 1,293,430,787 1,299,524,186 - Bonds payable (notes 21 and 38) 101,539,435 92,507,828 10 Other borrowings (notes 22 and 36) 3,269,333 5,235,000 (38) Other financial liabilities (notes 13 and 25) 175,614,571 189,019,808 (7) Reserve for operations and other liabilities (note 23) 1,583,714,753 1,395,051,690 14 Other liabilities (notes 24 and 26) 22,792,020 16,786,805 36
Total liabilities 3,384,452,534 3,230,501,724 5 Total stockholders’ equity (note 28)
Common stock 90,137,379 85,583,663 5 Capital surplus 54,968,575 54,416,660 1 Retained earnings:
Legal reserve 25,953,363 23,962,851 8 Special reserve 1,669,704 1,285,676 30 Un-appropriated retained earnings 43,757,286 30,057,143 46
Total retained earnings 71,380,353 55,305,670 29 Equity adjustments
Cumulative foreign currency translation adjustments (1,283,925) (1,966,016) 35 Unrealized gain on financial assets 18,894,095 24,279,998 (22) Net loss from unrecognized pension cost (356,651) 157,101 (327)
Total equity adjustments 17,253,519 22,471,083 (23) Treasury stock (57,144) (387,548) 85 Minority interest - 4,883,914 (100)
Total stockholders’ equity 233,682,682 222,273,442 5 Total Liabilities and Stockholders’ equity $ 3,618,135,216 3,452,775,166 5
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1
(1
37)
Gai
n on
dis
posa
l of i
nves
tmen
ts (n
ote
12)
8,89
2,60
1
-
-
Net
rev
enue
242,
021,
091
26
2,81
3,15
3
(8
) B
ad d
ebt e
xpen
se (n
ote
9)
902,
389
1,09
8,86
7
(1
8)
Net
cha
nge
for
liabi
lity
rese
rve
(not
e 32
)
165,
101,
252
19
9,30
4,92
7
(1
7)
Ope
ratin
g ex
pens
e:
Pe
rson
nel e
xpen
ses
2
0,73
8,34
4
20,
583,
885
1 D
epre
ciat
ion
and
amor
tizat
ion
expe
nses
1,
738,
813
2,13
6,89
2
(1
9)
Oth
er g
ener
al a
nd a
dmin
istra
tive
expe
nses
17,
731,
419
1
6,54
1,59
6
7
Tot
al o
pera
ting
expe
nse
4
0,20
8,57
6
39,
262,
373
2 N
et in
com
e be
fore
inco
me
tax
3
5,80
8,87
4
23,
146,
986
55
Inco
me
tax
expe
nse
(not
e 27
)
5,
121,
788
2,42
8,01
6
11
1 N
et in
com
e $
30,
687,
086
2
0,71
8,97
0
48
A
ttri
butio
n:
Th
e C
ompa
ny’s
inco
me
$ 3
0,54
2,82
8
19,
905,
129
53
Min
ority
inte
rest
’s in
com
e
14
4,25
8
81
3,84
1
(8
2)
$
30,
687,
086
2
0,71
8,97
0
48
B
efor
e ta
x A
fter
tax
Bef
ore
tax
Aft
er ta
x E
arni
ngs p
er sh
ares
(EPS
) (no
te 3
0):
Earn
ings
per
shar
e –
basi
c $
3.96
3.39
2.62
2.33
Ea
rnin
g pe
r sha
re –
dilu
ted
$ 3.
95
3.
38
2.
61
2.
33
See
acco
mpa
nyin
g no
tes t
o co
nsol
idat
ed fi
nanc
ial s
tate
men
ts.
FU
BO
N F
INA
NC
IAL
HO
LD
ING
CO
., L
TD
. AN
D S
UB
SID
IAR
IES
C
onso
lidat
ed S
tate
men
ts o
f Inc
ome
Fo
r th
e ye
ars e
nded
Dec
embe
r 31
, 201
1 an
d 20
10
(exp
ress
ed in
thou
sand
s of N
ew T
aiw
an d
olla
rs, e
xcep
t ear
ning
s per
shar
e)
20
11
2010
C
hang
e of
pe
rcen
tage
In
tere
st in
com
e (n
ote
35)
$ 7
3,29
7,07
6
62,
557,
670
17
Less
: int
eres
t exp
ense
(not
e 35
)
12,
297,
344
9,32
6,06
4
32
N
et in
tere
st in
com
e
60,
999,
732
5
3,23
1,60
6
15
N
on-in
tere
st in
com
e, n
et
Se
rvic
e fe
es lo
ss, n
et (n
ote
35)
(
6,35
1,57
6)
(743
,586
)
(7
54)
Insu
ranc
e in
com
e, n
et (n
otes
31
and
35)
16
0,62
8,82
9
192,
324,
691
(16)
G
ain
(loss
) on
finan
cial
ass
ets o
r lia
bilit
ies m
easu
red
at fa
ir va
lue
thro
ugh
prof
it or
loss
(12,
590,
136)
39,
123,
702
(132
) R
ealiz
ed g
ain
on a
vaila
ble-
for-
sale
fina
ncia
l ass
ets
1
7,73
3,81
5
18,
220,
859
(3)
Inco
me
from
equ
ity in
vest
men
ts u
nder
equ
ity m
etho
d (n
ote
12)
649,
668
161,
532
302
Gai
n on
real
est
ate
inve
stm
ents
(not
e 35
)
1,
155,
312
987,
923
17
Fore
ign
exch
ange
gai
n (lo
ss)
1
2,06
3,44
3
(42,
739,
322)
12
8 R
ever
sal g
ains
(im
pairm
ent l
oss)
(not
es 1
0, 1
1, 1
3, 1
4, 1
5, 1
6 an
d 17
)
(3
96,6
24)
196,
797
(302
) O
ther
non
-inte
rest
inco
me
(not
e 35
)
(7
63,9
73)
2,04
8,95
1
(1
37)
Gai
n on
dis
posa
l of i
nves
tmen
ts (n
ote
12)
8,89
2,60
1
-
-
Net
rev
enue
242,
021,
091
26
2,81
3,15
3
(8
) B
ad d
ebt e
xpen
se (n
ote
9)
902,
389
1,09
8,86
7
(1
8)
Net
cha
nge
for
liabi
lity
rese
rve
(not
e 32
)
165,
101,
252
19
9,30
4,92
7
(1
7)
Ope
ratin
g ex
pens
e:
Pe
rson
nel e
xpen
ses
2
0,73
8,34
4
20,
583,
885
1 D
epre
ciat
ion
and
amor
tizat
ion
expe
nses
1,
738,
813
2,13
6,89
2
(1
9)
Oth
er g
ener
al a
nd a
dmin
istra
tive
expe
nses
17,
731,
419
1
6,54
1,59
6
7
Tot
al o
pera
ting
expe
nse
4
0,20
8,57
6
39,
262,
373
2 N
et in
com
e be
fore
inco
me
tax
3
5,80
8,87
4
23,
146,
986
55
Inco
me
tax
expe
nse
(not
e 27
)
5,
121,
788
2,42
8,01
6
11
1 N
et in
com
e $
30,
687,
086
2
0,71
8,97
0
48
A
ttri
butio
n:
Th
e C
ompa
ny’s
inco
me
$ 3
0,54
2,82
8
19,
905,
129
53
Min
ority
inte
rest
’s in
com
e
14
4,25
8
81
3,84
1
(8
2)
$
30,
687,
086
2
0,71
8,97
0
48
B
efor
e ta
x A
fter
tax
Bef
ore
tax
Aft
er ta
x E
arni
ngs p
er sh
ares
(EPS
) (no
te 3
0):
Earn
ings
per
shar
e –
basi
c $
3.96
3.39
2.62
2.33
Ea
rnin
g pe
r sha
re –
dilu
ted
$ 3.
95
3.
38
2.
61
2.
33
See
acco
mpa
nyin
g no
tes t
o co
nsol
idat
ed fi
nanc
ial s
tate
men
ts.
FU
BO
N F
INA
NC
IAL
HO
LD
ING
CO
., L
TD
. AN
D S
UB
SID
IAR
IES
C
onso
lidat
ed S
tate
men
ts o
f Inc
ome
Fo
r th
e ye
ars e
nded
Dec
embe
r 31
, 201
1 an
d 20
10
(exp
ress
ed in
thou
sand
s of N
ew T
aiw
an d
olla
rs, e
xcep
t ear
ning
s per
shar
e)
20
11
2010
C
hang
e of
pe
rcen
tage
In
tere
st in
com
e (n
ote
35)
$ 7
3,29
7,07
6
62,
557,
670
17
Less
: int
eres
t exp
ense
(not
e 35
)
12,
297,
344
9,32
6,06
4
32
N
et in
tere
st in
com
e
60,
999,
732
5
3,23
1,60
6
15
N
on-in
tere
st in
com
e, n
et
Se
rvic
e fe
es lo
ss, n
et (n
ote
35)
(
6,35
1,57
6)
(743
,586
)
(7
54)
Insu
ranc
e in
com
e, n
et (n
otes
31
and
35)
16
0,62
8,82
9
192,
324,
691
(16)
G
ain
(loss
) on
finan
cial
ass
ets o
r lia
bilit
ies m
easu
red
at fa
ir va
lue
thro
ugh
prof
it or
loss
(12,
590,
136)
39,
123,
702
(132
) R
ealiz
ed g
ain
on a
vaila
ble-
for-
sale
fina
ncia
l ass
ets
1
7,73
3,81
5
18,
220,
859
(3)
Inco
me
from
equ
ity in
vest
men
ts u
nder
equ
ity m
etho
d (n
ote
12)
649,
668
161,
532
302
Gai
n on
real
est
ate
inve
stm
ents
(not
e 35
)
1,
155,
312
987,
923
17
Fore
ign
exch
ange
gai
n (lo
ss)
1
2,06
3,44
3
(42,
739,
322)
12
8 R
ever
sal g
ains
(im
pairm
ent l
oss)
(not
es 1
0, 1
1, 1
3, 1
4, 1
5, 1
6 an
d 17
)
(3
96,6
24)
196,
797
(302
) O
ther
non
-inte
rest
inco
me
(not
e 35
)
(7
63,9
73)
2,04
8,95
1
(1
37)
Gai
n on
dis
posa
l of i
nves
tmen
ts (n
ote
12)
8,89
2,60
1
-
-
Net
rev
enue
242,
021,
091
26
2,81
3,15
3
(8
) B
ad d
ebt e
xpen
se (n
ote
9)
902,
389
1,09
8,86
7
(1
8)
Net
cha
nge
for
liabi
lity
rese
rve
(not
e 32
)
165,
101,
252
19
9,30
4,92
7
(1
7)
Ope
ratin
g ex
pens
e:
Pe
rson
nel e
xpen
ses
2
0,73
8,34
4
20,
583,
885
1 D
epre
ciat
ion
and
amor
tizat
ion
expe
nses
1,
738,
813
2,13
6,89
2
(1
9)
Oth
er g
ener
al a
nd a
dmin
istra
tive
expe
nses
17,
731,
419
1
6,54
1,59
6
7
Tot
al o
pera
ting
expe
nse
4
0,20
8,57
6
39,
262,
373
2 N
et in
com
e be
fore
inco
me
tax
3
5,80
8,87
4
23,
146,
986
55
Inco
me
tax
expe
nse
(not
e 27
)
5,
121,
788
2,42
8,01
6
11
1 N
et in
com
e $
30,
687,
086
2
0,71
8,97
0
48
A
ttri
butio
n:
Th
e C
ompa
ny’s
inco
me
$ 3
0,54
2,82
8
19,
905,
129
53
Min
ority
inte
rest
’s in
com
e
14
4,25
8
81
3,84
1
(8
2)
$
30,
687,
086
2
0,71
8,97
0
48
B
efor
e ta
x A
fter
tax
Bef
ore
tax
Aft
er ta
x E
arni
ngs p
er sh
ares
(EPS
) (no
te 3
0):
Earn
ings
per
shar
e –
basi
c $
3.96
3.39
2.62
2.33
Ea
rnin
g pe
r sha
re –
dilu
ted
$ 3.
95
3.
38
2.
61
2.
33
See accompanying notes to consolidated financial statements.
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended December 31, 2011 and 2010 (expressed in thousands of New Taiwan dollars)
Retained Earnings Cumulative Unrealized Foreign Gains or Unappropriated Currency Losses Common Capital Legal Special Retained Translation Unrecognized on Financial Treasury Minority Stock Surplus Reserve Reserve Earnings Adjustments Pension Cost Instruments Stock Interest Total
Balance on January 1, 2010 $ 81,261,865 53,964,908 21,969,088 13,842,513 19,936,591 (424,573) 712,827 17,400,052 (195,220) 4,512,824 212,980,875 Issuing new shares for employee warrants exercise (note 28) 252,500 433,611 - - - - - - - - 686,111 Treasury stock buy back - - - - - - - - (192,328) - (192,328) Recognized as treasury stock - 18,141 - - - - - - - - 18,141 Net income - - - - 19,905,129 - - - - - 19,905,129 Appropriations of retained earnings (note 28) (note):
Legal reserve - - 1,993,763 - (1,993,763) - - - - - - Special reserve reversal - - - (12,556,837) 12,556,837 - - - - - - Cash dividend - - - - (16,277,191) - - - - - (16,277,191) Stock dividend 4,069,298 - - - (4,069,298) - - - - - -
Effect of unrecognizing share ratio from long-term equity investment - - - - (1,162) - - - - - (1,162) Net loss for unrecognized pension cost - - - - - - (555,726) - - - (555,726) Change in minority interest - - - - - - - - - 371,090 371,090 Cumulative foreign currency translation adjustment - - - - - (1,541,443) - - - - (1,541,443) Unrealized gains or (losses) from remeasurement of financial instruments - - - - - - - 6,879,946 - - 6,879,946 Balance on December 31, 2010 85,583,663 54,416,660 23,962,851 1,285,676 30,057,143 (1,966,016) 157,101 24,279,998 (387,548) 4,883,914 222,273,442 Prior period adjustments - - - - (1,994,649) - - 1,994,649 - - - Balance on January 1, 2011 after adjustment 85,583,663 54,416,660 23,962,851 1,285,676 28,062,494 (1,966,016) 157,101 26,274,647 (387,548) 4,883,914 222,273,442 Issuing new shares for employee warrants exercise (note 28) 267,875 374,988 - - - - - - - - 642,863 Treasury stock transfer to employees - 20,436 - - - - - - 135,184 - 155,620 Recognize as treasury stock - 156,491 - - - - - - 195,220 - 351,711 Net income - - - - 30,542,828 - - - - - 30,542,828 Appropriations of retained earnings (note 28) (note):
Legal reserve - - 1,990,512 - (1,990,512) - - - - - - Cash dividend - - - - (8,571,683) - - - - - (8,571,683) Stock dividend 4,285,841 - - - (4,285,841) - - - - - -
Net loss from unrecognized pension cost - - - - - - (513,752) - - - (513,752) Change in minority interest - - - - - - - - - (4,883,914) (4,883,914) Cumulative foreign currency translation adjustment - - - - - 682,091 - - - - 682,091 Unrealized gains or (losses) from remeasurement of financial instruments - - - - - - - (7,380,552) - - (7,380,552) Recognized by treasury stock - - - 384,028 - - - - - - 384,028 Balance on December 31, 2011 $ 90,137,379 54,968,575 25,953,363 1,669,704 43,757,286 (1,283,925) (356,651) 18,894,095 (57,144) - 233,682,682 Note1: Remuneration paid to directors and supervisors and provisions for employee, amounting to $26,000 and $4,000, respectively, and deducted from the Statement of Income. Note2: Remuneration paid to directors and supervisors and provisions for employee, amounting to $36,000 and $4,000, respectively, and deducted from the Statement of Income.
See accompanying notes to consolidated financial statements.
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended December 31, 2011 and 2010 (expressed in thousands of New Taiwan dollars)
Retained Earnings Cumulative Unrealized Foreign Gains or Unappropriated Currency Losses Common Capital Legal Special Retained Translation Unrecognized on Financial Treasury Minority Stock Surplus Reserve Reserve Earnings Adjustments Pension Cost Instruments Stock Interest Total
Balance on January 1, 2010 $ 81,261,865 53,964,908 21,969,088 13,842,513 19,936,591 (424,573) 712,827 17,400,052 (195,220) 4,512,824 212,980,875 Issuing new shares for employee warrants exercise (note 28) 252,500 433,611 - - - - - - - - 686,111 Treasury stock buy back - - - - - - - - (192,328) - (192,328) Recognized as treasury stock - 18,141 - - - - - - - - 18,141 Net income - - - - 19,905,129 - - - - - 19,905,129 Appropriations of retained earnings (note 28) (note):
Legal reserve - - 1,993,763 - (1,993,763) - - - - - - Special reserve reversal - - - (12,556,837) 12,556,837 - - - - - - Cash dividend - - - - (16,277,191) - - - - - (16,277,191) Stock dividend 4,069,298 - - - (4,069,298) - - - - - -
Effect of unrecognizing share ratio from long-term equity investment - - - - (1,162) - - - - - (1,162) Net loss for unrecognized pension cost - - - - - - (555,726) - - - (555,726) Change in minority interest - - - - - - - - - 371,090 371,090 Cumulative foreign currency translation adjustment - - - - - (1,541,443) - - - - (1,541,443) Unrealized gains or (losses) from remeasurement of financial instruments - - - - - - - 6,879,946 - - 6,879,946 Balance on December 31, 2010 85,583,663 54,416,660 23,962,851 1,285,676 30,057,143 (1,966,016) 157,101 24,279,998 (387,548) 4,883,914 222,273,442 Prior period adjustments - - - - (1,994,649) - - 1,994,649 - - - Balance on January 1, 2011 after adjustment 85,583,663 54,416,660 23,962,851 1,285,676 28,062,494 (1,966,016) 157,101 26,274,647 (387,548) 4,883,914 222,273,442 Issuing new shares for employee warrants exercise (note 28) 267,875 374,988 - - - - - - - - 642,863 Treasury stock transfer to employees - 20,436 - - - - - - 135,184 - 155,620 Recognize as treasury stock - 156,491 - - - - - - 195,220 - 351,711 Net income - - - - 30,542,828 - - - - - 30,542,828 Appropriations of retained earnings (note 28) (note):
Legal reserve - - 1,990,512 - (1,990,512) - - - - - - Cash dividend - - - - (8,571,683) - - - - - (8,571,683) Stock dividend 4,285,841 - - - (4,285,841) - - - - - -
Net loss from unrecognized pension cost - - - - - - (513,752) - - - (513,752) Change in minority interest - - - - - - - - - (4,883,914) (4,883,914) Cumulative foreign currency translation adjustment - - - - - 682,091 - - - - 682,091 Unrealized gains or (losses) from remeasurement of financial instruments - - - - - - - (7,380,552) - - (7,380,552) Recognized by treasury stock - - - 384,028 - - - - - - 384,028 Balance on December 31, 2011 $ 90,137,379 54,968,575 25,953,363 1,669,704 43,757,286 (1,283,925) (356,651) 18,894,095 (57,144) - 233,682,682 Note1: Remuneration paid to directors and supervisors and provisions for employee, amounting to $26,000 and $4,000, respectively, and deducted from the Statement of Income. Note2: Remuneration paid to directors and supervisors and provisions for employee, amounting to $36,000 and $4,000, respectively, and deducted from the Statement of Income.
See accompanying notes to consolidated financial statements.
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended December 31, 2011 and 2010 (expressed in thousands of New Taiwan dollars)
Retained Earnings Cumulative Unrealized Foreign Gains or Unappropriated Currency Losses Common Capital Legal Special Retained Translation Unrecognized on Financial Treasury Minority Stock Surplus Reserve Reserve Earnings Adjustments Pension Cost Instruments Stock Interest Total
Balance on January 1, 2010 $ 81,261,865 53,964,908 21,969,088 13,842,513 19,936,591 (424,573) 712,827 17,400,052 (195,220) 4,512,824 212,980,875 Issuing new shares for employee warrants exercise (note 28) 252,500 433,611 - - - - - - - - 686,111 Treasury stock buy back - - - - - - - - (192,328) - (192,328) Recognized as treasury stock - 18,141 - - - - - - - - 18,141 Net income - - - - 19,905,129 - - - - - 19,905,129 Appropriations of retained earnings (note 28) (note):
Legal reserve - - 1,993,763 - (1,993,763) - - - - - - Special reserve reversal - - - (12,556,837) 12,556,837 - - - - - - Cash dividend - - - - (16,277,191) - - - - - (16,277,191) Stock dividend 4,069,298 - - - (4,069,298) - - - - - -
Effect of unrecognizing share ratio from long-term equity investment - - - - (1,162) - - - - - (1,162) Net loss for unrecognized pension cost - - - - - - (555,726) - - - (555,726) Change in minority interest - - - - - - - - - 371,090 371,090 Cumulative foreign currency translation adjustment - - - - - (1,541,443) - - - - (1,541,443) Unrealized gains or (losses) from remeasurement of financial instruments - - - - - - - 6,879,946 - - 6,879,946 Balance on December 31, 2010 85,583,663 54,416,660 23,962,851 1,285,676 30,057,143 (1,966,016) 157,101 24,279,998 (387,548) 4,883,914 222,273,442 Prior period adjustments - - - - (1,994,649) - - 1,994,649 - - - Balance on January 1, 2011 after adjustment 85,583,663 54,416,660 23,962,851 1,285,676 28,062,494 (1,966,016) 157,101 26,274,647 (387,548) 4,883,914 222,273,442 Issuing new shares for employee warrants exercise (note 28) 267,875 374,988 - - - - - - - - 642,863 Treasury stock transfer to employees - 20,436 - - - - - - 135,184 - 155,620 Recognize as treasury stock - 156,491 - - - - - - 195,220 - 351,711 Net income - - - - 30,542,828 - - - - - 30,542,828 Appropriations of retained earnings (note 28) (note):
Legal reserve - - 1,990,512 - (1,990,512) - - - - - - Cash dividend - - - - (8,571,683) - - - - - (8,571,683) Stock dividend 4,285,841 - - - (4,285,841) - - - - - -
Net loss from unrecognized pension cost - - - - - - (513,752) - - - (513,752) Change in minority interest - - - - - - - - - (4,883,914) (4,883,914) Cumulative foreign currency translation adjustment - - - - - 682,091 - - - - 682,091 Unrealized gains or (losses) from remeasurement of financial instruments - - - - - - - (7,380,552) - - (7,380,552) Recognized by treasury stock - - - 384,028 - - - - - - 384,028 Balance on December 31, 2011 $ 90,137,379 54,968,575 25,953,363 1,669,704 43,757,286 (1,283,925) (356,651) 18,894,095 (57,144) - 233,682,682 Note1: Remuneration paid to directors and supervisors and provisions for employee, amounting to $26,000 and $4,000, respectively, and deducted from the Statement of Income. Note2: Remuneration paid to directors and supervisors and provisions for employee, amounting to $36,000 and $4,000, respectively, and deducted from the Statement of Income.
See accompanying notes to consolidated financial statements.
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended December 31, 2011 and 2010 (expressed in thousands of New Taiwan dollars)
Retained Earnings Cumulative Unrealized Foreign Gains or Unappropriated Currency Losses Common Capital Legal Special Retained Translation Unrecognized on Financial Treasury Minority Stock Surplus Reserve Reserve Earnings Adjustments Pension Cost Instruments Stock Interest Total
Balance on January 1, 2010 $ 81,261,865 53,964,908 21,969,088 13,842,513 19,936,591 (424,573) 712,827 17,400,052 (195,220) 4,512,824 212,980,875 Issuing new shares for employee warrants exercise (note 28) 252,500 433,611 - - - - - - - - 686,111 Treasury stock buy back - - - - - - - - (192,328) - (192,328) Recognized as treasury stock - 18,141 - - - - - - - - 18,141 Net income - - - - 19,905,129 - - - - - 19,905,129 Appropriations of retained earnings (note 28) (note):
Legal reserve - - 1,993,763 - (1,993,763) - - - - - - Special reserve reversal - - - (12,556,837) 12,556,837 - - - - - - Cash dividend - - - - (16,277,191) - - - - - (16,277,191) Stock dividend 4,069,298 - - - (4,069,298) - - - - - -
Effect of unrecognizing share ratio from long-term equity investment - - - - (1,162) - - - - - (1,162) Net loss for unrecognized pension cost - - - - - - (555,726) - - - (555,726) Change in minority interest - - - - - - - - - 371,090 371,090 Cumulative foreign currency translation adjustment - - - - - (1,541,443) - - - - (1,541,443) Unrealized gains or (losses) from remeasurement of financial instruments - - - - - - - 6,879,946 - - 6,879,946 Balance on December 31, 2010 85,583,663 54,416,660 23,962,851 1,285,676 30,057,143 (1,966,016) 157,101 24,279,998 (387,548) 4,883,914 222,273,442 Prior period adjustments - - - - (1,994,649) - - 1,994,649 - - - Balance on January 1, 2011 after adjustment 85,583,663 54,416,660 23,962,851 1,285,676 28,062,494 (1,966,016) 157,101 26,274,647 (387,548) 4,883,914 222,273,442 Issuing new shares for employee warrants exercise (note 28) 267,875 374,988 - - - - - - - - 642,863 Treasury stock transfer to employees - 20,436 - - - - - - 135,184 - 155,620 Recognize as treasury stock - 156,491 - - - - - - 195,220 - 351,711 Net income - - - - 30,542,828 - - - - - 30,542,828 Appropriations of retained earnings (note 28) (note):
Legal reserve - - 1,990,512 - (1,990,512) - - - - - - Cash dividend - - - - (8,571,683) - - - - - (8,571,683) Stock dividend 4,285,841 - - - (4,285,841) - - - - - -
Net loss from unrecognized pension cost - - - - - - (513,752) - - - (513,752) Change in minority interest - - - - - - - - - (4,883,914) (4,883,914) Cumulative foreign currency translation adjustment - - - - - 682,091 - - - - 682,091 Unrealized gains or (losses) from remeasurement of financial instruments - - - - - - - (7,380,552) - - (7,380,552) Recognized by treasury stock - - - 384,028 - - - - - - 384,028 Balance on December 31, 2011 $ 90,137,379 54,968,575 25,953,363 1,669,704 43,757,286 (1,283,925) (356,651) 18,894,095 (57,144) - 233,682,682 Note1: Remuneration paid to directors and supervisors and provisions for employee, amounting to $26,000 and $4,000, respectively, and deducted from the Statement of Income. Note2: Remuneration paid to directors and supervisors and provisions for employee, amounting to $36,000 and $4,000, respectively, and deducted from the Statement of Income.
See accompanying notes to consolidated financial statements.
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended December 31, 2011 and 2010 (expressed in thousands of New Taiwan dollars)
Retained Earnings Cumulative Unrealized Foreign Gains or Unappropriated Currency Losses Common Capital Legal Special Retained Translation Unrecognized on Financial Treasury Minority Stock Surplus Reserve Reserve Earnings Adjustments Pension Cost Instruments Stock Interest Total
Balance on January 1, 2010 $ 81,261,865 53,964,908 21,969,088 13,842,513 19,936,591 (424,573) 712,827 17,400,052 (195,220) 4,512,824 212,980,875 Issuing new shares for employee warrants exercise (note 28) 252,500 433,611 - - - - - - - - 686,111 Treasury stock buy back - - - - - - - - (192,328) - (192,328) Recognized as treasury stock - 18,141 - - - - - - - - 18,141 Net income - - - - 19,905,129 - - - - - 19,905,129 Appropriations of retained earnings (note 28) (note):
Legal reserve - - 1,993,763 - (1,993,763) - - - - - - Special reserve reversal - - - (12,556,837) 12,556,837 - - - - - - Cash dividend - - - - (16,277,191) - - - - - (16,277,191) Stock dividend 4,069,298 - - - (4,069,298) - - - - - -
Effect of unrecognizing share ratio from long-term equity investment - - - - (1,162) - - - - - (1,162) Net loss for unrecognized pension cost - - - - - - (555,726) - - - (555,726) Change in minority interest - - - - - - - - - 371,090 371,090 Cumulative foreign currency translation adjustment - - - - - (1,541,443) - - - - (1,541,443) Unrealized gains or (losses) from remeasurement of financial instruments - - - - - - - 6,879,946 - - 6,879,946 Balance on December 31, 2010 85,583,663 54,416,660 23,962,851 1,285,676 30,057,143 (1,966,016) 157,101 24,279,998 (387,548) 4,883,914 222,273,442 Prior period adjustments - - - - (1,994,649) - - 1,994,649 - - - Balance on January 1, 2011 after adjustment 85,583,663 54,416,660 23,962,851 1,285,676 28,062,494 (1,966,016) 157,101 26,274,647 (387,548) 4,883,914 222,273,442 Issuing new shares for employee warrants exercise (note 28) 267,875 374,988 - - - - - - - - 642,863 Treasury stock transfer to employees - 20,436 - - - - - - 135,184 - 155,620 Recognize as treasury stock - 156,491 - - - - - - 195,220 - 351,711 Net income - - - - 30,542,828 - - - - - 30,542,828 Appropriations of retained earnings (note 28) (note):
Legal reserve - - 1,990,512 - (1,990,512) - - - - - - Cash dividend - - - - (8,571,683) - - - - - (8,571,683) Stock dividend 4,285,841 - - - (4,285,841) - - - - - -
Net loss from unrecognized pension cost - - - - - - (513,752) - - - (513,752) Change in minority interest - - - - - - - - - (4,883,914) (4,883,914) Cumulative foreign currency translation adjustment - - - - - 682,091 - - - - 682,091 Unrealized gains or (losses) from remeasurement of financial instruments - - - - - - - (7,380,552) - - (7,380,552) Recognized by treasury stock - - - 384,028 - - - - - - 384,028 Balance on December 31, 2011 $ 90,137,379 54,968,575 25,953,363 1,669,704 43,757,286 (1,283,925) (356,651) 18,894,095 (57,144) - 233,682,682 Note1: Remuneration paid to directors and supervisors and provisions for employee, amounting to $26,000 and $4,000, respectively, and deducted from the Statement of Income. Note2: Remuneration paid to directors and supervisors and provisions for employee, amounting to $36,000 and $4,000, respectively, and deducted from the Statement of Income.
See accompanying notes to consolidated financial statements.
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended December 31, 2011 and 2010 (expressed in thousands of New Taiwan dollars)
Retained Earnings Cumulative Unrealized Foreign Gains or Unappropriated Currency Losses Common Capital Legal Special Retained Translation Unrecognized on Financial Treasury Minority Stock Surplus Reserve Reserve Earnings Adjustments Pension Cost Instruments Stock Interest Total
Balance on January 1, 2010 $ 81,261,865 53,964,908 21,969,088 13,842,513 19,936,591 (424,573) 712,827 17,400,052 (195,220) 4,512,824 212,980,875 Issuing new shares for employee warrants exercise (note 28) 252,500 433,611 - - - - - - - - 686,111 Treasury stock buy back - - - - - - - - (192,328) - (192,328) Recognized as treasury stock - 18,141 - - - - - - - - 18,141 Net income - - - - 19,905,129 - - - - - 19,905,129 Appropriations of retained earnings (note 28) (note):
Legal reserve - - 1,993,763 - (1,993,763) - - - - - - Special reserve reversal - - - (12,556,837) 12,556,837 - - - - - - Cash dividend - - - - (16,277,191) - - - - - (16,277,191) Stock dividend 4,069,298 - - - (4,069,298) - - - - - -
Effect of unrecognizing share ratio from long-term equity investment - - - - (1,162) - - - - - (1,162) Net loss for unrecognized pension cost - - - - - - (555,726) - - - (555,726) Change in minority interest - - - - - - - - - 371,090 371,090 Cumulative foreign currency translation adjustment - - - - - (1,541,443) - - - - (1,541,443) Unrealized gains or (losses) from remeasurement of financial instruments - - - - - - - 6,879,946 - - 6,879,946 Balance on December 31, 2010 85,583,663 54,416,660 23,962,851 1,285,676 30,057,143 (1,966,016) 157,101 24,279,998 (387,548) 4,883,914 222,273,442 Prior period adjustments - - - - (1,994,649) - - 1,994,649 - - - Balance on January 1, 2011 after adjustment 85,583,663 54,416,660 23,962,851 1,285,676 28,062,494 (1,966,016) 157,101 26,274,647 (387,548) 4,883,914 222,273,442 Issuing new shares for employee warrants exercise (note 28) 267,875 374,988 - - - - - - - - 642,863 Treasury stock transfer to employees - 20,436 - - - - - - 135,184 - 155,620 Recognize as treasury stock - 156,491 - - - - - - 195,220 - 351,711 Net income - - - - 30,542,828 - - - - - 30,542,828 Appropriations of retained earnings (note 28) (note):
Legal reserve - - 1,990,512 - (1,990,512) - - - - - - Cash dividend - - - - (8,571,683) - - - - - (8,571,683) Stock dividend 4,285,841 - - - (4,285,841) - - - - - -
Net loss from unrecognized pension cost - - - - - - (513,752) - - - (513,752) Change in minority interest - - - - - - - - - (4,883,914) (4,883,914) Cumulative foreign currency translation adjustment - - - - - 682,091 - - - - 682,091 Unrealized gains or (losses) from remeasurement of financial instruments - - - - - - - (7,380,552) - - (7,380,552) Recognized by treasury stock - - - 384,028 - - - - - - 384,028 Balance on December 31, 2011 $ 90,137,379 54,968,575 25,953,363 1,669,704 43,757,286 (1,283,925) (356,651) 18,894,095 (57,144) - 233,682,682 Note1: Remuneration paid to directors and supervisors and provisions for employee, amounting to $26,000 and $4,000, respectively, and deducted from the Statement of Income. Note2: Remuneration paid to directors and supervisors and provisions for employee, amounting to $36,000 and $4,000, respectively, and deducted from the Statement of Income.
See
acco
mpa
nyin
g no
tes t
o co
nsol
idat
ed fi
nanc
ial s
tate
men
ts.
FUB
ON
FIN
AN
CIA
L H
OL
DIN
G C
O.,
LT
D. A
ND
SU
BSI
DIA
RIE
S
Con
solid
ated
Sta
tem
ents
of C
ash
Flow
s
For
the
year
s end
ed D
ecem
ber
31, 2
011
and
2010
(e
xpre
ssed
in th
ousa
nds o
f New
Tai
wan
dol
lars
)
20
11
2010
Cas
h flo
ws f
rom
ope
ratin
g ac
tiviti
es:
Net
inco
me
$ 3
0,68
7,08
6
20,
718,
970
Adj
ustm
ents
to re
conc
ile n
et in
com
e to
net
cas
h flo
ws p
rovi
ded
by o
pera
ting
activ
es
Dep
reci
atio
n
1,
710,
752
1,90
7,48
7 A
mor
tizat
ion
656,
707
735,
476
Prov
isio
n fo
r bad
deb
ts
902,
389
1,09
8,86
7 Pr
ovis
ion
for i
nsur
ance
rese
rves
165,
101,
252
19
9,76
6,95
7 A
mor
tizat
ion
on p
rem
ium
(dis
coun
t) of
fina
ncia
l ass
ets
(
9,75
2,41
9)
6,31
6,65
2 A
mor
tizat
ion
on d
isco
unt o
f fin
anci
al b
onds
pay
able
56
,785
58
,081
In
vest
men
t inc
ome
acco
unte
d fo
r und
er e
quity
met
hod
(649
,668
)
(1
61,5
32)
Cas
h di
vide
nd re
ceiv
ed o
n in
vest
men
ts u
nder
equ
ity m
etho
d
69
3,49
7
15
4,66
4 Lo
ss o
n di
spos
al o
f fix
ed a
sset
s
52
,274
18
,906
Fi
xed
asse
ts tr
ansf
er to
exp
ense
11
31
6 G
ain
on d
ispo
sal o
f oth
er a
sset
s
(1
,193
)
(1
,124
) G
ain
on d
ispo
sal o
f inv
estm
ents
(19,
539,
008)
(28,
744,
431)
G
ain
on d
ispo
sal o
f lon
g-te
rm in
vest
men
ts u
nder
equ
ity m
etho
d
(8,
904,
223)
-
Gai
n on
dis
posa
l of r
eal e
stat
e in
vest
men
ts
(1,9
31)
-
U
nrea
lized
loss
(gai
n) o
n fin
anci
al a
sset
s and
liab
ilitie
s
17,
732,
470
(1
9,35
8,84
9)
Loss
on
finan
cial
ass
et im
pairm
ent
103,
591
112,
125
Rev
ersa
l on
finan
cial
ass
et im
pairm
ent
(228
,362
)
(3
28,2
71)
Loss
on
non-
finan
cial
ass
et im
pairm
ent
554,
145
19,3
49
Rev
ersa
l on
non-
finan
cial
ass
et im
pairm
ent
(32,
750)
-
Unr
ealiz
ed lo
ss (i
ncom
e) fr
om fo
reig
n ex
chan
ge
(1
8,12
9,33
4)
1
9,28
1,19
5 M
inor
ity in
tere
st’s
inco
me
(144
,258
)
(8
13,8
41)
Dis
aste
r los
s
-
67,9
29
Cha
nge
in o
pera
ting
asse
ts a
nd li
abili
ties,
net
Cha
nge
in o
pera
ting
asse
t, ne
t
D
ecre
ase
(incr
ease
) in
rece
ivab
les
2
6,31
5,76
2
(27,
241,
230)
D
ecre
ase
(incr
ease
) in
finan
cial
ass
ets m
easu
red
at fa
ir va
lue
thou
gh p
rofit
or l
oss
(2
2,79
7,15
1)
1
8,00
5,24
8 D
ecre
ase
(incr
ease
) in
othe
r fin
anci
al a
sset
s
31,
711,
390
(
5,28
8,96
8)
Incr
ease
in o
ther
ass
ets
(605
,462
)
(8,
729,
491)
C
hang
e in
ope
ratin
g lia
bilit
ies,
net
Incr
ease
(dec
reas
e) in
com
mer
cial
pap
er p
ayab
le
(
4,59
9,07
2)
1,89
9,63
4 In
crea
se (d
ecre
ase)
in p
ayab
les
(1
7,01
7,90
0)
2
0,88
2,34
4 In
crea
se (d
ecre
ase)
in fi
nanc
ial l
iabi
litie
s mea
sure
d at
fair
valu
e th
roug
h pr
ofit
or lo
ss
(
3,08
3,89
8)
5,32
8,12
4 In
crea
se in
rese
rve
for o
pera
ting
and
othe
r lia
bilit
ies
20
,878
,566
73
,413
,932
In
crea
se (d
ecre
ase)
in o
ther
fina
ncia
l lia
bilit
ies
(1
3,40
5,23
7)
1
9,39
5,59
5 In
crea
se (d
ecre
ase)
in o
ther
liab
ilitie
s
5,
491,
463
(
4,39
5,50
0)
Net
cas
h flo
ws p
rovi
ded
by o
pera
ting
activ
ities
183,
756,
274
29
4,11
8,61
4 C
ash
flow
s fro
m in
vest
ing
activ
ities
:
A
cqui
sitio
n of
ava
ilabl
e-fo
r-sa
le fi
nanc
ial a
sset
s
(488
,998
,162
)
(491
,439
,858
) D
ispo
sal o
f ava
ilabl
e-fo
r-sa
le fi
nanc
ial a
sset
s
433,
339,
628
35
3,31
0,64
5 Pr
ocee
ds fr
om c
apita
l red
uctio
n of
ava
ilabl
e-fo
r-sa
le fi
nanc
ial a
sset
s
88,2
50
37,0
76
Acq
uisi
tion
of d
ebt i
nves
tmen
t in
non-
activ
e m
arke
t
(95,
205,
065)
(143
,318
,286
) D
ispo
sal o
f deb
t inv
estm
ent i
n no
n-ac
tive
mar
ket
11
9,15
3,22
0
131,
363,
631
Proc
eeds
rece
ived
on
the
mat
urity
of n
on-a
ctiv
e m
arke
t deb
t inv
estm
ent
-
100,
000
Acq
uisi
tion
of h
eld-
to-m
atur
ity fi
nanc
ial a
sset
s
(790
,487
,507
)
(342
,742
,461
) D
ispo
sal o
f hel
d-to
-mat
urity
fina
ncia
l ass
ets
82
2,08
9,31
0
3,
950,
917
Acq
uisi
tion
of fi
nanc
ial a
sset
s mea
sure
d at
cos
t
(4
91,1
57)
(109
,367
) D
ispo
sal o
f fin
anci
al a
sset
s mea
sure
d at
cos
t
2,
293
510,
824
Liqu
idat
ed d
ivid
end
of fi
nanc
ial a
sset
s mea
sure
d at
cos
t
-
2,
000
Proc
eeds
from
cap
ital r
educ
tion
of fi
nanc
ial a
sset
s mea
sure
d at
cos
t
19
8,89
7
29
1,59
1 In
crea
se in
inve
stm
ent u
nder
equ
ity-m
etho
d
(8
47,7
30)
(636
,095
) D
ispo
sal o
f inv
estm
ent u
nder
equ
ity m
etho
d
10,
006,
214
-
Pr
ocee
ds fr
om c
apita
l red
uctio
n of
inve
stee
com
pani
es u
nder
equ
ity-m
etho
d
-
18,5
94
Purc
hase
of f
ixed
ass
ets
(
3,75
2,05
9)
(
1,71
5,03
6)
Dis
posa
l of f
ixed
ass
ets
7,69
7
59
,300
Pu
rcha
se o
f int
angi
ble
asse
ts
(251
,965
)
(1,
494,
260)
D
ecre
ase
in d
ue fr
om C
entra
l Ban
k an
d ca
ll lo
ans t
o ba
nks
2
6,69
5,64
5
230,
776,
342
Incr
ease
in lo
ans
(1
12,2
77,0
03)
(1
7,52
6,01
3)
Purc
hase
of r
eal e
stat
e in
vest
men
ts
(1
4,87
9,42
8)
(
7,33
5,08
9)
Dis
posa
l of r
eal e
stat
e in
vest
men
ts
6,34
7
10
,315
In
crea
se in
bon
ds a
nd b
ills p
urch
ased
und
er re
sell
agre
emen
ts
(1
5,32
9,67
3)
(937
,747
) Pr
ocee
ds o
f the
liqu
idat
ion
of in
vest
ee c
ompa
nies
und
er e
quity
met
hod
129,
544
3,97
4 N
et c
ash
flow
s use
d in
inve
stin
g ac
tiviti
es
(1
10,8
02,7
04)
(2
86,8
19,0
03)
See
acco
mpa
nyin
g no
tes t
o co
nsol
idat
ed fi
nanc
ial s
tate
men
ts.
FUB
ON
FIN
AN
CIA
L H
OL
DIN
G C
O.,
LT
D. A
ND
SU
BSI
DIA
RIE
S
Con
solid
ated
Sta
tem
ents
of C
ash
Flow
s
For
the
year
s end
ed D
ecem
ber
31, 2
011
and
2010
(e
xpre
ssed
in th
ousa
nds o
f New
Tai
wan
dol
lars
)
20
11
2010
Cas
h flo
ws f
rom
ope
ratin
g ac
tiviti
es:
Net
inco
me
$ 3
0,68
7,08
6
20,
718,
970
Adj
ustm
ents
to re
conc
ile n
et in
com
e to
net
cas
h flo
ws p
rovi
ded
by o
pera
ting
activ
es
Dep
reci
atio
n
1,
710,
752
1,90
7,48
7 A
mor
tizat
ion
656,
707
735,
476
Prov
isio
n fo
r bad
deb
ts
902,
389
1,09
8,86
7 Pr
ovis
ion
for i
nsur
ance
rese
rves
165,
101,
252
19
9,76
6,95
7 A
mor
tizat
ion
on p
rem
ium
(dis
coun
t) of
fina
ncia
l ass
ets
(
9,75
2,41
9)
6,31
6,65
2 A
mor
tizat
ion
on d
isco
unt o
f fin
anci
al b
onds
pay
able
56
,785
58
,081
In
vest
men
t inc
ome
acco
unte
d fo
r und
er e
quity
met
hod
(649
,668
)
(1
61,5
32)
Cas
h di
vide
nd re
ceiv
ed o
n in
vest
men
ts u
nder
equ
ity m
etho
d
69
3,49
7
15
4,66
4 Lo
ss o
n di
spos
al o
f fix
ed a
sset
s
52
,274
18
,906
Fi
xed
asse
ts tr
ansf
er to
exp
ense
11
31
6 G
ain
on d
ispo
sal o
f oth
er a
sset
s
(1
,193
)
(1
,124
) G
ain
on d
ispo
sal o
f inv
estm
ents
(19,
539,
008)
(28,
744,
431)
G
ain
on d
ispo
sal o
f lon
g-te
rm in
vest
men
ts u
nder
equ
ity m
etho
d
(8,
904,
223)
-
Gai
n on
dis
posa
l of r
eal e
stat
e in
vest
men
ts
(1,9
31)
-
U
nrea
lized
loss
(gai
n) o
n fin
anci
al a
sset
s and
liab
ilitie
s
17,
732,
470
(1
9,35
8,84
9)
Loss
on
finan
cial
ass
et im
pairm
ent
103,
591
112,
125
Rev
ersa
l on
finan
cial
ass
et im
pairm
ent
(228
,362
)
(3
28,2
71)
Loss
on
non-
finan
cial
ass
et im
pairm
ent
554,
145
19,3
49
Rev
ersa
l on
non-
finan
cial
ass
et im
pairm
ent
(32,
750)
-
Unr
ealiz
ed lo
ss (i
ncom
e) fr
om fo
reig
n ex
chan
ge
(1
8,12
9,33
4)
1
9,28
1,19
5 M
inor
ity in
tere
st’s
inco
me
(144
,258
)
(8
13,8
41)
Dis
aste
r los
s
-
67,9
29
Cha
nge
in o
pera
ting
asse
ts a
nd li
abili
ties,
net
Cha
nge
in o
pera
ting
asse
t, ne
t
D
ecre
ase
(incr
ease
) in
rece
ivab
les
2
6,31
5,76
2
(27,
241,
230)
D
ecre
ase
(incr
ease
) in
finan
cial
ass
ets m
easu
red
at fa
ir va
lue
thou
gh p
rofit
or l
oss
(2
2,79
7,15
1)
1
8,00
5,24
8 D
ecre
ase
(incr
ease
) in
othe
r fin
anci
al a
sset
s
31,
711,
390
(
5,28
8,96
8)
Incr
ease
in o
ther
ass
ets
(605
,462
)
(8,
729,
491)
C
hang
e in
ope
ratin
g lia
bilit
ies,
net
Incr
ease
(dec
reas
e) in
com
mer
cial
pap
er p
ayab
le
(
4,59
9,07
2)
1,89
9,63
4 In
crea
se (d
ecre
ase)
in p
ayab
les
(1
7,01
7,90
0)
2
0,88
2,34
4 In
crea
se (d
ecre
ase)
in fi
nanc
ial l
iabi
litie
s mea
sure
d at
fair
valu
e th
roug
h pr
ofit
or lo
ss
(
3,08
3,89
8)
5,32
8,12
4 In
crea
se in
rese
rve
for o
pera
ting
and
othe
r lia
bilit
ies
20
,878
,566
73
,413
,932
In
crea
se (d
ecre
ase)
in o
ther
fina
ncia
l lia
bilit
ies
(1
3,40
5,23
7)
1
9,39
5,59
5 In
crea
se (d
ecre
ase)
in o
ther
liab
ilitie
s
5,
491,
463
(
4,39
5,50
0)
Net
cas
h flo
ws p
rovi
ded
by o
pera
ting
activ
ities
183,
756,
274
29
4,11
8,61
4 C
ash
flow
s fro
m in
vest
ing
activ
ities
:
A
cqui
sitio
n of
ava
ilabl
e-fo
r-sa
le fi
nanc
ial a
sset
s
(488
,998
,162
)
(491
,439
,858
) D
ispo
sal o
f ava
ilabl
e-fo
r-sa
le fi
nanc
ial a
sset
s
433,
339,
628
35
3,31
0,64
5 Pr
ocee
ds fr
om c
apita
l red
uctio
n of
ava
ilabl
e-fo
r-sa
le fi
nanc
ial a
sset
s
88,2
50
37,0
76
Acq
uisi
tion
of d
ebt i
nves
tmen
t in
non-
activ
e m
arke
t
(95,
205,
065)
(143
,318
,286
) D
ispo
sal o
f deb
t inv
estm
ent i
n no
n-ac
tive
mar
ket
11
9,15
3,22
0
131,
363,
631
Proc
eeds
rece
ived
on
the
mat
urity
of n
on-a
ctiv
e m
arke
t deb
t inv
estm
ent
-
100,
000
Acq
uisi
tion
of h
eld-
to-m
atur
ity fi
nanc
ial a
sset
s
(790
,487
,507
)
(342
,742
,461
) D
ispo
sal o
f hel
d-to
-mat
urity
fina
ncia
l ass
ets
82
2,08
9,31
0
3,
950,
917
Acq
uisi
tion
of fi
nanc
ial a
sset
s mea
sure
d at
cos
t
(4
91,1
57)
(109
,367
) D
ispo
sal o
f fin
anci
al a
sset
s mea
sure
d at
cos
t
2,
293
510,
824
Liqu
idat
ed d
ivid
end
of fi
nanc
ial a
sset
s mea
sure
d at
cos
t
-
2,
000
Proc
eeds
from
cap
ital r
educ
tion
of fi
nanc
ial a
sset
s mea
sure
d at
cos
t
19
8,89
7
29
1,59
1 In
crea
se in
inve
stm
ent u
nder
equ
ity-m
etho
d
(8
47,7
30)
(636
,095
) D
ispo
sal o
f inv
estm
ent u
nder
equ
ity m
etho
d
10,
006,
214
-
Pr
ocee
ds fr
om c
apita
l red
uctio
n of
inve
stee
com
pani
es u
nder
equ
ity-m
etho
d
-
18,5
94
Purc
hase
of f
ixed
ass
ets
(
3,75
2,05
9)
(
1,71
5,03
6)
Dis
posa
l of f
ixed
ass
ets
7,69
7
59
,300
Pu
rcha
se o
f int
angi
ble
asse
ts
(251
,965
)
(1,
494,
260)
D
ecre
ase
in d
ue fr
om C
entra
l Ban
k an
d ca
ll lo
ans t
o ba
nks
2
6,69
5,64
5
230,
776,
342
Incr
ease
in lo
ans
(1
12,2
77,0
03)
(1
7,52
6,01
3)
Purc
hase
of r
eal e
stat
e in
vest
men
ts
(1
4,87
9,42
8)
(
7,33
5,08
9)
Dis
posa
l of r
eal e
stat
e in
vest
men
ts
6,34
7
10
,315
In
crea
se in
bon
ds a
nd b
ills p
urch
ased
und
er re
sell
agre
emen
ts
(1
5,32
9,67
3)
(937
,747
) Pr
ocee
ds o
f the
liqu
idat
ion
of in
vest
ee c
ompa
nies
und
er e
quity
met
hod
129,
544
3,97
4 N
et c
ash
flow
s use
d in
inve
stin
g ac
tiviti
es
(1
10,8
02,7
04)
(2
86,8
19,0
03)
See
acco
mpa
nyin
g no
tes t
o co
nsol
idat
ed fi
nanc
ial s
tate
men
ts.
FUB
ON
FIN
AN
CIA
L H
OL
DIN
G C
O.,
LT
D. A
ND
SU
BSI
DIA
RIE
S
Con
solid
ated
Sta
tem
ents
of C
ash
Flow
s (co
ntin
ue)
Fo
r th
e ye
ars e
nded
Dec
embe
r 31
, 201
1 an
d 20
10
(exp
ress
ed in
thou
sand
s of N
ew T
aiw
an d
olla
rs)
2011
20
10
Cas
h flo
ws f
rom
fina
ncin
g ac
tiviti
es:
Incr
ease
(dec
reas
e) in
shor
t-ter
m b
orro
win
gs
$ (
1,50
5,66
7)
4,21
5,00
0 B
onds
issu
ed
6,00
0,00
0
16,
000,
000
Rep
aym
ent o
f bon
ds
-
(15,
512,
519)
Fi
nanc
ial b
onds
issu
ed
1
1,93
0,34
0
32,
910,
974
Rep
aym
ent o
f fin
anci
al b
onds
(9,
097,
335)
(15,
625,
000)
In
crea
se in
long
-term
bor
row
ings
-
30,0
00
Rep
aym
ent o
f lon
g-te
rm b
orro
win
gs
(460
,000
)
-
Incr
ease
(dec
reas
e) in
bon
ds a
nd b
ills s
old
unde
r rep
urch
ase
agre
emen
ts
(357
,390
)
8,
774,
327
Cas
h di
vide
nd
(
8,57
1,68
3)
(1
6,27
7,19
1)
Issu
ing
new
shar
es fo
r em
ploy
ee w
arra
nts e
xerc
ise
642,
863
686,
111
Trea
sury
stoc
k bu
ybac
k
-
(192
,328
) D
ispo
sal o
f tre
asur
y st
ock
155,
620
-
Em
ploy
ees t
o pu
rcha
se tr
easu
ry st
ock
342,
188
-
In
crea
se (d
ecre
ase)
in d
ue to
Cen
tral B
ank
and
othe
r ban
ks
(
6,22
4,80
8)
593,
369
Incr
ease
(dec
reas
e) in
dep
osits
(6,
093,
399)
34,
590,
669
Cha
nge
in m
inor
ity in
tere
st
(
4,88
3,91
4)
371,
090
Net
cas
h flo
ws p
rovi
ded
by fi
nanc
ing
activ
ities
(18,
123,
185)
50,
564,
502
Eff
ect o
f exc
hang
e ra
te c
hang
es
682,
091
(
1,54
1,44
3)
Net
incr
ease
in c
ash
and
cash
equ
ival
ents
55,
512,
476
5
6,32
2,67
0 C
ash
and
cash
equ
ival
ents
at b
egin
ning
of p
erio
d
162,
952,
443
10
6,62
9,77
3 C
ash
and
cash
equ
ival
ents
at e
nd o
f per
iod
$ 21
8,46
4,91
9
162,
952,
443
Supp
lem
enta
l dis
clos
ure
of c
ash
flow
info
rmat
ion:
C
ash
paym
ents
of i
nter
est
$ 1
1,85
6,70
6
9,
331,
179
Cas
h pa
ymen
ts o
f inc
ome
tax
$
4,86
3,20
0
5,
148,
176
See
acco
mpa
nyin
g no
tes t
o co
nsol
idat
ed fi
nanc
ial s
tate
men
ts.
FUB
ON
FIN
AN
CIA
L H
OL
DIN
G C
O.,
LT
D. A
ND
SU
BSI
DIA
RIE
S
Con
solid
ated
Sta
tem
ents
of C
ash
Flow
s (co
ntin
ue)
Fo
r th
e ye
ars e
nded
Dec
embe
r 31
, 201
1 an
d 20
10
(exp
ress
ed in
thou
sand
s of N
ew T
aiw
an d
olla
rs)
2011
20
10
Cas
h flo
ws f
rom
fina
ncin
g ac
tiviti
es:
Incr
ease
(dec
reas
e) in
shor
t-ter
m b
orro
win
gs
$ (
1,50
5,66
7)
4,21
5,00
0 B
onds
issu
ed
6,00
0,00
0
16,
000,
000
Rep
aym
ent o
f bon
ds
-
(15,
512,
519)
Fi
nanc
ial b
onds
issu
ed
1
1,93
0,34
0
32,
910,
974
Rep
aym
ent o
f fin
anci
al b
onds
(9,
097,
335)
(15,
625,
000)
In
crea
se in
long
-term
bor
row
ings
-
30,0
00
Rep
aym
ent o
f lon
g-te
rm b
orro
win
gs
(460
,000
)
-
Incr
ease
(dec
reas
e) in
bon
ds a
nd b
ills s
old
unde
r rep
urch
ase
agre
emen
ts
(357
,390
)
8,
774,
327
Cas
h di
vide
nd
(
8,57
1,68
3)
(1
6,27
7,19
1)
Issu
ing
new
shar
es fo
r em
ploy
ee w
arra
nts e
xerc
ise
642,
863
686,
111
Trea
sury
stoc
k bu
ybac
k
-
(192
,328
) D
ispo
sal o
f tre
asur
y st
ock
155,
620
-
Em
ploy
ees t
o pu
rcha
se tr
easu
ry st
ock
342,
188
-
In
crea
se (d
ecre
ase)
in d
ue to
Cen
tral B
ank
and
othe
r ban
ks
(
6,22
4,80
8)
593,
369
Incr
ease
(dec
reas
e) in
dep
osits
(6,
093,
399)
34,
590,
669
Cha
nge
in m
inor
ity in
tere
st
(
4,88
3,91
4)
371,
090
Net
cas
h flo
ws p
rovi
ded
by fi
nanc
ing
activ
ities
(18,
123,
185)
50,
564,
502
Eff
ect o
f exc
hang
e ra
te c
hang
es
682,
091
(
1,54
1,44
3)
Net
incr
ease
in c
ash
and
cash
equ
ival
ents
55,
512,
476
5
6,32
2,67
0 C
ash
and
cash
equ
ival
ents
at b
egin
ning
of p
erio
d
162,
952,
443
10
6,62
9,77
3 C
ash
and
cash
equ
ival
ents
at e
nd o
f per
iod
$ 21
8,46
4,91
9
162,
952,
443
Supp
lem
enta
l dis
clos
ure
of c
ash
flow
info
rmat
ion:
C
ash
paym
ents
of i
nter
est
$ 1
1,85
6,70
6
9,
331,
179
Cas
h pa
ymen
ts o
f inc
ome
tax
$
4,86
3,20
0
5,
148,
176
(Continued)
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2011 and 2010 (All amounts expressed in thousands of New Taiwan Dollars unless otherwise stated)
(1) Organization and Business Scope
Fubon Financial Holding Co., Ltd. (the Company) was established in December 2001 pursuant to the Financial Holding Company Law in Taiwan. In connection with the formation of the Company, substantially all of the assets and liabilities and related operations of Fubon Insurance Co., Ltd. (Fubon Insurance) were transferred to a new wholly owned subsidiary named Fubon Insurance. The name of the “former” Fubon Insurance Co., Ltd. was changed to Fubon Financial Holding Co., Ltd. Secondly, shares of Fubon Securities Co., Ltd. (Fubon Securities), Fubon Commercial Bank Co., Ltd. (Fubon Bank), and Fubon Life Assurance Co., Ltd. (Fubon Life Assurance) were exchanged for shares in the Company on December 19, 2001. On August 28, 2002, shares of Fubon Asset Management Co., Ltd. (Fubon Asset Management) were exchanged for shares in the Company. Starting from March 31, 2011, shares of Fubon Asset Management become Fubon Securities’ subsidiary with the Group’s organizational structure for the adjustment. In September 2003, shares of Fubon Direct Marketing Consulting Co., Ltd. (Fubon Direct Marketing) were acquired in cash by the Company. In October 2003, shares of Fubon Holding Venture Capital Co., Ltd. (Fubon Holding Venture Capital) were acquired in cash by the Company. In March 2004, 75% of the shares of International Bank of Asia, Limited renamed Fubon Bank (Hong Kong, Limited (Fubon Bank (Hong Kong)) were purchased in cash by the Company. On June 13, 2011, 25% of the rest outstanding shares of Fubon Bank (Hong Kong) were purchased in cash by the Company. In August 2004, shares of Fubon Asset Management Service Co., Ltd. (Fubon AMC) and Fubon Investment Management Consulting Co., Ltd. (Fubon IMC) were purchased in cash by the Company. On November 7, 2011, the liquidation procedures of Fubon IMC were completed. In March 2008, shares of Taiwan Sport Lottery Co., Ltd. (Taiwan Sport Lottery) were purchased in cash by the Consolidated Company. In September 2008, the Company owned 51% of the shares of Taiwan Sport Lottery. On July 20, 2011, 49% of the remaining outstanding shares of Taiwan Sport Lottery were transferred to the Company. On February 11, 2009, all of the equity shares of ING Life Insurance Co., Ltd. (ING Life Insurance) were exchanged for shares in the Company. On June 1, 2009, ING Life Insurance merged with Fubon Life Assurance Co., Ltd. and was renamed Fubon Life Insurance Co., Ltd.
(Continued)
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2011 and 2010 (All amounts expressed in thousands of New Taiwan Dollars unless otherwise stated)
(1) Organization and Business Scope
Fubon Financial Holding Co., Ltd. (the Company) was established in December 2001 pursuant to the Financial Holding Company Law in Taiwan. In connection with the formation of the Company, substantially all of the assets and liabilities and related operations of Fubon Insurance Co., Ltd. (Fubon Insurance) were transferred to a new wholly owned subsidiary named Fubon Insurance. The name of the “former” Fubon Insurance Co., Ltd. was changed to Fubon Financial Holding Co., Ltd. Secondly, shares of Fubon Securities Co., Ltd. (Fubon Securities), Fubon Commercial Bank Co., Ltd. (Fubon Bank), and Fubon Life Assurance Co., Ltd. (Fubon Life Assurance) were exchanged for shares in the Company on December 19, 2001. On August 28, 2002, shares of Fubon Asset Management Co., Ltd. (Fubon Asset Management) were exchanged for shares in the Company. Starting from March 31, 2011, shares of Fubon Asset Management become Fubon Securities’ subsidiary with the Group’s organizational structure for the adjustment. In September 2003, shares of Fubon Direct Marketing Consulting Co., Ltd. (Fubon Direct Marketing) were acquired in cash by the Company. In October 2003, shares of Fubon Holding Venture Capital Co., Ltd. (Fubon Holding Venture Capital) were acquired in cash by the Company. In March 2004, 75% of the shares of International Bank of Asia, Limited renamed Fubon Bank (Hong Kong, Limited (Fubon Bank (Hong Kong)) were purchased in cash by the Company. On June 13, 2011, 25% of the rest outstanding shares of Fubon Bank (Hong Kong) were purchased in cash by the Company. In August 2004, shares of Fubon Asset Management Service Co., Ltd. (Fubon AMC) and Fubon Investment Management Consulting Co., Ltd. (Fubon IMC) were purchased in cash by the Company. On November 7, 2011, the liquidation procedures of Fubon IMC were completed. In March 2008, shares of Taiwan Sport Lottery Co., Ltd. (Taiwan Sport Lottery) were purchased in cash by the Consolidated Company. In September 2008, the Company owned 51% of the shares of Taiwan Sport Lottery. On July 20, 2011, 49% of the remaining outstanding shares of Taiwan Sport Lottery were transferred to the Company. On February 11, 2009, all of the equity shares of ING Life Insurance Co., Ltd. (ING Life Insurance) were exchanged for shares in the Company. On June 1, 2009, ING Life Insurance merged with Fubon Life Assurance Co., Ltd. and was renamed Fubon Life Insurance Co., Ltd.
2
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The primary business of the Company is to own financial businesses including banking, financial bills, credit cards, trust, insurance, securities, futures, ventures, investments in foreign financial institutions approved by the government agency, and investments relevant to other financial services approved by the government authorities. As of December 31, 2011, the Company and its subsidiaries had 28,954 employees. The following describes the consolidated subsidiaries: 1) Fubon Insurance was incorporated on December 19, 2001, and assumed all rights and liabilities
of the former Fubon Insurance Co., Ltd., which was incorporated in 1961. It is primarily engaged in the business of property and casualty insurance.
2) Fubon Securities was incorporated on July 11, 1988, as a company with an integrated securities
firm license. Fubon Securities’ operations include brokerage, margin lending, securities financing and refinancing, securities trading, securities transfer services, securities underwriting, and futures.
3) Taipei Bank started as a financial institution of the Taipei City Government (TCG) in 1969. On July 1, 1984, it was reorganized into a limited liability corporation and it was renamed as City Bank of Taipei Co., Ltd. The bank’s name was subsequently changed to Taipei Bank Co., Ltd. on January 1, 1993. Fubon Bank was authorized to operate as a commercial bank on August 1, 1991, and commenced its operations on April 20, 1992.
On January 1, 2005, Taipei Bank merged with Fubon Bank to improve operational efficiency and reduce costs. Taipei Bank was the surviving entity from this merger. However, the name Taipei Bank was changed to Taipei Fubon Bank on the same day. Taipei Fubon Bank mainly engages in 1. municipal treasuries of Taipei City; 2. management of municipal treasury bills of Taipei City; 3. all commercial banking operations authorized under the Banking Law;
4. trust and securities operations;
5. handling of the public-benefit lottery operations; 6. concurrent operation of futures dealing; and 7. other authorized operations.
3
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
In addition to the aforementioned activities, Taipei Fubon Bank continues to handle certain functions for the Taipei City Government (TCG), primarily acceptance of payments for taxes, fines, and other fees, as well as the payments of principal and interest on bonds issued by the TCG.
4) Fubon Asset Management was incorporated in September 1992. Its operations include raising securities investment trust funds through issuance of beneficiary certificates to invest in securities and related products, managing discretionary trust funds, and other operations as approved by the authorities for securities investment trusts.
5) Fubon Bank (Hong Kong) was founded in 1982. Fubon Bank (Hong Kong) engages in the following operations: 1. Retail and consumer banking;
2. Commercial banking;
3. Investment banking;
4. Investment and financial management services; and
5. Properties management and other services.
6) Fubon Life Assurance was incorporated on June 3, 1992, under the laws of the Republic of
China. Fubon Life Assurance is engaged in the business of life insurance underwriting.
In March 2006, for the purpose of reorganization, ING Life Insurance (Taiwan) Co., Ltd. was set up by ING Life Insurance Company of AETNA – Taiwan branch according to the Business Combination Law. The original parent company – ING Group signed a cooperative agreement with the Company on October 20, 2008 to sell 100% of ING Life Insurance (Taiwan) shares to the Company. In order to acquire ING Life Insurance (Taiwan), the Company issued new shares and subordinated corporate bonds aggregating to US$600,000 thousand to ING Group, and regarded February 11, 2009 as the acquisition date. Fubon Life Assurance merged with ING Life Insurance (Taiwan) effective June 1, 2009, ING Life Insurance (Taiwan) was the surviving entity and then changed its name to Fubon Life Insurance Co., Ltd. Fubon Life Insurance is primarily engaged in life insurance, accident insurance, health insurance, and any business related to life insurance.
(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.
4
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The Company prepares the accompanying financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Financial Holding Companies”, the “Guidelines Governing the Preparation of Financial Reports by Securities Issuers”, and ROC generally accepted accounting principles. The significant accounting policies used in preparing such financial statements are as follows: 1) Principles of consolidation
The consolidation of financial statements is made in accordance with the requirements of the “Regulations Governing the Preparation of Financial Reports by Financial Holding Companies” and ROC Statement of Financial Accounting Standards (ROC SFAS) No. 7 “Consolidated Financial Statements”. All material inter-company transactions have been eliminated in the consolidated financial statements. The following entities have been included in the consolidated financial statements:
December 31,
2011 December 31,
2010 Fubon Insurance 100.00% 100.00% Taipei Fubon Bank 100.00% 100.00% Fubon Life Insurance 100.00% 100.00% Fubon Asset Management 100.00% 100.00% Fubon Securities 100.00% 100.00% Fubon Direct Marketing Consulting 100.00% 100.00% Fubon Financial Holding Venture Capital 100.00% 100.00% Fubon Bank (HK) 100.00% 75.00% Fubon AMC 100.00% 100.00% Fubon IMC - 100.00% Taiwan Sport Lottery 100.00% 51.00% Fubon Futures 100.00% 100.00% Fubon Investment Service 100.00% 100.00% Fubon Securities (BVI) 100.00% 100.00% Fubon Securities USA Inc. 100.00% 100.00% Fubon Securities (Hong Kong) 100.00% 100.00% Fubon Capital (HK) Limited 100.00% 100.00% Taipei Fubon Bank Life Assurance Agent Co., Ltd. 100.00% 100.00% Fubon Insurance (Vietnam) 100.00% 100.00% Fubon Property & Casualty Insurance (Xiamen) 100.00% 100.00% Fubon Life Insurance (Vietnam) 100.00% 100.00% Fubon Multimedia Technology - 67.45% Asian Crown (BVI) - 100.00% Fubon Nominees (Hong Kong) (note) 100.00% 100.00% Fubon Bank Vanuatu (note) 100.00% 100.00% Fubon Credit (HK) (note) 100.00% 100.00%
5
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2011
December 31, 2010
FB Securities (HK) (note) 100.00% 100.00% FB Investment Management (HK) (note) 100.00% 100.00% FB Insurance Consultants (HK) (note) 100.00% 100.00% Note: This is one of the major subsidiaries held by the Fubon Bank (HK). The following entities have not been included in the consolidated financial statements because their total assets and operating revenue are deemed immaterial to the Company:
December 31,
2011 December 31,
2010 Fu-Sheng Life Assurance Agent 100.00% 100.00% Fu-Sheng General Insurance Agent 100.00% 100.00% Fu-Sheng Travel Service - 100.00% Fuly Life Assurance Agent - 100.00% Fuly General Insurance Agent - 100.00%
2) Use of estimates The preparation of the accompanying financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues, expenses and losses during the reporting periods. Actual results may differ from these estimates.
3) Foreign currency transactions
The Company and domestic subsidiaries’ functional and reporting currency is New Taiwan Dollar. The non-derivative foreign currency transactions are translated by using the exchange rate prevailing at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the foreign exchange rate prevailing at the balance sheet dates. Translation gains and losses are recognized in profit or loss. Foreign currency non-monetary assets and liabilities that are measured in terms of historical cost are translated into the functional currency using the rate of foreign exchange at the date of the initial transaction. Foreign currency non-monetary assets and liabilities measured at fair value are translated into the functional currency using the rate of foreign exchange prevailing at the balance sheet date. Any exchange differences resulting from fair value variation through profit or loss are included in the income statement, and exchange differences resulting from fair value variation through equity are accounted for as adjustments to stockholders’ equity.
6
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
If the financial statements of foreign subsidiaries accounted for in non-functional currencies, the foreign currency financial statements should be first remeasured by the functional currency, the exchange gain or loss from remeasurement should be recognized in the current period. The financial statements of foreign subsidiaries reported in functional currencies are translated into New Taiwan Dollars at the exchange rates prevailing on the balance sheet date, with the exception of stockholders’ equity, which is translated at historical rates, and revenues, costs and expenses, which are translated at the weighted-average exchange rates during the reporting years. Translation differences resulting from the translation of these financial statements into New Taiwan Dollars, net of income taxes, are recorded as foreign currency translation adjustment, a separate component of stockholders’ equity.
4) Statement of cash and cash equivalents Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and have maturity dates which do not present significant risks of changes in value resulting from changes in interest rates.
5) Financial assets 1. Financial assets measured at fair value through profit or loss are trading securities, and are
bought and held principally for the purpose of selling them in the near term. Derivatives held by the Company, other than those designated and qualified as hedging items, are classified into this category. Recognizing the trading of financial instruments by trade-date accounting except for bond instruments, which are recognized by settlement-date accounting. The fair value of financial assets held by the Company is determined as follows: Fair value is determined based on the market closing prices on the balance sheet date for listed or OTC securities, based on net worth on the balance sheet date for open-end funds, based on reference price on the Over-the-counter Securities Market on the balance sheet date for domestic bonds, based on reference price on Bloomberg on the balance sheet date for foreign bonds, and based on quoted prices provided by financial market traders for financial instruments with a non-active market, and investment with no active market-based on information provided by the counter parties.
7
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The Company and its subsidiaries adopted the second revision of ROC Statement of Financial Accounting Standards No. 34 “Financial Instruments: Recognition and Measurement”. This amended accounting standard, permits the Company to reclassify non-derivative financial assets (other than those designated at fair value through profit or loss by the Company upon initial recognition) out of the fair value through profit or loss category as follow: (a) A financial asset, which qualified as loans and receivables, may be reclassified out of
this category to the loans and receivables if the Company has the intention and ability to hold the financial asset for the foreseeable future or until maturity. The fair value of the financial asset on the date of reclassification becomes its new cost or amortized cost, whichever is applicable. Any gain or loss already recognized in profit or loss is not reversed.
(b) For financial assets which are reclassified as other than loans and receivables, the fair
value of each of these financial assets on the date of reclassification becomes its new cost or amortized cost, whichever is applicable. Any gain or loss recognized in profit or loss is not reversed.
2. Available-for-sale financial assets are available-for-sale financial assets, other than specified,
should be evaluated at fair value. Gain or loss on available-for-sale financial assets shall be recognized in equity, except for impairment losses and foreign exchange gains and losses on monetary financial assets, until the financial assets are derecognized. The impairment loss is recognized if there is evidence indicating that a decline in the value of an investment is other than temporary. If the impairment loss in the following period is reduced, reversal of loss for equity securities investment is adjusted to stockholders’ equity, and reversal of loss for debt securities instrument is credited to current income if the reduction of impairment loss resulted from a subsequent event.
3. Held-to-maturity financial assets
The Company has a positive intention and ability to hold financial assets to maturity are carried at amortized cost, which are valued by the effective interest method. On initial recognition, the costs of the financial assets are valued at their fair value plus the acquisition costs. The net gain or loss on held-to-maturity financial assets is recognized upon asset disposal, impairment or amortization. For debt commodities, the Bank uses settlement date accounting in recording related transactions. If a held-to-maturity financial asset is determined to be impaired, an impairment loss is recognized and reported in the income statement. Loss reversal is credited to current income and should not be more than the carrying amount had the impairment loss not been recognized.
8
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
4. Loans and receivables These assets indicate with no quoted active market price and with fixed or determinable payments and non-derivative financial assets, including discounts, loans, import and export negotiation and receivables, etc. The amortized cost and the related interest revenue and expense are calculated with effective interest rate. In terms of financial assets, the Company first evaluates if there is an objective evidence to show that there is impairment loss occurred in single significant financial asset or in one or more non-significant financial assets. If it is assessed that there is no evidence to show an impairment loss on individual asset (whether it is significant or not), then it has to be included in a group of financial assets with similar credit risk feature to evaluate if there is any impairment loss on the group of financial assets. For those financial assets which are assessed impaired and has recognized or continuously recognized impairment losses, they do not need to be evaluated per aforementioned method. The Company shall recognize impairment loss if there is evidence to show that the financial assets measured at amortized cost are impaired. The impairment amount is the difference between the book value of the financial asset and the present value of the estimated future cash flow discounted by the original effective interest rate. The book value of the financial assets is reduced by the allowance account and the amount of impairment losses shall be recognized as current gains and losses. When deciding the amount of the impairment loss, the estimate of future cash flow should include the collateral and the recoverable amount of relevant insurance. If the impairment amount is reduced in the subsequent periods, and the reduction is demonstrably related to the events occurred after the impairment recognition (eg. The improvement of debtors’ creditworthiness), the impairment amount of the financial assets previously recognized shall be reversed directly or by adjusting the allowance account. The carrying value after the reversal should not exceed the amortized balance of the assets assuming no impairment loss was recognized and the amount of reversal shall be recognized as current gains or losses.
5. Financial assets are recorded at cost if their fair values are not available. Impairment loss is recognized if there is an indication of impairment thereof, and this loss is non-reversible.
6. Non-active market debts investments
The amortized cost and the related interest revenue are calculated with effective interest rate. On initial recognition, the costs of the financial assets are valued at their fair value plus the acquisition costs. The net gain or loss on non-active market financial assets recognized upon asset disposal, impairment or amortization. These investments use settlement date accounting in recording related transactions. If a non-active market financial instrument is determined to be impaired, an impairment loss is recognized and reported in the income statement. Loss reversal is credited to current income and should not be more than the carrying amount had the impairment loss not been recognized.
9
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
6) Derivative instruments and hedging activities When derivatives are designated as hedges of operating, financing and investment risks and conform to the requirements of hedge accounting, these derivatives are accounted for hedging purposes. However, when derivatives are not intended for hedging purposes, they are classified as financial instruments held for trading. When a fair value hedge, cash flow hedge, or hedge of net investment in foreign operations conforms to all the criteria for applying hedge accounting, the net effect of changes in the fair values of the hedging instruments and hedged items is charged to profit or loss. 1. Fair value hedge
The net effect of changes in the fair value of derivatives that qualified as fair value hedging instruments and changes in fair value of the hedged items is recognized in profit or loss.
2. Cash flow hedge Where a derivative financial instrument is designated as a hedge of the variability in cash flow of a recognized asset or liability or a highly probable forecast transaction, the effective portion of any gain or loss on remeasurement of the derivative financial instrument to fair value is recognized directly in equity. When the hedged transaction actually affects the profit and loss, the profit or loss previously recognized in equity is recognized through current profit and loss. Any gain or loss from the change in fair value relating to an ineffective portion of the hedge transaction is recognized immediately through profit and loss.
3. Hedges of net investment in foreign operation Hedges of net investment in foreign operation: The effective portion of any gain or loss on a hedging instrument relating to a hedge against foreign currency fluctuation in a foreign operation is recognized directly in equity until the disposal of the foreign operation, at which time the cumulative gain or loss recognized directly in equity is recognized in profit or loss.
7) Repo and reverse-repo bond transactions Repo and reverse-repo bond transactions are the sale or purchase of a bond coupled with an agreement to repurchase or resell the same or substantially identical bond at a stated price. Such transactions are treated as collateral for financing transactions and not as the sale or purchase of trading securities. Repo and reverse-repo bond transactions are recorded as bonds sold under repurchase agreements and bonds purchased under resell agreements, respectively.
10
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The difference between the selling and purchase prices for repo and reverse-repo bond transactions is treated as interest expense or interest income.
8) Pecuniary and securities financing and refinancing Pecuniary finance represents loans extended to securities investors and is accounted for as receivable from pecuniary finance. Such loans are secured by the securities purchased by investors. These securities are not reflected in the financial statements of the Company. These securities will be returned to investors when investors terminate pecuniary financing. Securities finance is affected by lending securities custody that are received from pecuniary finance or borrowed from securities finance companies, to investors. Such securities finance is not reflected in the financial statements of the Company. The investors’ deposits for borrowing securities are held by the Company as collateral and are recorded under securities finance margin deposits received. In addition, investors are required to deposit the proceeds from sales of borrowed securities. Such deposits are accounted for as payables to securities financing. Pecuniary refinancing represents loans from securities finance companies when the Company lacks sufficient funds to perform pecuniary financing. These loans are recorded as refinance borrowings. Securities refinancing represents borrowing securities from securities finance companies when the Company does not have sufficient securities to perform securities financing. For securities refinancing, the Company pays margin deposits to securities finance companies. These margin deposits are recorded as refinance margin deposits. The Company also provides securities investors’ proceeds from selling borrowed securities to securities finance companies as collateral and records them under receivables from securities refinance.
9) Allowance for doubtful accounts Recording allowance for doubtful accounts is based on ending balance about the possibility of recovering, condition of guarantee and related regulations of different loan and receivable (including overdue loan). The uncollectible claims should be written off the allowance for doubtful accounts or reserve for guarantees. If the allowance for doubtful accounts or reserve for guarantees were insufficient, the difference of claims which was written off will be the loss of current year. Effective from January 1, 2011, the Company adopted the third amendment of SFAS No.34 “Financial Instruments: Recognition and Measurement”. In accordance with SFAS No.34, loans and receivables should comply with the new amendment. The Company considers indication of impairment for loans, receivables, interest receivable, other receivables and other financial assets. The impairment occurs after the original recognition when individual or certain events affect the estimated future cash flows. The evidence of impairment is as follows: 1. The debtor incurs obvious financial problems obviously; or
11
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2. Loans, receivables, interest receivable, other receivables and other financial assets become overvalue on; or
3. The debtor is at risk of bankruptcy or engaged in financial restructuring. All individually significant loans, receivables, interest receivable, other receivables and other financial assets found not to be specifically impaired are then collectively assessed for any impairment that may have incurred but not yet identified. The collective evidence of impairment may include the collection histories, the delay of repayments and the change of the national or local economy. An impairment loss in respect of loans, receivables, interest receivable, other receivables and other financial asset is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at its original effective interest rate. Losses are reflected in an allowance account against loans, receivables, interest receivable, other receivables and other financial assets. In addition, under the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/Non-accrual Loans” (the “Regulations”) issued by the Ministry of Finance, the domestic bank subsidiary evaluates the collectability of its loan portfolio on the basis of its clients’ financial condition, their payment records and delay of repayments of principals and interests. The domestic bank subsidiary evaluates credit losses on the basis of the estimated collectability of receivables. Before January 1, 2011, based on the Regulations mentioned above, loan assets should be classified as substandard, with doubtful collectability, uncollectible and required special attention. The minimum allowance for credit losses and provision for losses on guarantees for these loan assets are 2%, 10%, 50% and 100%, respectively. Of the outstanding credit amounts, beginning January 1, 2011, shall plus 0.5% of normal credit claims (except for government claims) the minimum allowance for credit losses and provision for losses on guarantees. Certain loans as defined under Banking Bureau guidelines and approved by the board of directors for write-offs are offset by the allowance for credit losses. The repayments of loans written off are recorded as a reversal of this allowance. Beginning January 1, 2011, except for the allowance for doubtful account, which is regulated by “Guidelines for Handling Assessment of Assets, Loans Overdue, Receivable on Demand and Bad Debts by Insurance Enterprises”, the additional allowance shall be provided as 0.5% of the balance of the right of credit for the first tier loan assets deducted by the amount of life insurance loans and premium loans. The amount of the allowance for bad debts shall be provided to the full amount within 3 years started from January 1, 2011. Other allowances are provided according to the past collection experiences, clients’ credits, aging report of non-performing loans, and the relevant policies and are provided per below classification. 1. 2% of principal amount of non-performing loans needed to be watched.
12
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2. 10% of principal amount of non-performing loans whose recoverability is probable. 3. 50% of principal amount of non-performing loans that can hardly be recovered. 4. 100% of principal amount of non-performing loans which are uncollectible. The amount of allowance for doubtful account is decided based on the aforementioned method and the method in note ((2) 5), whichever method is higher. Before January 1, 2011, based on letter Tai-Tsai-Jeng-Shuei No. 0920454036 issued by Ministry of Finance, R.O.C., allowance for doubtful account is provided according to the past collection experiences, clients’ credits, aging report of non-performing loans and the relevant policies and are provided per below classification. 1. 2% of principal amount of non-performing loans needed to be watched. 2. 10% of principal amount of non-performing loans whose recoverability is probable. 3. 50% of principal amount of non-performing loans that can hardly be recovered. 4. 100% of principal amount of non-performing loans which are uncollectible.
10) Long-term equity investment Long-term investments in which the Company has more than 20% of the investee’s voting shares or is able to exercise significant influence over the investee’s operating and financial policies are accounted for by the equity method. The difference between investment cost and underlying equity in net assets of the investee is accounted for under the SFAS No. 5. If the difference comes from assets that can be depreciated, depleted or amortized, such differences are depreciated, depleted or amortized over estimated remaining economic lives. If the difference comes from discrepancies between the carrying amounts of assets and their fair market values, then an investor company shall write off all unamortized differences when conditions making such over- or under-valuation are no longer present. When the investment cost exceeds the fair value of identifiable net assets acquired, the excess is recorded as goodwill. Goodwill is not amortized but is evaluated on each balance sheet date for any indication of impairment. If any such indication exists, the Company estimates and recognized the impairment loss on goodwill. When the fair value of identifiable net assets acquired exceeds the cost, the difference is allocated to non-current assets acquired (except for financial assets not under equity method, assets to be disposed of, deferred tax assets, or prepaid pension or other retirement benefits cost) proportionate to their respective fair values. If these assets are all reduced to zero value, the remaining excess is recognized as an extraordinary gain. If the Company has significant influence but not control over an investee company, and if the Company’s share of an investee company’s losses equals or exceeds the carrying amount of an investment accounted for under the equity method, plus advances made by an investor company, then the recognized investment losses shall be limited to the extent that makes the book value of a long-term investment and advances equal to zero.
13
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
For investees where the Company has control, the Company recognizes full investment losses when the equity in net assets of such investees is negative, unless shareholders of investees are able to provide additional capital to make up for the loss. The Company should recognize the losses of the investee. Once the investee company begins to earn a profit, it should be recognized by the Company. When a long-term investment under the equity method is sold, the difference between the cost and the selling price on the disposal date is recognized as a gain (loss) on disposal of long-term equity investment. If there is any capital reserve arising from a long-term equity investment, capital reserve is adjusted against current income (loss) by the percentage sold. If the Company holds between 20% to 50% of the voting shares of an investee company (or less than 20% but with significant influence), the equity method accounting is not required in preparing quarterly interim financial statements, unless the equity investment is more than 50% of the investee company’s outstanding voting common shares. Fubon Securities otherwise recognizes investment gain (loss) quarterly regarding its investee in Mainland China under equity method according to the related regulations from the authorities. Long-term investment under equity methods should immediately stop using the equity method when reducing the proportion of shares or other reasons to lose influence of the investing company. In accordance with SFAS No. 34 ”Financial Instruments: Recognition and Measurement”, the investment account should recognize the book value as cost at the time of change. The shares of the Company held by its subsidiary are accounted for in compliance with Statement of Financial Accounting Standards No. 30, “Accounting for Treasury Stock”. Unrealized gains or losses from transactions between subsidiaries are deferred. Deferred gains or losses derived from transactions involving depreciable or amortizable assets are amortized over their useful lives; others are recognized in the year when they are realized. If an investee company issues new shares and the Company does not acquire new shares in proportion to its original ownership percentage, the Company’s equity in the investee’s net assets will be changed. The change in the equity interest is adjusted through the capital surplus and long-term investment accounts. If the Company’s capital surplus incurred by the long-term investment is insufficient to offset the adjustment, the difference is charged as a reduction of retained earnings.
14
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
11) Other financial assets
1. Investment-type insurance policy Fubon Life Insurance is engaged in selling investment-type insurance policies. The payment of premiums, net of administrative expenses, is recorded in a separate account and is used only in the way agreed to by the insured. The assets in these separate accounts are valued at market price on value date and the Company adopts related rules and ROC Financial Accounting Standards in determining the net asset value. According to the accounting practices of the insurance industry, the assets, liabilities, revenue and expenses are recorded as “investment-type insurance policy assets”, “investment-type insurance policy liabilities”, “investment-type insurance policy revenue” and “investment-type insurance policy expenses”, respectively.
2. Futures trading margins Futures trading margins include trading margins deposited by customers and the gain (loss) generated from unsettled futures contracts based on daily market values.
3. Structured deposits The structured deposit engaged by Fubon Life Insurance has rights to collect cash or other financial instruments from counterparties through the contract. Structured deposits are recorded at principal as stated in the contracts, and the interest rates are linked to market rates and other financial benchmarks. Interest income thereon is recognized after holding the structured deposits to maturity. Impairment of principals would occur when investors redeem structured deposits before maturity date.
12) Investments in real estate
Investments in real estate are recorded at cost when acquired; however, if there is objective evidence of impairment, the investment is written down to reflect such a decline, and the resulting loss is recognized in the year when such decline occurs. The major renewals and improvements, which result in the prolonged service life or the increased value of real estate, are capitalized. Repairs and maintenance are expensed as incurred. The cost of an investment in real estate, its corresponding revaluation surplus, and accumulated depreciation are written off upon retirement or disposal. The gain or loss resulting from disposal of an investment in real estate is recognized as an operating gain or loss currently.
15
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
13) Fixed assets Property, equipment and leasehold assets are stated at cost less accumulated depreciation equipment are stated as cost, which includes the capitalized interest incurred from the acquisition and installation of machinery and equipment. Major purchases, renewals and improvements are capitalized. Repairs and maintenance are expensed as incurred. Depreciation of fixed assets other than land is calculated on a straight-line basis over the estimated useful lives of the respective assets. Leasehold improvements are amortized over the shorter of the terms of the leases or useful lives of such improvements. The cost and accumulated depreciation are removed from the accounts when property is disposed of, and gain or loss is credited or charged to other noninterest net revenues. The Company considered that the estimated demolition and restoration of the fixed assets in the unproductive period would be recognized as the fixed assets cost, and any larger part of the fixed assets in proportion should be depreciated individually. Residual value, useful life, and amortization method of fixed assets should be evaluated at least annually. Changes in estimated useful life, amortization method and residual value will be regarded as changes in accounting estimate. The following are the estimated useful lives for depreciation and amortization of fixed assets: Transportation equipment 3 to 10 years Furniture, fixtures, and equipment 1 to 15 years Other facilities 1 to 20 years Leasehold improvements 3 to 5 years Buildings 3 to 60 years
14) Asset impairment The Company assesses at each balance sheet date whether there is any indication that an asset (individual asset or cash-generating unit) other than goodwill may have been impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. The Company recognizes impairment loss for an asset whose carrying value is higher than the recoverable amount. The Company reverses an impairment loss recognized in prior years for assets other than goodwill if there is any indication that the impairment loss previously recognized no longer exists or has decreased. The carrying value after the reversal should not exceed the recoverable amount or the depreciated or amortized balance of the assets assuming no impairment loss was recognized in prior years. The Company assesses the cash-generating unit to which goodwill is allocated on an annual basis and recognizes an impairment loss on the excess of carrying value over the recoverable amount.
16
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
15) Goodwill and intangible assets 1. Goodwill
The net assets of an acquired company are recorded at cost. The excess of acquisition costs over the fair value of tangible and identifiable intangible assets less the liabilities is recorded as goodwill. Impairment on goodwill is evaluated regularly. If there is any indication of impairment, the impairment loss on goodwill is recognized on the balance sheet date and such loss is not reversed.
2. Intangible assets Intangible assets are recorded at cost except for donation from the government, which is measured at fair value. Subsequent to their initial recognition, the book values are stated at cost plus any incremental value resulting from revaluation minus accumulated amortization and impairment loss. Amortization is computed using the straight-line method. The residual value, estimated useful lives, and amortization method are evaluated at least once every year and changes thereof are regarded as changes in accounting estimate. Major intangible assets are as follows: (a) Operating rights incurred by merger of other securities firms, acquisition of Vietnam
branches of Ching-Fon Bank and purchased minority interest of Fubon Bank (HK) are recorded at cost and amortized on a straight-line basis over 10 to 97 years.
(b) Customer relationships incurred by the acquisition of Vietnam branches of Ching-Fon
Bank are amortized on a straight-line basis over 7 years. (c) Core deposits incurred by the acquisition of Vietnam branches of Ching-Fon Bank and
purchased minority interest of Fubon Bank (HK) are amortized on a straight-line basis over 6 to 10 years.
(d) Costs of computer software are capitalized and amortized on a straight-line basis over 3
to 5 years. 16) Other assets
1. Lease assets
Lease assets are stated at the lesser of fair value and the present value of lease payments (less the contract amount offered by lessor), or bargain purchase price, or guaranteed salvage value. If a lessee has the ownership of the property by the end of the lease term or a bargain purchase option, leased properties shall be amortized by the straight-line method over the estimated economic lives. Others shall be amortized over the lease years.
17
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2. Deferred charges Costs of telephone installation, decoration works and environmental control engineering are capitalized and amortized on a straight-line basis over 1 to 8 years. In addition, costs of issuing bonds are recognized as deferred charges and amortized over the redemption period.
3. Collateral assumed Costs of collateral assumed include the purchase price and other necessary expenses. Collateral assumed is stated at the lower of cost or net realizable value as of the balance sheet date.
4. Non-performing loans Under “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing / Non-accrual Loans” (the “Regulations”) issued by the Ministry of Finance, when the loans are overdue, the amounts of loans and other credits extended by the Bank and the related accrued interest are classified as nonperforming loans based on a resolution passed by the board of directors. Non-performing loans reclassified from loans are recognized as overdue loans; otherwise, are recognized as other financial assets. Overdue loans for Fubon Life Insurance are transferred to nonperforming loans after more than six months, claim and benefits recoverable from reinsurers and reinsurance premiums receivable are transferred after more than nine months, other receivables are transferred after three months. Overdue receivables are transferred from receivables from pecuniary finance based on the Company’s evaluation of the pecuniary finance customer’s settling possibility. For the trading securities – bonds and related interest which were not settled after maturity, the defaulted-upon and remote recovery accounts receivable are transferred to overdue receivables.
5. Statutory deposits In accordance with the ROC Insurance Law, the insurance subsidiaries deposit with the Central Bank of China an amount equal to 15% of its issued capital as guarantee for their insurance business. These deposits can be in the form of government bonds and financial bonds upon approval of the Ministry of Finance.
17) Commercial paper payable Discount on commercial paper payable is recorded as a reduction of commercial paper payable. Net carrying value of commercial payable approximates its present value.
18
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
18) Financial liabilities Financial liabilities for trading purposes are designated as financial liabilities for trading purposes at the time of initial recognition. The following are classified as financial liabilities for trading purposes: 1. Liabilities acquired primarily for the purpose of repurchase in the near term. 2. Part of a portfolio of identified financial instruments that are managed together and for
which there is evidence of a recent actual pattern of short-term profit-taking. 3. Derivative financial liabilities. 4. Pecuniary and securities financing and refinancing Proceeds received from reselling bonds purchased under agreements to resell are recorded as financial liabilities held for trading. Those bonds are valued at the market price corresponding to the trading securities – bonds. Market price represents the closing price on the balance sheet date. The costs are determined by the weighted-average method. Gain ((loss) from recovery of “bonds purchased under agreements to resell” is recognized as “recovering gain (loss) on trading securities – securities financing”. Securities institutions recognize financial liabilities for the borrowed securities. The amount of borrowed securities in transactions is recorded as “financial liabilities at fair value through profit or loss – current” and is evaluated at fair value. Market value is the market closing price at the balance sheet date. The costs of recovery of borrowed securities are evaluated under the weighted-average method. Gain (loss) from recovery is recognized as “recovery gain (loss) on borrowed securities and RS securities financing or resale bond”. The margin deposits for borrowed securities placed with securities firms and non-securities firms are recorded as “collateral for borrowed securities” and “margin deposits-in for borrowed securities”, respectively. Financial liabilities at fair value through profit or loss should be measured at fair value, and any change in their fair value is charged to current profit or loss. Fair value is the closing market price on the balance sheet date. If liabilities are designated as financial liabilities at fair value through profit or loss at the time of initial recognition, those liabilities shall not be reclassified to other categories of financial instruments, and vice versa.
19
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
19) Payable 1. Reinsurance due to/due from other insurance companies
Based on the criteria for reinsurance ceding and ceded, inward reinsurance premiums, outward reinsurance premiums, accrued reinsurance claims payable, and reinsurance recovery receivable are calculated according to the individual agreement entered into with other insurance companies, and are recorded monthly.
2. Payables to customers
Payables to customers classified under current liabilities are related to futures trading margins. A debit balance in this is classified as futures trading margins receivable.
3. Margin deposits-in for borrowed securities
The Company lends only the following securities in conducting securities lending business: the securities held for the Company’s own account, the securities borrowed through the securities lending system of a securities exchange and the collateral securities obtained in connection with customer margin purchases when conducting securities trading margin purchase and short sale business.
As of the securities held for the Company’s own account being conducted to lend to securities borrowers, these securities shall be transferred out from the original account to securities lent for securities financing and measured at fair value. The securities borrowed through the securities lending system of a securities exchange are not reflected on the financial statements of the Company. Both the collateral securities obtained in connection with customer margin purchases when conducting securities trading margin purchase and short sale business are not reflected on the financial statements of the Company, because these collateral securities are the collateral of the borrowers.
If the collateral from securities lending are other securities, the Company have to record them into each borrower’s account by every trade. On the other hand, the cash collateral will be recognized as margin deposit-in for borrowed securities. When the value of the collateral is insufficient, the Company will inform the borrower to make up for it.
The fee from the security lending business is recognized as “securities lending revenue”.
20) Reserve for operations
In accordance with the regulations of the respective authorities and Republic of China Statement of Financial Accounting Standards (SFAS), reserve for operations includes provisions for guarantees and losses on breach of contract, etc., and such provisions are recognized and recorded as current expenses by the banking, insurance, securities and futures industries.
20
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
From January 1, 2011, in accordance with Regulations Governing the Setting Aside of Various by Insurance Enterprise, the incremental catastrophe special reserve, after deducting income tax determined in accordance with R.O.C. SFAS No.22, shall be recognized as special reserve under shareholders’ equity by insurance subsidiaries. Once that special reserve under liabilities reserve is insufficient to deduct, the difference, after deducting income tax determined in accordance with R.O.C. SFAS No.22, shall be recovered from the special reserve which has been recognized under shareholders’ equity. According to Tai Tsai Bao No. 0910074195, the net amount of dangerous change of special claim reserve should recognized as special reserve completely after shareholders’ meeting next year. And it could not be distributed or used for other purposes until respective authorities approve. From January 1, 2011, in accordance with the regulations issued by the Securities and Futures Bureau, the Company will no longer make provisions for the securities default reserve and trading losses reserve. Remaining balances from December 31, 2010 were transferred to special reserve.
21) Pension plan The Company’s domestic subsidiaries maintain and fund a defined benefit retirement plan covering all regular employees. Under the Labor Standards Law, payments of pension benefits are calculated based on the employees’ average monthly salary for the last year prior to approved retirement and base point (b.p.) entitlement. The b.p. earned by each employee is based on 2 b.p. for the first 15 years of services and 1 b.p. from the 16th year and thereafter. Under this retirement plan, the pension benefits obligation is fully compensated by the Company’s domestic subsidiaries. The Labor Pension Act of the R.O.C. (“the Act”), effective from July 1, 2005, adopts a defined contribution pension plan. In accordance with the Act, employees of the Company’s domestic subsidiaries (who were hired before July 1, 2005) may elect to be subject to either the Act and maintain their service years before the enforcement of the Act, or the pension mechanism of the Labor Standards Law. Employees who are hired by the Company’s domestic subsidiaries after July 1, 2005, are required to be covered by the pension plan as defined by the Act. For employees subject to this Act, the Company’s domestic subsidiaries are required to make monthly cash contributions to the employees’ individual pension accounts at a rate not less than 6% of the employees’ monthly wages and deposit the contribution in a personal retirement benefit account.
21
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
For the define retirement benefit plan, an actuarial valuation of a pension asset or liability is performed on the balance sheet date, and a minimum pension liability is recorded in the financial statements based on the difference between the accumulated benefit obligation and the fair value of plan assets, in accordance with SFAS No. 18 “Accounting for Pension”. Pension cost recognized in accordance with SFAS No. 18 includes the current service cost, net transition asset or obligation, prior service cost, and unrecognized gain (loss) on the pension plan, which is amortized on a straight-line basis over the expected average remaining service years of the employees. Pursuant to the Act, the Company’s domestic subsidiaries also make monthly cash contribution at the rate of 6% of gross salary of each employee to the Bureau of Labor Insurance. This contribution is recognized as pension expenses for the current year when the contribution is actually made. The pension expenses for foreign subsidiaries will be contributed based on the regulation of local government.
22) Revenue recognition 1. Banking subsidiaries
Interest income from the Company’s banking loans is accrued on unpaid principal balances in accordance with the terms of the loan. No interest revenue is recognized on loans and other credits that are classified as nonperforming loans until it is collected. Under the Ministry of Finance regulations, the interest revenue on credits covered by agreements which extend their repayment, periods is recorded as deferred revenue and recognized as revenue upon collection. Service fees are recognized as income upon receipt and substantial completion of activities involved in the earnings process. Starting from January 1, 2011, the acquisition cost of loans and receivables and extra service fees charged by acquiring loans and receivables are adjusted in book value and effective interest rate.
2. Insurance subsidiaries
Premium income for direct business is recognized based on the written policies and endorsements. Assumed reinsurance premium for reinsurance assumed business is recognized when the reinsurance statement is arrival. For those statements have not been received, assumed reinsurance premium shall be estimated in a reasonable and systematic way. The related acquisition cost (such as commissions, brokerages, fees, reinsurance commissions and etc.) is recognized in the same period without deferred. Unearned premium reserve is determined based on the exposure of the unexpired period for the unexpired policies and the policies that have been not terminated.
22
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Unearned premium reserve for the compulsory auto liability is determined in accordance with the Regulations for Management of the Various Reserve of Compulsory Automobile Liability Insurance. Unearned premium reserve for the residential earthquake insurance is determined in accordance with the Enforcement Rules for the Risk Spreading Mechanism of Residential Earthquake Insurance. Unearned premium reserve for the nuclear insurance is determined in accordance with the Regulations for the Reserve of Nuclear Insurance. The approaches to determine unearned premium reserves are selected based on the characteristics of the line of business and decided by the actuary (the approaches are not allowed to change without the permission of the Authority.) Unearned premium reserve shall be certified by the appointed actuary. Income tax, based on Value-added and Non-value-added Business Tax Act, the Stamp Tax Act, and other relevant laws and regulations, related to the premium income shall be recognized on an accrual basis. In terms of the insurance contracts and the financial products with discretionary participation feature, the premium of the first and the subsequent period is recognized as revenue when the insurance process is completed and the due date comes. The policy acquisition costs such as commission expenses, is recognized as current expenses when the insurance contracts become effective. The premiums of insurance contracts not belong to investment-linked insurance and classified as financial products without discretionary participation feature are recognized as “provision for insurance contracts with financial product features”. The acquisition costs are used to write off “provision for insurance contracts with financial product features” when the insurance contracts become effective. The premiums of insurance contracts belong to investment-linked insurance and classified as financial products without discretionary participation feature are all recognized as “Liabilities on Insurance Product – Separated Account” after deducting the expenses such as the front-end load and investment administrative service charge. The acquisition costs of investment administrative service, including the commission expenses and the additional charges related to the issue of new contracts, are recognized as “deferred acquisition costs”. The service charges which Fubon Life Insurance collects from the policyholder of insurance contracts not belong to investment-linked insurance and classified as financial products without discretionary participation feature include contract administrative charge, investment administrative charge, rescinding charge and others. The service charge is recognized as revenue when it is collected. When Fubon Life Insurance collects certain service charge which makes it obligated to provide future service (ex: Front-end load), then the service charge deferred to recognize as revenue when the service is provided.
23
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
3. Securities subsidiaries Brokerage commissions, profit or loss from trading securities, and relevant brokerage securities transaction charges are recognized on the dealing date. Interest income or expense of margin loans, securities financing and refinancing, and bonds purchased under agreements to resell and sold under agreements to repurchase are recognized during the transaction period on an accrued basis. Recognition of service revenue depends on the degree of service delivered. Management fees which are received from providing management services to securities investment trust funds and investors’ discretionary managed accounts. The calculation of management fees is the net assets of each securities investment trust fund account and investor’s discretionary managed account multiplied by the contract ratio on a daily basis. Management fees are paid by each securities investment trust fund and investor’s discretionary managed account monthly.
23) Insurance contract classification An insurance contract is a contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. The Company identifies significant insurance risk if and only if an insured event could cause an insurer to pay significant additional benefits in any scenario. An insurance contract with financial Instruments features means the contract is able to transfer significant insurance risk. Financial risk refers to the risk resulting from possible changes in one or more specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable in the future. If the previously stated variables are non-financial variables, then the variables do not belong to any specific side of the contract. A contract that qualifies as an “insurance contract” remains an “insurance contract” until all rights and obligations are extinguished or expired, even if the insurance risk significantly mitigated. However, if an insurance contract with financial instrument feature transfers significant risk to the Company in subsequent periods, it will be reclassified as “insurance contract. Insurance contracts and insurance contracts with financial instruments features can be further divided into 2 categories, which are insurance with discretionary participation feature or without discretionary participation feature. A discretionary participation feature is a contractual right to receive, except for guaranteed benefits, additional benefits 1. that are likely to be a significant portion of the total contractual benefits; 2. whose amount or timing of distribution of additional benefits is contractually at the
discretion of the Company; and
24
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
3. the additional benefits are contractually based on: (a) the performance of a specified pool of contracts or a specified type of contract; (b) the rate of return of a specific asset portfolio, or (c) the profit or loss of the Company, fund or other entity that issues the contract. If the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract, it is required to be separated from the host contract and the value of the embedded derivative shall be measured at fair value through profit or loss and the change shall be recognized as current gains or losses. If the embedded derivative is itself an insurance contract or an insurer need not to separate it and is able to measure it at fair value through profit or loss, the Company does not need to separate the embedded derivative and the insurance contract in terms of recognition.
24) Reinsurance To limit the potential damage of the exposure events, the insurance subsidiaries follows Insurance Act to process reinsurance contract. Even the reinsurer not perform obligation, the insurance subsidiaries can’t reject to fulfill the contract obligation for the insured. The insurance subsidiaries have the following rights over reinsurer: reinsurance reserve assets, claims and benefits recoverable from reinsurers, reinsurance premiums receivable /payable. The insurance subsidiaries shall regularly perform tests to determine whether the rights are impaired or unrecoverable. If there is evidence, as a result of an event that occurred after initial recognition of the reinsurance asset, that the insurance subsidiaries may not receive all amounts regulated under the terms of the contract, and that event has a measurable amounts in terms of the influence of the event, the insurance subsidiaries shall recognize the difference between the recoverable amount and the book value of the previously stated right as impairment loss. For the reinsurance contract, the insurance subsidiaries will not only evaluate whether it will transfer significant insurance risk, but it also evaluate whether it will transfer underwriting risk (the probability of significant loss) and time risk (variance of the occurrence of cash flow) to reinsurer. If the reinsurance contract only transfers insurance risk, but not underwriting risk and time risk, then the insurance subsidiaries will recognize and measure it as deposit accounting. The consideration received or paid by the Insurance subsidiaries deducted by the retained reinsurance premium or handling charge of the outward insurance is recognized as deposit asset or liability.
25
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The change of deposit amount is recognized as current gains or losses. The interest generated from the deposit without transferring any risk or the deposit only transfers time risk is calculated per effective interest method. The effective interest rate is calculated from the estimate of the future cash flow and the interest is recognized as interest revenue or expense.
25) Liability and adequacy test Starting from January 1, 2011, in accordance with R.O.C. SFAS No. 40, the insurance subsidiaries shall assess whether their recognized insurance liabilities are adequate, using current estimates of future cash flows at the end of each reporting period. If that assessment shows that the carrying amount of its insurance liabilities (less related intangible assets) is inadequate, the entire deficiency shall be recognized as a liability adequacy reserve and recognized in profit or loss.
26) The cost of insurance claims Loss for direct business is recognized based on the paid losses for the reported claims. Loss shall be estimated case by case, based on the actual relevant information, and recognized as the net change in reported but unpaid reserve for the claims which have been not yet paid, either have been determined or not been determined by the claim department. Assumed reinsurance loss for reinsurance assumed business is recognized when the statement is arrival. For those statements have not been received, assumed reinsurance, loss shall be estimated in a reasonable and systematic way and recognized as the net change in loss reserve. Unreported loss for direct written business and reinsurance assumed business shall be estimated using actuarial methodologies, based on the historical experience, and recognized as net change in the IBNR. The loss receivable from the reinsurance companies according to the reinsurance ceded contract shall be recognized as claims recovered from reinsurers if the loss has been paid and recognized as net change in loss reserve if the loss has not been paid. The loss reserve is not discounted. The loss reserve for compulsory automobile liability insurance is determined in accordance with the Regulations for Management of the Various Reserve of Compulsory Automobile Liability Insurance. The loss reserve for residential earthquake insurance is determined in accordance with the Enforcement Rules for the Risk Spreading Mechanism of Residential Earthquake Insurance. The loss reserve for nuclear insurance is determined based on the Regulations for the Reserve of Nuclear Insurance.
26
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
27) Salvage and subrogation Salvage legally acquired from the claim procedure for direct written business shall be valued and recognized at its fair value. Subrogation legally acquired shall be recognized when the actual recovery is definite (the inflow of the economic benefits in the future is possible), and its amount can be reliably measured.
28) Coinsurance organization, coinsurance, and guarantee fund agreement Fubon Insurance made the coinsurance contract of the compulsory automobile liability insurance with all the member companies which approved by the government to operate the compulsory automobile liability insurance. It was agreed that all business of compulsory automobile liability insurance should be adopted to coinsurance or the Company should paid the penalty and should be audited by the squad of the coinsurance. The business of the coinsurance was calculated by pure premium, and distribute from Coinsurance Percentage. Any member companies which participate in coinsurance can’t drop the coinsurance arbitrarily except for shut down or liquidate. If the companies stop to operate the compulsory automobile liability insurance should drop out the coinsurance at the same time and the responsibility of unearned premiums is adopted by expiration of natural. Fubon Insurance made coinsurance contract for the insurance of travel industry perform guarantee with the insurance and the reinsurance companies which have business for the insurance of travel industry perform guarantee. The contract agrees on all the businesses for the insurance of travel industry perform guarantee should be adopted to coinsurance or the companies should pay the penalty and agree to be audited by the organization of the coinsurance. The business of the coinsurance was calculated by premium of coinsurance (the risk premium). Each member indemnifies the responsibilities by their own capacity and the responsibilities does not joint and several liability. The member company could inform the organization of coinsurance to drop out the coinsurance three months before the next year. The original capacity will be continue until the end of the year and the responsibility will be continue until the expiration of natural.
27
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
29) Income tax The amounts of income taxes expense and income tax payable for the current period are calculated based on the taxable income. Deferred income tax is determined based on the differences between accounting income and taxable income, using statutory tax rates in effect during the years in which the differences are expected to reverse. The income tax effects due to temporary differences are recognized as deferred income tax assets or liabilities. The income tax effects of temporary differences arising from future tax-deductible items, unused loss carryforwards, and unused income tax credits are recognized as deferred income tax assets. The realization of deferred income tax assets is evaluated, and a valuation allowance is recognized accordingly. Deferred income tax assets and liabilities are classified as current or non-current based on the classification of the related assets and liabilities. If there are no related assets or liabilities, deferred tax assets and liabilities are classified based on the expected year of realization. Interest income from short-tem bills and securitized products received prior to January 1, 2010, are taxed separately and such tax is recorded as income tax expenses. The adjustment of prior year’s income tax is included in the current income tax. Effective January 1, 2006, the Company adopted the “Income Basic Tax Act”. If the amount of regular income tax for a profit-seeking enterprise is greater than or equal to the amount of basic tax, the income tax of the current year for the enterprise is calculated in accordance with the Income Tax Act and other relevant laws. However, if the amount of regular income tax is less than the amount of basic tax, the amount of income tax payable shall be the amount of basic tax, in addition to the amount as calculated in accordance with the Income Tax Act and other relevant laws. The 10% surtax on undistributed earnings, computed according to the ROC Income Tax Act, is charged to current income tax expense in the year when stockholders decide not to distribute the earnings. In accordance with the Financial Holding Company Act, Article 49, the Consolidated Company has designated Fubon Financial Holding as the taxpayer to file a consolidated corporate income tax return starting from the year 2002 and to pay the 10% surtax on undistributed earnings. When preparing its financial statements, the Consolidated Company accounted for its income tax in conformity with SFAS No. 22, “Income Taxes”. However, the Consolidated Company also adjusted the related income tax balance in a reasonable and systematic way to reflect the differences computed for purposes of filing a consolidated corporate income tax return with Fubon Financial Holding as the taxpayer. The adjustments resulting from using Fubon Financial Holding as the taxpayer to file a consolidated corporate income tax return are recorded under receivable from (payable to) related parties.
28
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
30) Earnings per share Earnings per share are calculated by dividing net income after tax by the weighted-average number of shares outstanding in each year. The employees’ bonuses are regarded as potential common stock. If the potential common stock has dilutive effect, both basic earnings per share and diluted earnings per share shall be presented. On the contrary, the basic earnings per share shall be presented only. The consolidated net income and numbers of common stocks outstanding shall be adjusted by all the effect of diluted potential common stocks under the assumption that all the potential common stock with dilutive effect is outstanding. The effect of any increase in outstanding shares due to the issuance of stock dividends from retained earnings or capital surplus approved in the shareholders’ meeting should be retroactively adjusted.
31) Employees bonuses and Directors’ emoluments Employees’ bonuses and directors’ and supervisors’ remuneration are accounted for by Interpretation No. (96)52 issued by the Accounting Research and Development Foundation. Under this Interpretation, the Company makes an estimate of the amount of employees’ bonuses and directors’ and supervisors’ remuneration and recognizes in each reporting period as operating expenses. Differences between the amounts approved in the shareholders’ meeting and recognized in the financial statements, if any, are accounted for as changes in accounting estimates and recognized as profit or loss.
32) Treasury stock When the Company buys back issued stock, it applies the provisions of Statement of Financial Accounting Standards (SFAS) No. 30, “Accounting for Treasury Stock”, to debit the treasury stock account for the amount of cost paid. When the disposal price of treasury stock is higher than cost, the difference is credited to capital surplus – treasury stock; otherwise, the cost in excess of the price is debited to capital surplus generated from the same type of treasury stock transactions. If the capital surplus treasury stock account is insufficient to cover the cost in excess of the price, retained earnings is debited for the remaining amount. The book value of each share of treasury stock is equal to its weighted – average cost and is calculated by each group according to the reason for purchase. When treasury stock is retired, capital surplus and common stock are debited according to the ratio of retiring treasury stock to total issued stock. When the book value of the retiring treasury stock is higher than the sum of its par value and capital surplus, the difference is debited to capital surplus generated from the same type of treasury stock transactions. If the capital surplus – treasury stock account is insufficient to cover the difference, retained earnings is debited for the remaining amount. When the book value of the retiring treasury stock is lower than the sum of its par value and capital surplus, the difference is credited to capital surplus generated from similar treasury stock transactions.
29
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
According to ROC Statement of Financial Accounting Standard No. 30 “Accounting for Treasury Stocks”, the shares of the Company held by a subsidiary are treated as treasury stock. All inter-company investments in the shares of the Company held by its subsidiaries are treated as treasury stock.
33) Business combination Business combinations are accounted for in accordance with SFAS No. 25 “Business Combinations”. Under SFAS No. 25, acquisition costs represent the amount of cash or cash equivalents paid and the fair value of the other purchase consideration given, plus any costs directly attributable to the acquisition. The excess of acquisition cost over the fair value of the net identifiable tangible and intangible assets is recognized as goodwill.
34) 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). The segment’s operating results are reviewed regularly by the entity’s chief operating decision maker to make decisions pertaining to the allocation of the resources to the segment and to assess its performance for which discrete financial information is available.
(3) Reasons for and Effects of Accounting Changes:
1) Effective January 1, 2011, the Company adopted the third amendment of SFAS No. 34 “Financial Instruments: Recognition and Measurement” revised by the Financial Accounting Standards Committees. In accordance with SFAS No. 34, the recognition, subsequent valuation and impairment losses of loans and receivables shall comply with the new amendment. The amendment also applies to the terms and conditions restructured and negotiable debts. Such changes in accounting principle did not have significant impact for the year ended December 31, 2011.
2) Effective January 1, 2011, the Company adopted SFAS No. 41 “Operating Segments.” In accordance with SFAS No. 41, an entity shall disclose information to enable users of its financial statements to evaluate the nature and financial impact of the business activities in which it engages and the economic environments in which it operates. The Company determines and presents the operating segments based on the information that is internally provided to the chief operating decision maker. The Standard also supersedes SFAS No. 20 “Segment Reporting.” Such changes in accounting principle did not have significant impact for the year ended December 31, 2011.
30
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
3) Effective from January 1, 2011, the Company’s insurance subsidiaries adopted Republic of China Statement of Financial Accounting Standards (SFAS) No.40 “Insurance Contract”, the interpretation letter Jin-Guan-Pao No.09802506492 of revised “Principles for Compiling the Financial Statement of Insurance Companies” issued on December 30,2009 and the interpretation letter Jin-Guan-Pao No.09802513192 of revised “Regulations Governing the Setting Aside of Various Reserves by Insurance Enterprise” issued on December 28,2009. Financial statements and related disclosures had appropriate adjustments and reclassification. Such changes in accounting principle increase net income and earnings per share for the year ended December 31, 2011, by $1,541,162 thousand and $0.17.
(4) Cash and Cash Equivalents December
31, 2011 December 31, 2010
Cash on hand and petty cash $ 7,249,147 7,969,271 Bank deposits 142,558,362 92,530,843 Cash equivalents 32,026,108 22,063,116 Notes and checks for clearing 4,917,597 2,265,941 Due from banks 32,176,205 38,526,942 Less: Guarantee deposits (462,500) (403,670) Total $ 218,464,919 162,952,443 The guarantee deposits are time deposits provided as pledged assets. Please refer to note 36 for details.
(5) Due from Central Bank and Call Loans to Banks December
31, 2011 December 31, 2010
Due from Central Bank $ 2,563 2,367 Call loans to banks 39,407,713 38,595,028 Deposit reserves for checking and settlement accounts 10,450,483 26,808,100 Deposit reserves 27,345,650 27,768,610 Deposit reserves for foreign currency account 516,782 289,664 Due from Central Bank – certificate of deposits - 11,000,000 Due from Central Bank – interbank clearing fund 605,961 602,266 Others 469,265 428,027 Total $ 78,798,417 105,494,062 According to the rules stipulated by the Central Bank of China, the deposit reserves are determined monthly at prescribed rates based on the average balances of customers’ NT Dollar deposits. The required deposit reserves are subject to withdrawal restrictions, but other deposit reserves (checking and settlement accounts) can be withdrawn anytime.
31
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The deposit reserves for foreign currency account are determined at prescribed rates based on customers’ foreign currency deposits and can be withdrawn anytime.
(6) Financial Assets Measured at Fair Value through Profit or Loss December
31, 2011 December 31, 2010
Financial assets held for trading:
Government bonds $ 16,554,617 4,979,779 Commercial paper 11,594,415 3,603,553 Treasury bonds 2,385,669 3,182,690 Convertible bonds 112,745 995,290 Listed and OTC stocks and beneficiary certificates 8,253,678 2,405,819 Beneficiary securities 325,081 277,508 Corporate and financial bonds 7,477,574 1,749,000 Trading securities 2,348,618 3,937,068
Sub-total 49,052,397 21,130,707 Derivative financial instruments:
Interest rate contracts 10,912,338 11,076,491 Foreign exchange contracts 13,722,698 30,485,176 Others 2,495,850 2,879,275
Sub-total 27,130,886 44,440,942 Financial assets designated at fair value through profit or loss:
Financial bonds 299,480 813,400 Credit structured bonds 2,438,743 1,533,972
Sub-total 2,738,223 2,347,372 Total $ 78,921,506 67,919,021 Taipei Fubon Bank trades derivatives to meet clients’ needs and to make payments in different currencies. Part of interest rate swaps are intended to reduce the market risk and credit risk, and are designated for trading purpose. Accordingly, their underlying financial assets are also designated as financial assets measured at fair value through profit or loss. For details of pledged financial assets designated as financial assets reported at fair value through profit or loss, please refer to note 36.
32
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(7) Bonds and Bills Purchased under Resell Agreements and Sold under Repurchase Agreements As of December 31, 2011 and 2010, the bonds and bills purchased under resell agreements and bonds and bills sold under repurchase agreements were as follows: December 31, 2011 Margin lending
(borrowed) amount
Period to resell (repurchase)
Interest rate (%)
Bonds and bills purchased under resell
agreements $ 28,068,404 2012.01.02~
2012.02.04 0.71~0.87
Bonds and bills sold under repurchase agreements
$ (27,260,155) 2012.01.02~ 2012.05.31
0.37~5.15
December 31, 2010 Margin lending
(borrowed) amount
Period to resell (repurchase)
Interest rate (%)
Bonds and bills purchased under resell
agreements $ 12,738,731 2011.01.03~
2011.03.21 0.40~0.54
Bonds and bills sold under repurchase agreements
$ (27,617,545) 2011.01.03~ 2011.05.30
0.17~0.70
33
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(8) Receivables, Net
December 31, 2011
December 31, 2010
Credit card fees receivable $ 23,108,536 24,638,074 Accounts receivable, notes receivable and acceptance 9,049,762 11,094,180 Factoring receivable 33,137,541 45,218,883 Tax refund receivable 1,478,188 1,478,188 Interest receivable 19,713,794 16,708,708 Revenues receivable 876,394 866,487 Premiums receivable 4,279,705 4,253,270 Reinsurance recoverable 1,084,304 949,835 Due from other reinsurance 1,914,088 1,929,798 Margin loan receivable 14,262,812 25,537,072 Redemption premiums due from investment – linked policies 850,051 867,647 Trading securities receivable 4,333,515 5,032,762 Option premium receivable 379,112 491,137 Others 1,070,389 2,673,197
Subtotal 115,538,191 141,739,238 Less: allowance for doubtful accounts 1,233,937 1,403,493 Total $ 114,304,254 140,335,745
34
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(9) Loans
1) December
31, 2011 December 31, 2010
Discounts and overdrafts $ 2,972,991 3,107,087 Short-term advances 6,470,188 6,024,024 Short-term loans 206,513,715 169,186,465 Short-term secured loans 49,094,767 58,767,507 Medium-term loans 191,274,452 155,843,130 Medium-term secured loans 141,631,135 121,234,124 Long-term loans 51,626,338 83,539,962 Long-term secured loans 469,625,680 410,742,175 Insurance policy loans 39,290,038 39,396,460 Letters of credit 6,466,219 2,596,598 Nonperforming loans 2,785,551 3,492,462
Subtotal 1,167,751,074 1,053,929,994 Less: allowance for doubtful accounts – domestic bank
subsidiary 8,376,947 5,423,995
allowance for doubtful accounts – other subsidiaries 812,667 1,237,249 Amortization on discount (premium) 221,598 19,231
Total $ 1,158,339,862 1,047,249,519 Estimation tables of allowance for doubtful accounts of loans and receivables are as follows: Loans
Item
Total Loans
Allowance for doubtful accounts
December 31, 2011
December 31, 2011
There is objective evidence of impairment on individual asset
Individual assessment of impairment
12,301,550 4,175,135
Combined assessment of impairment
3,177,536 136,266
There is no objective evidence of impairment on individual asset
Combined assessment of impairment
1,152,271,988 4,878,213
35
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Receivables
Item
Total Receivables
Allowance for doubtful accounts
December 31, 2011
December 31, 2011
There is objective evidence of impairment on individual asset
Individual assessment of impairment
3,973,132 381,331
Combined assessment of impairment
4,025,081 557,219
There is no objective evidence of impairment on individual asset
Combined assessment of impairment
107,564,531 318,939
Changes of allowance for doubtful accounts of loans and receivables are as follows: December
31, 2011
Loan:
Balance on January 1, 2011 $ 6,626,033 Provision for (reversal of) doubtful accounts 1,473,308 Write-off (630,388) Recovery of written-off 1,656,309 Effects of exchange rate changes and others 64,352
Balance on December 31, 2011 $ 9,189,614 Receivables:
Balance on January 1, 2011 $ 1,536,840 Provision for (reversal of) doubtful accounts (496,962) Write-off (432,124) Recovery of written-off 641,681 Effects of exchange rate changes and others 8,054
Balance on December 31, 2011 $ 1,257,489
36
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2) The movements in allowance for loans for the domestic banking subsidiary for the years ended December 31, 2011 and 2010 were as follows: 2011
For allowance on
accounts receivable
For allowance on overall loan
portfolio (excluding particular
loans)
For allowance on
particular loans Subtotal
For allowance on
overdue receivables
Guarantee reserve Total
Balance at January 1, 2011 $ 1,191,058 3,722,784 1,701,211 5,423,995 40,330 467,676 7,123,059 Provision for (reversal of)
doubtful accounts (284,284) 637,876 1,097,386 1,735,262 (303,604) (87,285) 1,060,089 Write-off (2,716) - (354,237) (354,237) (354,855) - (711,808) Recovery of written-off - - 1,540,855 1,540,855 641,681 - 2,182,536 Effects of exchange rate
changes 7,772 - 31,072 31,072 - 4,666 43,510 Balance at December 31, 2011 $ 911,830 4,360,660 4,016,287 8,376,947 23,552 385,057 9,697,386
2010
For allowance on
accounts receivable
For allowance on overall loan
portfolio (excluding particular
loans)
For allowance on
particular loans Subtotal
For allowance on
overdue receivables
Guarantee reserve Total
Balance at January 1, 2010 $ 1,116,684 2,079,030 2,895,914 4,974,944 292,195 243,237 6,627,060 Provision for (reversal of)
doubtful accounts 83,937 1,643,754 (825,103) 818,651 (115,573) 232,933 1,019,948 Write-off (607) - (1,494,213) (1,494,213) (805,620) - (2,300,440) Recovery of written-off - - 969,858 969,858 676,364 - 1,646,222 Effects of exchange rate
changes (8,956) - (66,274) (66,274) (7,036) (8,494) (90,760) Effects of merging Hanoi
branch of Chinfon Bank - - 221,029 221,029 - - 221,029 Balance at December 31, 2010 $ 1,191,058 3,722,784 1,701,211 5,423,995 40,330 467,676 7,123,059
(10) Available-for-sale Financial Assets
December
31, 2011 December 31, 2010
Negotiable certificates of deposits $ 1,445,517 - Government bonds 329,018,363 300,370,054 Corporate and financial bonds 318,934,223 282,572,107 Listed and OTC stocks 169,685,852 178,181,402 Beneficiary certificates 70,422,195 48,498,827 Commercial paper - 7,297,508 Treasury bonds 1,388,331 5,759,502 Collateral bonds 532,060 -
Subtotal 891,426,541 822,679,400 Less: guarantee deposits 1,260,561 1,287,823
accumulated impairment 609,454 1,207,712 Net $ 889,556,526 820,183,865
37
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
For the years ended December 31, 2011 and 2010, due to there is objective evidence of impairment the Consolidated Company recognized the impairment losses on available-for-sale financial assets amounting to $31,880 and $79,210, respectively.
(11) Held-to-maturity Financial Assets December
31, 2011 December 31, 2010
Corporate bonds $ 16,792,799 11,236,456 Government bonds 193,436,935 189,206,631 Bank debentures 11,111,110 11,146,721 Negotiable certificates of deposits 240,111,637 279,919,136
Subtotal 461,452,481 491,508,944 Less: guarantee deposits 3,949,963 3,223,036 Net $ 457,502,518 488,285,908
(12) Investments under Equity Method
1) December 31, 2011 December 31, 2010
Amount % Amount % Fubon Venture Capital Co., Ltd. $ - - 36,957 45.00 Fubon Brokers (Thailand) Co., Ltd. 1,320 25.00 924 25.00 Fubon Construction Management Co.,
Ltd. 96,239 30.00 79,866 30.00
Sinostar Venture Capital Co., Ltd. - - 63,430 45.83 Fu-Sheng Life Assurance Agent Co.,
Ltd. 86,719 100.00 (8,866) 100.00
Fu-Sheng General Insurance Agent Co., Ltd.
34,649 100.00 10,954 100.00
Fu-Sheng Travel Service Co., Ltd. - - (738) 100.00 Fuly Life Assurance Agent Co., Ltd. - - 12,149 100.00 Fuly General Insurance Agent Co.,
Ltd. - - 19,938 100.00
Xiamen City Commercial Bank 3,123,152 19.99 2,079,424 19.99 Chung-ke Venture Capital Co., Ltd. - - 24,739 22.40 Prepayment for investment - - 4,256 - Founder Fubon Fund 262,816 33.30 - - $ 3,604,895 2,323,033
38
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Sinostar Venture Capital Co., Ltd. applied to dissolve after a stockholders’ meeting on November 24, 2006 when the effective date of dissolution was also set on December 31, 2006. On December 31, 2011, the liquidation procedures were completed, the Consolidated Company adjusted the investment amounts thereof based on the recoverable value. Fubon Venture Capital Co., Ltd. applied to dissolve after a stockholders’ meeting on May 18, 2007 when the effective date of dissolution was also set on July 30, 2007. As of December 31, 2011, the liquidation procedures were completed and all related investments were recovered. Fubon Insurance Agent Co., Ltd. applied to dissolve after a board of directors meeting on April 19, 2010 when the effective date of dissolution was also set on April 30, 2010. The liquidation procedures were completed on August 31, 2010. In December 2010 and November 30, 2011, Chung-ke Venture Capital applied to reduce its capital by cash after a shareholders’ meeting and returned the investments amounted to $22,738 and $829 in proportion of shares held, which had been recognized. In accordance with the Interpretation No. 094, the investment income(loss) from investments under the equity method are recognized until the classification changed. As the end of the reclassification day, the Company had recognized gain of investment of $49 and unrealized loss on evaluation of $281. However, according to ROC Insurance Law, directors and senior managers of insurance subsidiaries shall not take up the position as board members or supervisors of the investee company. Thus, the Company had no significant influence over Chung-ke Venture Capital, and the long-term equity investment was transferred to financial assets carried at cost. Fubon IMC applied to dissolve after a board of directors meeting held on May 26, 2011, when the effective date of dissolution was also set on June 30, 2011. As of December 31, 2011, the liquidation procedures were completed and all related investments were recovered. On April 8, 2011, the board of directors of Fubon Financial Holding Venture Capital has resolved to sell 67,824 thousand shares of Fubon Multimedia Technology Co., Ltd. to Dafu Technology Co., Ltd. and other companies at NTD$141.84 per share. As of December 31, 2011, gain on disposal of this investment amounted to $8,892,601. On July 13, 2011, Fubon Financial Holding Venture Capital hold shares being reduced down 15% that lose the influence to Fubon Multimedia Technology Co., Ltd., this investment transferred to financial assets carried at cost-noncurrent. A second-tier subsidiary, Fubon Asset Management, set up a fund management company with Founder Securities Co. in Mainland China. Financial Supervisory Commission and Investment Commission of MOEA approved this investment on January 5, 2011 and January 7, 2011, respectively, and the Securities Supervisory Commission in Mainland China also approved this investment on June 30, 2011. Fubon Asset Management remitted $298,244 to Founder Fubon Fund Management Co., Ltd. on July 27, 2011. In August 2011, Founder Fubon Fund Management returned investment about $726 due to foreign exchange rate changed. As of December 31, 2011, Fubon Asset Management invested about $297,518 in Founder Fubon Fund Management.
39
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Fubon Insurance Co., Ltd. applied to the Financial Supervisory Commission (SFC) – Insurance Bureau after the board meeting on December 10, 2010 and began, to invest in Mainland China. Fubon Insurance and Fubon Life Insurance entered into a letter of intent with Nanjing Zijin Investment Co., Ltd., establishing a company named Fubon Zijin Life Insurance Co., Ltd., this investment was approved by the SFC on January 14, 2011. As of the report date, this investee company has not yet been incorporated.
2) For the years ended December 31, 2011 and 2010, the Consolidated Company’s original
investment costs and investment income (loss) from investments under the equity method were as follows:
December 31, 2011 Original
investment cost Investment
(loss) income Fubon Venture Capital Co., Ltd. $ - (1,476) Fubon Brokers (Thailand) Co., Ltd. 412 454 Fubon Construction Management Co., Ltd. 30,000 5,761 Fu-Sheng Life Assurance Agency Co., Ltd. 3,000 95,585 Fu-Sheng General Insurance Agency Co., Ltd. 3,000 30,854 Founder Fubon Fund Management Co., Ltd. 297,518 (55,178) Xiamen City Commercial Bank 2,657,747 346,078 Chung-ke Venture Capital Co., Ltd. - 49 Fubon Multimedia Technology 71,749 226,608 Fubon Asset Management - 933 Total $ 3,063,426 649,668 December 31, 2010 Original
investment cost Investment
(loss) income Fubon Venture Capital Co., Ltd. $ 90,000 - Fubon Brokers (Thailand) Co., Ltd. 412 362 Fubon Construction Management Co., Ltd. 30,000 5,624 Fubon Insurance Agent Co., Ltd. 2,013 77 Fu-Sheng Life Assurance Agency Co., Ltd. 3,000 (15,411) Fu-Sheng General Insurance Agency Co., Ltd. 3,000 29,513 Fu-Sheng Travel Service Co., Ltd. 6,000 (5,728) Fuly Life Assurance Agency Co., Ltd. 3,000 5,160 Fuly General Insurance Agency Co., Ltd. 3,000 14,442 Xiamen City Commercial Bank 1,234,904 127,537 Chung-ke Venture Capital Co., Ltd. 45,156 (44) Total $ 1,420,485 161,532
40
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(13) Other Financial Assets December
31, 2011 December 31, 2010
Financial assets carried at cost $ 5,312,932 5,410,762 Hedging derivative financial assets 1,095,253 705,818 Separate account – insurance instrument assets 138,644,510 155,517,786 Futures trading margins 6,435,562 4,824,339 Buy remittance 2,580 9,020 Linked deposits 20,169,556 37,348,654 Margin deposits paid for borrowed securities 423,552 501,787 Collateral for borrowed securities 297,257 80,042 Overdue receivables 24,553 65,446 Less: allowance for overdue receivables (23,552) (40,330) Others 4,711 3,499 Total $ 172,386,914 204,426,823 1) Financial assets carried at cost
December 31, 2011
December 31, 2010
Investment in unlisted stocks $ 7,998,141 7,949,093 Less: accumulated impairment (2,685,209) (2,538,331) Net $ 5,312,932 5,410,762 The unlisted stocks held by the Company are measured by the cost method because they do not have an active market quote price. Due to objective evidence of impairment, the Consolidated Company provided impairment losses on financial assets carried at cost amounting to $71,730 and $32,915 for the year ended December 31, 2011 and 2010, respectively.
2) For details of hedging derivative financial assets, please refer to note 25. 3) Investment-type insurance policy
December 31, 2011
December 31, 2010
Investment-type insurance policy assets:
Receivables $ 458,482 697,010 Securities 134,738,849 152,168,678 Bank deposits 3,447,179 2,652,098
Total $ 138,644,510 155,517,786
41
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2011 2010 Investment-type insurance policy liabilities:
Insurance separate account value reserve- Insurance contract
$ 81,539,451 96,813,612
Insurance separate account value reserve- Investment contract
57,104,900 58,387,396
Payables 159 316,778 Total $ 138,644,510 155,517,786
2011 2010 Investment-type insurance policy revenues:
Insurance revenues $ 16,240,449 20,837,312 Interest revenues 713,076 319,131 Loss on foreign exchange (1,234,232) (1,721,034) Gain on investment 1,666,433 2,970,594 Unrealized gain (loss) on financial assets (12,898,345) 6,744,493
Total $ 4,487,381 29,150,496
2011 2010 Investment-type insurance policy expense:
Net insurance separate account value reserve $ (14,767,287) 4,115,364 Provision for reserve 16,336,761 21,961,001 Administrative expense 2,917,907 3,074,131
Total $ 4,487,381 29,150,496 As of December 31, 2011, Fubon Life Insurance has earned the sales commission in investment-oriented insurance products from counterparty in the amounts of $398,579 and $381,741, respectively.
42
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(14) Debt Securities Investment in Non- active Market
December 31, 2011
December 31, 2010
Corporate bonds – domestic $ 1,410,912 2,240,392 Corporate bonds – foreign 1,627,841 89,301 Financial bonds – domestic 11,028,443 16,319,449 Financial bonds – foreign 13,103,084 14,580,571 Zero coupon bonds – foreign 152,879,094 137,167,480 Structured bonds – foreign 6,057,542 27,463,950 Preferred stock – domestic 5,700,384 5,700,384 Security documents 2,632,843 3,250,110 Securitization of beneficiary certificates 8,687,085 8,638,022 Foreign securities 132,291 992,421 Underlying asst securities 8,279,138 7,969,155 Real estate mortgage bonds 55,274,134 58,050,917 Foreign negotiable certificates of deposit 15,112,161 -
Sub-total 281,924,952 282,462,152 Accumulated impairment (4,339,141) (4,574,878) Total $ 277,585,811 277,887,274 For the years ended December 31, 2011 and 2010, due to there is objective evidence of impairment, the Consolidated Companies recognized the impairment losses (reversal gains) on debt investment in non-active market amounting to $228,363 and $328,271, respectively.
(15) Real Estate Investment
1)
December 31, 2011
December 31, 2010
Cost:
Land $ 52,281,193 42,201,272 Revaluation surplus on land 18,331 18,331 Buildings 13,085,255 11,224,142 Construction payment 1,063,923 281,866 Prepayment for investment 43,994 371,537 Right of land usage, net 3,447,975 3,521,597 Sub-total 69,940,671 57,618,745
Accumulated depreciation: Building 1,352,972 1,021,452
Accumulated asset impairment 93,045 125,460 Real estate investment, net $ 68,494,654 56,471,833
43
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Real estate investment are valued with net fair value. For the year ended December 31, 2011, the Consolidated Companies had recognized the reversal gains of $32,415.
2) As of December 31, 2011, the Consolidated Company’s rental income from real estate
investments for the next five years is approximate as follows:
Years Amount January 1, 2012 ~ December 31, 2012 $ 2,574,289 January 1, 2013 ~ December 31, 2013 2,636,702 January 1, 2014 ~ December 31, 2014 2,649,761 January 1, 2015 ~ December 31, 2015 2,665,110 January 1, 2016 ~ December 31, 2016 2,683,594 $ 13,209,456
(16) Intangible Assets
December 31, 2011
December 31, 2010
Goodwill $ 11,479,984 11,589,760 Operating rights 784,351 568,412 Computer software 777,592 1,041,856 Deferred pension costs 77,763 111,945 Customer relationships 343 410 Core deposits 685,238 511,584 Total $ 13,805,271 13,823,967 For the year ended December 31, 2011 the Consolidated Companies recognized the impairment losses on intangible assets amounting to $260,000 due to the discounted future cash flow is less than the book value of goodwill . 1) Hanoi Branch and Ho Chi Minh Sub-branch of ChinFon Bank
Taipei Fubon Bank bid for Hanoi branch and Ho Chi Minh City sub-branch of Chinfon Bank on October 27, 2009, the original bid price was $2,526,800 (US$78,000 thousand) , which was paid in cash on March 8, 2010. After deducting the related adjustments which were calculated according to the terms prescribing on the sales and purchase agreement in 70 days after the settlement date, the final bid price was $2,511,987 (US$77,545 thousand). The overpayment was refunded on June 15, 2010.
44
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
According to the agreement, Taipei Fubon Bank had to pay the capital assignment profit tax $457,518 (US$14,008 thousand) and other transaction costs $2,662 (US$83 thousand). The following information represents the purchase price allocation of the assumed assets and liabilities of Hanoi branch and Ho Chi Minh City sub-branch of Chinfon Bank and intangible assets in fair value on March 6, 2010: Fixed asset (excluding computer software) $ 5,784 Cash 35,587 Due from Central Bank of Vietnam 70,190 Due from (to) other banks 189,019 Loans 3,451,903 Investment in securities 186,572 Other asset 101,972 Total asset (excluding intangible asset and goodwill) 4,041,027 Total liability (2,535,082) Net 1,505,945 Intangible asset
Core deposits 558,092 Customer relationships 465 Software 12,773 Operating rights 572,037 Goodwill 322,855 1,466,222
$ 2,972,167 Assuming that the acquisition of Hanoi branch and Ho Chi Minh sub-branch of ChinFon Bank were completed by January 1, 2010 for the year ended December 31, 2010, the consolidated pro forma results for the operating year are shown below:
2010 Revenues $ 497,142,048 Consolidated net income for continuing operations
before income tax 23,058,206
Consolidated net income for continuing operations after income tax
19,819,180
Basic earnings per common share (in dollar) 2.32 2) Fubon Bank (Hong Kong)
On June 13, 2011, 25% of the shares of Fubon Bank (Hong Kong) were purchased in the amount of $5,644,185 by the Company.
45
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The acquisition was accounted for in accordance with ROC SFAS No. 25 “Business Combinations”. The Consolidated Companies recognized goodwill which represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets. The following represents the allocation of the purchase price to the acquired assets and the assumed liabilities of Fubon Bank (Hong Kong) on June 13, 2011: Purchase price $ 5,644,185
Cash and cash equivalents $ 16,746,114 Financial assets measured at fair value through profit or loss
8,501,684
Due from Central Bank and call loans to banks 2,924,593 Receivables 2,471,638 Loan 118,501,076 Available-for-sale financial assets 56,255,541 Held-to-maturity financial assets 9,143,724 Loans and receivables 9,995,237 Derivative financial assets 1,558,173 Fixed assets 8,674,132 Investments under long-term equity method 2,150,161 Other Assets 842,268 Due to other banks (17,461,689) Deposits (169,830,215) Payables (2,429,909) Derivative financial liabilities (2,038,585) Financial liabilities measured at fair value through profit or loss
(10,267,136)
Bonds payable (8,666,549) Other financial liabilities (1,851,996) Other liabilities (5,321,174)
The fair value of identifiable net assets acquired 19,897,088 Acquiring proportion 25.00% 4,974,272 Goodwill $ 669,913 Intangible asset
Core deposits 229,463 Software 66,579 Operating rights 223,125 519,167
Goodwill $ 150,746
46
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The reviewed pro forma year consolidated results of operations assume that the acquisition of Fubon Bank (Hong Kong) was completed as of January 1, 2011 for the year ended December 31, 2011 shown below: 2011 Revenues $ 242,795,782 Consolidated net income for continuing operations before
income tax 36,147,835
Consolidated net income from continuing operations after income tax
30,680,671
Basic earnings per common share (in dollar) 3.41
(17) Other Assets
December 31, 2011
December 31, 2010
Guarantee deposits $ 6,984,560 6,728,434 Foreclosed real estate 943,781 824,801 Deferred income tax assets – net 2,903,323 4,704,234 Settlement and clearing funds 519,069 521,285 Leased assets, net 848,796 1,067,432 Restricted time deposits 150,000 202,309 Reinsurance asset 9,688,714 8,674,303 Deferred acquisition cost 1,033,972 - Prepaid accounts 1,283,537 1,128,446 Other 1,428,706 1,620,538 Total $ 25,784,458 25,471,782
Other assets are valued with net fair value. For the year ended December 31, 2011, the Consolidated Companies had recognized impairment loss of $128,243.
47
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(18) Financial Liabilities Measured at Fair Value through Profit or Loss 1)
December
31, 2011 December 31, 2010
Financial liabilities for trading
Stock warrant liabilities $ 208,679 398,730 Exchange fund bills and bonds 5,392,654 3,596,327 Zero coupon bonds 1,302,230 1,031,156 Stock borrowing payable 451,460 278,053 Bonds purchased under resell agreements-securities financing
-
524,780
7,355,023 5,829,046 Derivative financial instruments
Interest rate contracts 12,138,438 10,935,394 Foreign exchange contracts 13,313,203 15,073,100 Other 3,062,394 4,088,791
28,514,035 30,097,285 Financial liabilities designated at fair value through profit
or loss:
Structured products - 28,329 Total $ 35,869,058 35,954,660
2) Stock warrant liabilities
As of December 31, 2011 and 2010, the Company’s net liabilities for stock call (put) warrants issued were as follows:
December
31, 2011 December 31, 2010
Price for stock warrants issued $ 10,592,556 7,181,381 Add: value loss (4,828,752) 1,998,454 5,763,804 9,179,835 Issued stock warrants repurchased 9,232,231 6,949,651 Add: value gain (3,677,106) 1,831,454 5,555,125 8,781,105 $ 208,679 398,730
48
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(19) Commercial Paper Payable December
31, 2011 December 31, 2010
Commercial paper payable $ - 4,600,000 Less: discount on commercial paper payable - 928 $ - 4,599,072 Interest rates for the years 0.45~0.86% 0.20~0.63% As of December 31, 2011 and 2010, the commercial paper payables were guaranteed by Dahchung Bills Finance, MEGA Bills Finance, and International Bills Finance. As of December 31, 2011 and 2010, there were no assets pledged for commercial paper payable.
(20) Deposits December
31, 2011 December 31, 2010
Checking accounts $ 42,401,131 45,092,964 Public Treasury Deposits 19,423,914 22,748,601 Demand deposits 189,486,006 232,055,173 Time deposits 426,133,794 395,172,567 Negotiable certificates of deposit 4,496,340 8,586,524 Savings accounts 610,829,213 595,224,481 Remittances 660,389 643,876 Total $ 1,293,430,787 1,299,524,186
(21) Bonds Payable
1) The bonds payable of the Company were as follows:
December 31, 2011
December 31, 2010
Unsecured corporate bonds $ 29,000,000 23,000,000 Financial bonds 72,539,435 69,507,828 Total $ 101,539,435 92,507,828
49
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2) As resolved by the board of directors on April 25, 2007, the Company issued the first 2007 unsecured domestic corporate bonds in order to repay the first 2004 unsecured Euro convertible bonds issued by the Company. Indicative terms and conditions for an issue were as follows: 1. Form / Denomination: Unsecured corporate bonds
2. Issue date: July 5, 2007
3. Maturity date/duration: July 5, 2012; 5 years
4. Issue amount
The total issue amount was $7,000,000, with par value of $10,000 each unit, and issued at 100% of par value.
5. Coupon rate: 2.10% per annum.
6. Interest payment Interest is payable annually from the issue date at a fixed coupon rate calculated with nominal simple interest rate.
7. Principal payment: Five years after issue date
3) In order to acquire ING Life Insurance, the Company issued subordinate overseas corporate bonds to ING Group amounting to US$338,590 thousand on February 11, 2009. Indicative terms and conditions for the issuance were as follows: 1. Form / Denomination: subordinate corporate bonds 2. Issue date: February 11, 2009 3. Maturity date / duration: December 29, 2016, but the bonds were redeemed on February 9,
2010. 4. Issue amount: US$338,590 thousand 5. Coupon rate: 6.326% per annum. 6. Interest payment:
Interest is payable and calculated semi-annually with a nominal simple interest rate. 7. Principal payment: pay in full when mature.
50
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
8. Issue mode: Issue private overseas corporate bonds.
4) As resolved by the board of directors on October 30, 2009, the Company issued the first 2009 unsecured domestic corporate bonds in order to repay the subordinate overseas corporate bonds issued on February 11, 2009. Indicative terms and conditions for an issue were as follows: 1. Form / Denomination: Unsecured corporate bonds
2. Issue date: January 27, 2010.
3. Maturity date / duration: January 27, 2017; 7 years
4. Issue amount
The total issue amount was $6,000,000, with par value of $1,000 each unit, and issued at 100% of par value.
5. Coupon rate: 2.60% per annum
6. Interest payment Interest is payable annually from the issue date at a fixed coupon rate calculated with nominal simple interest rate.
7. Principal payment: pay in full when mature.
5) As resolved by the board of directors on October 30, 2009, the Company issued the second 2009 unsecured domestic corporate bonds in order to repay the subordinate overseas corporate bonds issued on February 11, 2009. Indicative terms and conditions for an issue were as follows: 1. Form / Denomination: Unsecured corporate bonds. 2. Issue date: January 28, 2010 3. Maturity date / duration: January 28, 2015 and 2017, 5 and 7 years. 4. Issue amount
The issued amount of $5,000,000 was divided into Bond A of $3,200,000, Bond B of $1,000,000, and Bond C of $800,000, at $1,000 per unit, and issued at 100% of par value.
5. Coupon rate The annual fixed rates for bond A, B and C are 1.70%, 1.90%, and 2.60%, respectively.
51
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
6. Interest payment Interest is payable annually from the issue date at a fixed coupon rate calculated with nominal simple interest rate.
7. Principal payment: pay in full when mature.
6) As resolved by the board of directors on April 28, 2010, the Company issued the first 2010 unsecured domestic corporate bonds, in order to repay the first 2005 unsecured Euro convertible bonds issued by the Company. Indicative terms and conditions for an issue were as follows: 1. Form / Denomination: Unsecured corporate bonds. 2. Issue date: August 23, 2010 3. Maturity date / duration: August 23, 2015; 5 years 4. Issue amount
The total issue amount was 5,000,000, with par value at $1,000 per unit, and issued at 100% of par value.
5. Coupon rate: 1.56% per annum.
6. Interest payment Interest is payable annually from the issue date at fixed coupon rate calculated with nominal simple interest rate.
7. Principal payment: pay in full when mature. 7) As resolved by the board of directors on August 19, 2011, the Company issued the first 2011
unsecured domestic corporate bonds, in order to repay 2007 unsecured Euro convertible bonds issued by the Company. Indicative terms and conditions for an issue were as follows: 1. Form / Denomination: Unsecured corporate bonds. 2. Issue date: November 15, 2011 3. Maturity date / duration: November 15, 2016; 5 years 4. Issue amount
The total issue amount was 6,000,000, with par value at $1,000 per unit, and issued at 100% of par value.
52
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
5. Coupon rate: 1.40% per annum.
6. Interest payment Interest is payable annually with simple interest rate when mature.
7. Principal payment: pay in full when mature. 8) Financial debentures payable
December 31, 2011 Maturity years Interest rate Amount Taipei Fubon
Bank From July 2012 to October 2020 Inverse floating rate,
floating rate or fixed rate
$ 62,143,488
Fubon Bank From March 2012 to November Floating rate or fixed 10,395,947 (Hong Kong) 2020 rate $ 72,539,435
December 31, 2010
Maturity years Interest rate Amount Taipei Fubon
Bank From February 2011 to October
2020 Inverse floating rate,
floating rate or fixed rate
$ 55,533,576
Fubon Bank From March 2011 to November 2020
Floating rate or fixed 13,974,252
(Hong Kong) rate $ 69,507,828
(22) Other Borrowings
December 31, 2011
December 31, 2010
Credit and guarantee loan $ 3,269,333 5,235,000 For the years ended December 31, 2011 and 2010, the annual interest rates ranged from 0.680% to 3.100% and 0.500% to 2.810%, respectively. For details of assets pledged for other borrowings, please refer to note 36.
53
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(23) Reserves for Operations and Other Liabilities
December 31, 2011
December 31, 2010
Reserve for securities default $ - 249,637 Reserve for trading loss - 134,392 Reserve for bad debt 32,142 32,142 Reserve for unearned premiums (note) 20,612,867 19,302,395 Special reserve (note) 17,957,292 18,849,151 Claims reserve (note) 14,574,305 13,020,507 Reserves for value added taxes on land 9,263 9,263 Assurance reserve (note) 1,390,021,049 1,227,404,938 Guarantee reserve 385,057 467,676 Reserve for premium deficiency (note) 4,993,395 2,473,782 Reserve for customers appeal 132,718 168,929 Reserve for insurance contracts with financial product feature
(note) 103,107,324 80,641,053
Liabilities adequacy reserve 50,826 - Others 31,838,515 32,297,825 Total $ 1,583,714,753 1,395,051,690 Note: For further information, please refer to note 33.
(24) Pension
December
31, 2011 December 31, 2010
Benefit obligation:
Vested benefit obligation $ (4,516,688) (4,219,584) Non-vested benefit obligation (7,370,602) (6,560,938) Accumulated benefit obligation (11,887,290) (10,780,522) Additional benefits based on future salaries (1,570,420) (1,483,128) Projected benefit obligation (13,457,710) (12,263,650)
Fair value of plan assets 7,140,724 7,278,383 Funding status (6,316,986) (4,985,267) Unrecognized amortization of net transition obligation 60,788 91,125 Unrecognized prior year service cost (7,737) (6,663) Unrealized pension net loss (benefit) 3,330,077 2,625,817 Additional minimum pension liability (2,095,738) (1,616,167) Prepaid pension cost (accrued pension liabilities) $ (5,029,596) (3,891,155)
54
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
For the years ended December 31, 2010 and 2009, net pension costs of the Consolidated Company were as follows:
2011 2010 Service cost $ 587,379 654,180 Interest cost 254,342 239,945 Expected return on pension plan assets (193,704) (208,954) Amortization on deferred cost 75,659 136,854 Unrecognized pension gain (loss) 78,786 32,095 Net pension cost $ 802,462 854,120 The actuarial assumptions are as follows:
2011 2010 Discount rate 1.75% 2.00% ~ 2.25% Rate of increase in future compensation 1.75% ~ 3.00% 2.00% ~ 3.00% Expected l rate of return on pension plan assets 1.75% ~ 3.50% 2.00% ~ 3.50% Pension expense recognized by the Consolidated Company for the years ended December 31, 2011 and 2010, totaled $1,718,396 and $1,276,518, respectively.
(25) Other Financial Liabilities
December 31, 2011
December 31, 2010
Structured products principle received $ 24,876,563 22,212,725 Investment-type insurance policy liabilities 143,579,257 161,857,421 Exchange fund bills and bonds 5,068,934 3,162,133 Hedging derivative financial liabilities 1,464,317 1,004,044 Appropriated loan funds 625,500 782,200 Others - 1,285 Total $ 175,614,571 189,019,808 1) Investment-type insurance policy liabilities
December 31, 2011
December 31, 2010
Reserve $ 143,579,257 161,857,421 For related revenue and expenses of investment-type insurance policy, please refer to note 13.
55
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2) Exchange fund bills and notes Fubon Bank (Hong Kong) was appointed by the Hong Kong Monetary Authority as the eligible market-maker of exchange fund bills and notes, and other debt instruments in 2002.
3) Hedging financial liabilities, net
December 31, 2011
December 31, 2010
Hedging derivative financial assets $ 1,095,253 705,818 Hedging derivative financial liabilities 1,464,317 1,004,044 $ (369,064) (298,226)
1. Fubon Life Insurance
(a) Cash flow hedge The future cash flow of the floating-rate assets or liabilities may fluctuate due to changes in market interest rates. Therefore, Fubon Life Insurance entered into interest rate swap contracts to hedge such risks.
Hedged item
Designated hedging
instrument Nominal amount
Designated hedging
instrument’s fair value on
December 31, 2011
Expected period of cash flow
Expected period of
recognition in profit or
loss Floating bonds and floating collateral loans
Interest rate swap contract
$ 6,900,000 401,765 October 24, 2011 ~ December 25, 2017
October 24, 2011 ~ December 25, 2017
56
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Hedged item
Designated hedging
instrument Nominal amount
Designated hedging
instrument’s fair value on
December 31, 2010
Expected period of cash flow
Expected period of
recognition in profit or
loss Floating financial debenture strip bonds and floating collateral loans
Interest rate swap contract
$ 11,958,000 303,822 October 25, 2010 ~ December 25, 2017
October 25, 2010 ~ December 25, 2017
(b) As of December 31, 2011 and 2010, Fubon Life Insurance had adjusted the
shareholders’ equity for unrealized gains or losses resulting from the cash flow hedge. Details are as follows:
Item 2011 2010
Shareholders’ equity adjusted amount $ 401,765 303,822 Non-financial liabilities (deferred income tax
liabilities) transferred from shareholders’ equity
$ 68,300 51,650
57
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2. Taipei Fubon Bank
(a) Cash flow hedge The future cash flow of the floating-rate liabilities may fluctuate due to changes in market interest rates. Therefore, Taipei Fubon Bank entered into interest rate swap contracts to hedge such interest rate risks.
Hedged item
Designated hedging
instrument Nominal amount
Designated hedging
instrument’s fair value on
December 31, 2010
Expected period of cash flow
Expected period of
recognition in profit or
loss Financial
bonds payable
Interest rate swap contract
$ 3,200,000 2,647 2006~2013 2006~2013
(b) As of December 31, 2011 and 2010, Taipei Fubon Bank had adjusted the shareholders’
equity for unrealized gains or losses resulting from the cash flow hedge. Details are as follows:
Item 2011 2010 Current income or loss transferred from
shareholders’ equity $ (2,197) 34,116
(c) Fair value hedge
Fixed interest rate loans, corporate bonds and financial bonds granted may be exposed to the risk of fluctuations in fair value because of changes in interest rates. Therefore, Taipei Fubon Bank entered into interest rate swap contracts to hedge such interest rate risks.
58
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2011
Hedged item Designated hedging
instrument Nominal amount Fair value
Financial bonds
payable Interest rate swap
contract $ 23,550,000 693,488
Available-for-sale financial assets – financial bond
Interest rate swap contract
6,614,814 (347,362)
Availed-for-sale financial assets – corporate bond
Interest rate swap contract
861,441 (53,890)
Availed-for-sale financial assets – collateral loans
Interest rate swap contract
532,090 (26,900)
December 31, 2010
Hedged item Designated hedging
instrument Nominal amount Fair value
Financial bonds
payable Interest rate swap
contract $ 16,650,000 329,355
Available-for-sale financial assets – corporate bond
Interest rate swap contract
974,857 (80,103)
Availed-for-sale financial assets – financial bond
Interest rate swap contract
4,681,885 (242,178)
3. Fubon Bank (H.K.) – fair value hedge
Fixed-rate bond payables and available-for-sale financial assets may be exposed to the risk of fluctuation in fair value because of changes in interest rates. Therefore, Fubon Bank (H.K.) entered into interest rate swap contracts to hedge such interest rate risks. December 31, 2011
Hedged item Designated hedging
instrument Nominal amount Fair value
Available-for-sale
financial assets Interest rate swap contract $ 11,496,649 (1,036,165)
59
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010
Hedged item Designated hedging
instrument Nominal amount Fair value
Bond payable Interest rate swap contract $ 6,073,126 163,373 Available-for-sale financial assets
Interest rate swap contract 10,986,285 (775,142)
(26) Other Liabilities
December 31, 2011
December 31, 2010
Advance receipts $ 3,081,334 3,025,354 Temporary receipts 7,779,627 4,975,369 Deferred revenues 6,918 73,121 Guarantee deposits received 1,428,217 1,353,583 Contingency reserve for reinsurance - 23,146 Accrued pension liability 5,029,596 3,891,155 Temporary premiums 2,757,132 1,809,613 Withholdings 222,707 617,677 Deferred handling charge revenue 1,085,954 - Others 1,400,535 1,017,787 $ 22,792,020 16,786,805
(27) Income Tax
The components of income tax expense for the years ended December 31, 2011 and 2010 were as follows: 2011 2010 Current income tax expense $ 4,319,465 4,135,330 Deferred income tax benefit 296,730 (2,551,359) 10% surtax on unappropriated earnings 505,593 844,045 Income tax expense $ 5,121,788 2,428,016
60
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
According to the amendment of the “Income Tax Act” issued on June 15, 2010, the Company will be subject to a maximum income tax rate of 17% effective January 1, 2010 and onward. For the years 2011 and 2010, the income tax rate of the Company and its domestic subsidiaries are all 17% and the Company and its domestic subsidiaries shall compute basic tax according to the “Income Basic Tax Act”. Fubon Bank (Hong Kong) is subject to an income tax rate of 16.5%. The income tax calculated based on an accounting income at the statutory rate was reconciled with the income tax expense as reported in the accompanying financial statements for the years ended December 31, 2011 and 2010 are as follows: 2011 2010 Income tax calculated based on accounting income $ 6,577,379 4,205,250 Tax effect of adjustments:
Gain on domestic investment under equity method (110,443) (27,460) Tax-exempt investment income (2,720,889) (1,459,924) Unrealized gain on evaluation of tax-exempt financial
investments 217,324 (102,904)
Tax-exempt dividend income (1,457,295) (1,183,121) Prior year’s tax adjustment 417,302 183,114 Income of international business branch (327,018) (289,696) Provision (reversal) for allowance of deferred income tax assets
396,159 207,848
10% surtax on unappropriated earnings 505,593 844,047 Loss carry-forward 224,074 (179,556) Amount of basic tax greater than regular income tax 1,356,931 - Effect of changes in income tax rate - 357,904 Others 42,671 (127,016)
Income tax expenses $ 5,121,788 2,428,016
61
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Deferred income tax benefits for the year ended December 31, 2011 and 2010, consisted of following: 2011 2010 Decrease in allowance for bad debts $ 23,476 37,246 Gain on foreign investment under equity method (8,355) 30,743 Unrealized gain (loss) from foreign exchange 3,410,660 (6,480,284) Unrealized loss on evaluation of financial instruments (3,153,182) 3,191,424 Decrease (increase) in loss carry-forward (410,797) (180,257) Provision in (reversal for) allowance of deferred income tax
assets 396,392 198,919
Unrealized expense – commission expense 15,366 50,641 Reversal on financial asset impairment 35,909 151,097 Change in tax rate of deferred income tax benefit from tax-
expense - 357,818
Others (12,739) 91,294 Deferred income benefit $ 296,730 (2,551,359)
62
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The components of deferred income tax assets, liabilities, loss carry-forwards, and tax credit were as follows:
December 31, 2011 December 31, 2010 Amount Tax effect Amount Tax effect
Deferred income tax assets:
Allowance for bad debts in excess of tax allowable limit
$ 538,541 90,177 688,552 114,700
Reserve for default loss - - 200,000 34,000 Unrealized loss on evaluation of
financial instruments 3,678,181 621,127 619,595 96,714
Provision for impairment loss 5,314,608 903,344 5,384,464 915,242 Un-realized foreign exchange
loss 18,912,226 3,205,812 39,315,193 6,685,217
Un-appropriated pension reserve
4,907,413 834,260 4,486,891 762,771
Loss carry-forward 5,252,664 892,953 2,297,068 409,027 Unrealized donation expense 65,188 11,082 104,688 17,797 Loss on investment under equity
method 519,264 88,275 128,165 21,788
Cumulative foreign currency translation adjustment
152,939 25,999 163,878 27,859
Other 289,071 49,143 510,031 88,313 Allowance for deferred income - (1,205,965) - (843,286) tax assets
$ 5,516,207 8,330,142 Deferred income tax liabilities:
Amortization of intangible assets
$ 212,441 36,115 96,653 16,431
Deferral of depreciation expense
265,648 43,832 176,224 29,077
Unrealized gain on evaluation of financial instruments
12,413,562 2,110,305 18,653,700 3,167,564
Unrealized gain on cash flow hedge derivatives
401,765 68,300 610,340 103,758
Gain on foreign investment under equity method
1,880,789 319,734 1,532,870 260,588
Gain on valuation of building 140,515 23,185 143,459 23,671 Others 67,845 11,413 141,148 24,819 $ 2,612,884 3,625,908
63
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
1) In accordance with the Financial Holding Company Act, Article 49, the domestic companies, which are held directly by the Company for over 90% of their equity shares, appointed Fubon Financial Holding as the taxpayer to file a combined corporate income tax return commencing from 2002. For the years 2003, 2005, 2006, 2007 and 2008, the amounts of income tax receivable were $115,682, $361,237, $900,003, $28,830 and $72,435, respectively.
2) Under a combined corporate income tax filing, the income tax paid to the tax authorities amounted to $4,142,914 (actual) and $591,448 (actual) for 2010 and 2009, respectively.
3) The status of the local tax office’s assessment of the income tax return of the Company and its subsidiaries was as follows:
Disapproved issues Solution The Company Certain operating expense and
interest expense were not allowed as deductible
Discussing with the authorities
Fubon Insurance Amortization of bond premium and discount
Petting in 2002 and 2003; application review in 2004, 2005 and 2006
Fubon Life Assurance Amortization of bond premium and discount
Petting in 2002 and 2003; application review in 2004, 2005 and 2006
Fubon Securities The tax issue on stock warrant Petting in 2002 and 2003; application review in 2004, 2005 and 2006
Taipei Fubon Bank Amortization of bond premium and discount
Petting in 2003 and application review in 2004, 2005 and 2006
The Company is the taxpayer of the combined corporate income tax return, which were assessed by the tax authority during 2002, 2003, 2004, 2005 and 2006. The Company challenged the assessments and filed for an appeal to the tax authority.
64
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
4) Since 2002, the Company has filed a combined income tax return in accordance with the Financial Holding Company Act, Article 49. As of December 31, 2011 and 2010, the details of receivable and payable of subsidiaries resulting from consolidated income tax return filings were as follows:
December 31, 2011
Estimate in 2011
Taxes in previous
years Total Linked tax receivables from subsidiaries:
Fubon Insurance $ 366,723 83,329 450,052 Fubon Life Insurance 437,954 659,811 1,097,765 Fubon Securities 33,194 1,431,624 1,464,818 Taipei Fubon Bank 730,416 - 730,416 Fubon Direct Marketing Consulting 5,559 - 5,559 Fubon Asset Management Service 66,964 - 66,964 Fubon Financial Holding Venture 918,977 - 918,977
Capital Total $ 2,559,787 2,174,764 4,734,551
Estimate in 2011
Taxes in previous
years Total Linked tax payables to subsidiaries:
Fubon Insurance $ - 96,074 96,074 Fubon Life Insurance 1,804,260 574,788 2,379,048 Fubon Bank - 136,996 136,996 Fubon Securities - 183,859 183,859 Taipei Fubon Bank - 955,486 955,486 Fubon Asset Management - 115,404 115,404 Fubon Financial Holding Venture 846 - 846
Total $ 1,805,106 2,062,607 3,867,713
65
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010
Estimate in
2010
Taxes in previous
years Total Linked tax receivables from
subsidiaries:
Fubon Insurance $ 329,045 49,943 378,988 Fubon Life Insurance 713,411 370,306 1,083,717 Fubon Securities 222,265 1,486,494 1,708,759 Taipei Fubon Bank 342,959 23,510 366,469 Fubon Direct Marketing
Consulting 22,264 - 22,264
Fubon Asset Management Service 45,591 - 45,591 Fubon Investment Management 552 - 552
Total $ 1,676,087 1,930,253 3,606,340
Estimate in
2010
Taxes in previous
years Total Linked tax payables to subsidiaries:
Fubon Insurance $ - 96,074 96,074 Fubon Life Insurance - 462,406 462,406 Fubon Bank - 131,864 131,864 Fubon Securities - 183,859 183,859 Taipei Fubon Bank - 944,087 944,087 Fubon Asset Management - 134,100 134,100 Fubon Financial Holding 10 - 10 Venture Capital
Total $ 10 1,952,390 1,952,400
As of December 31, 2011 and 2010, the balances of the imputation credit account (ICA) were as follows:
December
31, 2011 December 31, 2010
Imputation credit account balance $ 5,604,112 2,367,998
66
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The imputed tax credit for appropriating the net income was 12.83% (estimated) for 2010 and 27.39% (actual) for 2009.
December 31, 2011
December 31, 2010
Un-appropriated retained earnings:
Earnings prior to January 1, 1998 $ 46,459 46,459 Earnings commencing from January 1, 1998 43,710,827 30,010,684
Total $ 43,757,286 30,057,143
(28) Shareholders’ Equity 1) Common stock
The authorized and paid-in capital as of December 31, 2011, amounted to $120,000,000 and $90,137,379, respectively. The Company transferred un-appropriated retained earnings of $4,285,841 to share capital by issuing 428,584 thousand shares of common stock under the resolution of the stockholder’s meeting held on June 24, 2011. The Company transferred un-appropriated retained earnings of $4,069,298 to share capital by issuing 406,930 thousand shares of common stock under the resolution of the stockholder’s meeting held on June 25, 2010, this share issuance was authorized by and registered with the authorities. In 2011, the Company issued 26,787 thousand shares for employee warrants exercise.
2) Treasury stock 1. The subsidiaries Fubon Life Insurance did sell 10,010 thousand shares of the Company
amounting to $342,188 for the year ended December 31, 2011. The shares from ING Life Insurance Co., Ltd. had been taken over for shares in 2006, and merged with Fubon Life Insurance Co., Ltd. with all of the shares. In accordance with article 31 of the “Financial Holding Company Act”, the Company will sell or cancel remaining treasury stock within three years from acquisition. Fubon Life Insurance applied to dissolve after a board of directors meeting in August, 2011 when the project shelled in the stock Exchange Market.
67
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2. According to the regulation, the shares of the Company held by its subsidiaries are treated as treasury stock. If the market value of shares held by the subsidiaries is less than the book value by the end of year, the difference is recognized as a valuation loss on financial assets by share holding percentage and the same amount of special reserve is provided thereon. If the valuation recovers, the Company would reverse the special reserve by the same amount. The special reserve mentioned above should be computed with the stockholders’ equity contra accounts other than treasury stock.
3. For the purpose of acquiring treasury stocks, the Company bought back its common stock
from the open market in 2011. The related information on treasury stock is as follows:
For the year ended December 31, 2011
Reason for buyback of shares
Beginning balance of
shares
Shares increase
(thousands)
Shares decrease
(thousands)
Ending balance of
shares (thousands)
Treasury stock $ 5,000 - 3,514 1,486 According to the Securities and Exchange Act, the number of shares bought back as treasury stock may not exceed 10% of the total number of issued and outstanding shares of the Company. The total amount of the shares bought back may not exceed the amount of retained earnings plus premium on capital stock plus realized capital reserve. Based on the Company’s financial statements as of June 30, 2010, the maximum amount of the Company’s repurchase was $75,002,082 thousands. For the year ended December 31, 2011, the maximum number of shares that the Company repurchased was 5,000 thousand shares, and the maximum amount of repurchase was $192,328 thousands. That met the standards set by the Securities and Exchange Act. According to the Securities and Exchange Act, the treasury stock held by the consolidated Company shall not be pledged. Before transfer, the shareholders’ rights of the treasury stock shall not be exercised. According to the Securities and Exchange Act, transferring shares to its employees should be executed within three years from the date of buyback. The shares not transferred within three years should be deemed as not issued by the Company, and amendment registration should be processed. If treasury stock is bought back to maintain the Company’s credit and shareholders’ equity, the amendment registration should be effected within six months from the date of buyback.
68
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The meeting of the Board of Directors held on August 27, 2010 resolved to buy back its shares for transferring shares to its employees in the amount of 5,000 thousand shares. According to the Securities and Exchange Act, article 28-2, transferring shares to its employees should be executed within three years from the date of buyback. The shares not transferred within three years should be deemed as not issued by the Company, and amendment registration should be processed. The Company averaged the prices of acquiring treasury stock in July, 2011 and adjusted the transferring price to its employees based on the increasing ratio of issued shares of the Company. The total vesting shares were 3,514 thousand shares and the vesting price was $135,184 after deducting transfer tax. The Company adopted the interpretation (96) 266 and (97) 017 issued by the Accounting Research and Development Foundation, under which, the Company recognized the amount of $30,326 as employee expenses incurred.
3) Limits on distribution of capital surplus and retained earnings 1. Capital surplus
According to the ROC Company Act prior to the new amendment on January 4, 2012, the Company must retain 10% of its annual earnings as legal reserve until such retention equals the amount of the total capital. The legal reserve can only be used to offset an accumulated deficit and cannot be distributed as cash dividends to stockholders. However, one half of the legal reserve can be converted into share capital by the resolution of the Company's shareholders' meeting when such reserve reaches an amount equal to one half of the issued share capital. According to the new amendment of ROC Company Act, when the Company incurs no loss, it may, in pursuant to a resolution to be adopted by a shareholders' meeting, distributes its legal reserve by issuing new shares or cash. Only the portion of the legal reserve which exceeds 25 percent of the paid-in capital can be distributed.
69
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The components of capital surplus as of December 31, 2011 and 2010 were as follows: December
31, 2011 December 31, 2010
Additional paid-in capital for cash $ 15,258,148 15,258,148 Additional paid-in capital from share exchange 38,651,532 38,651,532 Additional paid-in capital from equity investment by
equity method 7,318 7,318
Asset revaluation surplus 1,104 1,104 Sale of treasury stock 178,098 31,130 Transfer of treasury stock 20,436 - Cash dividend from the Company’s stock held by its
subsidiary 27,664 18,141
Additional paid-in capital for employee warrants 824,275 449,287 exercise $ 54,968,575 54,416,660
2. The details of additional paid-in capital from share exchange were as follows:
Date Description December 31, 2011
December 31, 2010
December 19, 2001 Fubon Securities, Fubon
Bank, and Fubon Life Assurance
$ 42,040,134 42,040,134
August 28, 2002 Fubon Asset Management (124,882) (124,882) December 23, 2002 Taipei Bank 3,384,059 3,384,059 February 11, 2009 ING Life Insurance 4,825,587 4,825,587 Sub-total 50,124,898 50,124,898 Cash dividend (3,912,569) (3,912,569) Employee bonus and
remuneration to directors and supervisors
(46,600) (46,600)
December 19, 2004 Write-off of common stock held by Fubon Securities and Fubon Insurance
(2,982,647) (2,982,647)
April 29, 2005 Retirement of treasury stock
(313,789) (313,789)
December 23, 2005 Retirement of treasury stock
(2,287,988) (2,287,988)
June 2006 Cash dividend (1,929,773) (1,929,773) (11,473,366) (11,473,366) $ 38,651,532 38,651,532
70
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The additional paid-in capital through exchange of shares was generated from the transfer of the shares of subsidiaries to the Company. In compliance with item 4 of Article 47 of the Financial Holding Company Law, the portion of additional paid-in capital from the share exchange which resulted from the original financial institution’s unappropriated retained earnings can be distributed as cash dividend. As of December 31, 2011, the balance of such capital surplus was $4,343.
4) Legal reserve
According to the ROC Company Act prior to the new amendment on January 4, 2012, the Company must retain 10% of its after-tax annual earnings as legal reserve until such retention equals the amount of total capital. Legal reserve can only be used to offset deficits, and cannot be distributed as cash dividends. Up to one-half of legal reserve can be converted to share capital when it reaches an amount equal to one-half of issued share capital. According to the new amendment of ROC Company Act, where the Company incurs no loss, it may, pursuant to a resolution to be adopted by a shareholders' meeting, distribute legal reserve by issuing new shares or by cash. Only the portion of legal reserve which exceeds 25 percent of the paid-in capital may be distributed.
5) Special reserve
According to the regulation stipulated by the Securities and Futures Bureau, in addition to legal reserve, the Company is also required to provide a special reserve equal to the net amount of the current year stockholders’ equity contra accounts, from the current year’s earnings after tax or prior years’ unappropriated earnings. If a reversal of stockholders’ equity contra account occurs, the reversed portion of the special reserve could be distributed as dividends. For the years ended December 31, 2010, the Company default losses reserve and trading losses reserve. According to Ruling Letter No. 0990073857 of the Financial Supervisory Commission, Executive Yuan, R.O.C., the reserve for default losses and reserve for trading losses were transferred to special reserve $384,028 thousand on January 11, 2011. The special reserve can only be used to offset an accumulated deficit, or one-half year may be converted to share capital when it reaches an amount equal to one-half of issued share capital.
6) Distribution of earnings
According to the Company’s articles of incorporation, 10% of its annual net income after offsetting prior years’ losses and tax payment is to be appropriated as legal reserve. The distribution for employees’ bonus shall be 0.01% to 0.05% of the remaining unappropriated earnings. Remaining balance and prior year’s unappropriated earnings is to be distributed as bonuses to shareholders upon the approval of shareholders’ meeting.
71
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
In 2011, the estimated amount of employees’ bonuses and directors’ and supervisors’ remuneration of the Company was $6,500 and $45,000, respectively. Difference between the amounts approved in the shareholders’ meeting and recognized in the financial statements, if any, will be accounted for as changes in accounting estimate and recognized in profit or loss in 2012. If the employee’s bonuses are provided with shares, calculated by the closing price on December 31, 2011, employee’s bonuses are estimated to appropriate 203 thousand shares. The differences in retained earnings between the actual distribution results and the amounts recorded in the financial statements for 2009 and 2008 were as follows:
2010 Actual results Amount Difference Employees’ bonuses – cash $ 4,000 4,000 - Directors’ and supervisors’ 36,000 36,000 - remuneration – cash Total $ 40,000 40,000 -
2009 Actual results Amount Difference Employees’ bonuses – cash $ 4,000 4,000 - Directors’ and supervisors’ 26,000 26,000 - remuneration – cash Total $ 30,000 30,000 -
The differences between actual results and the amounts recorded in the financial statements are no different in 2010 and 2009. The Company paid a cash dividend of about $1.0 and $2.0 per share and a stock dividend of about $0.5 and $0.5 per share from its 2010 and 2009 retained earnings in 2011 and 2010, respectively. The distribution of earnings approved in the shareholder’s meeting is the same as the resolution of the board meeting in 2011 and 2010. The relevant information could be accessed on the website of the Market Observation Post System.
7) Dividend policy
The Company adopted a stable and balanced dividend policy to provide balance to the shareholders’ profitability, the Company’s capital accumulation as well as impact on operation.
72
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
According to the Company’s operating plan, the stock dividends are intend to retain operating capital. The remainder of retained earnings after appropriation for legal reserve and special reserve and distribution for stock dividends can be distributed further in cash, but cash dividends shall be at least 50% of the total dividends declared. Nevertheless, the aforementioned dividend policy may be adjusted with the resolution of shareholders’ meeting. The Company may reconsider a better dividend policy in the light of its operations and capital budget plan for the next year.
(29) Employee Warrant Plan
An employee warrant plan was approved in June 2007 by the Financial Supervisory Commission. The Company granted a total of 150,000 units of call warrants. Each unit bears the right to purchase one thousand shares of the Company’s common stock. This warrant is granted to the employees working for the parent company or for more than 50%-owned subsidiaries (direct or indirect). The duration of the warrants is five year, and the exercise price of the warrant is the closing price at issue date. Warrant holders are only able to execute the rights two years after vesting. The annual vesting percentages are as below:
Vesting period of employee warrants Percentage of
warrants vested
Accumulated percentage of
warrants vested Over 2 years but less than 3 years 50% 50% Over 3 years but less than 4 years 25% 75% 4~5 years 25% 100%
73
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The related information on employee warrants for the year ended December 31, 2011, was as follows: December 31, 2011
Employee warrant plan in 2007 Units
Weighted-average
exercise price (NTD) Duration
Outstanding balances on January 1, 2011
Release for the first time 40,248 $ 23.50 2011.12.31~ 2012.07.30
Release for the second time 65,710 21.40 2011.12.31~ 2012.12.06
Granted - - Release for the first time (69) - Release for the second time (313) - Exercised (26,787) - Outstanding balance on December 31,
2011 78,789
Vested balance on December 31, 2011 68,281 The employees of the Consolidated Company exercised 10,509 arrant for the year ended December 31, 2011. It is authorized by and registered with the authorities on March 2, 2012. Exercise price of 2007 first issue after ex-right (ex-dividend) dated in August 24, 2011, was adjusted from per share NTD$25.7 to NTD$23.5; second issue from per share NTD$23.5 to NTD$21.4. For employee warrant plan in 2007 which exercised during the year of 2011, the weighted average exercise price at the date of exercise was NTD$23.4.
74
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(30) Earnings per Share The details of earnings per share for the years ended December 31, 2011 and 2010 were as follows:
December 31, 2011 Amount Weighted
average outstanding
Shares (000’s)
EPS
Before
income tax After
income tax
Before income tax
(NTD)
After income tax
(NTD) Basic EPS:
Net income for common stocks
$ 35,664,616 30,542,828 9,007,724
Treasury stocks - - (10,803) $ 35,664,616 30,542,828 8,996,921 3.96 3.39
Diluted EPS: Net income for
common stocks $ 35,664,616 30,542,828 9,007,724
Treasury stocks - - (10,803) Employee warrants - - 26,791 Employee bonus - - 203 $ 35,664,616 30,542,828 9,023,915 3.95 3.38
December 31, 2010 Amount Weighted
average outstanding
Shares (000’s)
EPS
Before
income tax After
income tax
Before income tax
(NTD)
After income tax
(NTD) Basic EPS:
Net income for common stocks
$ 22,333,145 19,905,129 8,550,429
Treasury stocks - - (10,659) $ 22,333,145 19,905,129 8,539,770 2.62 2.33
Diluted EPS: Net income for
common stocks $ 22,333,145 19,905,129 8,550,429
Treasury stocks - - (10,659) Employee warrants - - 20,579 Employee bonus - - 100 $ 22,333,145 19,905,129 8,560,449 2.61 2.33
75
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(31) Insurance Income, Net 2011 2010 Gross written premiums $ 351,825,207 362,822,423 Reinsurance claims recovery 3,525,215 4,451,232 Investment-type insurance policy revenue 4,487,381 29,150,496
Total revenue 359,837,803 396,424,151 Insurance expenses 8,218,777 7,494,029 Direct business expenses 31,546 25,673 Benefits and claims 186,072,837 166,967,232 Investment-type insurance policy expenses 4,487,381 29,150,496 Stability fund 398,433 462,030
Total expenses 199,208,974 204,099,460 Net income $ 160,628,829 192,324,691
(32) Net change of liabilities reserve 2011 2010 Net change reserve for unearned premiums $ 966,049 503,725 Net change of assurance reserve 159,217,088 194,350,202 Net change of claim reserve 819,735 661,646 Net change of special reserve (891,575) 951,606 Net change of reserve for premium deficiency 2,508,089 548,061 Net change of reserve for insurance contracts with financial
product feature 2,431,040 2,289,687
Net change of liabilities adequacy reserve 50,826 - $ 165,101,252 199,304,927
76
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(33) Insurance Contract 1) Fubon Insurance
1. Various reserves
(a) Reserve for unearned premiums
a) Detail of Reserve for unearned premiums and Reserve for unearned premiums-out:
December 31, 2011
Reserve for unearned
premiums
Reserve for unearned
premiums-ceded
Item Direct
business
Reinsurance-assumed business
Reinsurance-ceded
business Retained business
Fire insurance $ 2,411,166 32,994 536,018 1,908,142 Marine cargo
insurance 284,848 2,394 120,372 166,870
Marine hull fishing vessel
244,766 10,500 208,767 46,499
Voluntary moto insurance
4,295,880 (5,647) 295,566 3,994,667
Compulsory moto TPL insurance
1,708,788 212,367 677,743 1,243,412
Liability insurance 998,097 6,295 213,544 790,848 Engineering and
nuclear insurance 960,766 53,740 546,797 467,709
Surety and credit insurance
111,529 485 81,120 30,894
Other property insurance
67,430 447 42,383 25,494
Accident insurance 1,788,419 6,302 32,595 1,762,126 Personal accident
insurance 868,197 34,427 693,244 209,380
Personal and commercial multiple peril insurance
192,395 5 18,616 173,784
Health insurance 89,336 - 71 89,265 Overseas
reinsurance assumed
256,177 153,253 91,711 317,719
Less: accumulated - - (2,572) 2,572 impairment Total $ 14,277,794 507,562 3,555,975 11,229,381
77
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010
Reserve for unearned
premiums
Reserve for unearned
premiums-ceded
Item Direct
business
Reinsurance-assumed business
Reinsurance-ceded
business Retained business
Fire insurance $ 2,754,951 48,919 539,784 2,264,086 Marine cargo
insurance 301,382 3,632 142,178 162,836
Marine hull fishing vessel
233,132 9,466 205,535 37,063
Voluntary moto insurance
3,851,327 59,751 347,962 3,563,116
Compulsory moto TPL insurance
1,661,116 229,658 653,817 1,236,957
Liability insurance 888,206 5,279 195,308 698,177 Engineering and
nuclear insurance 946,783 53,678 465,459 535,002
Surety and credit insurance
108,395 463 76,047 32,811
Other property insurance
55,504 1,787 35,311 21,980
Accident insurance 1,589,939 5,456 21,044 1,574,351 Personal accident
insurance 693,053 40,841 523,859 210,035
Personal and commercial multiple peril insurance
56,888 416 8,911 48,393
Health insurance 56,698 - 24 56,674 Overseas
reinsurance 66,760 69,553 37,463 98,850
Assumed Total $ 13,264,134 528,899 3,252,702 10,540,331
78
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
b) The reconciliation statement of Reserve for unearned premiums and Reserve for unearned premiums-out:
December 31, 2011
Item
Reserve for unearned premiums
Reserve for unearned
premiums-ceded
January 1, 2011 $ 13,793,033 3,252,702 Deposit 14,776,326 3,556,253 Recovery (13,788,879) (3,252,792) Other-Exchange Influence - (2,572) Impairment loss 4,876 2,384 December 31, 2011 $ 14,785,356 3,555,975 Note: The additional insurance liabilities, other liabilities acquired from other
insurance companies, and liabilities transferred to other companies should disclose the calculated exchange difference under the Taiwan Financial Accounting Standard No. 14, “The Effects of changes in Foreign Exchange Rates.”
The Company provides the reserve for unearned premiums provision according to the Regulations Governing the Setting Aside of Various Reserves by Insurance Enterprises amended by Financial Supervisory Commission, Executive Yuan, Jin Guan Bao Tsai NO.09802513192 on December 28, 2009. To the effective contract without expiration or the accepting risk which is not terminative, the Company calculates the unearned premium in accordance with the detention danger which is not expired in different types of insurance, and provides the reserve for unearned premium on the basis of insurance category. The mentioned reserve was decided by actuaries in the insurance industry according to the characteristics in different types of insurance, and should be noted in the calculation instructions of insurance commodities, and is not allowed to change it without the permission from the Authority. Compulsory automobile liability insurance, nuclear insurance and resident earthquake insurance should be provided the reserve for unearned premiums based on the regulations as follows: a. The unearned premiums reserve for compulsory private passenger automobile
liability was provided based on the Regulations for Deposit and Management of the Reserve of Compulsory Automobile Liability Insurance.
b. The unearned premiums reserve for nuclear insurance was provided based on The Regulations for the Reserve of Nuclear Insurance.
79
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
c. Resident earthquake insurance was based on the Regulations for danger diversified mechanism for Resident earthquake insurance.
(b) Special reserve a) Special reserve is classified as Catastrophe reserve and Equalization reserve.
Special reserve that was recognized before January 1, 2011 is still recognized under liability. Starting with January 1, 2011, the incremental catastrophe special reserve, after deducting income tax determined in accordance with R.O.C. SFAS No.22, shall be recognized as special reserve under equity. After January 1, 2011, any write-off or recovery of catastrophe special reserve shall deduct from the special reserve which has been recognized under liability. Once that special reserve is insufficient to deduct, the difference, after deducting income tax determined in accordance with R.O.C. SFAS No.22, shall be recovered from the special reserve which has been recognized under equity.
a. Special catastrophe reserve
Each insurance policy should deposit based on the rate of the special reserve. Conforms to the government issue the large disaster, when the single accident occurred, if the actual claims is over $30 million and the total Property insurance industry, the insurance category of the whole compensation amounted to more than $20 hundred million, the over amount need to be deducted from the special reserve. If the deposit of special reserve has been over 15 years, the deposit should be assessed by appointed actuaries and approved by the Authority.
b. Dangerous change of special claim reserve If the actual claim and claims adjustment expenses for a particular type of insurance are less than the expected amount determined by FSC, an additional special reserve equal to 15% of the amount of the different is provided. In accordance with the letter Jin Guan Bao Tsai No. 10002509161 issued by Financial Supervisory Commission, Executive Yuan, R.O.C on June 16, 2011, the earthquake, typhoon and flood insurance of commercial and personal accident insurance balance of actual claim deducting the reversal of special catastrophe reserve are less than the expected claims determined by FSC, an additional special reserve equal to 75% of the amount of the difference is provided. Expected claims was calculated no less than 60% of expected loss.
80
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The actual claims need to be deducted from the special reserve first. If excess that amount, then deducted from the special reserve of this insurance. If it is still not enough, then deduct from the special reserve of other insurance. The type and amount of deduction should report to FSC. The total amount of special claim reserve for a particular type of insurance at the end of year may not excess its net earned premiums for each year. If the amount excess 60% must be released from its reserves and treated as income of the Company.
b) The special assets of segment requirements The Company provides Compulsory Automobile Liability Insurance activities (the Insurance) according to the Regulations of Compulsory Automobile Liability Insurance, and record these activities and financial status by an independent accountant. The Special reserve based on the Regulations for Deposits and Management of the Reserve of Compulsory Automobile Liability Insurance section 5 regulates that the reservation should be deposited in financial institutions as statutory deposits. However, under the permission of the Authority, several domestic negotiable securities can still be purchased: a. Government bonds and treasury bonds excluding exchangeable bonds.
b. Financial bonds, negotiable certificates of deposits, bank’s acceptance bill, and
financial institution guaranteed commercial paper. Yet financial bonds are restricted under normal financial bonds.
The amount of the statutory deposits listed above cannot be lower than 30% of the Matured retention insurance premium, and the Authority can upraise the restrained minimum percentage in accordance with the operation circumstances of the Company.
81
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The amount of special reserve should all be statutory deposits before it exceeds the recent one year Matured retention insurance premium. According to the Regulations for Deposits and Management of the Reserve of Compulsory Automobile Liability Insurance section 6, the capital withhold by the insurance (including reservations, payables, temporary receipts and suspense accounts), excluding the special reserve mentioned above, should be deposited in financial institution as demand deposits and statutory deposits. However, under the permission of the Authority, several domestic negotiable securities can still be purchased: a. Treasury bills.
b. Negotiable certificates of deposits, bank’s acceptance bill, and financial
institution guaranteed commercial paper.
c. Repurchase agreement bonds. The amount of the demand deposits listed above cannot be lower than the capital withhold for the Insurance deduct 60% of the special reserve and 40% of the recent audited or reviewed Matured retention insurance premium. The Authority can upraise the restrained minimum percentage in accordance with the operation circumstances of the Company. If the amount of the unearned premium and claims reserve does not exceed 40% of the recent audited or reviewed Matured retention insurance premium, all the capital of the insurance should be deposited in financial institution as demand deposits. According to the Regulations for Deposits and Management of the Reserve of Compulsory Automobile Liability Insurance section 9 regulates that the reservations should be transferred to the successor whenever the property insurance company decides to discontinue operating or suspense its insurance activity. If the property insurance company is officially forced to discontinue operating and liquidate, or ordered dismiss, and there is no successor to handle over, the reservation should be transferred to the Legal Foundation of Traffic Accidents Special Compensation Fund.
c) The special reserve for compulsory private use, commercial use, and motorcycle liability insurance are based on the Regulations for Deposits and Management of the Reserve of Compulsory Automobile Liability Insurance.
82
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
d) Special reserve – Compulsory automobile liability insurance
Item December 31, 2011
January 1, 2011 $ 3,342,000 Deposit 158,339 Recovery (126,439) December 31, 2011 $ 3,373,900
e) Special reserve – Non compulsory automobile liability insurance
December 31, 2011 Liability Special reservation
Reserve for unearned premiums Reserve for unearned premiums-out
Item Major
accident Dangerous variance Item
Major accident
Dangerous variance Item
January 1, 2011 $ 2,761,996 5,689,623 8,451,619 - - - Deposit - - - 321,376 572,856 894,232 Recovery - (946,042) (946,042) - - - Other-Exchange (102) (183) (285) - - -
Influence December 31, 2011 $ 2,761,894 4,743,398 7,505,292 321,376 572,856 894,232 Note 1: The additional insurance liabilities, other liabilities acquired from other insurance companies, and liabilities transferred to
other companies should disclose the calculated exchange difference under the Taiwan Financial Accounting Standard No. 14, “The Effects of changes in Foreign Exchange Rates.”
Note 2: Special reserve means non compulsory automobile liability insurance has been recognized before January 1, 2011.
f) The special reserve for nuclear insurance was provided based on The Regulations
for the Reserve of Nuclear Insurance. g) Resident earthquake insurance was based on the Regulations for danger diversified
mechanism for Resident earthquake insurance.
83
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(c) Claims reserve a) The debt for policy holder of reported and paid, reported and unpaid, and
unreported. December 31, 2011
Notes Payable
Indemnity Payments Payable Claims reserve
Item reported and paid reported but
unpaid unreported Total Fire insurance $ - 1 2,325,665 63,661 2,389,326 Marine cargo
insurance - 11 568,912 287,223 856,135
Marine hull fishing vessel
- - 798,139 150,282 948,421
Voluntary moto insurance
- - 1,605,307 548,589 2,153,896
Compulsory moto TPL insurance
- - 672,782 27,754 700,536
Liability insurance - 391 1,255,337 260,208 1,515,545 Engineering and
Nuclear insurance - 571 1,623,870 131,288 1,755,158
Surety and credit insurance
- - 362,827 83,224 446,051
Other property insurance
- 4 132,901 4,287 137,188
Accident insurance - 1,632 254,070 454,137 708,207 Personal accident
insurance - 16 210,915 188,508 399,423
Personal and commercial multiple peril insurance
- 1 21,353 24,564 45,917
Health insurance - 34 1,291 20,271 21,562 Overseas reinsurance - 8,459 918,402 58,520 976,922 assumed Total $ - 11,120 10,751,771 2,302,516 13,054,287
84
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010
Notes Payable
Indemnity Payments Payable Claims reserve
Item reported and paid reported but
unpaid unreported Total Fire insurance $ - 25 2,150,875 179,461 2,330,336 Marine cargo
insurance - 109 241,624 269,304 510,928
Marine hull fishing vessel
- - 751,696 200,209 951,905
Voluntary moto insurance
- - 1,522,769 180,335 1,703,104
Compulsory moto TPL insurance
- - 598,642 28,357 626,999
Liability insurance - 33 1,190,549 59,219 1,249,768 Engineering and
nuclear insurance - - 1,606,107 127,525 1,733,632
Surety and credit insurance
- - 262,939 71,173 334,112
Other property insurance
- 10,470 137,451 6,961 144,412
Accident insurance - 53 215,154 531,494 746,648 Personal accident
insurance - 1 601,344 128,374 729,718
Personal and commercial multiple peril insurance
- 78 14,351 23,531 37,882
Health insurance - - 833 4,693 5,526 Overseas reinsurance - 22,566 458,261 17,136 475,397 assumed Total $ - 33,335 9,752,595 1,827,772 11,580,367
85
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
b) Reinsurance assets – the insurance-out business for the policy holders which have reported but been unpaid or unreported claims
December 31, 2011
Item reported but
unpaid unreported Total Fire insurance $ 1,298,652 32,456 1,331,108 Marine cargo insurance 369,772 162,264 532,036 Marine hull fishing
vessel 657,926 124,444 782,370
Voluntary moto insurance
93,728 33,854 127,582
Compulsory moto TPL insurance
217,584 9,741 227,325
Liability insurance 399,909 64,883 464,792 Engineering and nuclear
insurance 1,048,101 62,004 1,110,105
Surety and credit insurance
275,851 74,034 349,885
Other property insurance 78,225 2,859 81,084 Accident insurance 18,816 10,573 29,389 Personal accident
insurance 30,481 131,917 162,398
Personal and commercial multiple peril insurance
708 3,253 3,961
Health insurance - 13 13 Overseas reinsurance
assumed 283,986 15,518 299,504
Less: accumulated (18,904) (2,993) (21,897) impairment Total $ 4,754,835 724,820 5,479,655
86
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010
Item reported but
unpaid unreported Total Fire insurance $ 1,164,198 79,002 1,243,200 Marine Cargo insurance 138,239 151,706 289,945 Marine Hull Fishing
Vessel 620,521 173,746 794,267
Voluntary moto insurance
104,149 4,715 108,864
Compulsory moto TPL insurance
194,190 9,991 204,181
Liability insurance 452,771 13,512 466,283 Engineering and Nuclear
insurance 1,025,509 56,205 1,081,714
Surety and Credit insurance
180,801 58,751 239,552
Other property insurance 79,824 4,363 84,187 Accident insurance 11,091 8,988 20,079 Personal accident
insurance 115,357 85,779 201,136
Personal and commercial multiple peril insurance
504 5,955 6,459
Health insurance - 1 1 Overseas reinsurance 33,718 3,274 36,992 assumed Total $ 4,120,872 655,988 4,776,860
c) The reconciliation statement of Claim reserve and claim-out reserve
Item Claim reserve Claim-out
reserve January 1,2011 $ 11,580,367 4,776,860 Deposit 13,049,805 5,499,006 Recovery (11,579,862) (4,772,161) Impairment loss - (21,897) Other-Exchange Influence 3,977 (2,153) December 31,2011 $ 13,054,287 5,479,655
87
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Note: The additional insurance liabilities, other liabilities acquired from other insurance companies, and liabilities transferred to other companies should disclose the calculated exchange difference under the Taiwan Financial Accounting Standard No. 14, “The Effects of changes in Foreign Exchange Rates.”
d) Executing the rights to recover thus gaining non-insurance assets – sustain residuals
and the right to recourse
Item 2011 2010 Fire insurance $ 17,279 18,227 Marine cargo insurance 75,407 36,762 Marine hull fishing vessel 12 2,528 Voluntary moto insurance 92,016 74,970 Compulsory moto TPL insurance 118,302 108,586 Liability insurance 16,059 3,677 Engineering and nuclear insurance 1,073 238 Surety and credit insurance 114,703 203,245 Other property insurance 147 80 Accident insurance 1,353 237 Personal and commercial multiple peril
insurance 7 937
Personal accident insurance assumed 69 36 Total $ 436,427 449,523 The Company provides claims reserve according to the Regulations Governing the Setting Aside of Various Reserves by Insurance Enterprises amended by Financial Supervisory Commission, Executive Yuan, Jin Guan Bao Tsai No.09802513192 on December 28, 2009. Non life insurance companies should calculate the claims reserve divided into reported but unpaid claims and IBNR based on the past claim experience and payments, using the actuary methodology. Regarding to the claims reserve for reported but not paid, it should be estimated based on actual situation by each case. The claim reserve has been provided, return at final accounting in next year, and then provide it accounting to actual final accounting data in that very year. The methodology for providing claims reserve is decided by actuaries and reported to the Authority. If there is any change, it should adopt the same procedures as mentioned above.
88
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(d) Other liability reserve a) The formula of Liability reserve's calculation is including present value rate.
b) The reconciliation statement of Liability reserve and Liability-out reserve:
Item Liability reserve
Liability-ceded reserve
January 1,2011 $ 573,081 - Deposit 8,806 - Matured and repayment of principles (85,984) - December 31,2011 $ 495,903 -
(e) Premium deficiency reserve a) Premium deficiency reserve
December 31, 2011
Premium deficiency
reserve
Premium deficiency
reserve-out
Item Direct
business
Reinsurance-assumed business
Direct business
Reinsurance-in business
Fire insurance $ - - - - Marine cargo insurance - - - - Marine hull fishing vessel 29,286 1,579 12,866 17,999 Voluntary moto insurance 150,314 602 8,683 142,233 Compulsory moto TPL
insurance - - - -
Liability insurance - - - - Engineering and nuclear
energy insurance - - - -
Surety and credit insurance
- - - -
Other property insurance - - - - Accident insurance - - - - Personal accident
insurance - - - -
Personal and commercial multiple insurance
- - - -
Health insurance - - - - Overseas reinsurance 58,696 37,375 74,630 21,441 assumed Total $ 238,296 39,556 96,179 181,673
89
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010
Premium deficiency
reserve
Premium deficiency
reserve-out
Item Direct
business Reinsurance-
in business Direct
business Reinsurance-
in business Fire insurance $ 31,965 1,729 18,353 52,047 Marine cargo insurance - - - - Marine hull fishing vessel - - - - Voluntary moto insurance 6,123 195 867 5,451 Compulsory moto TPL
insurance - - - -
Liability insurance - - - - Engineering and nuclear
energy insurance - - - -
Surety and credit insurance
- - - -
Other property insurance - - - - Accident insurance - - - - Personal accident
insurance 165,807 113 107,497 273,417
Personal and commercial multiple insurance
- - - -
Health insurance - - - - Overseas reinsurance - - - -
assumed Total $ 203,895 2,037 126,717 330,915
90
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
b) Loss recognized due to premium deficiency reserve deposit - Premium deficiency reserve net change and Premium deficiency-out reserve net change 2011
Direct Accept insurance
business Direct Accept insurance
business Net income of reserve
for premiums insufficient
Direct accept insurance business
Net income of reserve
for premiums-
out insufficient
Loss of net deposit
reserve for premiums-
out insufficient Item Deposit Recovery Deposit Recovery Deposit Recovery
Fire insurance $ - 31,965 - 1,729 (33,694) - 18,353 (18,353) (15,341) Marine cargo
insurance - - - - - - - - -
Marine hull fishing vessel
29,286 - 1,579 - 30,865 12,866 - 12,866 17,999
Voluntary moto insurance
150,314 6,123 602 195 144,598 8,683 867 7,816 136,782
Compulsory moto TPL insurance
- - - - - - - - -
Liability insurance - - - - - - - - - Engineering and
nuclear energy insurance
- - - - - - - - -
Surety and credit insurance
- - - - - - - - -
Other property insurance
- - - - - - - - -
Other property insurance
- - - - - - - - -
Accident insurance - - - - - - - - - Personal and
commercial multiple insurance
- - - - - - - - -
Personal accident insurance
- 165,807 - 113 (165,920) - 107,497 (107,497) (58,423)
Health insurance - - - - - - - - - Overseas
reinsurance assumed
58,696 - 37,375 - 96,071 74,630 - 74,630 21,441
Other-Exchange (2,905) - (1,179) - (4,084) (3,181) - (3,181) (903) Influence Total $ 235,391 203,895 38,377 2,037 67,836 92,998 126,717 (33,719) 101,555
c) The reconciliation statement of Premium deficiency reserve net change and
Premium deficiency-out reserve net change
December 31, 2011
Item Premium
deficiency reserve
Premium deficiency-ceded
reserve January 1,2011 $ 205,932 126,717 Deposit 273,768 92,998 Recovery (205,932) (126,717) Other-Exchange Influence 4,084 3,181 December 31,2011 $ 277,852 96,179 Note: The additional insurance liabilities, other liabilities acquired from other
insurance companies, and liabilities transferred to other companies should disclose the calculated exchange difference under the Taiwan Financial Accounting Standard No. 14, “The Effects of changes in Foreign Exchange Rates.”
91
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The Company provides Premium deficiency reserve according to the Regulations Governing the Setting Aside of Various Reserves by Insurance Enterprises amended by Financial Supervisory Commission, Executive Yuan , Jin Guan Bao Tsai No.09802513192 on December 28,2009.Non life insurance companies should calculate claim payments and expense incurred in the future and compare the in force expenditures to the premium based on insurance policy without expiration or the accepting risk which is not terminative . If the expenditures are lower than the premium, non life insurance companies should provide the differences as the premium deficiency reserve. The methodology for providing premium deficiency reserve is decided by actuaries and reported to the Authority. If there is any change, it should adopt the same procedures as mentioned before. The Company reported its methodology for providing premium deficiency reserve on June 25, 2008 and obtained the approval issued by Financial Supervisory Commission, Executive Yuan, Jin Guan Bao Yi NO. 09702115350.
(f) Liabilities adequacy reserve a) Liabilities adequacy reserve
December 31, 2011
Item
Liabilities adequacy reserve
Liabilities adequacy-ceded
Reserve Fire insurance $ - - Marine cargo Insurance - - Marine hull fishing vessel 1,769 - Voluntary moto insurance 13,186 - Compulsory moto TPL insurance - - Liability insurance - - Engineering and nuclear energy insurance - - Surety and credit insurance - - Other property insurance - - Accident insurance - - Personal accident insurance 35,811 - Personal and commercial multiple insurance - - Health insurance - - Overseas reinsurance assumed 60 - Total $ 50,826 - The company has not to provide liabilities adequacy reserve and liabilities adequacy-out reserve on March 31, 2010.
92
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
b) The loss that uses liabilities adequacy test- Net change from liabilities adequacy reserve and liabilities adequacy-out reserve
2011
Insurance contact Net
change from
liabilities adequacy reserve
Direct accept insurance business
Net income of liabilities
adequacy-ceded
reserve
The loss of liabilities adequacy
test Item Deposit Recovery Deposit Recovery Fire insurance $ - - - - - - - Marine cargo
insurance - - - - - - -
Marine hull fishing vessel
1,769 - 1,769 - - - 1,769
Voluntary moto insurance
13,186 - 13,186 - - - 13,186
Compulsory moto TPL insurance
- - - - - - -
Liability insurance
- - - - - - -
Engineering and nuclear energy insurance
- - - - - - -
Surety and credit insurance
- - - - - - -
Other property insurance
- - - - - - -
Accident insurance
- - - - - - -
Personal and commercial multiple insurance
- - - - - - -
Personal accident insurance
35,811 - 35,811 - - - 35,811
Health insurance
- - - - - - -
Overseas reinsurance
60 - 60 - - - 60
assumed Total $ 50,826 - 50,826 - - - 50,826
93
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
c) The reconciliation statement of Premium deficiency reserve net change and Premium deficiency-out reserve net change December 31, 2011
Item
Liabilities adequacy reserve
Liabilities adequacy -
ceded reserve January 1,2011 $ - - Deposit 50,826 - December 31,2011 $ 50,826 - Note: The additional insurance liabilities, other liabilities acquired from other
insurance companies, and liabilities transferred to other companies should disclose the calculated exchange difference under the Taiwan Financial Accounting Standard No. 14, “The Effects of changes in Foreign Exchange Rates.”
(g) Insurance contract amount exposition
The acquisition cost of insurance contract 2011
Item Commissions
Expense Agent
Expense Fee
Reinsurance Commissions
Expense Other Cost Total Fire insurance $ 191,065 - 8,801 33,894 - 233,760 Marine cargo
Insurance 89,636 - 1,469 3,479 - 94,584
Marine hull fishing vessel
10,399 - 18 2,691 - 13,108
Voluntary moto insurance
1,147,111 - (9,772) (44,774) - 1,092,565
Compulsory moto TPL insurance
- - 374,300 - - 374,300
Liability insurance - - 154 4,163 - 4,317 Engineering and
nuclear energy insurance
- - 10 2,738 - 2,748
Surety and credit insurance
- - (2) 37 - 35
Other property insurance
- - - 105 - 105
Accident insurance 1,019,725 - 99 2,028 - 1,021,852 Personal and
commercial multiple insurance
- - - 29 - 29
Personal accident insurance
- - (4) (78) - (82)
Health insurance - - - - - - Overseas
reinsurance 37,954 - - - - 37,954
assumed Total $ 2,495,890 - 375,073 4,312 - 2,875,275
94
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2010
Item Commissions
Expense Agent
Expense Fee
Reinsurance Commissions
Expense Other Cost Total Fire insurance $ 186,660 - 1,490 23,267 - 211,417 Marine cargo
insurance 85,305 - 1,599 11,052 - 97,956
Marine hull fishing vessel
9,819 - - 3,017 - 12,836
Voluntary moto insurance
1,086,557 - 1,171 48,966 - 1,136,694
Compulsory moto TPL insurance
- - 374,346 - - 374,346
Liability insurance - - 78 2,654 - 2,732 Engineering and
nuclear energy insurance
- - 840 6,521 - 7,361
Surety and credit insurance
- - - 71 - 71
Other property insurance
- - - 568 - 568
Accident insurance 692,654 - 236 1,650 - 694,540 Personal and
commercial multiple insurance
- - - 176 - 176
Personal accident insurance
- - 2 143 - 145
Health insurance - - - - - - Overseas
reinsurance 9,757 - - - - 9,757
assumed Total $ 2,070,752 - 379,762 98,085 - 2,548,599
(h) Insurance profit and loss analyze exposition
a) Direct accept insurance profit and loss analyze
2011
Item Premiums
Income
Net change Reserve for Unearned Premiums
The cost of insurance contract obtained
Insurance claims
Net change of Claim reserve
profit and loss of
insurance Non-Compulsory
insurance $ 21,270,646 943,452 2,495,891 9,409,858 1,153,188 4,059,230
Compulsory 3,406,766 47,672 374,300 2,454,989 88,178 (203,284) insurance Total $ 24,677,412 991,124 2,870,191 11,864,847 1,241,366 3,855,946
95
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2010
Item Premiums
Income
Net change Reserve for Unearned Premiums
The cost of insurance contract obtained
Insurance claims
Net change of Claim reserve
profit and loss of
insurance Non-Compulsory
insurance $ 18,965,319 452,160 2,070,752 8,687,142 979,897 2,497,351
Compulsory 3,329,078 (42,605) 374,346 2,110,097 33,996 36,687 insurance Total $ 22,294,397 409,555 2,445,098 10,797,239 1,013,893 2,534,038
b) Reinsurance-assumed profit and loss analyze
2011
Item
Reinsurance premiums
Income
Net change Reserve for Unearned Premiums
Reinsurance Commissions
Expense Reinsurance
claims Net change of Claim reserve
profit and loss of
reinsurance-assumed
Non-Compulsory
insurance $ 512,151 (27,662) 5,084 265,954 (40,814) 237,863
Compulsory 309,276 (17,291) - 305,783 (14,641) 35,425 insurance Total $ 821,427 (44,953) 5,084 571,737 (55,455) 273,288
2010
Item
Reinsurance premiums
Income
Net change Reserve for Unearned Premiums
Reinsurance Commissions
Expense Reinsurance
claims Net change of Claim reserve
profit and loss of
reinsurance-assumed
Non-Compulsory
insurance $ 581,667 (57,838) 103,501 504,706 (677,231) 757,098
Compulsory 343,324 (2,370) - 278,812 41,872 25,011 insurance Total $ 924,991 (60,208) 103,501 783,518 (635,359) 782,109
c) The current profit and loss of purchasing reinsurance
2011
Item Reinsurance
Expenses
Net change Reserve for Unearned Premiums
Reinsurance Commission
Incomes
Claims Recovered
from Reinsurers
Net change of Claim-out
reserve
profit and loss of
reinsurance-ceded
Non-Compulsory
insurance $ 6,038,862 229,453 906,661 1,979,646 419,669 2,523,350
Compulsory 998,012 23,926 - 999,194 23,144 (48,252) insurance Total $ 7,036,874 253,379 906,661 2,978,840 442,813 2,475,098
2010
Item Reinsurance
Expenses
Net change Reserve for Unearned Premiums
Reinsurance Commission
Incomes
Claims Recovered
from Reinsurers
Net change of Claim-out
reserve
profit and loss of
reinsurance-ceded
Non-Compulsory
insurance $ 5,400,517 (149,124) 872,118 2,713,295 (104,841) 2,189,239
Compulsory 966,835 (32,302) - 796,689 16,762 185,686 insurance Total $ 6,367,352 (181,426) 872,118 3,509,984 (88,079) 2,374,925
96
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2. The nature and range of the insurance contract risk (a) The objectives, policies, procedures and methods for the risk management of the
insurance contract. a) The objectives and policies of the risk management
We established risk management policy based on “The Code of Conduct of Risk Management Practice for Insurance Companies”, “The Implementation of Internal Control and Audit System for Insurance Companies” and “Risk Management Policy of Fubon Financial Co., Ltd”, which is regarded as the top guiding principle. The purpose is to set up the overall organization structure and the guidelines of risk management and to fit the relevant principals into the daily process of all units in order to form a culture of risk management and to ensure that the Company shall get the maximization of shareholder's value under stable operation.
b) The structure, organization and responsibility In order to implement the risk management properly, and to function at its best in terms, our board of director’s response for all decisions. A risk management committee will response directly to the board of directors, while our risk management division will be responded for the Company and operates on its own. Responsibilities are delegated as follows: a. Board of Director
(i) Our Board of Directors takes the ultimate responsibilities for the risk of the
Company and therefore should be aware of all potential risks related to our insurance division operations, and ensure overall risk management functions operate properly.
(ii) To establish the appropriate risk management principles, the risk management culture, and the policies. To ensure all resources are used efficiently for its purposes.
(iii) Board of Directors should also view all potential risks from the Company’s perspective and assess the potential ramifications of all risks combined. At the same time, Board of directors should also be aware of all governmental policies regarding to capital requirements of the capital allocations.
97
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
b. Risk Management Committee (i) Develop and determine the risk management policies, risk appetite
frameworks and organizational functions. Establish qualitative or quantitative standards. Adjust risk categories, tolerances, limits and allocations depending on the changes of the investment environment.
(ii) Risk Management Committee reports directly to the board of directors. The CEO will be the head of the committee and be responsible for appointing the members, including the deputy convener, executive secretary, each risk division heads and others. Risk management divisions are formed by risk characteristics. The 5 main divisions are formed as follows: (1) Insurance risk, (2) Credit Risk, (3) Market Risk (including liquidity risk), (4) Operational Risk, (5) Risk Models (including ALM risk). Each division will be leaded by a senior executive to ensure each division operates as functions.
(iii) Meetings will be held monthly by the risk management committee. The committee head will host the meetings to ensure each division is operating well. If the committee head is not available, the deputy convener will replace it. The committee members are present by the relevant. Besides the regular meeting is allowed to be held at any emergency situations.
(iv) The committee is responsible for executing all decisions made by the Board of directors. The committee is also responsible for revaluing and supervising the risk tolerances for all units, dealing with the following reactions and making strategies.
(v) Regularly meet with the Board of Directors to reports the current progress of risk management decisions on time and offer advises for any improvements.
c. Department of Risk Management (i) Responsible for all daily risk management activities including monitoring,
measuring, and revaluing the risks.
(ii) Assist the execution/implementation of risk management policies approved by the Board of directors.
(iii) Based on the risk appetite setting up the risk tolerance level and the limitations.
(iv) Summarize the relative information provided by each unit, and help each
unit follow the policies and the limits.
98
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(v) Regularly offer risk management reports.
(vi) Regularly monitor the risk limits and the utilization of risk limits of each unit.
(vii) Assist in carrying the stress test out.
(viii) If necessary, proceed the back testing.
(ix) Other risk management related duties.
d. Business Units (i) Recognize the potential risks and measure it. Report risk management
information and risk exposure to the department of risk management regularly.
(ii) Regularly examine each kind of business risk and limitations to ensure that the risk limitation is under control.
(iii) Monitor risk exposure and report any situation when the exposure exceeds the limitation and take the necessary procedures.
(iv) Make sure all business units are properly enforced under internal control and follow the rules and standards.
(v) Each business unit should setup an operation risk manager to ensure that risk management is conducted independently and effectively.
c) The scope and character of the risk reporting and measurement Fubon Insurance measured insurance risk against each risk factor including: Commodity pricing, check and ratify insurance, claims processing, catastrophe, reinsurance and reserves. This is in accordance to a standard for monitoring key risk indicator. Considering the ability of risk appetite and tolerance, we set up the limitation by single reserved and single accident to control it. In the meantime, we set up the risk tolerance for all major risks (including Insurance risk, market risk, credit risk and operation risk) by each scenarios to avoid the overall risk exposures exceed the tolerance of the Company.
99
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
All business units report their situations to the committee every month or season. The Risk Management department collects all risk management reports and risk monitoring indicators semi-annually and report the overall situation to the Risk Management Committee and the board of directors. The report explains the risk exposure, how the policies worked and other related issues.
d) The procedures and methods of the insurance risk management Insurance risk refers to the risk resulting from unexpected changes from benefit payments, related charges after collecting insurance premiums and undertaking the risk transferred from the insurant. Fubon Insurance sets up the code of conduct for insurance risk management to serve as a guideline of insurance risk management. It also establishes relevant risk management methods for the scope of insurance risk management in terms of the risk elements such as underwriting, reinsurance, catastrophe, claim, product design and pricing and provision. Insurance risk management procedures such as risk reorganization, risk measurement, risk monitoring and risk responding to ensure the timeliness, reliability and security of risk management information, except for different tiers disclosure per regulation, we also updates and archives relevant documentations properly via the responsibility of each tiers. Fubon Insurance sets up another risk tolerance, risk limit and critical risk indicators to facilitate management and reports to the Risk Management Committee based on the frequency for each management indicators. If any risk tolerance, risk limit or critical risk management indicators over the limits, the proper authority shall provide the explanation of the excess risk and the improvement reviewed by the insurance risk team. The explanation will be submitted to the Insurance Risk Committee for approval. After approval, the risk management department shall track the improvement process based on the conditions of the approval.
(a) Insurance risk information a) The sensitivity test of insurance risk
Test Hypothesis
Change of Income before
Tax Change of stockholder’s
equity Change of expected rate
of loss Before
reinsurance After
reinsurance Before
reinsurance Compulsory
insurance +1% $ (13,315) (5,947) (14,213) (6,845) -1% 13,885 6,512 14,781 7,408
100
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
b) Explanation of the risk concentration a. The premiums of underwriting and inward reinsurance
The insurance contracts which Fubon Insurance underwrites are categorized into different types of insurances and are not concentrated in a single type of insurance. The top 5 types of insurance are: voluntary moto insurance, compulsory moto TPL insurance, accident insurance, fire insurance and liability insurance. The proportion of voluntary moto insurance represents 31.5% of all insurances in the first quarter of 2011. Although its proportion is higher than the others, its loss experience is stable and the variance is small. There is no risk concentration in other types of insurance.
101
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The proportion of underwriting and inward reinsurance premiums is as follows:
December 31, 2011 December 31, 2010 Insurance type Amount Percentage Amount Percentage Fire insurance $ 2,419,514 9.6% 2,375,311 10.3% Marine cargo
insurance 1,453,709 5.8% 1,424,259 6.2%
Marine hull fishing vessel
622,794 2.5% 623,834 2.7%
Voluntary moto insurance
7,904,157 31.5% 7,333,257 31.8%
Compulsory moto TPL insurance
3,716,042 14.8% 3,672,402 15.9%
Liability insurance
1,889,823 7.5% 1,683,618 7.3%
Engineering and nuclear insurance
1,118,436 4.5% 1,028,044 4.4%
Surety and credit insurance
256,706 1.0% 325,225 1.4%
Other property insurance
160,204 0.6% 151,678 0.7%
Accident insurance
2,905,560 11.6% 2,592,862 11.2%
Personal accident insurance
1,816,609 7.2% 1,413,408 6.1%
Personal and commercial multiple peril insurance
376,870 1.5% 196,039 0.8%
Health insurance 179,546 0.7% 99,052 0.4% Overseas
reinsurance 678,869 1.2% 300,399 0.8%
assumed Total $ 25,498,839 100.0% 23,219,388 100.0%
102
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
b. The proportion of retained business premium An evaluation of the proportions of retained business premium retuned the top 5 insurance types which are voluntary moto insurance, compulsory moto TPL insurance, accident insurance, liability insurance and fire insurance. The voluntary insurance has the highest proportion representing 40.0% of the first quarter of 2011. Fubon Insurance considers the loss experienced by vehicle voluntary insurance as stable and the reinsurance is arranged to be retained. Other insurance types are reinsured to other companies based on the possibility of significant accumulated loss and therefore there is no risk concentration. In order to avoid the operating risks caused by risk concentration, we considered the following causes as material accumulated loss, such as natural disasters (earthquake, typhoon and flood) and followed by the accumulate, such as property insurance (fire insurance, engineering insurance), marine insurance and injury insurance, we diverted risk by purchasing catastrophe reinsurance contracts in advance and confined the potential loss within the retention amount regulated in the contract in the event of a catastrophe.
103
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The proportion of retained business premiums:
December 31, 2011 December 31, 2010 Insurance type Amount Percentage Amount Percentage Fire insurance $ 1,251,645 6.9% 1,383,970 8.2% Marine cargo
insurance 609,303 3.4% 611,641 3.6%
Marine hull fishing vessel
113,007 0.6% 80,816 0.5%
Voluntary moto insurance
7,294,280 40.0% 6,600,916 39.3%
Compulsory moto TPL insurance
2,718,029 14.9% 2,705,568 16.1%
Liability insurance
1,531,149 8.4% 1,342,824 8.0%
Engineering and nuclear insurance
512,897 2.8% 552,799 3.3%
Surety and credit insurance
63,234 0.4% 95,313 0.6%
Other property insurance
51,317 0.3% 56,873 0.3%
Accident insurance
2,845,051 15.6% 2,550,567 15.2%
Personal accident insurance
424,568 2.3% 418,622 2.5%
Personal and commercial multiple peril insurance
335,254 1.8% 142,155 0.8%
Health insurance 179,400 1.0% 99,011 0.6% Overseas
reinsurance 532,831 1.6% 210,961 1.0%
assumed Total $ 18,461,965 100.0% 16,852,036 100.0%
104
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
c. Claim development trend: (i) Sum of accumulated and reported claims
Occurrence
year
Evaluation date Accumulated
claim paid
Reported but unpaid
claim
Reported and unpaid
claim Claim
provision December 31, 2007
December 31, 2008
December 31, 2009
December 31, 2010
December 31, 2011
2007 761,999
2007 9,875,265 10,463,985 10,587,004 10,610,199 10,616,940 10,458,146 158,794 2008 10,747,779 10,932,555 10,889,589 10,901,803 11,394,687 507,117 2009 12,020,498 12,258,881 12,563,680 11,373,753 1,189,927 2010 12,154,215 13,355,762 10,477,518 2,878,244 2011 11,960,027 6,704,337 5,255,690 Total 10,751,771 2,302,516 13,054,287
(ii) Net amount of sum of accumulated and reported claims
Occurrence
year
Evaluation date Accumulated
claim paid
Reported but unpaid
claim
Reported and unpaid
claim Claim
provision December 31, 2007
December 31, 2008
December 31, 2009
December 31, 2010
December 31, 2011
2007 298,800
2007 5,099,023 5,364,107 5,489,066 5,507,979 5,531,388 5,445,641 85,746 2008 6,907,980 6,626,909 6,607,781 6,621,491 6,360,245 261,247 2009 7,848,814 7,767,493 7,976,779 7,560,830 415,949 2010 8,509,137 9,300,126 7,737,917 1,562,209 2011 8,756,511 5,402,430 3,354,081 Total 5,978,032 1,574,702 7,552,734
(a) Credit risk, liquidity risk and market risk
a) Credit risk
The credit risk of insurance contracts comes mainly from reinsurance business (The reinsurers’ default or bad financial condition which leads to the incapability of paying the reinsurance claims). The Company arranges its reinsurance contracts in accordance with “Regulations Governing Insurance Enterprises Engaging in Operating Reinsurance and Other Risk Spreading Mechanisms”. The reinsurers which the Company engages are mostly with certain credit rating and are qualified for the criteria for authorized reinsurer. The Company also established relevant risk control procedures to regularly track and monitor credit rating change of reinsurers. Compliance with the “Regulations Governing the Provision of Unauthorized Reinsurance Reserves for Insurance Company” No.5, the transaction with unauthorized reinsurers shall be represented in the notes of financial statements and the content shall include the following items: a. The summary of unauthorized reinsurance contracts and types of reinsurance b. The reinsurance premium expense of unauthorized reinsurance contracts. c. General description of the amount of unauthorized reserve and its components. d. As of December 31, 2011, the major unqualified reinsurance counter part is listed
below.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(i) KNAPTON INSURANCE LIMITED C/O ENTAR LIMITED: The facultative reinsurance of engineering insurance.
(ii) NORFOLK REINSURANCE COMPANY LTD.: The facultative
reinsurance of commercial fire insurance.
(iii) MISR INSURANCE COMPANY, CAIRO: The facultative reinsurance of marine insurance.
(iv) ALLANZ C.P. GENERAL INSURANCE COMPANY LIMITED: The
facultative reinsurance of new types of insurance.
(v) HOULDER INSURANCE BROKERS (FAR EAST) LTD.: The facultative reinsurance of personal insurance.
(vi) RIVERSTONE FRANCE S.A.: The facultative reinsurance of engineering insurance.
(vii) MUTUELLE CENTRALE DE REASSURANCE: The facultative
reinsurance of marine insurance. (viii) COLOGNE REINSURANCE: The facultative reinsurance of commercial
fire insurance. e. As of December 31, 2010, the major unqualified reinsurance counterpart is
listed below. (i) SUNBRIGHT INSURANCE PTE LTD.: The facultative reinsurance of
engineering insurance. (ii) GUY CARPENTER COMPANY LTD.: The facultative reinsurance of
engineering fire insurance. (iii) NORFOLK REINSURANCE LTD.: The facultative reinsurance of
commercial fire insurance. (iv) ECP VITA: The facultative reinsurance of commercial fire insurance. (v) COLOGNE REINSURANCE: The facultative reinsurance of commercial
five of insurance. (vi) COVEA RISK: The facultative reinsurance of new types insurance. (vii) LIBERTY MUTUAL GROUP LTD.: The facultative reinsurance of new
types of insurance.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(viii) LOCKTON COMPANIES (HONG KONG) LTD.: The facultative reinsurance of new types of insurance.
(ix) HOULDER INSURANCE BROKERS (FAR EAST) LTD.: The
facultative reinsurance of new types of insurance.
f. As of December 31, 2011 and 2010, premium expenses for unqualified reinsurance are $765,321 and $636,398, respectively.
g. As of December 31, 2011 and 2010, the provision for unqualified reinsurance is $1,305,672 and $1,204,742, respectively. The components are unearned premium reserve $201,093 and $109,368, claims recoverable from reinsurance which are paid within 9 months $64,142 and $109,371, claims recoverable from reinsurers which are reported and unpaid $1,040,437 and $986,003, respectively.
b) Liquidity risk The management policies of liquidity risk are based on the core of conduct of liquidity risk management regulated by Fubon Insurance. We monitored liquidity risk by capital liquidity risk and market liquidity risk. The insurance contracts which Fubon Insurance undertakes are mostly policies that expire within 1 year. The liquidity risk of insurance contracts depends on whether Fubon Insurance’s assets are able to cover significant claims in time when material claims occur, in other words the liquidity risk of insurance contracts is mainly derived from capital liquidity risk. Therefore, Fubon Insurance adopts the current asset ratio to evaluate the liquidity risk of insurance contracts. As of December 31, 2011 and 2010, the current asset ratio is 79.50% and 78.3%, respectively.
c) Market risk The provision with Fubon Insurance provided for market risk from Insurance contract, that from all the other insurance contracts, such change of interest rate. According to Regulations Governing the Setting Aside of Various Reserves by Insurance Enterprise. The provision which Fubon Insurance provided are reserves for unearned premium, reserves for claims, special reserves, premium deficiency reserves, liability adequacy reserves and liability reserves. Except for liability reserves, all the other insurance are not calculated via discount rate. The change of interest rate does not affect the calculation of reserves.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Liability reserve refers to reserves which are provided for long term payment of fire insurance. The product had ceased to sell and the reserve has been provided for effective policies. The provision of the reserve shall consider the future repayments and the discount rate applied are calculated per the average undue years and the market rate trends of the past. However, very few of insurance contracts were still effective. The change of interest rate had slight effect on the provision of the reserve and the income of the subsidiary, Fubon Insurance.
2) Fubon Life Insurance
1. Various Reserves
(a) Details of liability reserve
December 31, 2011
Insurance Contracts
Financial products with discretionary participation
feature Total
Life insurance $ 1,090,361,962 - 1,090,361,962 Injury insurance 859,832 - 859,832 Health insurance 126,688,690 - 126,688,690 Annuity insurance 3,724,322 167,878,957 171,603,279 Investment-linked insurance 11,383 - 11,383 Total $ 1,221,646,189 167,878,957 1,389,525,146
December 31, 2010
Insurance Contracts
Financial products with discretionary participation
feature Total
Life insurance $ 899,992,863 - 899,992,863 Injury insurance 808,052 - 808,052 Health insurance 111,407,090 - 111,407,090 Annuity insurance 3,790,566 210,815,684 214,606,250 Investment-linked insurance 17,602 - 17,602 Total $ 1,016,016,173 210,815,684 1,226,831,857
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The reconciliation of the above mentioned changes in unearned premium is listed below:
2011
Insurance Contracts
Financial products with discretionary participation
feature Total
January 1, 2011 $ 1,016,016,173 210,815,684 1,226,831,857 Provision 278,127,488 36,188,911 314,316,399 Reclaim (75,523,168) (79,125,638) (154,648,806) Gain or loss on foreign 3,025,696 - 3,025,696
currency December 31, 2011 $ 1,221,646,189 167,878,957 1,389,525,146
(b) Details of provision for unearned premium
December 31, 2011
Insurance Contracts
Financial products with discretionary participation
feature Total
Personal life insurance $ 770 - 770 Personal injury insurance 1,654,280 - 1,654,280 Personal health insurance 2,413,382 - 2,413,382 Group insurance 1,669,054 - 1,669,054 Investment-linked insurance 90,025 - 90,025 Total 5,827,511 - 5,827,511 Deduction of provision for
unearned premium-outward:
Personal life insurance 298,082 - 298,082 Personal injury insurance 23,858 - 23,858 Personal health insurance (1,099) - (1,099) Group insurance 84,296 - 84,296 Investment-linked 12,728 - 12,728
insurance Total 417,865 - 417,865
Net $ 5,409,646 - 5,409,646
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010 (restated)
Insurance Contracts
Financial products with discretionary participation
feature Total
Personal life insurance $ 1,064 - 1,064 Personal injury insurance 1,465,710 - 1,465,710 Personal health insurance 2,396,780 - 2,396,780 Group insurance 1,550,120 - 1,550,120 Investment-linked insurance 95,687 - 95,687 Total 5,509,361 - 5,509,361 Deduction of provision for
unearned premium-outward:
Personal life insurance 262,969 - 262,969 Personal injury insurance 40,574 - 40,574 Personal health insurance 15,593 - 15,593 Group insurance 49,194 - 49,194 Investment-linked 13,449 - 13,449
Insurance Total 381,779 - 381,779
Net $ 5,127,582 - 5,127,582 The reconciliation of the abovementioned changes in unearned premium is listed below:
2011
Insurance Contracts
Financial products with discretionary participation
feature Total
January 1, 2011 $ 5,509,361 - 5,509,361 Provision 5,827,510 - 5,827,510 Reclaim (5,509,361) - (5,509,361) 1 - 1 December 31, 2011 5,827,511 - 5,827,511 Deduction of provision for
unearned premium-outward:
January 1, 2011, net 381,779 - 381,779 Provision 417,865 - 417,865 Reclaim (381,779) - (381,779) December 31, 2011, net 417,865 - 417,865
$ 5,409,646 - 5,409,646
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(c) Details of provision for claims
December 31, 2011
Insurance Contracts
Financial products with discretionary participation
feature Total
Personal life Insurance – Reported but unpaid $ 372,838 12,496 385,334 – Unreported and unpaid 3,011 - 3,011
Personal injury insurance – Reported but unpaid 131,194 - 131,194 – Unreported and unpaid 182,867 - 182,967
Personal health insurance – Reported but unpaid 157,398 - 157,398 – Unreported and unpaid 257,611 - 257,611
Group insurance – Reported but unpaid 75,051 - 75,051 – Unreported and unpaid 196,304 - 196,304
Investment-linked insurance – Reported but unpaid 87,568 - 87,568 – Unreported and unpaid 43,580 - 43,580
Total 1,507,522 12,496 1,520,018 Deduction of provision for
claims-outward:
Personal life Insurance 46,979 - 46,979 Personal injury insurance 61,255 - 61,255 Personal health insurance 3,471 - 3,471 Group insurance 2,162 - 2,162 Investment-linked 25,173 - 25,173 insurance Total 139,040 - 139,040
Net $ 1,368,482 12,496 1,380,978
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010
Insurance Contracts
Financial products with discretionary participation
feature Total
Personal life Insurance – Reported but unpaid $ 381,240 3,084 384,324 – Unreported and unpaid 484 - 484
Personal injury insurance – Reported but unpaid 82,271 - 82,271 – Unreported and unpaid 134,145 - 134,145
Personal health insurance – Reported but unpaid 139,208 - 139,208 – Unreported and unpaid 236,059 - 236,059
Group insurance – Reported but unpaid 79,393 - 79,393 – Unreported and unpaid 271,388 - 271,388
Investment-linked insurance – Reported but unpaid 78,408 - 78,408 – Unreported and unpaid 34,460 - 34,460
Total 1,437,056 3,084 1,440,140 Deduction of provision for
claims-outward:
Personal life Insurance 42,307 - 42,307 Personal injury insurance 48,833 - 48,833 Personal health insurance 13,105 - 13,105 Group insurance 20,651 - 20,651 Investment-linked 11,349 - 11,349 insurance Total 136,245 - 136,245
Net $ 1,300,811 3,084 1,303,895
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The reconciliation of the abovementioned changes in provision for claims is listed below:
2011
Insurance Contracts
Financial products with discretionary participation
feature Total January 1, 2011 $ 1,440,140 - 1,440,140 Provision 1,507,076 12,496 1,519,572 Reclaim (1,440,140) - (1,440,140) Gain or loss on foreign 446 - 446
currency December 31, 2011 1,507,522 12,496 1,520,018 Deduction of provision for
claims-outward:
January 1, 2011, net 136,245 - 136,245 Provision 139,040 - 139,040 Reclaim (136,245) - (136,245) December 31, 2011, net 139,040 - 139,040
$ 1,368,482 12,496 1,380,978
(d) Details of special reserve
December 31, 2011
Insurance Contracts
Financial products
with discretionary participation
feature Others Total
Legal reserve Personal life
Insurance $ 601,057 - - 601,057
Personal injury insurance
928,354 - - 928,354
Personal health insurance
1,104,908 - - 1,104,908
Group insurance 1,400,202 - - 1,400,202 Provision for profit-
sharing policy (1,268,458) - - (1,268,458)
Provision for bonus risk 2,660,742 - - 2,660,742 Provision for operating 1,651,295 - - 1,651,295 loss Total $ 7,078,100 - - 7,078,100
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010
Insurance Contracts
Financial products
with discretionary participation
feature Others Total
Legal reserve Personal life
Insurance $ 700,917 - - 700,917
Personal injury insurance
1,146,700 - - 1,146,700
Personal health insurance
1,128,042 - - 1,128,042
Group insurance 1,490,503 - - 1,490,503 Provision for profit-
sharing policy (2,093,594) - - (2,093,594)
Provision for bonus risk 3,031,669 - - 3,031,669 Provision for operating 1,651,295 - - 1,651,295 loss Total $ 7,055,532 - - 7,055,532
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The reconciliation of the abovementioned changes in special reserve is listed below:
2011
Insurance Contracts
Financial products
with discretionary participation
feature Others Total
Beginning of the period $ 7,055,532 - - 7,055,532 Special catastrophe
reserve provided over 15 years
(13,259) - - (13,259)
The surplus of actual claim written down by special claim and deducted by estimated claim
(1,500) - - (1,500)
The surplus of total accumulated amount of the special risk-volatility reserve over 30% of the matured retention premium of the year
(416,882) - - (416,882)
Provision for bonus of profit-sharing policy
454,209 - - 454,209
Other - - End of the period $ 7,078,100 - - 7,078,100
(e) Premium deficiency reserve
December 31, 2011
Insurance Contracts
Financial products with discretionary participation
feature Total
Personal life insurance $ 4,072,110 - 4,072,110 Personal health insurance 632,868 - 632,868 Group insurance 10,565 - 10,565 Total $ 4,715,543 - 4,715,543
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010 (restated)
Insurance Contracts
Financial products with discretionary participation
feature Total
Personal life insurance $ 1,661,882 - 1,661,882 Personal health insurance 5 - 5 602,555 - 602,555 Group insurance 3,408 - 3,408 Total $ 2,267,850 - 2,267,850 The reconciliation of the above changes in premium deficiency reserve is listed below:
2011
Insurance Contracts
Financial products with discretionary participation
feature Total
January 1, 2011 $ 2,267,850 - 2,267,850 Provision 2,406,534 - 2,406,534 Gain or loss on foreign 41,159 - 41,159
currency December 31, 2011 $ 4,715,543 - 4,715,543
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(f) Details of provision for liability adequacy
Insurance Contracts and
financial products with discretionary participation
feature December 31,
2011 Liability reserve $ 1,389,522,853 Unearned premium reserve 5,827,475 Claim reserve 4,715,543 Premium deficiency reserve 7,078,100 Special reserve 1,520,017 Book value of insurance liability $ 1,408,663,988 Estimate of present cash flow $ 1,182,844,320 Balance of liability adequacy reserve $ - The liability adequacy test method of the Company is listed below: December 31, 2011 Test Method Gross Premium Valuation (GPV) Group All insurance contracts Significant
Assumption Set up the discount rate assumption for future years based on the
assets allocation and the weighted average return on investments of the Company
The liability adequacy test method of Company is hot include reserve from subsidiaries, because the reserve 0.0002% share of reserve in test is not effect the result.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(g) Other reserves a) Provision for financial instrument without discretionary participation feature
The Company issues financial instruments without discretionary participation feature, as of December 31, 2011 and 2010, the details of this account and its reconciliation of change were as below:
December 31, 2011
(Restated) December 31,
2010 Life $ 103,107,324 80,641,053
For the year ended
December 31, 2011
January 1, 2011 $ 80,641,053 Premiums collected 21,664,072 Claims and benefits (1,103,087) Net provision of legal reserve 2,431,040 Commission and soliciting expenses (525,754) December 31, 2011 $ 103,107,324
b) Deferred acquisition cost The Company defers to recognize the additional transaction costs of investment administrative service resulting from the sales of investment-linked policy, classified as financial instrument without discretionary participation feature, the change in this account were as follows: 2011 January 1, 2011 $ 1,486,805 Increase 38,961 Amortization (491,794) December 31, 2011 $ 1,033,972
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
c) Deferred handling charge revenue The Company deferred to recognize the handling charge of investment administrative services resulting from the sales of investment-linked insurance without a discretionary participation feature and its reconciliation is listed below: 2011 January 1, 2011 $ 1,486,805 Increase 95,463 Amortization (496,314) December 31, 2011 $ 1,085,954
d) Revenue of matured retention premium 2011
Insurance Contracts
Financial products with discretionary participation
feature Total Written premium
revenue $ 292,396,686 34,129,125 326,525,811
Reinsurance premium revenue
7,710 - 7,710
Premium revenue 292,404,396 34,129,125 326,533,521 Deduct: Reinsurance
premium expenses 1,228,088 - 1,228,088
Provision of net 282,063 - 282,063 unearned premium 1,510,151 - 1,510,151 Revenue of matured
retention premium $ 290,894,245 34,129,125 325,023,370
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2010 (restated)
Insurance Contracts
Financial products with discretionary participation
feature Total Written premium
revenue $ 188,615,407 151,213,237 339,828,644
Reinsurance premium revenue
8,441 - 8,441
Premium revenue 188,623,848 151,213,237 339,837,085 Deduct: Reinsurance
premium expenses 1,178,786 - 1,178,786
Provision of net 565,427 - 565,427 unearned premium 1,744,213 - 1,744,213 Revenue of matured
retention premium $ 186,879,635 151,213,237 338,092,872
e) Retained insurance claims and benefits
2011
Insurance Contracts
Financial products with discretionary participation
feature Total Claims of directly
written insurance contracts
$ 94,287,991 79,362,506 173,650,497
Claims of reinsurance 3,626 - 3,626 Insurance claims and
benefits 94,291,617 79,362,506 173,654,123
Deduct: Amortized reinsurance claims and
546,375 - 546,375
benefits Retained insurance
claims and benefits $ 93,745,242 79,362,506 173,107,748
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2010
Insurance Contracts
Financial products with discretionary participation
feature Total Claims of directly
written insurance contracts
$ 69,037,413 86,351,887 155,389,300
Claims of reinsurance 3,888 - 3,888 Insurance claims and
benefits 69,041,301 86,351,887 155,393,188
Deduct: Amortized reinsurance claims and
941,248 - 941,248
benefits Retained insurance
claims and benefits $ 68,100,053 86,351,887 154,451,940
2. The property and scope regarding the risk of insurance contracts
(a) The target, policy, procedure and method of risk management for insurance contracts.
a) The organization of risk management
Fubon Life Insurance set up a risk management committee which is under the jurisdiction of the board of directors and was convened by independent directors. It is to supervise the overall risk control of Fubon Life Insurance and report to the board of directors regularly. In order to effectively examine Fubon Life Insurance’s risk management operation, two special committees were established. a. Assets and Liabilities Management Committee: The president serves as the
chairman. The committee is to consider the balance between assets and liabilities, set up the strategic target of assets and liabilities and supervise the execution progress.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
b. Operation Risk Management Committee: It is convened by the general manager to supervise and manage the operation risk of Fubon Life Insurance in order to assure the management adopts appropriate risk management procedures within its authority. Furthermore, in order to assist all business units to carry out the risk control and to facilitate the coordination of other risk control affairs, Fubon Life Insurance designates a chief risk officer to be in charge of a risk management department which is independent of all business units. The risk management department executes or assists to execute risk control duty following the regulation of risk management policy, organization rules governing the risk management committee and Organization rules governing the risk related committee. Fubon Life Insurance has established diverse risk management policy, risk limit and stop-loss, internal tiers authorization system and criteria for assessment in order to facilitate effective risk management.
b) Risk management strategy
Fubon Life Insurance pronounced Risk Management Policy under the consent of the board of directors. The policy regulates the strategy and target as well as the system of risk management. The risk management strategy is based on the regulation of overall operation target, management strategy and risk management. It is to establish appropriate risk management system and management procedure so as to identify, evaluate, measure, supervise, respond and report potential risk.
(b) Insurance risk management a) Underwriting risk management
Underwriting risk refers to the unexpected risk resulting from executing insurance business soliciting, inspection of insurance acceptance, and relevant expenditure disbursement. In order to control underwriting risk, Fubon Life Insurance has classified it into the following types to facilitate the control. a. Risk of concealment
b. Risk of insurance content
c. Occupational and financial risk
d. Risk of health condition
e. Risk of the experience of the underwriting personnel
f. Risk of limited underlying retention
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
g. Risk of operation quality.
Except for establishing “Underwriting System and Procedure” per the “Regulations Governing Business Solicitation, Policy Underwriting and Claim Adjusting of Insurance Enterprises”, it also established the code of conduct for underwriting operation to act as a guideline for underwriting risk control. Besides, Fubon Life Insurance, based on the experience and professional ability of the personnel, also set up different quotas for different authorization tiers and regulated the underwriting amount for each underwriting personnel so as to control the appropriateness of underwriting assessment and to supervise the correctness and timeliness of underwriting operation.
b) Claim risk management Claim risk refers to the risk resulting from inappropriate or negligent operation. In order to control claim risk, Fubon Life Insurance divides claim risk into 4 management interfaces, which are reason of occurrence, frequency of the risk, classification of the risk and the effect of the risk. Fubon Life Insurance judges the property of the claim risk through multiple-dimension table and based on the risk tolerance level to control the claim risk. Except for establishing “Claim System and Procedure” per the “Regulations Governing Business Solicitation, Policy Underwriting and Claim Adjusting of Insurance Enterprises” to enhance the professional training and morality of the claim personnel as well as the procedure of control to lessen the operational negligence in order to lessen operational negligence, it also controls the correctness, timeliness, claim rate and claim expense rate through the tiers authorization management of the claim personnel.
c) Product design and pricing risk management Product design and pricing risk refers to the risk resulting from the inappropriateness, inconsistency or unexpected change of the data related to the product content, clauses and rates. To insure the risk control of the pre and after sales of products, Fubon Life Insurance established the internal code of conduct and control procedure for the insurance product design, inspection, sales preparation to control the risk related to each phases and procedure of product development. In terms of product design, Fubon Life Insurance executes feasibility analysis and convenes evaluation meeting before the product sent for inspection. It also convenes presales operation meeting before the product enters the market to ensure that the related operation is complete. In terms of product pricing, except for certain quantitative systems such as risk control procedure, profit test and sensitivity analysis, it also sets up assets allocation plan for products in terms of distinctive asset classification and liability property. It also convenes product management sales meeting to examine sales experience regularly after the products are sold.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
d) Reserve risk management Reserve related risk refers to the risk due to the underestimate of the liabilities from the business units and results in insufficient funds of all sorts of reserve to cover the future obligation. In order to control the reserve risk, Fubon Life Insurance classified reserve risk into 2 categories, which are the legitimacy of operational procedures and the completeness of operational procedures. To ensure the legitimacy of reserves, Fubon Life Insurance has established regulation compliance self audit manual and executes self audit regularly to make sure that all sorts of reserves abide by the law. Besides, Fubon Life Insurance also set up the procedure manual for reserves and it is updated regularly when the law changes. The operational procedure covers system execution, data downloading and settlement report preparation. There are control points within them to ensure the accuracy of the settlement values.
e) Catastrophe risk and reinsurance risk To avoid risk concentration and catastrophe compensation, Fubon Life Insurance focus on the control of catastrophe risks and reinsurance risk. a. Catastrophe risk
Fubon Life Insurance set up the limit for retention and reinsurance and reviews it annually. It also focuses on earthquakes, typhoons, and air-crash to execute scenario analysis and takes into account the inter-insurance accumulated losses of life insurance and injury insurance caused by catastrophic accumulated effect.
b. Reinsurance risk Fubon Life Insurance set up annual reinsurance risk management plan per the “Regulations Governing Insurance Enterprises Engaging in Operating Reinsurance and Other Risk Spreading Mechanisms” and cooperates with Fubon Life Insurance’s annual reinsurance policy. The plan includes retention risk management, outward insurance risk management, inward insurance risk management, group internal reinsurance risk management. Fubon Life Insurance monitors the credit rating of the reinsurers monthly. The credit rating, based on article 8 of “Regulations Governing Insurance Enterprises Engaging in Operating Reinsurance and Other Risk Spreading Mechanisms”, when insurance companies operate outward insurance business, the reinsurers shall reach certain level (over BBB rating of Standard and Poor’s) to qualify as a proper reinsurer. Fubon Life Insurance currently adopts the rating which is over A- of Standard and Poor’s.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
f) Assets and liabilities combination risk a. To enhance the overall assets and liabilities allocation, maintain adequate
liquidity, and improve the capital performance for the purpose of maximizing the risk reward, Fubon Life Insurance abides by the relevant rules. In addition, through the establishment of Assets and Liabilities Management Committee it is able to track the issues related to the cash flow allocation of assets and liabilities and set up relevant assets and liabilities management regulation which confined Fubon Life Insurance to sustain adequate capital to cover the potential risk from business operation.
b. The Assets and Liabilities Management Committee holds meetings monthly and the competent department shall perform the cash flow test using the current announced interest rate and calculate the earnings at the end of the year to ensure the solvency of Fubon Life Insurance; examine the capital adequacy ratio and simulate via significant risk elements to execute sensitivity analysis which serves as the reference for capital adequacy decision. Furthermore, it also performs difference analysis for sources of risk capital and equity capital to find out the significant elements of changes; control capital liquidity risk analysis using the accumulated net cash flow in a year and the accumulated net cash flow in 5 years as the benchmark of risk management.
g) Risk management report
a. Fubon Life Insurance set up a Risk Management Committee. Except the independent directors as the conveners, all independent directors are members of the committee and it holds a meeting quarterly. The major duty of the committee, according to the definition of its organization rules, is to (i) set up and modify risk management policy and structure
(ii) set up and modify the quantitative and qualitative criteria for risk
measurement.
(iii) adjust risk types depending on environmental change
(iv) allocate risk limit and the method to undertake the risk
(v) Submit risk management report to the board of directors regularly and assign authority to relevant departments.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
b. The committee oversees the overall risk management, except for being in charge of the implementation of risk management policies to ensure that Fubon Life Insurance meets the strategic target, it reviews the effectiveness and feasibility of risk management system. It also submits reports to the board of directors in terms of the execution of risk management to ensure that the risk management is enforced effectively.
(c) Information of insurance risk a) Sensitivity of insurance risk – Insurance contracts and financial products with
discretionary feature
December 31, 2011
Change
assumption
Change of income before
tax
Change of stockholder’s
equity Mortality/Morbidity Increase 10% (1,704,882) (1,415,052) Rate of return Decrease 0.1% (1,518,703) (1,260,523) Expense Increase 5% (328,800) (272,904) Decrement and lapse rate Increase 10% 51,258 42,544 The method to adopt sensitivity analysis is to evaluate the influence on income before tax/stockholder’s equity under the circumstance that only one element changes and others remain the same.
b) The statement of insurance risk concentration Fubon Life Insurance sells insurances, which includes life insurance, annuity insurance, accident insurance and health insurance. Due to all insurance contracts are from Taiwan, the insurance risk divided by location is concentrated in Taiwan.
c) Claim development trend a. Development trend of direct business loss
Occurrence
year Development year Claim
provision 1 2 3 4 5 6 7 8 9 2003 2,474,493 2,802,432 2,827,043 2,802,148 2,797,629 2,810,358 2,789,698 2,799,567 2,805,910 -
2004 2,108,282 2,415,243 2,457,485 2,477,910 2,473,751 2,476,094 2,477,024 2,478,254 - - 2005 2,244,901 2,646,390 2,643,705 2,654,702 2,651,739 2,648,342 2,649,571 - - - 2006 2,218,250 2,653,620 2,695,417 2,695,474 2,694,399 2,696,639 - - - - 2007 2,636,095 2,998,778 3,044,513 3,048,815 3,053,987 - - - - - 2008 3,020,586 3,528,026 3,560,745 3,564,356 - - - - - - 2009 3,002,570 3,389,116 3,429,856 - - - - - - 691 2010 3,426,842 3,989,417 - - - - - - - 57,149 2011 3,500,731 - - - - - - - - 609,038 Provision for unreported and unpaid claims 666,878 Plus: reported and unpaid claims 836,545 Provision for claims 1,503,423
Note 1: Above table does not include the value of investment contracts Note 2: The claim reserve for the unreported and unpaid direct business in terms of the investment-linked products whose unreported and unpaid claim reserve are not
estimated based on loss development trend amounts to 17,074 thousands.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
b. Development trend of retained business loss Occurrence
year Development year Claim
provision 1 2 3 4 5 6 7 8 9 2003 1,477,837 1,715,475 1,720,639 1,716,133 1,706,101 1,718,962 1,708,069 1,717,384 1,723,648 -
2004 1,330,611 1,541,454 1,575,502 1,581,446 1,576,226 1,578,421 1,579,245 1,580,460 - - 2005 1,468,590 1,753,911 1,759,730 1,768,646 1,770,364 1,766,922 1,768,142 - - - 2006 1,743,835 2,035,971 2,057,430 2,058,034 2,056,937 2,059,140 - - - - 2007 1,937,347 2,185,713 2,228,739 2,232,620 2,237,640 - - - - - 2008 2,546,849 2,972,473 3,001,734 3,006,979 - - - - - - 2009 2,692,917 3,000,037 3,038,956 - - - - - - 498 2010 3,262,624 3,703,188 - - - - - - - 53,676 2011 3,437,890 - - - - - - - - 594,837 Provision for unreported and unpaid claims 649,011 Plus: reported and unpaid claims 717,469 Provision for claims 1,366,480
Note 1 Above table does not include the value of investment contracts Note 2 The claim reserve for the unreported and unpaid retained business in terms of the investment-linked products whose unreported and unpaid claim reserve are not
estimated based on loss development trend amounts to 15,205 thousands.
Fubon Life Insurance provides claim reserve based on the expected future payments and relevant compensation process cost of reported and unreported claims. Such provision operation involves vast uncertainty, estimates and judgments and is highly complicated. Any change of estimation or judgment is regarded as changes in accounting estimates and the amount of changes is recognized as current gains and losses. Some claims may be delayed to inform Fubon Life Insurance. In addition, when estimating the potential compensation amount of unreported claims, it involves vast past compensation experience and subjective judgment, therefore, it is not able to confirm that the estimated reserve for claims on the balance sheet date will equal to the final compen-sation amount. The estimate of reserve for claims is based on the information currently available, however, the final result may deviate the original estimate due to the subsequent development. Above table demonstrates the development trend of claims (excluding the claims which will confirm the compensation amount and time in one year). The vertical shaft represents the year which the claim event occurred, and the horizontal shaft represents the development years. Every slash represents the accumulated compensation amount at the end of each year. The compensation amount refers to the claims whether they are ruled or not. It explains hoe Fubon Life Insurance estimates the compensation amount of each year as time passes by. The scenario and trend which affect the amount of reserve for claims may not be the same as they will be in the future, therefore, the estimated future compensation amount is not able to be determined by the claim development trend revealed by the above table.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(d) The credit risk, liquidity risk and market risk of insurance contracts a) Credit risk
The credit risk of insurance contract mainly comes from the inability of reinsurers to fulfill the obligation of reinsurance contracts and caused Fubon Life Insurance to encounter financial losses. Fubon Life Insurance monitors the credit rating of reinsurers monthly to ensure that they meet the minimum requirements of the regulations. It also nominates reinsurers prudently to lower the potential loss. Furthermore, the assets related to reinsurance only account for extremely little part of Fubon Life Insurance’s assets and therefore there is no significant credit risk.
b) Liquidity risk The liquidity risk of insurance contract mainly comes from the inability of Fubon Life Insurance to obtain sufficient funds or sell assets for cash in order to fulfill the obligation of term payment. Fubon Life Insurance, except for regularly reviews the maturity analysis of insurance contracts, reviews short term and mid-term liquidity risk benchmark in Assets and Liabilities Management Committee. It jointly plans assets and liabilities to lower the relevant risk and organizes the responding strategies in advance for the potential payments in order to ensure the timeliness of liquidity risk management and to avoid inadequate liquidity. The maturity analysis of insurance contracts of Fubon Life Insurance is listed below:
(in million)
Maturity date < 1 year 1~3 years 3~5 years > 5 years
Unable to
classify (note) Total
Provision 21,780 28,904 84,701 1,053,304 323,084 1,511,773 Proportion 1.4% 1.9% 5.6% 69.7% 21.4% 100.0% Note: The “Unable to classify” includes interest-linked product, authorized
additional provision and provision for bad debt allowance. The amount of provision does not include provision for separate account.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
c) Market risk Market risk refers to the risk caused by the adverse changes in market prices in terms of interest rates, foreign exchange rates, stock prices, and commodity prices. Fubon Life Insurance is instructed by Assets and Liabilities Management Committee and considers the financial environment and all the economic indicators, based on liability properties through risk control system, to choose appropriate investment target. It also considers the relationship between assets and liabilities and purchases appropriate long term assets, which is under the consent of regulatory framework and market environment and is decided and regularly reviewed by the Assets and Liabilities Management Committee. This is to allow assets and liabilities to match better in terms of payment terms and profits and to pursue long term business as well as protecting the rights of policyholders. This will also reduce the influence on insurance contract caused by market risk and eventually lower the potential loss to Fubon Life Insurance.
(34) Financial Instruments
1) Fair value of financial instruments December 31, 2011 December 31, 2010 Non-derivative
financial instruments Book value Fair value Book value Fair value Financial assets:
Cash and cash equivalents
$ 218,464,919 218,464,919 162,952,443 162,952,443
Due from Central Bank and call loans to banks
78,798,417 78,798,417 105,494,062 105,494,062
Financial assets measured at fair value through profit or loss
51,790,620 51,790,620 23,478,079 23,478,079
Bonds and bills purchased under resell agreements
28,068,404 28,068,404 12,738,731 12,738,731
Receivables 114,304,254 114,304,254 140,335,745 140,335,745 Loans 1,158,339,862 1,158,339,862 1,047,249,519 1,047,249,519 Available-for-sale
financial assets 889,556,526 889,556,526 820,183,865 820,183,865
Held-to-maturity investments
457,502,518 478,049,855 488,285,908 493,590,319
Other financial assets
171,291,661 171,366,057 203,721,005 203,719,188
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2011 December 31, 2010 Non-derivative
financial instruments Book value Fair value Book value Fair value
Debt investments in non-active market
$ 277,585,811 269,396,032 277,887,274 261,447,264
Financial liabilities: Due to Central Bank
and other banks 72,362,875 72,362,875 78,587,683 78,587,683
Bonds and bills sold under repurchase agreements
27,260,155 27,260,155 27,617,545 27,617,545
Commercial paper payable
- - 4,599,072 4,599,072
Financial liabilities measured at fair value through profit or loss
7,355,023 7,355,023 5,857,375 5,857,375
Payables 68,599,547 68,599,547 85,617,447 85,617,447 Deposits 1,293,430,787 1,293,430,787 1,299,524,186 1,299,524,186 Bonds payable 101,539,435 101,876,569 92,507,828 92,507,828 Other borrowings 3,269,333 3,269,333 5,235,000 5,235,000 Other financial
liabilities 174,150,254 174,150,254 188,015,764 188,015,764
December 31, 2011 December 31, 2010 Derivative financial
instruments Book value Fair value Book value Fair value
Financial assets:
Financial assts measured at fair value through profit or loss
$ 27,130,886 $ 27,130,886 44,440,942 44,440,942
Other financial assets
1,095,253 1,095,253 705,818 705,818
Financial liabilities: Financial liabilities
measured at fair value through profit or loss
28,514,035 28,514,035 30,097,205 30,097,205
Other financial liabilities
1,464,317 1,464,317 1,004,044 1,004,044
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2) Methods and assumptions used by the Company and its subsidiaries for fair value evaluation of financial instruments were as follows:
1. Fair value of short-term financial instruments is estimated by their book value on the balance
sheet date. As these instruments have short-term maturities, the book value is adopted as a reasonable basis in estimating the fair value. This method is applied to cash and cash equivalents, due from Central Bank and call loans to banks, bonds and bills purchased under resell agreements, receivables, other financial assets (excluding financial assets carried at cost and debt investments in non-active market), due to Central Bank and other banks, commercial paper payable, bonds and bills sold under repurchase agreements, payables, borrowing from Central Bank and other banks, bonds payable (excluding financial liabilities measured at fair value through profit and loss), other borrowings, and other financial liabilities.
2. The fair value of financial instruments at fair value through profit or loss and available-for-
sale, held-to-maturity, and hedging derivative financial assets is based on quoted market prices in an active market. If a quoted market price is unavailable, then the fair value is determined based on certain valuation techniques. The estimates and assumptions of the valuation techniques adopted by the Company and its subsidiaries are identical to those adopted by other market participants.
3. The fair value of debt investments in non-active market is estimated by using the quoted
prices from financial institution or counterparty. If the fair value is unavailable, then the fair value is determined based on unamortized cost.
4. According to the regulations of “Criteria Governing the Preparation of Financial Reports by
Public Banks”, financial assets carried at cost of other financial assets are investment in unlisted stocks.
5. Loans and deposits are both classified as interest-bearing financial asset/liabilities; therefore,
their book value approximates their fair value. 6. The fair value of each forward contract is determined on the forward rate from Bloomberg
Information System. The fair value of interest rate swap and cross currency swap is calculated either by the quotations from the counterparty or by the price from Bloomberg Information System.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
3) As of December 31, 2011 and 2010, the fair values of the financial instruments of the Company and its subsidiaries which were based on quoted market price or determined by using certain valuation techniques were as follows: December 31, 2011 December 31, 2010
Quoted market price
Estimate using valuation technique
Quoted market price
Estimate using valuation technique
Financial assets:
Cash and cash equivalents
$ - 218,464,919 - 162,952,443
Due from Central Bank and call loans to banks
- 78,798,417 - 105,494,062
Financial assets at fair value through profit or loss
4,225,437 74,696,069 2,657,048 65,261,973
Bonds and bills purchased under resell agreements
- 28,068,404 - 12,738,731
Receivables - 114,304,254 - 140,335,745 Loans - 1,158,339,862 - 1,047,249,519 Available-for-sale
financial assets 795,536,831 94,019,695 693,979,484 126,204,381
Held-to-maturity investments
- 478,049,855 - 493,590,319
Other financial assets
- 172,461,310 - 204,425,006
Debt investments in non-active market
- 269,396,032 - 261,447,264
Financial liabilities: Due to Central Bank
and other banks - 72,362,875 - 78,587,683
Financial liabilities at fair value through profit or loss
- 35,869,058 645,415 35,309,245
Bonds and bills sold under repurchase agreements
- 27,260,155 - 27,617,545
Payables - 68,599,547 - 85,617,447 Deposits - 1,293,430,787 - 1,299,524,186 Bonds payable 59,987,134 41,889,435 51,473,632 41,057,828
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2011 December 31, 2010
Quoted market price
Estimate using valuation technique
Quoted market price
Estimate using valuation technique
Commercial paper
payable $ - - - 4,599,072
Other borrowings - 3,269,333 - 5,235,000 Other financial
liabilities - 175,614,571 - 189,019,808
4) Level information of the fair value of financial instruments
December 31, 2011 Financial instrument item
measured at fair value Total Level 1 (note 1)
Level 2 (note 2)
Level 3 (note 3)
Non-derivative financial
instruments
Assets: Financial assets measured at
fair value through profit or loss
Financial assets measured at fair value
Investment in stocks $ 2,323,432 2,323,432 - - Investment in bonds 23,978,066 9,280,593 14,697,473 - Others 22,750,899 8,504,234 13,980,084 266,581
Original recognized at fair value
2,738,223 - 299,480 2,438,743
Available-for-sale financial assets
Investments in stocks 171,055,702 169,634,579 - 1,421,123 Investment in bonds 649,013,832 220,124,923 381,615,393 47,273,516 Others 69,486,992 62,357,160 5,799,423 1,330,409
Other financial assets Debt securities
investment in non-active market
277,585,811 1,000,000 27,522,020 249,063,791
Financial liabilities measured at fair value through profit or loss
7,355,023 6,052,793 1,302,230 -
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2011 Financial instrument item
measured at fair value Total Level 1 (note 1)
Level 2 (note 2)
Level 3 (note 3)
Derivative financial
instruments
Assets: Financial assets measured at
fair value through profit or loss
$ 27,130,886 424,690 25,222,077 1,484,119
Other financial assets Hedging derivative
financial assets 1,095,253 - 625,707 469,546
Liabilities: Financial liabilities measured
at fair value through profit or loss
28,514,035 91,163 26,396,965 2,025,907
Other financial liabilities Hedging derivative
financial liabilities 1,464,317 - 1,464,317 -
Note1: Level l means fair value of the financial instruments which are quoted market prices of
same financial instruments in active market. In accordance with SFAS No.34 “Financial Instruments: Recognition and Measurement”, an active market with all of the following conditions: The products traded in the market are homogeneous. Willing parties are available anytime in the market. Price information is available for the public.
Note2: Level 2 means fair value of the financial instruments which are observable price other than quotes prices in active market, including the observable input parameters that are obtained directly (i.e., prices) or indirectly (i.e., derived from prices) from an active market. For instance,
1) The quoted prices of similar financial instruments in active market. The fair value of
financial instruments owned by the Company is inferred from the recent trading price of similar financial instruments. The similar financial instrument is judged according to the characteristic and trading conditions. Fair value of financial instruments should be priced using observable trading prices adjusted over time, trading conditions and the impact of related parties and its observable trading prices and associated nature of the product.
2) Quoted prices of similar financial instruments in non-active markets.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
3) Fair value price using valuation models. The input parameters of the valuation models (i.e., interest rates, yield curve, volatility…etc), is based on available data in the market, such as input parameters, which is an estimated figure derived from public data. The price of financial instruments is estimated by using the parameters which could reflect the expectation from market participants.
4) The majority of the input parameters are derived from observable market data or its
relevance can be validated by observable market data.
Note 3: Level 3 means input parameters are not based on observable market data (unobservable inputs such as: option pricing model using historical volatility index, as historical volatility does not represent the expected future volatility from market participants).
Change table for financial assets measured at fair value classified to the third level
Name
Balance on January 1,
2011
Evaluation of gains and
losses included in profit or loss or the amount
of equity
Increase Decrease
Balance on December 31,
2011 Buy or issue Transferred to
level 3 Sales, Transferred from level 3
Financial assets measured at fair value through profit or loss
Financial assets measured at fair value
$ 2,179,813 (249,748) 1,460,800 - 1,398,468 508,278 1,484,119
Original recognized at fair value 1,533,972 (200,521) 1,568,964 508,278 705,369 - 2,705,324 Available-for sale financial assets 37,519,907 4,903,064 4,320,115 5,770,619 2,278,437 210,220 50,025,048 Other financial assets
Derivative financial instruments 392,269 65,691 37,497 - 25,911 - 469,546 Debt securities investment in 237,411,026 25,606,823 84,109,899 - 98,063,957 - 249,063,791 non-active market
Total $ 279,036,987 30,125,309 91,497,275 6,278,897 102,472,142 718,498 303,747,828
Change table for financial liabilities measured at fair value classified to the third level
Name
Balance on January 1,
2011
Evaluation of gains and
losses included in profit or loss or the amount
of equity
Increase Decrease
Balance on December 31,
2011 Buy or issue Transferred to
level 3 Sales, Transferred from level 3
Financial liabilities measured at fair value through profit or loss
Financial liabilities measured at fair value
$ 2,383,172 237,040 1,544,267 - 1,919,590 218,982 2,025,907
Original recognized at fair value 530 (530) - - - - - Total $ 2,383,702 236,510 1,544,267 - 1,919,590 218,982 2,025,907
5) For the years ended December 31, 2011 and 2010, the Company and its domestic subsidiaries
recognized net loss of $(5,513,424) and $(15,358,459), respectively, on changes in valuation of financial instruments.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
6) Financial risk information To effectively control the overall risk of the Company, the Company established a risk management committee which is responsible for risk management-related task. The Risk Management Committee, established by the Board, operates independently from other business units to execute the risk control system solidly. The risk management organization structure includes the Boards of Directors of the consolidated companies, top management, risk management units as well as each business unit. The Risk Management Committee is responsible for risk management policy making by applying adequate segregation of duties and delegation with professional skills. The purpose to establish overall risk management culture is to ensure the effectiveness and soundness of risk management system. The risk management policy constitutes five main segments including the scope, workflow, control points, scheme as well as reports and feedback of market risk management. This policy, managed and controlled by the Risk Management Committee, is to minimize the potential adverse impacts on the operational efficiency by using both qualitative and quantitative methodologies. Risks that the Company might encounter are listed below: 1. Market risk
Market risk refers to the fluctuation in market price such as a change in interest rate, exchange rate, securities’ prices, and commodity price, which might possibly cause a potential loss. The Company manages market risk through a market risk management control system, which is able to evaluate and control every aspect of market risk. The fair value of the Fixed-rate Bonds that the Company and its subsidiaries invested will fluctuate according to market interest rate. Until the change of market risk factor increase to 1%, the Company will use sensitive analysis to evaluate the change of fair value of investment position. Therefore, the Company could use the information above to confine the losses within an expected range.
2. Credit risk The Company sets up credit risk management policies to evaluate and control risk that might arise during the course of business. Possible loss may occur in the event of non-performance by counterparties to financial instrument contracts issued or held by the Company and its subsidiaries. The amount of credit risk of the Company and its subsidiaries refers to financial assets with positive fair value on the balance sheet date.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The credit rating of the counterparties will be determined by the Company and its subsidiaries before entering into the transactions such as loans, accounts receivables, and certain guarantees. The collaterals usually are cash, real estate, securities with liquidity, or other assets. On the other hand, the Company and its subsidiaries make the same credit policy of loans and crediting and sign the net settlement of collateral received agreement with the counterparties to decrease credit risk. Significant concentration of credit risk exist when there are significant exposure to an individual counterparty to a transaction or a number of related counterparties engage in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The contract amounts of the financial instruments with off-balance-sheet credit risk for Taipei Fubon Bank and Fubon Bank (HK) were as follows: December
31, 2011 December 31, 2010
Credit line of credit cards and cash cards $ 253,074,522 248,844,920 Guarantees on loans and letters of credit 87,189,481 91,386,721 Irrevocable loan acceptance 70,160,274 69,083,077 Taipei Fubon Bank does not have any significant concentration of credit risk in terms of a single client, a party or a transaction, except for clients being in the industry with similar industrial characteristics. Contracts with significant concentration of credit risk of Taipei Fubon Bank were as follows:
December 31, 2011
December 31, 2010
Manufacturing $ 162,894,315 154,525,566 Real estate 39,124,444 32,735,297 Conveyance storage house and communication 35,455,207 37,691,146 $ 237,473,966 $ 224,952,009
3. Liquidity risk
Liquidity risk includes market liquidity risk and capital liquidity risk (financial risk). Market liquidity risk refers to the inactiveness of the market, whereas capital liquidity risk refers to the inability to convert assets into cash and obtain adequate capital. The Consolidated Companies not only set standards for the capital needs of different business departments, but also control the general position of daily capital inflow and outflow.
137
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The Company and its subsidiaries control the trading risk of commodities by means of the aforementioned position limits, stop loss points setting, and operation guidelines at the management level. In addition, the Company and its subsidiaries utilize financial tools of the money market and foreign exchange market and the appropriate liquid assets to plan the cash demand in the future. The capital and operating funds of the Consolidated Company are sufficient to fulfill all current contract obligations. Therefore, management is not expecting any liquidity risk. The maturity analysis of material assets and liabilities of Taipei Fubon Bank as of December 31, 2011 and 2010 were as follows:
December 31, 2011
Within one
month 1~3 months 3~6 months 6~12 months 1~7 years Over 7 years Total
Assets Cash and cash equivalents $ 27,224,781 - - - - - 27,224,781 Due from Central Bank and
call loans to banks 40,961,413 11,549,512 4,097,130 4,947,292 11,543,796 - 73,099,143
Financial assets measured at fair value through profit or loss
31,798,448 2,554,212 3,638,030 1,534,189 16,211,240 3,355,824 59,091,943
Bond and bills sold under repurchase agreements
200,000 - - - - - 200,000
Receivables 60,902,225 411,148 2,171,753 170,761 4,095,346 - 67,751,233 Loans 58,984,076 100,381,018 69,867,654 92,377,901 259,426,604 380,280,254 961,317,507 Available-for-sale financial 10,241,911 2,201,518 1,058,979 2,133,355 30,555,823 3,195,513 49,387,099 Held-to-maturity active
market 162,500,001 39,657,257 15,500,251 24,590,003 14,579,130 - 256,826,642
Debt investments in non-active market
- 296,223 - - 275,301 1,558,315 2,129,839
Hedging derivative financial - - - - 669,689 23,799 693,488 assets Total $ 392,812,855 157,050,888 96,333,797 125,753,501 337,356,929 388,413,705 1,497,721,675
Liabilities
Due to Central Bank and other banks
$ 31,700,206 20,982,189 3,147,858 640,700 288,823 - 56,759,776
Financial liabilities measured at fair value through profit or loss
22,747,531 - - - - - 22,747,531
Bonds and bills sold under repurchased agreements
25,054,599 3,380,494 67,995 - - - 28,503,088
Payables 25,763,546 1,054,789 803,890 501,784 811,826 - 28,935,835 Deposits and remittances 660,969,292 158,349,672 143,532,478 199,649,986 20,891,081 - 1,183,392,509 Financial bonds - - - 1,000,000 53,943,488 7,200,000 62,143,488 Received by the principle of
structured products 310 1,158 4,367 1,565 420,752 - 428,152
Hedging derivative financial 2,259,115 1,015,027 432,908 2,176,581 5,515,754 13,477,178 24,876,563 liabilities Total $ 768,494,599 184,783,329 147,989,496 203,970,616 81,871,724 20,677,178 1,407,786,942
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010
Within one
month 1~3 months 3~6 months 6~12 months 1~7 years Over 7 years Total
Assets Cash and cash equivalents $ 37,876,778 - - - - - 37,876,778 Due from Central Bank and
call loans to banks 48,492,022 24,454,161 5,843,218 5,336,287 13,031,665 - 97,157,353
Financial assets measured at fair value through profit or loss
30,269,715 718,897 1,150,369 3,080,772 2,348,411 865,782 38,433,946
Bonds and bills sold under repurchase agreements
525,331 - - - - - 525,331
Receivables 75,396,546 174,395 216,739 168,428 5,510,021 - 81,466,129 Loans 57,194,663 93,520,056 59,165,400 80,697,002 200,521,242 370,594,386 861,692,749 Available-for-sale financial
assets 19,804,017 3,018,282 1,482,568 693,309 30,579,050 3,192,208 58,769,434
Held-to-maturity investments
196,545,700 19,134,000 32,306,057 35,665,823 7,998,595 - 291,650,175
Debt investments in non-active market
- - - 35,752 868,345 3,206,786 4,110,883
Hedging derivative financial - 5,004 - - 396,462 - 401,466 assets Total $ 466,104,772 141,024,795 100,164,351 125,677,373 261,253,791 377,859,162 1,472,084,244
Liabilities
Due to Central Bank and other banks
$ 28,048,616 28,239,553 7,309,643 1,781,771 - - 65,379,583
Financial liabilities measured at fair value through profit or loss
28,051,227 - - - - - 28,051,227
Bonds and bills sold under repurchased agreements
21,338,560 342,544 50,002 - - - 21,731,106
Payables 37,127,919 1,183,431 783,542 424,200 104,660 - 39,623,752 Deposits and remittances 711,002,463 126,136,046 115,609,945 186,575,941 19,560,075 - 1,158,884,470 Financial bonds - 3,200,000 - - 45,133,576 7,200,000 55,533,576 Hedging derivative financial
liabilities - 2,357 1,083 3,510 281,810 102,985 391,745
Structured products 1,909,194 204,453 2,915 225,410 12,138,998 7,731,755 22,212,725 Total $ 827,477,979 159,308,384 123,757,130 189,010,832 77,219,119 15,034,740 1,391,808,184
4. Cash flow risk of interest rate change
The short-term and long-term borrowings of the Company and its subsidiaries are not subject to cash flow risk since the interest rates are fixed and the fluctuation of market interest rate will have not impact on its effective interest rate. The bond investments of the Consolidated Company carried at floating rates are subject to cash flow risk since the future cash flow of those bond investments changes along with the market rate fluctuation.
139
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
7) Reclassification of financial assets 1. Fubon Securities
(a) The reasons for reclassifying the financial assets of Fubon Securities and the related amount thereof were as follows:
Financial assets can be reclassified out of the financial assets measured at fair value through profit or loss category if Fubon Securities has the intention and ability to hold the financial assets for the foreseeable future. Reclassification can be made according to the purpose of holding the financial assets. Considering the change in the current global and domestic financial environment in the third quarter of 2008, Fubon Securities reclassified the stock investment held for trading into available-for-sale financial assets, amounting to $5,550,224. In accordance with the second revision of ROC Statement of Financial Accounting Standards No. 34 “Financial Instruments: Recognition and Measurement”.
(b) The book value and fair value of reclassified financial assets were as follows:
December 31, 2011 December 31, 2010 Cost Fair value Cost Fair value Available-for-
sale financial assets
$ 1,412,500 2,124,000 4,291,204 5,201,686
(c) The profit and loss resulting from the reclassification of financial assets:
Originally classified as financial assets measured at fair value
through profit or loss
Assumed profit (loss) without
such reclassification
Recognition in profit (loss)
after reclassification
For the year ended December 31, 2011 $ 555,750 826,471 For the year ended December 31, 2010 $ 544,796 196,148
140
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2. Fubon Bank (HK) (a) The reasons for reclassify the financial assets of Fubon (HK) and the related amount
thereof were as follows:
Financial assets may be reclassified out of the financial assets measured at fair value through profit or loss category if Fubon Bank (HK) has the intention and ability to hold the financial assets for the foreseeable futures. Reclassification can be made according to the holding purpose for the financial assets. Because of the change of the current global and domestic financial environment, Fubon Bank (HK) reclassified certain available-for-sale investment securities into debt investment in non-active market, amounting to HK$3,723,900 thousand. In accordance with the second revision of ROC Statement of Financial Accounting Standards No. 34 “Financial Instruments: Recognition and Measurement”.
(b) The book value and fair value of financial assets reclassified:
December 31, 2011 Book value Fair value Debt investment in non-active market HK$ 1,204,800 1,037,800
December 31, 2010 Book value Fair value Debt investment in non-active market HK$ 2,802,300 2,482,300
(c) The profit and loss resulting from the reclassification of financial assets:
Originally classified as available-
for-sale financial assets
Assumed profit (loss) without
such reclassification
Recognition in profit (loss)
after reclassification
For the year ended December 31, 2011 HK$ 33,400 50,600 For the year ended December 31, 2010 HK$ (46,500) 71,100
(d) The effective interest rate of reclassified financial assets on the reclassification day was between 2.9% and 9.2%, and the estimated recoverable cash flow was HKD3,885,800 thousand.
141
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(35) Related-Party Transactions
1) Names and relationship of related parties
Name of related party Relationship with the Company Fu-sheng Life Assurance Agent Co., Ltd. A second-tier subsidiary of the Company Fu-sheng General Insurance Agent Co., Ltd. A second-tier subsidiary of the Company Fuly Life Assurance Agent Co., Ltd. Related parties in substance Fuly General Insurance Agent Co., Ltd. Related parties in substance Fubon Property Management Co., Ltd. Related parties in substance EASYCARD Corporation Related parties in substance Fuji Management Consultant Co., Ltd. (Fubon
Securities Finance Co., Ltd.) Related parties in substance
Fubon Land Development Co., Ltd. Related parties in substance Fubon Multimedia Technology Co., Ltd. Related parties in substance Taipei Bank Charitable Foundation Related parties in substance Fubon Charity Foundation Related parties in substance Fubon Cultural & Education Foundation Related parties in substance Fubon Art Foundation Related parties in substance Funds Managed by Fubon Asset Management Related parties in substance Taiwan Fixed Network Co., Ltd. An affiliate TFN Media Co., Ltd. An affiliate Taiwan High Speed Rail Corporation Related parties in substance Taiwan Mobile Co., Ltd. Related parties in substance Taiwan Cement Corporation Related parties in substance until 2011
June 24
142
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Name of related party Relationship with the Company GTECH Global Service Corp. Related parties in substance until July 20 ,
2011 HKJCBV Related parties in substance until July 20,
2011 MasterLink Securities Corporation Related parties in substance until October
1, 2011 Inotera Memories, Inc. Related parties in substance until August
2011 Taiwan Futures Exchange Corporation Related parties in substance Department of Cultural Affairs Taipei City
Government Related parties in substance
China Synthetic Rubber Corporation Related parties in substance until June 24,
2011 Fu-Sheng Travel Service Co., Ltd. Related parties in substance Taiwan Semiconductor Manufacturing Co., Ltd. Related parties in substance until October
2011 Kbra Co., Ltd. Related parties in substance HannStar Touch Solution Incorporated Related parties in substance Chung Hsing Land Development Co., Ltd. A major stockholder of the Company Ming-Dong Corporation A major stockholder of the Company Republic of China Centenary Foundation Related parties in substance The Red Cross Society of The Republic of China Related parties in substance until June 24,
2011 Straits Exchange Foundation Related parties in substance Commerce Development Research Institute Related parties in substance Citi bank Taiwan Ltd. Related parties in substance
143
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Name of related party Relationship with the Company Ming-Chung Tsai Chairman of Fubon Financial Holding Ming-Hsing Tsai Vice-chairman of Fubon Financial
Holding Wan-Cai Tsai Related parties in substance Yang-Hsiang-Hsun Tsai Related parties in substance Cheng-Tao Tsai Related parties in substance Cheng-Ju Tsai Related parties in substance Ming-Chun Tsai Related parties in substance Ming-Jeng Tsai Related parties in substance Weng-Mei-Hui Tsai Related parties in substance Chen-Ai-Ling Tsai Related parties in substance Tsai-Ling Tung Related parties in substance Che-Ming Hsu Related parties in substance Ming-Chian Cheng Related parties in substance Yung-Ling Pan Related parties in substance Hau Li Related parties in substance Yun-Jing Hsu Related parties in substance Tsu-Taz Yang Related parties in substance Bao-Lin Ma Related parties in substance Others Directors, supervisors, managers and their
relatives up to the second degree; affiliates and the related parties in substance
144
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2) Significant transactions with the above related parties of the Consolidated Company as of and for the years ended December 31, 2011 and 2010 were as follows: 1. Insurance revenue
Insurance revenue Insurance receivable
2011 2010 December 31, 2011
December 31, 2010
Taiwan-High Speed Rail Co., Ltd.
$ 204,665 268,982 202,262 211,696
Taiwan Mobile Co., Ltd. 39,576 57,815 35,150 45,068 Tzung-Jie Yang - 18,300 - - Bao-Lin Ma 35,000 - - - Taiwan Semiconductor
Manufacturing 247,944 - 16,498 -
Tsai-Ling Tung 16,120 - - - Tsu-Tsz Yang 13,107 - - - Kbra Co., Ltd. 19,867 - - - Others 111,836 110,787 6,684 5,158
$ 688,115 455,884 260,594 261,922 The terms of the transactions were similar to those with non-related parties.
2. Rental revenue
2011 2010 Rental revenue:
Fubon Multimedia Technology Co., Ltd. $ 119,748 - Others 10,518 8,871 $ 130,266 8,871
Guarantee deposits:
Fubon Multimedia Technology Co., Ltd. $ 55,823 - All the above leases were operating leases. The terms of the transactions were similar to those with non-related parties.
145
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
3. Rental expense and refundable deposits
2011 2010 Rental expense:
Chung Hsing Land Development Co., Ltd. $ 233,114 240,156 Ming-Dong Corporation 20,220 20,220 Taiwan Mobile Co., Ltd. - 35,165 Ming-Wen Tasi & Ming-Chun Tasi 24,253 24,253 Taipei City Government 23,382 28,910 Others 14,221 14,273 $ 315,190 362,977
All the above leases were operating leases. The terms of the transactions were similar to those with non-related parties. 2011 2010 Refundable deposits
Others $ 28,491 22,597 4. Deposits accepted by Taipei Fubon Bank December 31, 2011 December 31, 2010
Amount Interest
rate range Amount Interest
rate range Others $ 38,508,107 0~6.395% 37,149,024 0~6.195%
5. Loans Loans to related parties from Taipei Fubon Bank December 31, 2011 December 31, 2010
Amount Interest
rate range Amount Interest
rate range Others $ 41,763,857 0~19.98% 35,648,967 0~19.98%
146
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2011
Category Amount or Name of
Related Party Highest Balance
Ending Balance Normal Overdue Type of Collateral
Differences in transaction terms between related and nonrelated
parties
Employee consumer loans
82 $ 27,041 23,818 ˇ - Credit None
House mortgages 343 2,428,597 2,281,815 ˇ - Land and buildings None Others Department of Urban
Development, Taipei City Government
1,894,594 1,637,076 ˇ - Public treasury guarantees
None
Department of Property,
Taipei City Government 2,000,000 - ˇ - Credit None
China Synthetic Rubber
Corporation 241,500 - ˇ - Credit None
Taipei City Government 26,764,823 14,164,823 ˇ - Public treasury guarantees
None
Taipei City Public
Transportation office 4,913,600 - ˇ - Public treasury
guarantees None
Department of Rapid Transit Systems, TCG
22,986,507 22,986,507 ˇ - Public treasury guarantees
None
Taipei Municipal Secured
Small Loans Service 7,777 6,161 ˇ - Public treasury
guarantees None
Fubon Land Development
Co., Ltd. 1,140,000 200,000 ˇ - Construction land None
HannStar Tonch Solution 499,748 463,657 ˇ - Credit None Incorporated Total $ 62,904,187 41,763,857 -
December 31, 2010
Category Amount or Name of
Related Party Highest Balance
Ending Balance Normal Overdue Type of Collateral
Differences in transaction terms between related and nonrelated
parties
Employee consumer loans
88 $ 33,845 28,628 ˇ - Credit None
House mortgages 356 2,457,453 2,385,929 ˇ - Land and buildings None Others Taiwan High Speed Rail
Co., Ltd. 20,676,228 - ˇ - Approval by
contract None
China Synthetic Rubber
Corporation 360,000 241,500 ˇ - Credit None
Taipei City Government 32,364,823 12,764,823 ˇ - Public treasury guarantees
None
Department of Urban Development, Taipei City Government
2,295,432 1,891,903 ˇ - Public treasury guarantees
None
Department of Rapid Transit Systems, TCG
10,586,507 10,586,507 ˇ - Public treasury guarantees
None
Taipei Municipal Secured
Small Loans Service 9,040 7,777 ˇ - Public treasury
guarantees None
Taipei City Public
Transportation office 4,741,900 4,741,900 ˇ - Public treasury
guarantees None
Department of Property,
Taipei City Government 11,000,000 2,000,000 ˇ - Credit None
Fubon Land Development 1,180,000 1,000,000 ˇ - Construction land None Co., Ltd. Total $ 85,705,228 35,648,967 -
6. Guarantees
December 31, 2011 December 31, 2010
Amount Interest
rate range Amount Interest
rate range Guarantees $ - 1% - 0.78~0.85%
147
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2011
Related party
Highest balance in
current period
Ending balance
Provision (note) Rates (%)
Type of collateral
Taiwan Fixed Network
Co., Ltd. $ 9,000 9,000 - 1% Back certificates
of deposit Department of Economic
development, Taipei City Government
$ 5,437 - - 1% Credit
December 31, 2010
Related party
Highest balance in
current period
Ending balance
Provision (note) Rates (%)
Type of collateral
Taiwan High Speed Rail
Co., Ltd. $ 944,519 - - 0.78~0.85 None (Approval
by contract) Taiwan Cement
Corporation $ 200,000 - - 0.45 None
7. Securities refinancing transactions
2010 December 31, 2010
Name of related party Refinancing
amount Interest revenue
Securities refinance
ending balance
Securities refinance
margin deposits ending balance
Fubon Securities
Finance Co., Ltd. $ 12,116 - - -
There was no such transaction in 2011.
148
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
8. Details of financing activities between Fubon Life Insurance and related parties as of December 31, 2011 and 2010, were as follows: Secured loans:
2011
Name of related party Highest balance
Ending balance
Compliance situation
Type of collateral
Difference in transaction
terms between related and nonrelated
parties Che-Ming Hsu $ 15,161 14,520 Normal
lending Real Estate None
Young-Ling Pan 14,500 14,500 ″ ″ ″ Hao Li 12,752 8,356 ″ ″ ″ Others (no individual
Related party accounts for more than
74,407 63,461 ″ ″ ″
$10,000) Total $ 116,820 100,837
2010 (restated)
Name of related party Highest balance
Ending balance
Compliance situation
Type of collateral
Difference in transaction
terms between related and nonrelated
parties Che-Ming Hsu $ 15,161 15,161 Normal
lending Real Estate None
Yung-Jing Hsi 10,647 8,699 ″ ″ ″ Others (no individual
Related party accounts for more than
71,896 56,188 ″ ″ ″
$10,000) Total $ 97,704 80,048
The interest rate of loans provided by Fubon Life Issuance to other related parties are determined by bank loan rate plus additional basis points; the transaction terms are identical to those of other market participants. Moreover, the values of collateral assets which obtained are greater than the lending amount; therefore, creditor’s right can be assured.
149
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Life insurance loans: 2011
Name of related party Highest balance
Ending balance
Compliance situation
Type of collateral
Difference in transaction
terms between related and nonrelated
parties Others (no individual
Related party accounts for more than
$ 43,627 33,405 Normal lending
The policy value
None
$10,000) 2010 (restated)
Name of related party Highest balance
Ending balance
Compliance situation
Type of collateral
Difference in transaction
terms between related and nonrelated
parties Others (no individual
Related party accounts for more than
$ 45,462 20,597 Normal lending
The policy value
None
$10,000) The interest rate of life insurance loans by Fubon Life Insurance to other related parties are determined by rate of insurance policy plus 0.5% or average loan rate of domestic banks, whichever is higher. The transaction terms are identical to those of other market participants. Moreover, the loans was included Policy value Reserve and over the level; therefore, creditor’s right can be assured.
9. Sales commission revenue
Name of related party 2011 2010 Fubon Morgan Fund $ 10,294 6,842 Others 10,763 6,828 $ 21,057 13,670
150
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
10. Derivative financial instruments (notional amount)
Name of related party Instrument December 31, 2011
December 31, 2010
MasterLink Securities Corporation
Interest rate swap contract
$ - 1,500,000
Inotera Memories, Inc. Interest rate swap contract
- 5,000,000
Department of Cultural Affairs Forward contract 61,118 100,661 Taipei City Government swap contract
$ 61,118 6,600,661 11. Commission revenue
(a) Commission revenue
Name of related party 2011 2010 Fuly Life Assurance Agent Co., Ltd. $ - 11,870 Fu-sheng Life Assurance Agent Co., Ltd. 434,812 507,349 Fu-sheng General Insurance Agent Co., Ltd. 198,337 70,831 $ 633,149 590,050
(b) Commission receivable
Name of related party December 31, 2011
December 31, 2010
Fuly Life Assurance Co., Ltd. $ - 1,691 Fu-sheng Life Assurance Agent Co., Ltd. 84,254 81,714 Fu-sheng General Insurance Agent Co., Ltd. 41,140 14,970 $ 125,394 98,375
12. Other revenues
(a) Services fees charged by Taipei Fubon Bank
Name of related party 2011 2010 Others $ 131,313 78,816
151
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(b) Service fees charged by Fubon Securities
Name of related party 2011 2010 Funds managed by Fubon Asset Management $ 421,383 329,162 Others 61,558 53,416 $ 482,941 382,578
(c) Services fees charged by Fubon Securities
Name of related party 2011 2010 Funds managed by Securities $ 15,175 18,487 Others 91,011 92,388 $ 106,186 110,875
d) Services fees charged by Fubon Financing Holding Venture
Name of related party 2011 2010 Fu-sheng Travel Service Co., Ltd. $ - 17,469
13. Other expenses payable to related parties
Name of related party Items 2011 2010
Fu-Sheng General Insurance Agent Co., Ltd.
Service fee and commission expenses
$ 257,555 121,937
EASYCARD Corporation Service fee 24,954 21,695 Taiwan Fixed Network Co., Ltd.
Phone expense and service fee
210,034 310,213
Fubon Property Management Co., Ltd.
Management fees and other expense
159,931 151,957
Fuly General Insurance Agent Co., Ltd.
Service fee and Commission expense
14,386 19,077
GTECH Global Service Corp.
Professional consulting service fees
22,021 11,474
HKJCBV Professional consulting service fees
25,157 10,054
Taiwan Mobile Co., Ltd. Service fee 16,450 59,694 Others Insurance expense,
service fee, advertising expense, other expense
52,097 71,743
, etc. $ 782,585 777,844
152
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
14. Commission expenses
Name of related party 2011 2010 Fuly Life Assurance Agent Co., Ltd. $ 8,275 24,582 Fu-Sheng Life Assurance Agent Co., Ltd. 540,726 624,893 $ 549,001 649,475 Commission including the commission of unamortized deferred
Name of related party 2011 2010 Fu-Sheng Life Assurance Agent Co., Ltd. $ 388,163 349,220 Fuly Life Assurance Agent Co., Ltd. 12,766 15,324 $ 400,929 364,544
15. Bond transactions (a) Bonds sold under repurchase agreement
2011
Name of related party Interest revenue
Bonds sold under
agreements to repurchase,
December 31 Tawiwan High Speed Rail Corporation $ - 391,000 Ming-Chung (Daniel) Tsai - 270,000 Ming-Hsing (Richard) Tsai - 323,058 Yang-Hsiang-Hsun Tsai - 352,666 Ming-Chun Tsai - 74,578 Chen-Ai-Ling Tsai - 29,000 Cheng-Tao Tsai - 129,600 Weng-Mei-Hui Tsai - 28,000 Taiwan Fixes Network Co., Ltd. - 407,459 Other 4,147 - $ 4,147 2,005,361
153
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2010
Name of related party Interest revenue
Bonds sold under
agreements to repurchase,
December 31 Ming-Chian Cheng $ 35 80,006 Chen-Ai-Ling Tsai 43 51,036 Ming-Chun Tsai 137 74,324 Yang-Hsiang-Hsun Tsai 424 140,000 Cheng-Tao Tsai 75 57,325 Cheng-Ju Tsai 50 37,283 Taiwan Fixes Network Co., Ltd. - 100,037 Taiwan High Speed Rail Co., Ltd. - 240,000 Taiwan Mobile Co., Ltd. - 462,210 Other 2,137 - $ 2,901 1,242,221
(b) Bonds purchased under resell agreement
2011
Name of related party Interest revenue
Bonds sold under
agreements to resell,
December 31 Masterlink Securities Corporation $ 1,049 30,000
2010
Name of related party Interest revenues
Bonds sold under
agreements to resell,
December 31 Masterlink Securities Corporation $ 513 -
154
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(c) Bond buy-in and sell-out transactions a) Buy-in transactions
Name of related party 2011 2010 MasterLink Securities Corporation $ 6,459,795 4,258,805 Fuji Management Consultant Co., 132,029 262,279 Ltd.(Fubon Securities finance Co., Ltd.)
$ 6,591,824 4,521,084 b) Sell-out transactions
Name of related party 2011 2010 MasterLink Securities Corporation $ 3,208,210 3,259,660 Citibank Taiwan Ltd. 705,663 155,927 Taiwan Future Exchange - 150,000 $ 3,913,873 3,565,587
(d) Securities buy-in and sell-out transactions
a) Buy-in transactions
Name of related party 2011 2010 Taiwan Cement Corporation $ - 593,716
b) Sell-out transactions
Name of related party 2011 2010 Citibank Taiwan Ltd. $ - 299,833
155
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
16. The Consolidated Company’s donations to related parties were as follows:
Name of related party December 31, 2011
December 31, 2010
Fubon Cultural & Education Foundation $ 45,689 26,600 Fubon Art Foundation 20,329 20,538 Fubon Charity Foundation 21,361 41,923 Taipei Bank Charity Foundation 21,500 14,000 Straits Exchange Foundation - 4,000 The Red Cross society of The Republic of China - 3,444 Republic of China Centenary Foundation - 2,500 Commerce Development Research Institute 150 - $ 109,029 113,005
17. Prepayments of related party
Name of related party December 31, 2011
December 31, 2010
Fubon Land Development Co., Ltd. $ 30,069 29,830
18. Receivable of related party
Name of related party December 31, 2011
December 31, 2010
Other $ 45,211 37,084
19. Payable of related party
Name of related party December 31, 2011
December 31, 2010
Taiwan Fixed Network Co., Ltd. $ 81,289 130,245
20. Payable to customers of related party
Name of related party December 31, 2011
December 31, 2010
Funds managed by Fubon Asset Management $ 58,212 11,614
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
21. Funds purchased by the Consolidated Company’s related party and managed by Fubon Asset Management Co., Ltd. were as follows:
Name of related party December 31, 2011
December 31, 2010
Fubon Precision Fund $ 4,849 760,992 Fubon Aggressive Growth Fund 32,092 36,765 Fubon Chi-Hsiang Fund 1,758,316 4,782,258 Fubon Supreme Fund 1,921 32,647 Fubon Fu-Bao Fund 95 17,497 Fubon Elite 31,849 - Fubon China Growth 33,794 22,515 Fubon I REIT Securitization Fund 2,387,755 2,038,327 Fubon II REIT Securitization Fund 1,469,023 1,394,274 Fubon MSCI Taiwan ETF Fund 81,873 138,736 Fubon Taiwan Eight Industries ETF Fund 106,635 166,557 Fubon Taiwan Finance ETF Fund 100,040 158,024 Fubon Technology ETF Fund 125,131 153,691 Fubon Elite Enrichment Fund of Funds - 189,164 Fubon Taiwan Heart Fund 9,411 20,458 Fubon Emerging Asia Growth Equity 164,987 - Fubon Global Investment – grade Bond Fund - 204,580 Fubon Fund 582,918 662,845 Fubon Agribusiness Equity Fund 94,495 - $ 6,985,184 10,779,330
21. Transaction of property
Taiwan Sport Lottery leased the internet systematic equipment with Taiwan Fixed Network amounted to $76,319 based on market value, which had signed first and second advisor addendum on August 31, 2009 and May 1, 2010, respectively. As of December 31, 2011 and 2010, the obligation under capital lease was $18,357 and $30,418, and other payable was $1,123 and $1,123, respectively. The interest expense thereon were $1,415 and $2,128 for the years ended December 31, 2011 and 2010, respectively.
22. Fubon Life Insurance applied for donation and transfer registration to Taipei City Government based on “Urban Planning Act”, “The Guidelines Governing the Implementation of Transfer of Urban Planning Volume” and “Regulations Governing the Review of the Permit for Transferring the Urban Volume of Taipei” in order to obtain the transferrable capacity of the land in no. 245-2 subsection 6 Ren Ai section Da An district of Taipei. The amount is a total of $187,932 and Taipei City Government has issued the certificate of permit for volume transfer to the Company in January 2011.
157
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
3) Remuneration to core management level For the years ended December 31, 2011 and 2010, the details of directors’, supervisors’ and other core managers’ remuneration were as follows:
For the year ended
December 31, 2011
For the year ended
December 31, 2010
Salary $ 232,933 151,560 Bonus and special disbursement 134,551 168,570 Executive expenditure 7,790 6,793 Employees’ bonuses 3,135 872
4) Information on related-party transactions amounting to more than $100,000
If a transaction happens between two subsidiaries, only one of the subsidiaries needs to disclose its related-party information, and this transaction would be eliminated when the Company compiles the consolidated financial report. 1. Fubon Insurance
(a) Name and relationship of related party
Name of related party Relationship with the Company Taipei Financial Holding Co., Ltd. Parent Company Taipei Fubon Bank Co., Ltd. A subsidiary of the Company Funds managed by Fubon Asset Management Related parties in substance Fubon Direct Marketing Consulting A subsidiary of the Company Fu-Sheng General Insurance Agent Co., Ltd. Related parties in substance Taiwan Semiconductor Manufacturing Related parties in substance until
October 5, 2011 Taiwan High Speed Rail Corporation Related parties in substance
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(b) Significant transactions with related parties as of and for the years ended December 31, 2011 and 2010 were as follows: a) Insurance revenue with related party
2011
Name of related party Insurance revenue
Insurance receivable
Taiwan Semiconductor Manufacturing $ 247,944 16,498 Taiwan High Speed Rail Corporation 204,665 202,262 $ 452,609 218,760
2010
Name of related party Insurance revenue
Insurance receivable
Taiwan High Speed Rail Corporation $ 268,982 211,696
b) Commission recruitment and commission expense with related party
Name of related party 20101 2010 Fu-Sheng General Insurance Agent Co., Ltd.
$ 232,594 104,857
c) Funds purchased by Fubon Insurance and mangled by Fubon Asset Management
Co., Ltd. were as follows:
Name of related party December 31, 2011
December 31, 2010
Fubon Fubon Fund $ 168,527 194,743 Fubon I REIT Securitization Fund 792,085 676,170 Fubon II REIT Securitization Fund 630,500 599,500 Total $ 1,591,112 1,470,413
As of December 31, 2011 and 2010, Fubon Insurance was acquired Fubon REIT I Fund and Fubon REIT II in the amounts of $792,085, $632,500 and $676,170, $599,500, respectively.
d) Bank deposit with related party
Name of related party December 31, 2011
December 31, 2010
Taipei Fubon Bank Co., Ltd. $ 640,680 995,294
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
e) Payable with related party
Name of related party December 31, 2011
December 31, 2010
Fubon Financial Holding Co., Ltd. $ 451,636 378,988
f) Marketing Consulting fee with related party
Name of related party December 31, 2011
December 31, 2010
Fubon Direct Marketing Consulting $ 102,712 269,242
g) Rental revenue with related party
2011
Name of related party Rental
revenue Deposit Taipei Fubon Bank Co., Ltd. $ 124,998 21,809
2010
Name of related party Rental
revenue Deposit Taipei Fubon Bank Co., Ltd. $ 125,901 16,682 All the above lease were operating lease. The terms of the transactions were similar to those with non-related parties.
160
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2. Fubon Life Insurance
(a) Name and relationship of related party
Name of related party Relationship with the Company Fubon Financial Holding Co., Ltd. Parent Company Fubon Asset Management Co., Ltd. A subsidiary of the Company Fubon Securities Co., Ltd. A subsidiary of the Company Taipei Fubon Bank Co., Ltd. A subsidiary of the Company Funds managed by Fubon Asset Management Related parties in substance Taipei Fubon Bank Life Assurance Agent Co.,
Ltd. Related parties in substance
Fu-Sheng Life Assurance Agent Co., Ltd. Related parties in substance MasterLink Securities Corporation Related parties in substance until
October 6, 2011 Fubon Multimedia Technology Co., Ltd. Related parties in substance
(b) Significant transactions with related parties
a) Insurance revenues
Name of related party 2011 2010 Others $ 84,716 121,738 The terms of the transactions were similar to those with non-related parties.
b) Rental revenue
Name of related party 2011 2010
Fubon Multimedia Technology $ 119,748 80,383
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Guarantee deposits
Name of related party 2011 2010 Fubon Multimedia Technology $ 80,823 55,823 As of December 31, 2011 and 2010, Fubon Life Insurance was acquired rental revenue in the amounts of $135,780 and $100,240, guarantee deposits in the amounts $58,414 and $60,288, respectively. The amount were into the real estate investment interest and guarantee deposits.
c) Commission expenses
Name of related party 2011 2010 Taipei Fubon Bank Life Assurance Agent
Co., Ltd. $ 58,896 516,703
Taipei Fubon Bank Co., Ltd. 3,126,779 1,438,838 Fu-Sheng Life Assurance Agent Co., Ltd. 540,726 624,893 $ 3,726,401 2,580,434
All commission expenses were including unamortized deferred commission.
Name of related party 2011 2010 Taipei Fubon Bank Co., Ltd. $ 25,352 14,582 Fu-Sheng Life Assurance Agent Co., Ltd. 388,163 349,220 $ 413,515 363,802
d) Deposits accepted by Taipei Fubon Bank
Name of related party December 31, 2011
December 31, 2010
Demand deposits $ 19,925,419 11,897,371 Time deposits 14,731,025 7,033,500 Structured deposits 3,115,842 3,171,199 $ 37,772,286 22,102,070 All deposits were not including investment-type insurance policy assets. The linked deposits were recorded as other financial assets.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
e) Interest revenue with related party were as follows:
Name of related party
2011 2010 Interest revenue
Interest receivable
Interest revenue
Interest receivable
Taipei Fubon
Bank Co., Ltd. $ 294,029 150,696 218,901 109,341
f) Funds purchased by Fubon Life Insurance and managed by Fubon Asset
Management Co., Ltd. were as follows:
Name of related party December 31, 2011
December 31, 2010
Fubon Fubon Fund $ 167,042 193,027 Fubon Yield Enrichment Fund of Funds - 145,554 Fubon Chi-hsiang Fund 704,027 3,738,947 Fubon Global Investment – grade Bond
Fund - 204,580
Fubon Taiwan Technology ETF Fund 123,634 153,271 Fubon MSCI Taiwan ETF Fund 79,974 138,225 Fubon Taiwan Eight Industries ETF Fund 104,074 165,736 Fubon Taiwan Financial ETF Fund 98,343 157,239 Fubon Emerging Asia Growth Equity 128,100 - Total $ 1,405,194 4,896,579 As of December 31, 2011 and 2010, Fubon Life Insurance has acquired Fubon REIT II Fund in the amounts of $838,523 and $794,774, respectively. As of December 31, 2011 and 2010, Fubon Life Insurance has acquired Fubon REIT I Fund in the amounts of $791,611 and $675,765, respectively.
g) Account balance under the Discretionary Investment Services was as follows:
Name of related party December 31, 2011
December 31, 2010
Fubon Asset Management Co., Ltd. $ 41,587,523 40,149,582
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
h) Bond transactions with related party were as follows: a. Purchase of bonds
Name of related party 2011 2010 Fubon Securities Co., Ltd. $ 1,300,000 6,940,717 MasterLink Securities Corporation 5,596,751 3,252,737 Taipei Fubon Bank Co., Ltd. 1,770,463 5,424,766 $ 8,667,214 15,618,220
b. Sold of bonds
Name of related party 2011 2010 MasterLink Securities Corporation $ 2,457,440 3,102,564
c. Bond purchased under resell agreements
2011
Name of related party Interest revenue
Bonds purchased
under agreements to
resell, December 31
Taipei Fubon Bank Co., Ltd. $ 15,137 1,450,000
2010
Name of related party Interest revenue
Bonds purchased
under agreements to
resell, December 31
Taipei Fubon Bank Co., Ltd. $ 4,484 1,350,237
d. Securities purchased by Fubon Life Insurance were as follows
Name of related party 2011 2010
Taipei Fubon Bank Co., Ltd. $ - 4,183,041
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
i) Fubon Asset Management promised to compensate Fubon Life Insurance for the financial bonds and corporate bonds bought from Fubon Asset Management for $16,116,457 with yield of 90 days CP+20bp, which is paid quarterly. The interest of compensation amounted to $2,623 and $5,998 for the years ended December 31, 2011 and 2010, respectively.
j) Other receivable (payable) with related party
Name of related party 2011 2010 Fubon Financial Holding Co., Ltd. $ (83,795) (884,597) Taipei Fubon Bank Co., Ltd. (517,309) (238,154) Fu-Sheng Life Insurance Agent Co., Ltd. (81,289) (130,245) $ (682,393) (1,252,996)
k) Other expenses with related party
Name of related party Items 2011 2010 Taipei Fubon Bank Co., Ltd. Credit Card expenses $ 206,706 150,214
l) Fubon Life Insurance applied for donation and transfer registration to Taipei City
Government based on “Urban Planning Act”, “The Guidelines Governing the Implementation of Transfer of Urban Planning Volume” and “Regulations Governing the Review of the Permit for Transferring the Urban Volume of Taipei” in order to obtain the transferrable capacity of the land in no. 245-2 subsection 6 Ren Ai section Da An district of Taipei. The amount is a total of $187,932 and Taipei City Government has issued the certificate of permit for volume transfer to the Company in January 2011.
3. Fubon Securities
(a) Name and relationship of related party
Name of related party Relationship with the Company
Taipei Fubon Bank Co., Ltd. A subsidiary of the Company Fubon Bank (HK) A subsidiary of the Company Fubon Financial A subsidiary of the Company Fubon Futures A subsidiary of the Company MasterLink Securities Corporation Related parties in substance until
October 6, 2011
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Name of related party Relationship with the Company Yang Hsiang-Hsun Tsai Related parties in substance Fubon Investment Service Co., Ltd. A subsidiary of the Company Taiwan Future Exchange Related parties in substance Taiwan Mobile Co., Ltd. Related parties in substance Taiwan High Speed Rail Corporation Related parties in substance
(b) Significant transactions with related parties
a) Bank deposits, short-term borrowings, and other current assets
On December 31, 2011 and 2010, cash deposited in Taipei Fubon Bank was as follows:
Name of related party December 31, 2011
December 31, 2010
Demand deposits (including securities
brokerage account) $ 200,778 1,723,170
Time deposits $ 1,631,000 415,990 Restricted time deposits $ 506,000 506,000 Foreign deposits $ 332,449 714,439 Foreign currency time deposit $ 3,401,533 1,166,080
Interest rate intervals on the above deposits in Taipei Fubon Bank and Fubon Bank (HK) was 0.39%~1.95% and 0.15%~1.18%, and interest revenue was $52,991 and 14,728 for the years ended December 31, 2011 and 2010, respectively. As of December 31, 2011 and 2010, the Company had provided time deposits in Taipei Fubon Bank as operating deposits, refundable deposits and warrant deposits amounting to $1,132,000 and $1,114,000.
166
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Balances of short-term borrowing from Taipei Fubon Bank as of December 31, 2011 and 2010 were both $0. As of December 31, 2011 and 2010, unused credit facilities from Taipei Fubon Bank both amounted to $6,000,000. Time deposits pledged to Taipei Fubon Bank for short-term borrowings were $506,000 and $500,000 as of December 31, 2011 and 2010, respectively. The book value of land and buildings pledged to Taipei Fubon Bank for short-term borrowings were $1,556,197 and $901,372 as of December 31, 2011 and 2010, respectively. The Company also provided stock investments amounting to $1,699,200 and $2,439,500 to Taipei Fubon Bank as collateral for short-term borrowings as of December 31, 2011 and 2010, respectively, recorded as available-for-sale financial assets – current.
b) Futures trading margins receivable-(accounted for financial assets measured at fair
value through profit or loss) on December 31, 2011 and 2010, the Company to Fubon Futures in trade transactions, were deposited in the futures margin of $168,529 and $98,661, respectively.
c) Bond transactions with related party were as follows:
a. Bonds sold under repurchase agreement
2010
Name of related party Interest expense
Bonds sold under
agreements to repurchase,
December 31 Yang Hsiang-Hsun Tsai $ 424 140,000
The Company conducted bonds sold under repurchase agreement with related parties under current conditions at the interest of 0.46%~0.845 and 0.25%~0.27% for the year ended December 31, 2010.
b Trade not through GTSM
Purchase of bonds
For the years ended December 31, 2011
Name of related party Dealing amount
MasterLink Securities Corporation $ 503,507
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
For the years ended December 31,
2010
Name of related party Dealing amount
Taipei Fubon Commercial Bank $ 100,253
Sale of bonds
For the years ended December 31,
2011
Name of related party Dealing amount
MasterLink Securities Corporation $ 200,197
For the years ended December 31,
2010
Name of related party Dealing amount
Taiwan Futures Exchange $ 150,000 MasterLink Securities Corporation 105,050 $ 255,050
c) Available-for-sale financial assets – current
The balance of related parties’ shares held by the Company and the gain (loss) on disposal were as follows:
December 31, 2011
Name of securities Cost Gain (loss) on
valuation Taiwan Mobile $ 1,412,500 711,500
December 31, 2010
Name of securities Cost Gain (loss) on
valuation Taiwan Mobile $ 4,291,204 910,482
168
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2011
Name of securities Dividends Revenue
Gain (loss) on disposal
Taiwan Mobile $ 217,957 826,471
December 31, 2010
Name of securities Dividends Revenue
Gain (loss) on disposal
Taiwan Mobile $ 471,644 196,148
The Company disposed of common stock shares of Taiwan Mobile on December 31, 2011 subsequent to newly-enacted governmental regulations regarding share held by related parties. Ergo, it recognized gain on disposal of the shares by amount of $826,471 as Gain on disposal – Dealer.
d) Available-for-sale financial assets – non-current
The balance of related parties’ common stock shares held by the Company and the gain (loss) on disposal were as follows:
December 31, 2011
Name of securities Cost Accumulated impairment
Taiwan High Speed Rail $ 127,410 83,022
December 31, 2010
Name of securities Cost Accumulated impairment
Taiwan High Speed Rail $ 127,410 83,022 As of December 31, 2011 and 2010, the balance of related parties’ common stock shares held by the Company were not produce the related dividend income and gain on disposal.
169
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
e) Derivative financial instruments
As of December 31, 2011 and 2010, details of derivative financial instrument transactions with a related party were as follows:
Name of related party Item
December 31, 2011,
balance sheet amount
December 31, 2010,
balance sheet amount
Taipei Fubon Bank Interest rate swap $ 52,409 116,173 Taipei Fubon Bank Interest rate swap $ (21,243) (80,295)
f) Brokerage commission for introducing futures contracts
Fubon Securities accepted brokerage commission for introducing futures contracts of Fubon Futures, and its details were as follows: Commission revenue Commission receivable
Name of related party
For the year ended December 31,
2011
For the year ended December 31,
2010 December 31, 2011
December 31, 2010
Taipei Fubon Bank $ 130,943 114,964 8,924 10,333
g) Rental revenue (recognized in non-operating revenue)
Rental revenue Rental receivable
Name of related party
For the year ended December 31,
2011
For the year ended December 31,
2010 December 31, 2011
December 31, 2010
Taipei Fubon Bank $ 276,740 259,448 44,881 45,970
h) Professional expense
Professional expense Professional payable
Name of related party
For the year ended December 31,
2011
For the year ended December 31,
2010 December 31, 2011
December 31, 2010
Fubon Investment
Service Co., Ltd. $ 144,900 153,825 24,150 29,400
i) OTC stock fee income
Name of securities 2011 2010
Other $ 100,186 105,833
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
j) Owing to the regulatory authorities lessening up limitations on equity investments by brokerage firms, the board of directors of the Company resolved to purchase all the remaining 59,646 thousand shares of Fubon Investment Service originally held by Fubon financial Holding Co., Ltd. at NTD$21.58 per share in total of $1,287,055, and it registered with authorities on March 22, 2011. Subsequent to the acquisition of the shares, Fubon Investment Service has become a subsidiary company of the Company.
4. Taipei Fubon Bank and its subsidiary
(a) Name and relationship of related party
Name of related party Relationship with the Company Fubon Financial Holding Co., Ltd. Parent Company Fubon Insurance Co., Ltd. A subsidiary of the Company Fubon Life Insurance Co., Ltd. A subsidiary of the Company Fubon Securities Co., Ltd. A subsidiary of the Company Taiwan Sport Lottery Co., Ltd. A subsidiary of the Company Fubon Bank (HK) A subsidiary of the Company Taipei City Government A major shareholder of the
Company Funds managed by Fubon Asset Management Related parties in substance Taiwan High Speed Rail Corporation Related parties in substance Taiwan Cement Corporation Related parties in substance until
June 24, 2011 China Synthetic Rubber Corporation Related parties in substance until
June 24, 2011 Fubon Land Development Co., Ltd. Related parties in substance MasterLink Securities Corporation Related parties in substance until
October 1, 2011 HannStar Touch Solution Incorporated Related parties in substance
171
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Name of related party Relationship with the Company Citibank (Taiwan) Ltd. Related parties in substance Fuji Management Consultant Co., Ltd. (Fubon
Securities Financial Co., Ltd.) Related parties in substance
Taiwan Mobile Co., Ltd. Related parties in substance Taiwan Fixed Network Co., Ltd. Related parties in substance TFN Media Co., Ltd. Related parties in substance HannStar Touch Solution Incorporated Related parties in substance Others Directors, supervisors, managers
and their relatives up to the second degree; affiliated and the related parties in substance
(b) Significant transactions with related parties
a) Deposits and loans
2011
Name of related party Amount
Interest rate / service fee rate
(%)
Interest revenue
(expense) Deposits $ 91,968,916 0~6.315 (391,285) Due from banks $ 62,821 - - Loans $ 41,763,857 0~19.98 379,015
172
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2011
Category Amount or Name of
Related Party Highest Balance
Ending Balance Normal Overdue Type of Collateral
Differences in transaction terms between related and nonrelated
parties
Employee consumer loans
82 $ 27,041 23,818 ˇ - Credit None
House mortgages 343 2,428,597 2,281,815 ˇ - Land and buildings None Others Department of Urban
Development, Taipei City Government
1,894,594 1,637,076 ˇ - Public treasury guarantees
None
Department of Property,
Taipei City Government 2,000,000 - ˇ - Credit None
China Synthetic Rubber
Corporation 241,500 - ˇ - Credit None
Taipei City Government 26,764,823 14,164,823 ˇ - Public treasury guarantees
None
Taipei City Public
Transportation office 4,913,600 - ˇ - Public treasury
guarantees None
Department of Rapid Transit Systems, TCG
22,986,507 22,986,507 ˇ - Public treasury guarantees
None
Taipei Municipal Secured
Small Loans Service 7,777 6,161 ˇ - Public treasury
guarantees None
Fubon Land Development
Co., Ltd. 1,140,000 200,000 ˇ - Construction land None
HannStar Touch Solution 499,748 463,657 ˇ - Credit None Incorporated Total $ 62,904,187 41,763,857 -
2011
Name of related party Amount
Interest rate / service fee rate
(%) Interest revenue
Guarantees and
acceptances $ 9,000 1 122
December 31, 2011
Related party
Highest balance in
current period
Ending balance Provision Rate (%)
Type of collateral
TFN Media Co., Ltd. $ 9,000 9,000 - 1 Certificates of
deposit Taipei City
Government $ 5,437 - - 1 Credit
2010
Name of related party Amount
Interest rate / service fee rate
(%)
Interest revenue
(expense) Deposits $ 68,075,544 0~6.195 (312,405) Call loans to bank $ 911,058 0.01~1.85 13,585 Due from banks $ 150,847 - - Call loans from bank $ 4,273,609 0.005~0.9 (6,628) Loans $ 35,648,967 0~19.98 524,720
173
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010
Category
Amount or Name of
Related Party Highest Balance
Ending Balance Normal Overdue
Type of Collateral
Differences in transaction
terms between related and nonrelated
parties
Employee consumer loans
88 $ 33,845 28,628 ˇ - Credit None
House mortgages 356 2,457,453 2,385,929 ˇ - Land and
buildings None
Others Taiwan High Speed Rail Co., Ltd.
20,676,228 - ˇ - Approval by contract
None
China Synthetic Rubber Corporation
360,000 241,500 ˇ - Credit None
Taipei City Government
32,364,823 12,764,823 ˇ - Public treasury guarantees
None
Department of Urban Development, Taipei City Government
2,295,432 1,891,903 ˇ - Public treasury guarantees
None
Department of Rapid Transit Systems, TCG
10,586,507 10,586,507 ˇ - Public treasury guarantees
None
Taipei Municipal Secured Small Loans Service
9,040 7,777 ˇ - Public treasury guarantees
None
Taipei City Public Transportation office
4,741,900 4,741,900 ˇ - Public treasury guarantees
None
Department of Property, Taipei City Government
11,000,000 2,000,000 ˇ - Credit None
Fubon Land
Development 1,180,000 1,000,000 ˇ - Construction
land None
Co., Ltd. Total $ 85,705,228 35,648,967 -
2010
Name of related party Amount
Interest rate / service fee rate
(%) Interest revenue
Guarantees and
acceptances $ - 0.45~0.85 5,902
December 31, 2010
Related party
Highest balance in
current period
Ending balance Provision Rate (%)
Type of collateral
Taiwan High Speed
Rail Co., Ltd. $ 944,519 - - 0.78~0.85 None
(Approval by contract)
Taiwan Cement Corporation
$ 200,000 - - 0.45 None
Note: Provision is determined by total debts.
174
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
b) Bond transactions between Taipei Fubon Bank and its related parties were as follows:
Name of related party Transaction
types December 31, 2011
December 31, 2010
Fubon Life Insurance Co.,
Ltd. Bonds purchased $ 3,925,219 4,059,906
Fubon Insurance Bonds purchased - 155,235 Fubon Securities Bonds purchased 798,917 4,648,008 MasterLink Securities
Corporation Bonds purchased 863,044 1,006,068
MasterLink Securities Corporation
Bonds sold 750,770 52,046
MasterLink Securities Corporation
Securities purchased 9,043,946 -
Fuji Management Consultant Co., Ltd. (Fubon Securities Finance Co., Ltd.)
Bonds purchased 132,029 262,279
Taiwan Cement Corporation
Securities sold - 593,716
Citibank (Taiwan) Ltd. Bonds sold 705,663 155,927 Citibank (Taiwan) Ltd. Securities sold - 299,883 Taiwan High Speed Rail
Corporation Bonds sold under
repurchase agreements
391,000 240,000
Taiwan Fixed Network Co., Ltd.
Bonds sold under repurchase agreement
407,459 100,037
Taiwan Mobile Co., Ltd. Bonds sold under repurchase agreements
- 462,210
Ming-Chung Tsai Bonds sold under repurchase agreements
270,000 -
Cheng-Tao Tsai Bonds sold under repurchase agreements
129,600 -
Ming-Hsing Tsai Bonds sold under repurchase agreements
323,058 -
Yang-Hsiang-Hsan Tsai Bonds sold under repurchase agreements
352,666 -
Other 181,578 - Note: transactions of fund account.
175
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
c) Fund and stock transactions
Name of related party December 31, 2011
December 31, 2010
Fubon I REIT Securitization Fund $ 804,059 686,392 Fubon Fund 238,046 275,075 $ 1,042,105 961,467
d) Lease
Name of related party Nature Lease term
Rental expense 2011 2010
Fubon Insurance
Co., Ltd. Rent 2016.09 $ 138,546 156,568
Chung-Hsing Land Development
Rent 2014.12 178,150 187,043
Co., Ltd. $ 316,696 343,611
e) Insurance Insurance contracts with Fubon Insurance were as follows:
2011
Insured items Insured years Insured amount
Insurance expense
Cash 2011.4.20~2012.4.20 $ 200,000 411 Safety deposit box
liability insurance 2011.4.20~2012.4.20 150,000 666
Electrical equipment insurance
2011.11.1~2012.11.1 2,409,689 5,114
Fire insurance 2011.3.31~2012.3.1 5,516,013 2,342 Liability insurance 2011.4.20~2012.4.20 468,000 1,064 Banking insurance 2011.4.20~2012.4.20 122,500 9,188
176
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2010
Insured items Insured years Insured amount
Insurance expense
Cash 2010.4.20~2011.4.20 $ 200,000 415 Safety deposit box
liability insurance 2010.4.20~2011.4.20 150,000 670
Electrical equipment insurance
2010.11.1~2011.11.1 2,154,902 3,879
Fire insurance 2010.4.20~2011.4.20 5,284,367 1,997 Liability insurance 2010.4.20~2011.4.20 433,000 758 Banking insurance 2010.4.20~2011.4.20 122,500 9,390
f) Derivative financial instruments
Name of related party Instruments
December 31, 2011
December 31, 2010
Fubon Bank (HK) Interest rate swap
contract $ 267,239 262,622
Fubon Life Insurance Co., Ltd.
Interest rate swap contract
(809,587) (591,694)
Fubon Financial Cross currency (211,692) (226,314) Holding Co., Ltd. swap contract $ (754,040) (555,386)
177
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
g) Others
Name of related party 2011 2010 Receivable –Taiwan Sport Lottery Co., Ltd. $ 2,146,814 1,753,079 Receivable –Fubon Life Insurance Co., Ltd.
Ltd. 563,810 284,897
Service fee – Fubon Life Insurance Co., Ltd. 3,465,516 1,992,604 Service fee – other 291,193 333,189 Service expense – Taiwan Sport Lottery
Co., Ltd. 356,716 416,619
Service expense – other 95,698 134,486 Other income – Taiwan Sport Lottery Co.,
Ltd. 2,033,421 1,316,834
Insurance expense – other 116,181 105,497 Other operating expense – other 194,656 227,842 Structure of the principal amount of good 2,750,000 2,750,000
received – Fubon Life Insurance Co., Ltd $ 12,014,005 9,315,047 Transactions between the Bank and related parties were at arm’s length commercial terms, except for the preferential interest rates offered to employees for savings and loans of up to certain amounts. Under the Banking Law, except for consumer and government loans, credits extended by the Bank to any related party should be fully secured, and the credit terms for related parties should be similar to those for unrelated parties.
h) Taipei Fubon Bank and Fubon Securities had signed the settlement contract and
cooperation expenses contract, and Taipei Fubon Bank has to share the expenses based on deposits calculation of customers of Fubon securities which deposit in Taipei Fubon Bank. Taipei Fubon Bank had to pay the rent expenses for Fubon Securities. The expenses amounted to $277,284 and $257,054, respectively, for the years ended December 31, 2011 and 2010.
5. Fubon Bank (Hong Kong)
(a) Name and relationship of related party
Name of related party Relationship with the Company Taipei Fubon Bank Co., Ltd. A subsidiary of the Company
178
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(b) Significant transactions with related parties as of and for the years ended December 31, 2011 and 2010 were as follows: a) Deposits
December 31, 2011
December 31, 2010
Taipei Fubon Bank Co., Ltd. HKD 18,182 HKD 273,292
b) Loans
December 31, 2010
December 31, 2009
Taipei Fubon Bank Co., Ltd. HKD 1,954 HKD 1,117,875
6. Fubon Financial Holding Venture Capital and its subsidiary
(a) Name and relationship of related party
Name of related party Relationship with the Company Taipei Fubon Bank Co., Ltd. A subsidiary of the Company Big Rich Media Co., Ltd. Related parties in substance Funds managed by Fubon Asset Management Related parties in substance
(b) Significant transactions with related parties
a) Deposits
Taipei Fubon Bank Co., Ltd. December 31, 2011
December 31, 2010
Foreign currency deposits $ 2,505,119 - For the years ended December 31, 2011 and 2010, the interest revenue was $6,498 and $74, respectively, and interest receivable was $4,646 and $0, respectively.
179
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
b) Funds purchased by Fubon Financial Holding Venture Capital and managed by Fubon Asset Management Co., Ltd. were as follows:
Name of related party December 31, 2011
December 31, 2010
Fubon Chi-hsiang Fund $ 929,208 849,288
c) On July 13, 2011, Fubon Financial Holding Venture capital has resolved to sell 58,857 thousand shares of Fubon Multimedia Technology Co., Ltd. at NTD$141.84 per share, and gain on disposal of this investment amounted to $7,408,006.
7. Fubon Direct Marketing Consulting
(a) Name and relationship of related party
Name of related party Relationship with the Company Fubon Insurance Co., Ltd. A subsidiary of the Company Taipei Fubon Bank Co., Ltd. A subsidiary of the Company Fu-sheng Life Assurance Agent Co., Ltd. A second-tier subsidiary of the
Company Fu-sheng General Insurance Agent Co., Ltd. A second-tier subsidiary of the
Company
(b) Deposits
Name of related party December 31, 2011
December 31, 2010
Taipei Fubon Bank Co., Ltd. $ 130,576 149,639
Interest revenue for the years ended December 31, 2011 and 2010, amounting to $217 and $222, respectively.
180
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(c) Operating revenue
Name of related party December 31, 2011
December 31, 2010
Fubon Insurance Co., Ltd. $ 104,153 265,345 Fu-sheng Life Assurance Agent Co., Ltd. 434,812 507,349 Fu-sheng General Insurance Co., Ltd. 198,337 70,832 $ 737,302 843,526
The details of account receivables generated from transactions above were as follows:
Name of related party December 31, 2011
December 31, 2010
Fubon Insurance Co., Ltd. $ 28,221 50,435 Fu-sheng Life Assurance Agent Co., Ltd. 84,254 81,714 Fu-sheng General Insurance Co., Ltd. 41,140 14,970 $ 153,615 147,119
8. Fubon Asset Management Service
(a) Name and relationship of related party
Name of related party Relationship with the Company Taipei Fubon Bank Co., Ltd. A subsidiary of the Company
(b) Significant transactions with related parties-Deposits
Name of related party December 31, 2011
December 31, 2010
Taipei Fubon Bank Co., Ltd. $ 309,423 54,440
9. Taiwan Sport Lottery
(a) Name and relationship of related party
Name of related party Relationship with the Company Taipei Fubon Bank Co., Ltd. A subsidiary of the Company
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(b) Significant transactions with related parties a) Deposits
Name of related party 2011 2010 Taipei Fubon Bank Co., Ltd. $ 149,328 187,492 Interest revenue for the years ended December 31, 2011 and 2010, amounting to $335 and $107, respectively.
b) Other payable
Name of related party 2011 2010 Taipei Fubon Bank Co., Ltd. $ 2,143,664 1,658,608 According to the contract, TSL should achieve a sales revenue which is determined based on a guaranteed annual turnover. As of December 31, 2011, TSL accrued a loss of $1,975,664 for not achieving the guaranteed annual turnover in 2011 and 2010 and a payable (reversal) of $1,000 and $(21,000) for overruns bonus.
c) Operating revenue
Name of related party 2011 2010 Taipei Fubon Bank Co., Ltd. $ 356,716 416,619
d) Not achieving the guaranteed annual turnover
Name of related party 2011 2010 Taipei Fubon Bank Co., Ltd. $ 1,975,590 1,258,608
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Notes to Consolidated Financial Statements
(Continued)
(36) Pledged Assets As of December 31, 2011 and 2010, the book values of pledged assets were as follows:
Pledged assets Purpose of Pledge December 31, 2011
December 31, 2010
Time deposits
(accounted for as refundable deposits)
Guarantee deposits for Insurance Business
$ 461,570 80,424
Time deposits (accounted for as refundable deposits)
Guarantee deposits for lease - 485
Time deposits Bank loans 68,426 96,688 Certificates of deposits
(accounted for pledged assets)
Collateral for day-term overdraft - 50,312
Time deposits (accounted for as available-for-sale financial assets)
Placement with courts of justice for various over-due loan collection cases and National Credit Card Center to secure potential obligation arising from credit card activities
- 1,079,397
Time deposits (accounted for as refundable deposits)
Bid bond 630 -
Stock (accounted for as available-for-sale financial assets)
Collateral for day-term overdraft 1,348,200 -
Held-to-maturity financial assets
Placement with courts of justice for various over-due loan collection cases and National Credit Card Center to secure potential obligation arising from credit card activities
20,066,637 1,109,384
Stock (accounted for as available-for-sale financial assets)
Collateral for day-term overdraft - 2,439,500
Government bonds Guarantee deposits for Insurance Business
5,210,524 5,082,420
Government bonds (accounted for held-to-maturity financial assets-non-current)
Guarantee deposits for Insurance Business
1,426,136 -
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Pledged assets Purpose of Pledge December 31, 2011
December 31, 2010
Government bonds
(accounted for debt investment in non-active market)
Guarantee deposits for Insurance Business
$ 773,503 -
Fixed assets – land and buildings
Bank loans 1,458,515 1,055,923
Leased assets – land and buildings
Bank loans 465,440 382,086
Idle assets – land and buildings
Bank loans 181,641 145,656
Negotiable certificate of deposits (accounted for as held-to-maturity financial assets)
Collateral for day-term overdraft 20,066,637 10,000,000
Certificates of deposits (accounted for pledged
111,612 -
assets) $ 51,990,471 21,522,275 For the years ended December 31, 2011 and 2010, operating deposits and refundable deposits in Taipei Fubon Bank Co., Ltd. amounted to $1,398,020 and $1,167,328, respectively, were eliminated when the Company compiled its consolidated financial report.
(37) Contingent Liabilities and Commitments
1) Legal matters of Fubon Insurance
1. As of December 31, 2011, Fubon Insurance had several insurance disputes and was
requested to pay indemnities amounting to approximately $679,866, of which approximately $419,290 was reinsured. The difference not covered by reinsurance related to these claims had been accrued. These cases were still pending with the district court and had not been resolved as of December 31, 2011.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2. Tainan City Government claimed that a separating employee of Fubon Insurance used an insurance policy without “sample” icon seal, resulting to a loss of $223,500. Consequently, Tainan City Government requested the related person and Fubon Insurance to pay indemnities for the loss but this case was refuted by Taiwan Tainan District Court. However, Tainan City Government filed an appeal for retrial. Nevertheless, Fubon Insurance lost the lawsuit at the second trial in March 2009. Fubon Insurance appealed to a higher court and recognized the related liabilities at the same time. On September 17, 2009, The Supreme Court ruled that the remand order for this case to Taiwan High Court Tainan Branch Court. On November 29, 2011 appeal dismissed and Taiwan City Government appealed to Supreme Court.
2) Legal matters of Fubon Life Insurance
As of December 31, 2011, Fubon Life Insurance had 56 important insurance lawsuits for which it was requested to pay total indemnities for losses of approximately $185,582. Those losses had been accrued.
3) Contingent liabilities and commitments of Fubon Securities 1. As of December 31, 2011, Fubon Securities had several proxy delivery agreements with
certain securities companies. In accordance with these agreements, the companies have agreed to be Fubon Securities’ first and second proxy. If Fubon Securities is unable to fulfill its obligations to the TSE, the proxies must then act pursuant to said obligations and responsibilities. Fubon Securities has reciprocated by agreeing to act as the first or second proxy for these companies. Fubon Futures had several proxy delivery agreements with certain futures companies. In accordance with these agreements, the companies have agreed to be Fubon Futures’ first and second proxy. If Fubon Futures is unable to fulfill it obligations to the TAIFEX, the proxies must then act pursuant to said obligations and responsibilities.
2. There were several disputes that former brokers had with clients due to securities brokerage transactions. Also, there were several disputes in which brokers of the Futures IB group of Fubon Securities had with clients due to future transactions. The clients filed lawsuits against Fubon Securities and Future IB group of Fubon Securities for damages. According to the adjudication, as of December 31, 2011, Fubon Securities recognized the indemnification loss of $22,427, and remaining claims for indemnification loss of $93,000 were still under judicial examination. In the opinion of Fubon Securities lawyer, this charge was committed by the former brokers without involvement of Fubon Securities. But the actual result will be still based on the judicial judgments.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
3. The procurator of the Taipei District Court indicted the Company and asked for a penalty below $2,000 because a broker of the Company promised to engage in profit-taking futures transactions. In December 2008, the Taipei District Court ordered the Company to pay a penalty of $1,000, but the Company appealed to a higher court. Based on conservatism, the Company had made provision for lawsuit loss of $1,000 in 2008. On March 10, 2011, the Company has cancelled the appeal and paid the fine of $1,000. The Company paid the fine $1,000 on June 2, 2011. Customers of the Company, Mr. Liu and nine other persons, requested the Company to absorb all losses on their futures investment amounting to $237,644. In 2010, the requested amount was changed to $238,629 because of two customers, Miss Chen and Miss Lin. The Company reached a settlement with Mr. Wang and paid $390 to Mr. Wang in 2009. Pursuant to the first trial judgment made by the Taipei District Court in 2010, the Company had to pay Mr. Lee $9,400, but the Company appealed to a higher court. In April, 2011, the Company has reached an agreement with Mr. Lee and paid $6,207 as compensation for his loss. In July, 2011, the result of the judicial judgments rejected an appeal of Miss Lin, and Miss Lin appealed to the highest judicial court. In November, 2011, the highest judicial court decided to reject this appeal, Miss Lin should pay about $800 as judgment fees. The Company won the lawsuit in February, 2012, the final sentence of the highest judicial court assured the company not to pay Miss Lin $21,000. Based on the lawyer’s opinion, the Company’s absorbing of losses requested by the remaining customers would be $25,600, and the Company had made provision for loss. But the final result will be still based on the judicial judgments.
4) Contingent liabilities and commitments of Taipei Fubon Bank 1. As of December 31, 2011, Taipei Fubon Bank had sold bills and bonds under repurchase
agreements of $28,541,270 which should be repurchased before May 30, 2012.
As of December 31, 2011, the Bank’s investments in financial assets at fair value through profit or loss, available-for-sale financial assets and held-to-maturity financial assets, net, amounting to $484,897 and $28,961,478 and $484,635, respectively, had been sold under repurchase agreements.
2. Bills and bonds purchased under resell agreements of $200,046 which should be resell before January 3, 2012.
3. As of December 31, 2011, Taipei Fubon Bank engaged in important construction and
purchase contracts amounted to $341,629, of which $49,528 was unpaid. 4. Taipei Fubon Bank sold a building in the Neihu District to Land Bank under a sell-and-
leaseback on March 24, 2006. The gain on disposal of the building amounts to $295,819. Taipei Fubon Bank will rent the building for another ten years, so Taipei Fubon Bank will re-estimate the unrealized leaseback gain by the new tenancy from January 1, 2009, and recognized during the 124-month leaseback period.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
5. In 2008 and 2009, the Bank remitted earnings of approximately $0.68 and $1.847 billion, respectively, to the Ministry of Finance. On September 7, 2010, the Sports Affair Council issued an order demanding the Bank to remit an additional $0.788 billion to meet the shortfall on the 2008 and 2009 earnings.
In the Bank’s point of view, the shortfall was caused by factors beyond the Bank’s control such as delay in the dealers’ operation and technical difficulties with phone and internet bidding services. The Bank considered it was under no obligation to remit additional shortfall to the MOF, hence, it filed an appeal with the Executive Yuan on October 5, 2010. On May 19, 2011, The Executive Yuan accepted the statement of the Sports Affair Council instead of the Bank and rejected the Bank’s appeal. On July 20, 2011, the Bank filed an administrative litigation to Taipei High Administrative Court, and the litigation was being reviewed. In 2010, the Bank remitted $1.974 billion to the treasury. On March 16, 2011, the Sports Affair Council issued new order requiring the Bank to remit an additional $1.587 billion based on its own calculation. The bank claimed that the revenues and the target earnings of 2010 should be set lower because directly-managed stores were not operated, and factors which are beyond the Bank’s control, such as the events of 2008 and 2009 and economic condition. The Bank then filed an appeal with the Executive Yuan for 2010’s target earnings on March 22, 2011, however, the Executive Yuan rejected the appeal on June 17, 2011. On August 17, 2011, the Bank filed an administrative litigation to Taipei High Administrative Court, and the litigation was being reviewed. According to the plan, the Bank had paid $1.66 billion to the treasury in 2011. However, on January 20, 2012, the Sports Affair Council required the Bank to remit an additional $2.352 billion to the treasury. Claiming that the Bank had setbacks from 2008 to 2010 due to factors beyond its control and that the Bank could sell its sports lottery tickets only through physical sales channels, the Bank claimed the revenue and target earnings of 2011 should be calculated on the basis of physical sales channels only. To protect its rights and interests, the Bank filed an appeal with the Executive Yuan on February 13, 2012.
6. The Bank had sold to customers financial products linked to securities issued by Lehman Brothers Company (LEH), but LEH filed for bankruptcy in September 2008. The customers then filed a claim for settlement of losses on the LEH-linked financial products. The Bank had estimated a related loss of $420,000 and appropriated the reserve. As of December 31, 2011, the Bank had compensated $287,966 in cash.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
7. Lehman Brothers Asia (“Lehman”) participated in the loan syndication of Taiwan High Speed Rail Co., Ltd. In October 2009, as the lead syndicator and custodian of the loan, the Bank collected interest of $198,356 from Taiwan High Speed Rail Co., Ltd., which was payable to Lehman. Later, the Bank decided to cease interest payment due to Lehman’s default on a loan of US$10,000 thousand it borrowed from the Bank’s New York Branch as a result of Lehman’s Chapter 11 declaration. In November 2010 and December 2011, the Taipei District Court and the Taiwan High Court ruled in favor of Lehman. The Bank has filed an appeal with the Taiwan Supreme Court.
8. As of December 31, 2011 and 2010, trust assets with Taipei Fubon Bank amounted to
$307,218,177 and $350,556,553, respectively.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Balance Sheet of Trust Accounts December 31, 2011
(In thousands of New Taiwan Dollars)
Real estate trust assets
Other trust assets Total
Trust assets Bank deposits $ 16,277 687,805 704,082 Short-term investment
Bonds - 11,484,982 11,484,982 Stocks - 24,704,023 24,704,023 Funds - 172,498,129 172,498,129 Borrowed stock-common
stock - 3,373,185 3,373,185
Taiwan depositary receipts - 293,951 293,951 Real estate
Construction in process - 2,037,372 2,037,372 Land 442,096 9,296,975 9,739,071 Building 176,307 159,362 335,669
Securities investment trust fund - 82,047,713 82,047,713 custody
Total trust assets $ 634,680 306,583,497 307,218,177 Trust liabilities
Payables $ 5,436 828 6,264 Other liabilities 13,044 - 13,044 Trust capital 515,000 228,774,639 229,289,639 Reserve and accumulated
earnings
Accumulated earnings (loss) 2,714 (7,540,458) (7,537,744) Asset revaluation surplus 98,510 - 98,510 Net income (24) 3,300,775 3,300,751
Entrusted exchange traded funds - 82,047,713 82,047,713 Total trust liabilities $ 634,680 306,583,497 307,218,177
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Balance Sheet of Trust Accounts December 31, 2010
(In thousands of New Taiwan Dollars)
Real estate trust assets
Other trust assets Total
Trust assets Bank deposits $ 16,198 35,933,765 35,949,963 Short-term investment
Bonds - 19,881,346 19,881,346 Stocks - 28,812,962 28,812,962 Mutual funds - 171,588,781 171,588,781
Stock borrowing – common stock investment
- 356,324 356,324
Real estate Construction in process - 1,501,602 1,501,602 Land 442,096 1,902,325 2,344,421 Buildings 176,307 565,871 742,178
Entrusted exchange traded funds - 89,378,976 89,378,976 Total trust assets $ 634,601 349,921,952 350,556,553
Trust liabilities Payables $ 5,332 515 5,847 Other liabilities 13,044 - 13,044 Trust capital 515,000 263,963,673 264,478,673 Reserve and accumulated
earnings
Accumulated earnings (loss) 2,662 (11,149,028) (11,146,366) Asset revaluation surplus 98,510 - 98,510 Net income 53 7,727,816 7,727,869
Entrusted exchange traded funds - 89,378,976 89,378,976 Total trust liabilities $ 634,601 349,921,952 350,556,553
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
5) Contingent liabilities and commitments of Taiwan Sport Lottery Taiwan Sport Lottery is established to operate a sport lottery business entrusted by Taipei Fubon Bank. Taiwan Sport Lottery engaged a contract with Taipei Fubon Bank on May 27, 2009. The term of contract is from May 27, 2009 to July 31, 2014. According to the contract, Taiwan Sport Lottery should achieve a sales revenue which is determined based on a guaranteed annual turnover that is equal to 80% of the annual turnover target set by the regulatory authorities considering the economic environment and other factors. After the right of distribution expires, if the amount of total lottery prizes exceeds 75% of total lottery issuing amount, Taiwan Sport Lottery should afford the excess amount. If this sales revenue is not achieved, Taipei Fubon Bank has to pay the government for the shortfall between the actual sales revenue and the guaranteed sales revenue. However, the Taiwan Sport Lottery has to compensate Taipei Fubon Bank with lower amount of the following two alternatives: (a) the difference mentioned above and (b) the amount which Taipei Fubon Bank has actually paid to the government. In addition, according to the contract, Taipei Fubon Bank should transfer the technical service contract and software license agreement that it signed with HKJC and HKJCBV to Taiwan Sport Lottery. On February 8, 2010, Taipei Fubon Bank, the principal, and Taiwan Sport Lottery requested the Sports Affairs Council to amend and decrease the guaranteed annual turnover, or Taipei Fubon Bank and Taiwan Sport Lottery shall request to stop issuing sport lottery because of operating deficit. The Sports Affairs Council has replied letter to Taipei Fubon Bank that demand to pay the shortfall of guaranteed earning for 2010 and 2009 on September 7, 2010, acting as the issuer (Taipei Fubon Bank) of the Sports Lottery, The Bank has filed an appeal to the Executive Yuan after not achieving the minimum guaranteed earnings. According to the contract, an estimate of $0.243 billion is accrued by Taiwan Sports Lottery in 2010. About the guaranteed earning for 2010, in response to the request from the Bank to the Sports Affairs Council on October 14, 2010 regarding the reduction of guaranteed earning for the year 2010 due to changes in the channels of distribution and the impact of domestic economy, Taiwan Sports Lottery has also accrued approximately an additional $0.322 billion. The Sports Affairs Council issued an order requesting the Bank to remit guaranteed earning for the year 2010, the Bank has filed an appeal to the Executive Yuan again on March 22, 2011, however, the Executive Yuan rejected the appeal on June 17, 2011. On August 17, 2011, the Bank filed an administrative litigation to Taipei High Administrative Court, and the litigation was being reviewed. Taiwan Sport Lottery considered result of petition and that Taiwan High Administrative Court rejected Taipei Fubon Bank to stop administrative sanctions in MOF on March 30, 2011 and January 20, 2012, the Sports Affair Council required the Bank to paid target earnings. According to the contract, an estimate of not achieving the minimum guaranteed earnings at $1,975,664 is accrued by Taiwan Sports Lottery.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
6) Contingent liabilities and commitments of AMC
AMC filed an auction of land from Mr. Pan and received a sum of money from executive court. Purchaser of Mr. Chang advocated the contract is invalid because a part of the land was area of legal vacant lot on October, 2011. He also requested to pay amounting of $2,761. The litigation has been judged by Pingtung District Court. Indicated by the lawyer, if the litigation was judged that the land could not transfer Fubon AMC should pay the money. Fubon AMC would lose a lawsuit.
7) Operating leases
The lease contracts for office space have expiry dates through 2015. The future lease payments for these contracts are approximately as follows: Amount From January 1, 2012, to December 31, 2012 $ 1,787,475 From January 1, 2013, to December 31, 2013 1,216,764 From January 1, 2014, to December 31, 2014 814,781 From January 1, 2015, to December 31, 2015 273,591 From January 1, 2016, to December 31, 2016 88,241 $ 4,180,852
(38) Significant Loss of Damage: None. (39) Significant Subsequent Events:
Taiwan Sport Lottery applied to a capital reduction plan to offset company losses amounting $1,949,999 in a stockholders’ meeting on March 19, 2012. After deduting the 194,999 thousand shares of common stock, Taiwan Sport Lottery applied to increase share capital by cash. Taiwan Sport Lottery will issue 344,999 shares of common stock with par value NTD$10, amounted to 3,449,999.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(40) Other
1) Summary of personnel costs and depreciation, depletion and amortization expenses
A summary of personnel costs and depreciation, depletion and amortization expenses for the years ended December 31, 2011 and 2010, were as follows:
2011 2010
Function Cost of Operating Cost of Operating Nature goods sold expenses Total goods sold expenses Total Personnel costs:
Salaries 9,726,325 15,836,132 25,562,457 8,749,011 15,964,889 24,713,900 Labor and health insurance 33,448 1,620,133 1,653,581 55,743 1,478,357 1,534,100 Pension 405,109 1,313,287 1,718,396 468,287 1,244,793 1,713,080 Other employment costs 23,304 1,968,792 1,992,096 38,149 1,895,846 1,933,995
Depreciation expenses 508,644 1,182,346 1,690,990 395,269 1,506,136 1,901,405 Depletion expenses - - - - - - Amortization expenses 100,240 556,467 656,707 104,720 630,756 735,476
2) Reclassification
To conform to the presentation adopted for the consolidated financial statements as of and for the year ended December 31, 2011, certain items of the financial statements as of December 31, 2010, have been reclassified.
3) Fubon Life Insurance restated the financial statements for the year ended December 31, 2010 and
for the three-month period ended March 31, 2011 in accordance with the letter Jin-Guan-Jian-Pao No.10001602330 issued by Financial Supervisory Commission, Executive Yuan, R.O.C. on August 23, 2011. This letter stipulated that available-for-sale financial assets transaction, which is the same stock in same quantity and price(or similar price) to sell and purchase, regarded as not for sale. The effects of restatement of the Company’s financial statement were as follows:
December 31, 2010
Item Before restate After restate
Increase (decrease)
Unrealized gain (loss) on financial
instruments $ 24,279,998 26,274,647 1,994,649
Realized earnings 30,057,143 28,062,494 (1,994,649)
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
According to rules, the Company adjusted retained earnings on January 1, 2011.
March 31, 2011
Item Before restate After restate
Increase (decrease)
Unrealized gain (loss) on financial
instruments $ 15,436,598 16,617,630 1,181,032
Realized gain on available-for-sale financial instruments
6,517,807 5,390,874 (1,126,933)
Other non-interest income 1,609,651 1,663,750 54,099 According to rules, the Company needs to restate financial statement of March 31, 2011. As of the report date, the Company had restated financial statement.
4) Business or trading behaviors within Subsidiaries:
1. Business or trading behaviors: Please see Note 34 for your reference.
2. Integrate business activities: Commencing from 2005, the Company changed the operating mode in information cross application and marketing cooperation aspect by established six business groups consisting of corporate finance, financial market, consumer finance, wealth management, investment and insurance. By promoting sales cooperation aggressively, the Company is excepting to make it more effective and efficient. In June 2009, Fubon Life Assurance and ING Life Insurance were officially merged. Thereafter, it has strengthened cooperation with the Company’s subsidiaries so as to promote sales.
3. Cross utilization of information: In support of government’s policy for financial holding company and its subsidiaries, the Company and its subsidiaries concluded and signed “Agreement of Privacy Exchange” on January 1, 2002, to cope with the change of duties in the Company and to enhance the protection of privacy. The related information is disclosed on the web sites of any subsidiaries. In accordance with government’s policy and the Company’s self-discipline standard, customers could notify the Company and its subsidiaries to stop using their personal information among subsidiaries for cross-marketing. This standard s accessible in the web site of each subsidiary.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
4. Locations and business utilities: The Company applied to government for “Location set up for operating other business” and had been approved in August 2002 and April 2003, separately. Taipei Bank and Fubon Bank were officially merged and applied for new operating location in 2005. By 2011, Taipei Fubon Bank has 119 branches, which also operate securities and insurance business; 6 other branches set up insurance counters. Fubon Securities has 61 branches, which also operate banking and insurance business. They provide securities, insurance, and banking services in banks’ and securities’ branches. In August 2011, Fubon Future applied and had been approved to operate banking, insurance and securities business.
5. Allocation on revenues, costs, expenses, profits and losses: Allocation of Revenue, Cost and Expense is calculated based on the proportion of actual sales among subsidiaries. The estimated amount for the year ended December 31, 2011, was as follows:
Name Amount Fubon Insurance $ 398,872 Taipei Fubon Bank 52,741 Fubon Life Insurance 3,225,358 Fubon Securities 4,062
5) Capital adequacy ratios
As of December 31, 2011 (Expressed in millions of New Taiwan Dollars)
Item Ownership
interest Eligible capital Legal capital The Company 100.00% 240,468 261,941 Taipei Fubon Bank 100.00% 125,244 74,315 Fubon Bank (HK) 100.00% 21,649 10,899 Fubon Securities 100.00% 24,181 7,017 Fubon Insurance and Fubon Life
Insurance 100.00% 99,573 65,523
Fubon Financial Holding Venture Capital
91.67% 10,453 5,658
Taiwan Sport Lottery Corporation 100.00% (1,957) 209 Others 100.00% 3,412 1,832 Less: deductible item (288,325) (261,132) Subtotal 234,698 166,262 Consolidated capital adequacy ratios 141.16%
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
As of December 31, 2010 (Expressed in millions of New Taiwan Dollars)
Item Ownership
interest Eligible capital Legal capital The Company 100.00% 224,173 240,059 Taipei Fubon Bank 100.00% 110,844 68,254 Fubon Bank (HK) 75.00% 18,054 7,923 Fubon Securities 100.00% 24,428 9,369 Fubon Insurance and Fubon Life
Insurance 100.00% 102,292 61,617
Fubon Asset Management 39.76% 987 485 Fubon Financial Holding Venture
Capital 91.67% 3,543 1,776
Taiwan Sport Lottery Corporation 51.00% (919) 141 Others 100.00% 3,236 2,093 Less: deductible item (261,094) (239,462) Subtotal 225,544 152,255 Consolidated capital adequacy ratios 148.14%
6) Eligible capital
(Expressed in thousands of NTD)
Item
Amount December 31,
2011 December 31,
2010 Common stock 90,137,379 85,583,663 Capital surplus 54,968,575 54,416,660 Legal reserve 25,953,363 23,962,851 Special reserve 1,669,704 1,285,676 Accumulated profit 43,757,287 30,057,143 Equity adjustments 17,253,519 22,471,083 Other subordinated bonds 6,800,000 6,800,000 Less: Deferred assets 14,550 16,553 Less: Treasury stock 57,144 387,548 Consolidated eligible capital 240,468,133 224,172,975
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
7) The aggregate amount of credit extended, guarantees given, or other transactions conducted by all subsidiaries of the financial holding company to, for, or with the same person, same related person or same affiliate:
(In millions of New Taiwan Dollars; %)
December 31, 2011
Name
Aggregate amount of
credits, guarantees or
any other transactions
Aggregate ratio of the financial
holding company’s net
worth The same person
Central Bank 658,779 281.08 Taiwan Power Company 90,108 38.45 Chunghwa Telecom Co., Ltd. 52,424 22.37 US TREASURY 36,721 15.67 FREDDIE MAC 24,383 10.40 Department of Rapid Transit Systems 22,987 9.81 Taiwan Mobile Co., Ltd. 18,615 7.94 FANNIE MAE 18,205 7.77 Taipei City Government 18,037 7.70 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
17,988 7.68
Industrial Zone Development and Administration Fund 17,800 7.59 Taiwan Semiconductor Manufacturing Co., Ltd. 17,350 7.40 CHIMEI Optoelectronics Corp. 17,031 7.27 HSBC BANK PLC 16,922 7.22 New Taipei City Government 16,893 7.21 CPC Corporation 16,243 6.93 FRENCH GOVERNMENT 15,989 6.82 HK GOVERNMENT EXCHANGE FUND 15,624 6.67 Finance Bureau Kaohsiung City Government 14,900 6.36 Formosa Petrochemical Corp. 14,447 6.16 CHINA DEVELOPMENT BK/HON 15,049 6.42 Land Bank Co., Ltd. 13,347 5.69 Taiwan Railway Administration 13,260 5.66 BNP PARIBAS 13,169 5.62 Tainan City Government 13,149 5.61 UBS AG 13,089 5.58 Deutsche Bank 13,000 5.55 WESTPAC BANKING CORP 12,700 5.42 Yuanta Bank Co., Ltd. 12,123 5.17 BARCLAYS BANK PLC 12,065 5.15
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2011
Name
Aggregate amount of
credits, guarantees or
any other transactions
Aggregate ratio of the financial
holding company’s net
worth Commonwealth Bank of Australia 11,800 5.03 SPAIN GOVERNMENT 11,549 4.93 NATIONAL AUSTRALIA BANK 11,273 4.81 AU Optronics Corp. 11,141 4.75 Kaohsiung City Bus Service Administration 11,004 4.69 ING BANK N.V. 10,474 4.47 AUST & NZ BANKING GROUP 10,274 4.38 CREDIT AGRICOLE CIB 10,268 4.38 GERMANY GOVERNMENT 10,166 4.34 JP Morgan 10,059 4.29 KREDITANSTALT FUER WIEDERAUFBAU 9,903 4.23 Dragon Steel Corporation 9,728 4.15 Societe Generale 9,711 4.14 RABOBANK NEDERLAND 9,641 4.11 ROYAL BANK OF SCOTLAND PLC/THE 9,326 3.98 REPUBLIC OF INDONESIA 9,303 3.97 Formosa Chemicals & Fiber Corporation 9,288 3.96 Taiwan Cooperative Bank 9,146 3.90 Nanya Plastics Corporation 8,951 3.82 WELLS FARGO & CO 8,730 3.72 RUSSIAN FEDERATION 8,504 3.63 China Trust Financial Holding Co., Ltd. 8,307 3.54 CITIGROUP FUNDING INC 8,283 3.53 BBVA GLOBAL MARKETS BV 8,097 3.45 RSEA Engineering Corp. 7,987 3.41 CREDIT SUISSE 7,889 3.37 Bank of America 7,879 3.36 NOTA DO TESOURO NACIONAL 7,806 3.33 China Trust Commercial Bank 7,716 3.29 Miaoli County Government 7,666 3.27 Taipei Financial Center Corporation 7,442 3.18 DBS BANK LTD 7,148 3.05 EUROPEAN INVESTMENT BANK 6,929 2.96 BlackRock Fund Advisors 6,898 2.94 FORMOSA PLASTIC CORPORATION 6,727 2.87 HUA NAN Commercial Bank Co., Ltd. 6,709 2.86 NORDDEUTSCHE LANDESBANK 6,275 2.68
198
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2011
Name
Aggregate amount of
credits, guarantees or
any other transactions
Aggregate ratio of the financial
holding company’s net
worth China Steel Corporation 6,218 2.65 Taichung City Government 6,200 2.65 China Airlines Corporation 6,065 2.59 LLOYDS TSB BANK PLC 6,060 2.59 NRW BANK 5,715 2.44 China Development Industrial Bank 5,483 2.34 CHANG HWA BANK 5,366 2.29 MORGAN STANLEY 5,310 2.27 Bank Sinopac Co., Ltd. 5,170 2.21 Goldman Sachs 5,065 2.16 Foxconn Technology Corporation 5,029 2.15 Securities Investment Trust 5,004 2.14 Taiwan Water Corporation 5,000 2.13 Cathay Financial Holding Co., Ltd. 4,837 2.06 MEGA International Commercial Bank Co., Ltd. 4,758 2.03 Taishin Securities Investment Trust Co., Ltd. 4,700 2.01 Cathay United Bank 4,516 1.93 Standard Chartered Bank (Taiwan) Limited 4,449 1.90 Yilan County Government 4,333 1.85 MEGA Financial Holding Co., Ltd. 4,325 1.85 Yuata Securities Investment Trust Co., Ltd. 4,301 1.84 International Bank for Reconstruction & Dev 4,206 1.79 First Securities Investment Trust Co., Ltd. 4,201 1.79 SHOUGANG CONCORD INT’L ENT CL 4,165 1.78 BONOS TESORERIA PESOS 3,967 1.69 Svensk Exportkredit AB 3,810 1.63 EKSPORTFINNS A/S 3,589 1.53 EVA Airways Corporation 3,504 1.49 COMMERZBANK AG 3,293 1.41 CITI GROUP 3,253 1.39 Lite-On Technology Corporation 3,235 1.38 PCA Securities Investment Trust Co. 3,140 1.34 CIE FINANCEMENT FONCIER 3,138 1.34 3,124 1.33 Taishin Financial Holding Co., Ltd. 3,083 1.32 Powerchip Semiconductor Corp. 3,070 1.31 Invesco Aim Management Co., Ltd. 3,041 1.30
199
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2011
Name
Aggregate amount of
credits, guarantees or
any other transactions
Aggregate ratio of the financial
holding company’s net
worth Nanya Technology Corp. 3,020 1.29 Changhua Country Government 3,000 1.28 Urban Development Bureau Kaohsiung City Government
3,000 1.28
Ping Tang County Government 3,000 1.28 The same person and related parties
Mr. Ju and related parties 13,020 5.56 Mr. Huang and related parties 4,396 1.88 Mr. Liu and related parties 3,843 1.64 Mr. Song and related parties 3,097 1.32
The same affiliate TAIWAN POWER CORPORATION Group 90,108 38.45 Chunghwan Telecom Group 53,089 22.65 Taipei City Government 43,186 18.45 Kaohsiung City Government 31,015 13.23 CSC Goup 20,535 8.76 Taiwan Communication Group 18,615 7.94 CHIMEI Optoelectronics Goup 18,595 7.93 China Trust Group 18,284 7.80 Taiwan Semiconductor Manufacturing Group 18,124 7.73 Yuanta Group 17,848 7.62 HSBS HOLDINGS PLC 17,682 7.54 CPC Group 17,289 7.38 New Taipei City Government 16,893 7.21 FORMOSA PETROCHE MICAL Group 16,678 7.12 Qisda Group 15,730 6.71 Taishin Financial Holding Group 15,275 6.52 Cathay Financial Holding Group 15,215 6.49 Nanya Group 14,842 6.33 Tainan City Government Group 13,149 5.61 TEGA Financial Holding Group 12,398 5.29 Formosa Chemicals & Fiber Group 11,979 5.11 City Bank Group 11,550 4.93 Foxconn Technology Group 11,160 4.76 JP Morgan 10,992 4.69 GROUP OF ANZ BANKING GROUP 10,272 4.38 BANK OF AMERICA 10,014 4.27
200
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2011
Name
Aggregate amount of
credits, guarantees or
any other transactions
Aggregate ratio of the financial
holding company’s net
worth YFY Group 9,767 4.17 GROUP OF THE ROYAL BANK OF SCOTLAND 9,351 3.99 Taiwan Cooperative Group 9,346 3.99 Far Eastern New Century Corporation Group 9,162 3.91 HUN NAN Group 9,112 3.89 Walsin Lihwa Group 8,685 3.71 China Airline Group 8,291 3.54 Formosa Group 7,992 3.41 RSEA Engineering Corporation 7,987 3.41 Uni-president Enterprises Group 7,911 3.38 CREDIT SUISSE 7,893 3.37 Taipei Financial Center Corp. Group 7,442 3.18 China Development Financial Holding Group 6,986 2.98 First Financial Holding Group 6,959 2.97 Feng Tay (HK) Group 6,414 2.74 Taichung City Government Group 6,200 2.65 LLOYD BANKING G 6,168 2.63 Evergreen Group 5,954 2.54 ASE Group 5,642 2.41 Standard Chartered Group 5,519 2.35 Lite-on Technology Group 4,961 2.12 Tatung Group 4,856 2.07 Quanta Computer Inc. Group 4,810 2.05 LCY Chemical Corp. Group 4,649 1.98 SHOUNGANG GROUP 4,289 1.83 Poa Chen Group 4,046 1.73 ASUSTek Computer Group 3,772 1.61 Yang Ming Group 3,722 1.59 Catcher Technology Group 3,683 1.57 Kinpo Group 3,603 1.54 JihSun Holding Group 3,568 1.52 UNC Group 3,526 1.50 Cheng Shin Rubber Ind. Co., Ltd. Group 3,309 1.41 E Sun Group 3,292 1.40 CHEUNG KONG GROUP 3,093 1.32 TSC Group 3,070 1.31 Hontai Group 3,060 1.31
201
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2011
Name
Aggregate amount of
credits, guarantees or
any other transactions
Aggregate ratio of the financial
holding company’s net
worth Total 2,551,100
December 31, 2010
Name
Aggregate amount of
credits, guarantees or
any other transactions
Aggregate ratio of the financial
holding company’s net
worth The same person
Central Bank 671,425 302.14 Taiwan Power Company 83,841 37.73 US TREASURY 43,208 19.44 Chunghwa Telecom Co., Ltd. 38,252 17.21 FREDDIE MAC 28,526 12.84 FANNIE MAE 23,501 10.58 HK GOVERNMENT EXCHANGE FUND 21,504 9.68 Taipei County Government 20,000 9.00 CPC Corporation 19,558 8.80 Taiwan Semiconductor Manufacturing Co., Ltd. 18,979 8.54 CHIMEI Optoelectronics Corp. 18,878 8.49 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
18,789 8.46
Industrial Zone Development and Administration Fund 17,800 8.01 KREDITANSTALT FUER WIEDERAUFBAU 16,793 7.56 Taiwan Mobile Co., Ltd. 16,597 7.47 Taipei City Government 15,932 7.17 FRENCH GOVERNMENT 15,865 7.14 China Trust Commercial Bank 15,101 6.80 Taiwan Railway Administration 15,000 6.75 Deutsche Bank 13,927 6.27 BNP PARIBAS 13,902 6.26 Formosa Petrochemical Corp. 12,201 5.49 Bank SINOPAC Co., Ltd. 11,824 5.32 BARCLAYS BANK PLC 11,724 5.28 SPAIN GOVERNMENT 11,433 5.14 RABOBANK NEDERLAND 11,301 5.09
202
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010
Name
Aggregate amount of
credits, guarantees or
any other transactions
Aggregate ratio of the financial
holding company’s net
worth Tainan City Government 11,063 4.98 COMMONWEALTH BANK OF AUSTRALIA 11,019 4.96 ACER Incorporated 10,608 4.77 Department of Rapid Transit Systems 10,586 4.76 Formosa Petrochemical Corp. 10,555 4.75 UBS AG 10,419 4.69 GERMANY GOVERNMENT 10,081 4.54 HSBC BANK PLC 9,745 4.39 ROYAL BANK OF CANADA 9,603 4.32 RSEA Engineering Corp. 9,281 4.18 China Trust Financial Holding Co., Ltd. 9,042 4.07 ING BANK N.V. 8,840 3.98 AU Optronics Corp. 8,823 3.97 China Development Industrial Bank 8,327 3.75 China Airlines Corporation 8,182 3.68 AUST & NZ BANKING GROUP 8,085 3.64 NATIONAL AUSTRALIA BANK 8,003 3.60 Taipei Financial Center Corporation 7,847 3.53 Dragon Steel Corporation 7,807 3.51 BBVA GLOBAL MARKETS BV 7,562 3.40 DBS BANK 7,522 3.38 BANK OF AMERICA CORP 7,497 3.37 FORMOSA PLASTIC CORPORATION 7,462 3.36 Taiwan cooperative Bank 7,442 3.35 Nanya Plastics Corporation 7,437 3.35 Miaoli County Government 7,198 3.24 First Commercial Bank 7,051 3.17 Societe Generale 6,879 3.10 Cathay United Bank Co., Ltd. 6,814 3.07 ROYAL BANK OF SCOTLAND PLC 6,804 3.06 NORTH RHINE-WESTPHALIA BANK 6,513 2.93 JPMORGAN CHASE & CO 6,468 2.91 EVA Airways Corporation 6,438 2.90 China Steel Corporation 6,374 2.87 EUROPEAN INVESTMENT BANK 6,288 2.83 Foxconn Technology Corporation 5,981 2.69 CITIGROUP INC 5,856 2.64
203
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010
Name
Aggregate amount of
credits, guarantees or
any other transactions
Aggregate ratio of the financial
holding company’s net
worth EKSPORTFINANS ASA 5,709 2.57 HUA NAN Commercial Bank Co., Ltd. 5,657 2.55 WESTPAC BANKING CORP 5,533 2.49 CREDIT SUISSE 5,441 2.45 LLOYDS TSB BANK PLC 5,370 2.42 Standard Chartered Bank (Taiwan) Limited 5,347 2.41 International Bank for Reconstruction & Development 5,185 2.33 Taiwan Water Corporation 5,000 2.25 Nanya Technology Corporation 4,829 2.17 Taipei Public Transportation Office, Taipei City Bus Administration escrow account Bus Fund
4,742 2.13
A/B Svensk Exportkredit 4,647 2.09 Yilan County Government 4,644 2.09 CITIGROUP FUNDING INC 4,617 2.08 REPUBLIC OF INDONESIA 4,299 1.93 Cathay Financial Holding Co., Ltd. 4,295 1.93 CREDIT AGRICOLE CIB 4,216 1.90 Media Tek Inc. 4,070 1.83 Jih Sun Securities Investment Trust Corp. 4,005 1.80 PCA Securuties Investment Trust Co. 3,949 1.78 CHANG HWA BANK 3,913 1.76 Goldman Sachs 3,818 1.72 NORDIC INVESTMENT BANK 3,608 1.62 SHOUGANG CONCORD INT'L ENT CL 3,417 1.54 Securities Investment Trust 3,397 1.53 FOXCONN INTERNATIONAL HOLDINGS 3,353 1.51 Hsinchu County Government 3,320 1.49 MORGAN STANLEY 3,315 1.49 Powerchip Semiconductor Corp. 3,177 1.43 Inotera Memories, Inc. 3,138 1.41 HUNG SHENG Construction Co., Ltd. 3,130 1.41 KOMMUNALBANKEN AS 3,076 1.38 Municipality Finance 3,032 1.36 HK MORTGAGE CORP 3,021 1.36 Ping Tang County Government 3,000 1.35
The same person and related parties Mr. Jhu and related parties 15,382 6.92
204
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010
Name
Aggregate amount of
credits, guarantees or
any other transactions
Aggregate ratio of the financial
holding company’s net
worth Mr. Ju and related parties 9,453 4.25 Mr. Huang and related parties 4,529 2.04
The same affiliate TAIWAN POWER CORPORATION Group 83,841 37.73 Chunghwan Telecom Group 38,294 17.23 China Trust Group 24,243 10.91 Taiwan Semiconductor Manufacturing Group 20,038 9.02 Chi Mei Group 19,925 8.97 CPC Group 19,838 8.93 CSC Group 17,506 7.88 Taiwan Communication Group 16,597 7.47 Nanya Group 15,990 7.20 YFY Group 14,455 6.50 Formosa Petrochemical Group 13,573 6.11 First Financial Holding Group 12,666 5.70 Formosa Chemicals& Fiber Group 12,464 5.61 Foxconn TECHNOLOGY Group 12,292 5.53 CHINA DEVELOPMENT FINANCIAL HOLDING Group
12,160 5.47
Cathay Financial Holding Group 11,969 5.39 AU Optronics Group 10,820 4.87 China Airline Group 10,703 4.82 City Bank Group 10,618 4.78 ACER Incorporated Group 10,608 4.77 RSEA Engineering Corporation Group 9,281 4.18 HUN NAN Group 9,151 4.12 Evergreen Group 8,696 3.91 Taishin Financial Holding Group 8,256 3.72 BANK OF AMERICA CORP 8,117 3.65 AUST & NZ BANKING GROUP 8,085 3.64 Formosa Petrochemical Group 7,970 3.59 Uni-president Enterprises Group 7,934 3.57 MEGA Financial Holding Group 7,766 3.49 Walsin Lihwa Group 7,481 3.37 Taiwan cooperative Bank Group 7,442 3.35 ROYAL BANK OF SCOTLAND PLC 7,222 3.25 Standard Chartered Group 7,103 3.20
205
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010
Name
Aggregate amount of
credits, guarantees or
any other transactions
Aggregate ratio of the financial
holding company’s net
worth Tatung Group 6,247 2.81 Far Eastern New Century Corporation Group 6,090 2.74 LLOYDS TSB BANK PLC 5,582 2.51 Lite-on Technology Group 4,451 2.00 Continental Engineering Group 4,411 1.99 Poa Chen Group 4,338 1.95 LCY Chemical Corp. Group 4,328 1.95 ASUSTek Computer Group 4,288 1.93 Cheng Shin Rubber Ind. Co., Ltd. Group 4,274 1.92 Jih Sun Holding Group 4,207 1.89 Mediatek Group 4,070 1.83 Quanta computer Inc. Group 4,009 1.80 CHEUNG KONG GROUP 3,850 1.73 HK MORTGAGE CORP 3,795 1.71 Synnex Technology International Group 3,691 1.66 SHOUGANG GROUP 3,640 1.64 Yang Ming Group 3,566 1.60 E Sun Group 3,430 1.54 UMC Group 3,397 1.53 ASE Group 3,337 1.50 TSC Group 3,177 1.43 Hontai Group 3,141 1.41
Total 2,262,420
Note 1: Including Taiwan High Speed Rail Co., Ltd. Note 2: If the aggregate amount of credit extended, guarantees given or any other transactions
conducted by all subsidiaries of the financial holding company to, for, or with the same person, same related person or same affiliate is greater than the lower of 5% of net worth of the financial holding company or NT$3 billion, the related transaction information need to be filed according to the table refer above.
Note 3: Credit includes loans, discounted, overdrafts, acceptance, guarantee and other lines of
business operations designated by the Central Competent Authority. Note 4: Guarantee here indicative of endorsement and guarantees of bill finance corporation.
206
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Note 5: Other transactions with the same person, same related person or same affiliate (thereinafter referred to “the affiliates”) here are indicative of the transactions listed below:
(a) Investment in or purchase of securities issued by any of the affiliates mentioned in
the preceding paragraph; (b) Purchase of real estate or other assets from any of the affiliates mentioned in the
preceding paragraph; (c) Sale of securities, real estate or other assets to any of the affiliates mentioned in the
preceding paragraph; (d) Entering into agreements regarding payment of money or provision of services with
any of the affiliates mentioned in the preceding paragraph; (e) Arrangements involving any of the affiliates mentioned in the preceding paragraph
acting as an agent, broker of a financial holding company or its subsidiaries or providing other services which charge commission or fees:
(f) Engaging in transactions with third parties having a relationship with any of the
affiliates mentioned in the preceding paragraph or engaging in transactions with third parties in which transaction, the affiliates mentioned in the preceding paragraph are involved;
(g) the amount of transaction with the affiliates mentioned in the preceding paragraph
shall not include negotiable certificates of deposits issued by a bank subsidiary; and (h) The amount of transaction with the affiliates mentioned in the preceding paragraph
shall not include bills and bonds sold under repurchase agreement received from client.
207
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
8) Financial information classified by business type: For the year ended December 31, 2011
Item Banking Insurance Securities Others Consolidation Interest income 16,365,726 43,568,602 1,330,622 (265,218) 60,999,732 Non-interest income 8,836,119 156,814,406 6,698,591 8,672,243 181,021,359 Net revenue 25,201,845 200,383,008 8,029,213 8,407,025 242,021,091 Bad debt expense 755,251 77,976 - 69,162 902,389 Provision for insurance reserve - 165,101,252 - - 165,101,252 Operating expense 17,275,909 16,406,934 5,443,117 1,082,616 40,208,576 Net income before cumulative
effect of changes in accounting principle, and income tax
7,170,685 18,796,846 2,586,096 7,255,247 35,808,874
Income tax expense 1,587,283 1,992,915 179,777 1,361,813 5,121,788 Cumulative effect of changes in
accounting principle - - - - -
Net income 5,583,402 16,803,931 2,406,319 5,893,434 30,687,086 For the year ended December 31, 2010 Item Banking Insurance Securities Others Consolidation Interest income 15,593,544 36,858,717 1,393,361 (614,016) 53,231,606 Non-interest income 10,421,303 190,311,184 5,989,366 2,859,694 209,581,547 Net revenue 26,014,847 227,169,901 7,382,727 2,245,678 262,813,153 Bad debt expense 1,059,460 14,989 - 24,418 1,098,867 Provision for insurance reserve - 199,304,927 - - 199,304,927 Operating expense 16,606,057 14,809,751 5,221,501 2,625,064 39,262,373 Net income before cumulative
effect of changes in accounting principle, and income tax
8,349,330 13,040,234 2,161,226 (403,804) 23,146,986
Income tax expense 866,446 384,648 242,434 934,488 2,428,016 Cumulative effect of changes in
accounting principle - - - - -
Net income 7,482,884 12,655,586 1,918,792 (1,338,292) 20,718,970
20
8 FU
BO
N F
INA
NC
IAL
HO
LD
ING
CO
., L
TD
.
Bal
ance
She
ets
D
ecem
ber
31, 2
011
and
2010
Fo
r th
e ye
ars e
nded
(E
xpre
ssed
in th
ousa
nds o
f New
Tai
wan
Dol
lars
)
(Con
tinue
d)
Ass
ets
2011
20
10
Cha
nge
of
perc
enta
ge
Cas
h an
d ca
sh e
quiv
alen
ts
$
5,71
8,41
2
1,
767,
351
224
Fina
ncia
l ass
ets m
easu
red
at fa
ir va
lue
thro
ugh
prof
it or
loss
21
1,69
2
34
6,40
7
(3
9)
Bon
ds a
nd b
ills p
urch
ased
und
er re
sell
agre
emen
ts
99,9
42
849,
721
(88)
R
ecei
vabl
es, n
et
6,71
0,43
0
5,
579,
621
20
Long
-term
inve
stm
ent u
nder
equ
ity m
etho
d
257,
571,
701
23
5,96
6,02
7
9
Oth
er fi
nanc
ial a
sset
s, ne
t
3,
573,
713
3,50
9,23
3
2
Fixe
d as
sets
, net
33
,305
9,
536
249
Inta
ngib
le a
sset
s, ne
t
3,
340
3,48
7
(4
) O
ther
ass
ets
276,
051
92,5
92
198
Tot
al A
sset
s $
274,
198,
586
24
8,12
3,97
5
11
Lia
bilit
ies a
nd S
tock
hold
ers’
Equ
ity
2011
20
10
Cha
nge
of
perc
enta
ge
Shor
t-ter
m b
orro
win
g co
mm
erci
al p
aper
pay
able
$
3,
000,
000
-
-
Paya
bles
7,
472,
098
6,83
1,11
5
9
Bon
ds p
ayab
le
2
9,00
0,00
0
23,
000,
000
26
Oth
er li
abili
ties
1,04
3,80
6
90
3,33
2
16
T
otal
liab
ilitie
s
40,
515,
904
3
0,73
4,44
7
32
T
otal
stoc
khol
ders
’ equ
ity:
C
omm
on st
ock
9
0,13
7,37
9
85,
583,
663
5 C
apita
l sur
plus
54,
968,
575
5
4,41
6,66
0
1
Ret
aine
d ea
rnin
gs:
Le
gal r
eser
ve
2
5,95
3,36
3
23,
962,
851
8 Sp
ecia
l res
erve
1,
669,
704
1,28
5,67
6
30
U
napp
ropr
iate
d re
tain
ed e
arni
ngs
4
3,75
7,28
6
30,
057,
143
46
71,
380,
353
5
5,30
5,67
0
29
Eq
uity
adj
ustm
ents
Cum
ulat
ive
fore
ign
curr
ency
tran
slat
ion
adju
stm
ents
(1,
283,
925)
(1,
966,
016)
35
U
nrea
lized
gai
n (lo
sses
) on
finan
cial
in
stru
men
ts
1
8,89
4,09
5
24,
279,
998
(2
2)
Net
loss
from
unr
ecog
nize
d pe
nsio
n co
st
(356
,651
)
15
7,10
1
(3
27)
17,
253,
519
2
2,47
1,08
3
(2
3)
Trea
sury
stoc
k
(5
7,14
4)
(387
,548
)
85
T
otal
stoc
khol
ders
’ equ
ity
23
3,68
2,68
2
217,
389,
528
7 T
otal
Lia
bilit
ies a
nd S
tock
hold
ers’
E
quity
$
274,
198,
586
24
8,12
3,97
5
11
209
FUBON FINANCIAL HOLDING CO., LTD.
Income Statements
December 31, 2011 and 2010 For the years ended
(Expressed in thousands of New Taiwan Dollars)
(Continued)
2011 Change of percentage 2010
Change of percentage
Revenue: Income from equity investments under equity method $ 32,015,353 99 21,456,309 97 Other revenue 371,687 1 712,218 3 32,387,040 100 22,168,527 100
Expense: Operating expense 716,550 2 575,302 3 Other expense and loss 731,714 2 1,060,713 5 1,448,264 4 1,636,015 8
Net income before income tax 30,938,776 96 20,532,512 92 Income tax expense (benefit) 395,948 1 627,383 3 Net income $ 30,542,828 95 19,905,129 95 Before tax After tax Before tax After tax Earnings per share – basic $ 3.44 3.39 2.40 2.33 Earnings per share – diluted $ 3.43 3.38 2.40 2.33
21
0 FU
BO
N F
INA
NC
IAL
HO
LD
ING
CO
., L
TD
.
Stat
emen
ts C
hang
es in
Sto
ckho
lder
s’ E
quity
Dec
embe
r 31
, 201
1 an
d 20
10
For
the
year
s end
ed
(Exp
ress
ed in
thou
sand
s of N
ew T
aiw
an D
olla
rs)
(Con
tinue
d)
Ret
aine
d E
arni
ngs
C
umul
ativ
e
Unr
ealiz
ed
Fore
ign
Gai
ns o
r
Una
ppro
pria
ted
Cur
renc
y
Los
ses
C
omm
on
Cap
ital
Leg
al
Spec
ial
Ret
aine
d T
rans
latio
n U
nrec
ogni
zed
on F
inan
cial
T
reas
ury
St
ock
Surp
lus
Res
erve
R
eser
ve
Ear
ning
s A
djus
tmen
ts
Pens
ion
Cos
t In
stru
men
ts
Stoc
k T
otal
Bal
ance
on
Janu
ary
1, 2
010
$ 81
,261
,865
53,9
64,9
08
21
,969
,088
13,8
42,5
13
19,9
36,5
91
(
424,
573)
712,
827
1
7,40
0,05
2
(195
,220
212,
980,
875
Issu
ing
new
shar
es fo
r em
ploy
ee w
arra
nts
exer
cise
(not
e 28
)
25
2,50
0
43
3,61
1
-
-
-
-
-
-
-
68
6,11
1 Tr
easu
ry st
ock
by b
ack
-
-
-
-
-
-
-
-
(192
,328
)
(1
92,3
28)
Rec
ogni
zed
as tr
easu
ry st
ock
-
18
,141
-
-
-
-
-
-
-
18
,141
N
et in
com
e
-
-
-
-
19,9
05,1
29
-
-
-
-
1
9,90
5,12
9 A
ppro
pria
tions
of r
etai
ned
earn
ings
(not
e 28
) (no
te):
Lega
l res
erve
-
-
1,9
93,7
63
-
(1,9
93,7
63)
-
-
-
-
-
Sp
ecia
l res
erve
reve
rsal
-
-
-
(1
2,55
6,83
7)
12,5
56,8
37
-
-
-
-
-
C
ash
divi
dend
-
-
-
-
(16,
277,
191)
-
-
-
-
(16,
277,
191)
St
ock
divi
dend
4,0
69,2
98
-
-
-
(4,0
69,2
98)
-
-
-
-
-
Ef
fect
of u
nrec
ogni
zing
shar
e ra
tio fr
om lo
ng-te
rm e
quity
inve
stm
ent
-
-
-
-
(1,1
62)
-
-
-
-
(1,1
62)
Net
loss
for u
nrec
ogni
zed
pens
ion
cost
adj
ustm
ent
-
-
-
-
-
-
(5
55,7
26)
-
-
(555
,726
) C
hang
e in
min
ority
inte
rest
-
-
-
-
-
-
-
-
-
371,
090
Cum
ulat
ive
fore
ign
curr
ency
tran
slat
ion
adju
stm
ent
-
-
-
-
-
(1,5
41,4
43)
-
-
-
(1,
541,
443)
U
nrea
lized
gai
ns o
r (lo
sses
) fro
m re
mea
sure
men
t of f
inan
cial
inst
rum
ents
-
-
-
-
-
-
-
6,87
9,94
6
-
6,87
9,94
6 B
alan
ce o
n D
ecem
ber 3
1, 2
010
85
,583
,663
54,4
16,6
60
23
,962
,851
1,2
85,6
76
30,0
57,1
43
(1
,966
,016
)
157,
101
2
4,27
9,99
8
(387
,548
)
222,
273,
442
Prio
r per
iod
adju
stm
ents
-
-
-
-
(1,9
94,6
49)
-
-
1,
994,
649
-
-
Bal
ance
on
Janu
ary
1, 2
011
afte
r adj
ustm
ent
85
,583
,663
54,4
16,6
60
23
,962
,851
1,2
85,6
76
28,0
62,4
94
(1
,966
,016
)
157,
101
2
6,27
4,64
7
(387
,548
)
222,
273,
442
Issu
ing
new
shar
es fo
r em
ploy
ee w
arra
nts
exer
cise
(not
e 28
)
26
7,87
5
37
4,98
8
-
-
-
-
-
-
-
64
2,86
3 Tr
easu
ry st
ock
trans
fer t
o em
ploy
ees
-
20
,436
-
-
-
-
-
-
1
35,1
84
155,
620
Rec
ogni
ze a
s tre
asur
y st
ock
-
15
6,49
1
-
-
-
-
-
-
1
95,2
20
351,
711
Net
inco
me
-
-
-
-
30
,542
,828
-
-
-
-
30,
542,
828
App
ropr
iatio
ns o
f ret
aine
d ea
rnin
gs (n
ote
28) (
note
):
Le
gal r
eser
ve
-
-
1
,990
,512
-
(1
,990
,512
)
-
-
-
-
-
Cas
h di
vide
nd
-
-
-
-
(
8,57
1,68
3)
-
-
-
-
(
8,57
1,68
3)
Stoc
k di
vide
nd
4
,285
,841
-
-
-
(4
,285
,841
)
-
-
-
-
-
Net
loss
from
unr
ecog
nize
d
-
-
-
-
-
-
(513
,752
)
-
-
(5
13,7
52)
Cha
nge
in m
inor
ity in
tere
st
-
-
-
-
-
-
-
-
-
(4,
883,
914)
C
umul
ativ
e fo
reig
n cu
rren
cy tr
ansl
atio
n ad
just
men
t
-
-
-
-
-
682,
091
-
-
-
68
2,09
1 U
nrea
lized
gai
ns o
r (lo
sses
) fro
m re
mea
sure
men
t of f
inan
cial
inst
rum
ents
-
-
-
-
-
-
-
(7
,380
,552
)
-
(
7,38
0,55
2)
Rec
ogni
zed
by tr
easu
ry st
ock
-
-
-
38
4,02
8
-
-
-
-
-
384,
028
Bal
ance
on
Dec
embe
r 31
, 201
1 $
90,1
37,3
79
54
,968
,575
25,9
53,3
63
1
,669
,704
43
,757
,286
(1,2
83,9
25)
(3
56,6
51)
18
,894
,095
(5
7,14
4)
23
3,68
2,68
2
211
FUBON FINANCIAL HOLDING CO., LTD.
Statements of Cash Flows
For the years ended December 31, 2011 and 2010 (Expressed in thousands of New Taiwan Dollars, except earnings per share)
(Continued)
2011 2010 Cash flows from operating activities:
Net income $ 30,542,828 19,905,129 Adjustments to reconcile net income to net cash:
Depreciation 7,199 18,849 Amortization 10,326 9,367 Investment income accounted for under equity method (32,015,353) (21,456,309) Cash dividend received on investments under equity method 10,200,963 16,742,778 Loss (gain) on valuation of financial assets at fair value through
profit or loss 134,715 (353,102) Change in operating assts and liabilities, net
Change in operating asset, net Increase in receivables (1,130,809) (703,630) Decrease (increase) in other financial assets (64,480) 229,022 Increase in other assets (185,315) (38,144)
Change in operating liabilities, net Increase in payable 640,983 2,202,267 Increase (decrease) in other liabilities 140,474 (43,583)
Net cash flows provided by operating activities 8,281,531 16,512,644 Cash flows from investing activities:
Increase in investment under equity-method (7,594,185) - Disposal of long-term investment under equity method 1,291,579 - Purchase of fixed assets (30,968) (3,456) Increase in deferred expense (3,284) - Purchase of intangible assets (5,039) (4,411) Increase in bonds and bills purchased under resell agreements 749,779 (849,721) Proceeds from capital reduction of investee companies under equity
-method 52,421 - Net cash flows used in investing activities (5,539,697) (857,588)
Cash flow from financing activities: Increase in short-term borrowings 3,000,000 - Bonds issued 6,000,000 16,000,00 Repayment of bonds - (4,000,000) Issued (repayment) of oversea bonds - (10,845,038) Cash dividends (8,571,683) (16,277,191) Issuing new shares for employee warrants exercise 642,863 686,111 Treasury stock buyback - (192,327) Disposal of treasury stock 155,620 -
Net cash flows provided by (used in) financing activities 1,226,800 (14,628,445) Effect of exchange rate changes (17,573) (229,022) Net increase in cash and cash equivalents 3,951,061 797,589 Cash and cash equivalents at beginning of period 1,767,351 969,762 Cash and cash equivalents at end of period $ 5,718,412 1,767,351 Supplemental disclosure of cash flow information:
Cash payments of interest $ 580,503 735,378 Cash payments of income tax $ 1,825 1,079
212
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
7) Subsidiaries’ condensed balance sheets and statements of income
1. Condensed balance sheets
Taipei Fubon Bank December
31, 2011 December 31, 2010
Cash and cash equivalents $ 27,224,781 37,876,778 Due from Central Bank and call loans to banks 73,099,143 97,157,353 Financial assets measured at fair value through profit
or loss 59,091,943 38,400,858
Bonds and bills purchased under resell agreements 200,000 525,331 Receivable, net 66,768,060 80,212,442 Loans, net 952,718,962 856,249,523 Available-for-sale financial assets, net 49,387,099 58,769,434 Held-to-maturity investment, net 256,826,642 291,650,175 Investment under equity method, net 184,760 383,049 Other financial assets, net 5,160,269 7,034,165 Fixed asset (including intangible assets) 11,841,334 12,046,324 Other asset, net 2,356,598 2,447,180 Total assets $ 1,504,859,591 1,482,752,612 Due to Central Bank and other banks $ 56,759,776 65,379,583 Financial liabilities measured at fair value though
profit or loss 22,747,531 28,051,227
Bonds and bills sold under repurchase agreements 28,503,088 21,731,106 Payable 28,933,305 39,616,117 Deposits 1,183,409,166 1,159,090,259 Financial bonds 62,143,488 55,533,576 Other financial liabilities 26,702,507 24,015,196 Other liabilities 3,572,170 4,261,441 Total liabilities 1,412,771,031 1,397,678,505 Common stock 51,092,871 48,992,871 Capital surplus 13,613,508 13,613,508 Retained earnings 24,796,778 20,715,624 Equity adjustment item 2,585,403 1,752,104 Total stockholders’ equity 92,088,560 85,074,107 Total liabilities and stockholders’ equity $ 1,504,859,591 1,482,752,612
213
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Fubon Insurance
December 31, 2011
December 31, 2010
Cash and cash equivalents $ 7,515,630 5,475,596 Receivable, net 8,056,227 7,574,141 Investments 41,696,553 43,116,288 Reinsurance assets 8,686,975 8,110,080 Fixed assets (including intangible assets) 1,741,081 1,441,315 Other assets 1,790,072 1,772,718 Total assets $ 69,486,538 67,490,138 Payable $ 5,935,575 5,221,269 Financial liabilities 298,230 619,720 Reserve for operations 38,827,669 37,867,740 Other liabilities 1,234,530 1,244,885 Total liabilities 46,296,004 44,953,614 Common stock 8,178,396 8,178,396 Capital surplus 8,318,907 8,318,907 Retained earnings 5,624,670 4,687,126 Equity adjustment item 1,068,561 1,352,095 Total stockholders’ equity 23,190,534 22,536,524 Total liabilities and stockholders’ equity $ 69,486,538 67,490,138
214
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Fubon Life Insurance
December 31, 2011
December 31, 2010
Cash and cash equivalents $ 223,636,051 132,535,503 Receivable, net 24,257,999 21,115,608 Investments 1,303,485,681 1,208,739,712 Loan 79,270,134 78,268,321 Reinsurance assets 556,905 518,024 Fixed assets (including intangible assets) 7,710,418 3,951,491 Other assets 152,456,317 171,118,772 Total assets $ 1,791,373,505 1,616,247,431 Payable $ 14,579,989 18,299,067 Financial liabilities 4,030,108 1,241,287 Reserve for operations 1,511,771,312 1,323,745,793 Other liabilities 159,132,902 171,536,368 Total liabilities 1,689,514,311 1,514,822,515 Common stock 21,123,170 17,123,170 Capital surplus 23,527,473 23,527,473 Retained earnings 27,563,284 24,030,773 Equity adjustment item 29,645,267 36,743,500 Total stockholders’ equity 101,859,194 101,424,916 Total liabilities and stockholders’ equity $ 1,791,373,505 1,616,247,431
Fubon Securities
December 31, 2011
December 31, 2010
Current assets $ 33,892,133 50,666,391 Funds and investments 6,364,819 4,492,461 Fixed assets (including intangible assets) 2,255,739 2,020,251 Other assets 2,359,145 2,327,922 Total assets $ 44,871,836 59,507,025 Current liabilities $ 12,036,573 27,948,711 Long-term liabilities 682 358 Other liabilities 271,435 428,406 Total liabilities 12,308,690 28,377,475 Common stock 16,643,550 15,130,500 Capital surplus 1,887,940 3,414,140 Retained earnings 13,417,342 11,927,950 Equity adjustment item 614,314 656,960 Total stockholders’ equity 32,563,146 31,129,550 Total liabilities and stockholders’ equity $ 44,871,836 59,507,025
215
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Fubon Bank (HK)
December 31, 2011
December 31, 2010
Cash and cash equivalents $ 4,382,197 2,777,351 Due from Central Bank and call loans to banks 1,479,530 2,135,669 Financial assets measured of for value through profit
or loss 1,981,392 1,864,674
Available – for – sale financial assets, net 13,731,020 18,555,834 Held– to –maturity investment, net 2,466,707 2,462,681 Debt investments in non – active market 1,204,789 2,802,314 Receivables, net 557,230 465,906 Loans, net 32,452,877 28,909,879 Fixed asset, net 1,046,107 1,035,542 Other asset, net 954,011 769,785 Total assets $ 60,255,860 61,779,635 Due to Central Bank and other banks $ 4,019,428 3,382,793 Payable 456,277 502,861 Deposits 44,022,450 46,280,635 Financial liabilities measured at fair value through
profit or loss 2,255,436 1,761,995
Financial bonds 2,931,837 3,734,165 Other financial bonds 1,299,960 809,537 Other liabilities 218,192 213,381 Total liabilities 55,203,580 56,685,367 Common stock 2,097,519 2,097,519 448,297 175,211 Capital surplus 1,188,886 1,162,718 Retained earnings 1,522,993 1,635,087 Equity adjustment item (206,811) 21,811 Minority interest 1,396 1,922 Total stockholders’ equity 5,052,280 5,094,268 Total liabilities and stockholders’ equity $ 60,255,860 61,779,635
216
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2. Condensed statements of income
Taipei Fubon Bank 2011 2010
Interest income $ 13,944,240 12,210,329 Non-interest revenue 11,511,686 10,331,930 Net operating income 25,455,926 22,542,259 Bad debt expense 1,060,089 1,019,948 Operating expense 13,890,654 13,613,772 Income before tax 10,505,183 7,908,539 Net income 9,054,140 7,280,518 Earnings per share – before tax 2.06 1.55 Earnings per share – after tax 1.77 1.42
Fubon Insurance
2011 2010 Operating revenues $ 20,747,467 19,211,229 Operating costs 12,305,983 11,503,634 Operating profits 8,441,484 7,705,595 Operating expense 4,771,323 4,489,479 Non-operating revenues 48,039 110,311 Non-operating expenses 130,132 227,219 Income before tax 3,588,068 3,101,208 Net income 3,078,068 2,675,655 Earnings per share – before tax 4.39 3.79 Earnings per share – after tax 3.76 3.27
Fubon Life Insurance
2011 2010 Operating revenues $ 387,282,344 417,264,613 Operating costs 363,757,684 399,817,978 Operating profits 23,524,660 17,446,635 Operating expense 11,887,316 10,968,731 Non-operating revenues 201,311 158,197 Non-operating expenses 269,872 53,573 Income before tax 11,568,783 6,582,528 Net income 10,103,795 6,625,763 Earnings per share – before tax 5.48 3.12 Earnings per share – after tax 4.78 3.14
217
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Fubon Securities
2011 2010 Revenue $ 9,053,426 8,466,366 Expense 6,245,379 6,188,455 Income before tax 2,808,047 2,277,911 Net income 2,666,047 2,050,911 Earnings per share – before tax 1.69 1.51 Earnings per share – after tax 1.60 1.36
Fubon Bank (HK)
2011 2010 Operating revenues $ 1,466,744 1,181,921 Operating Costs 1,183,514 1,174,346 Operating profits 250,806 318,194 Non-operating revenues (expenses) (62,938) 5,653 Income before tax 313,744 312,541 Net income 279,765 266,293 Earnings per share – before tax 1.50 1.08 Earnings per share – after tax 1.33 0.92
8) Profitability and maturity analysis of assets and liabilities
Profitability
Unit: %
Item December 31,
2011 December 31,
2010 Return on total assets Before income tax 11.85 8.48
After income tax 11.70 8.22 Return on net worth Before income tax 13.72 9.64
After income tax 13.54 9.35 Profit margin 96.49 94.30
Note 1: Return on total assets = Income before (after) income tax/Average total assets. Note 2: Return on net worth = Income before (after) income tax/Average net worth. Note 3: Profit margin = Income after income tax/Total operating revenues. Note 4: Income before (after) income tax is the income in the years ended December 31, 2011
and 2010.
218
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Note 5: Return on total assets and return on net worth are indicated by annual rate.
9) Profitability and maturity analysis of assets and liabilities
Profitability Unit: %
Item December 31,
2011 December 31,
2010 Return on total assets Before income tax 1.01 0.71
After income tax 0.86 0.61 Return on net worth Before income tax 15.88 10.87
After income tax 13.54 9.35 Profit margin 12.62 7.57
Note 1: Return on total assets = Income before (after) income tax/Average total assets. Note 2: Return on net worth = Income before (after) income tax/Average net worth. Note 3: Profit margin = Income after income tax/Total operating revenues. Note 4: Income before (after) income tax is the income in the years ended December 31, 2011
and 2010. Note 5: Return on total assets and return on net worth are indicated by annual rate.
10) Disclosure of investment in Mainland China:
1. Fubon Insurance and Fubon Life Insurance invest RMB$400 million, the Fubon Insurance
and Fubon Life Insurance Investment RMB$200 million, respectively, to set up Fubon Insurance Company in Mainland China. The investment project had been approved by the FSC on December 24, 2007. The investment project has been approved by the China Insurance Regulatory Commission on December 24, 2009 and approved by the Investment Commission of Ministry of Economic Affairs on January 27, 2010. The investment amounts authorized by Investment Commission, MOEA was RMB$250 million.
The investment project had been approved by China Insurance Regulatory Commission on September 17, 2010. Fubon Insurance and Fubon Life Insurance had jointly invested NT$1,870,458, but such investment had been accomplished as of December 31, 2011.
219
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Fubon Insurance and Fubon Life Insurance entered into a letter of intent with Nanjing Zijin Investment Co., Ltd., establishing a company named Fubon Zijin Life Insurance Co., Ltd. This investment was approved by SFC on January 14, 2011. As of report day, this investee company was not yet incorporated. (In Thousands of NTD / USD / RMB)
Investee Company
Main Business
Total Amount of
Paid-in Capital
(thousand)
Method of Investment
Accumulated outflow of Investment
from Taiwan as of January
1, 2011
Investment flows Accumulated outflow of investment
from Taiwan as of
December 31, 2011
Percentage of
Ownership
Equity in the
Earnings (gains)
Carrying value as of December 31, 2011
Accumulated inward
remittance of earnings as of December 31,
2011
Outflow Inflow
Fubon Insurance Co., Ltd.
Insurance CNY400,000 Direct investment for China Company
- 1,870,458 - 1,870,458 100% (indirect)
(251,320) 1,569,446 -
Accumulated investment in
Mainland China as of December 31, 2011
Investment amounts authorized by investment
commission, MOEA Upper limited on
investment 1,870,458 (USD58,599) 2,325,734 (USD73,530) 75,029,836
Note: The limit of investment is 50,019,892 according to the Regulations Governing Foreign
Investments by Insurance Companies.
2. Fubon Asset Management invest RMB$200,000, and Fubon Asset Management investment RMB$66,600 to set up a fund management company with Founder Securities Co. Financial Supervisory Commission and Investment Commission of MOEA approved in the amount of RMB$66,600 on January 5, 2011 and January 7, 2011, respectively. On June 30, 2011 the investment was approved by the supervisory commission of China Securities Co., Ltd. and the company named Founder Fubon Fund Management Co., Ltd. Fubon Asset Management transferred $298,244 to Founder Fubon Fund Management Co., Ltd. on July 27, 2011. And Founder Fubon Fund Management returned about $726 due to exchange rate changed. As of December 31, 2011, Fubon Asset Management had jointly invested $297,518.
(In Thousand of NTD/RMB) Investee
Company Main
Business Total
Amount of Paid-in Capital
(thousand)
Method of Investment
(Note 1)
Accumulated outflow of Investment
from Taiwan as of January
1, 2011
Investment flows Accumulated outflow of investment
from Taiwan as of
December 31, 2011
Percentage of
Ownership
Equity in the
Earnings (gains)
Carrying value as of December 31, 2011
Accumulated inward
remittance of earnings as of December 31,
2011
Outflow Inflow
Founder Fubon Fund Management Co., Ltd.
Fund raising sale and asset Management
895,627 RMB200,000
Direct investment in cash
- 298,244 726 297,518 33.30% (indirect)
(55,178) 262,816 -
220
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Accumulated investment in
Mainland China as of December 31, 2011
Investment amounts authorized by investment
commission, MOEA Upper limited on
investment (Note 2) 297,518(CNY66,600) 298,244(CNY66,600) 984,637
Note 1: Cash direct investment by Fubon Asset Management. Note 2: The net value calculate by Fubon Asset Management on December 31, 2011.
3. Fubon Bank (Hong Kong) planned to invest Fubon Leasing Company in Mainland China,
which is engaged in leasing of commercial equipment, construction equipment and transportation equipment, etc. The investment has been registered with the authorities by the Company instead of Fubon Bank (Hong Kong). The investment project has been approved by the Investment Commission of Ministry of Economic Affairs on June 18, 2008, but such investment had not been accomplished as of December 31, 2011.
Investee Company
Main Business
Total Amount of Paid-in
Capital (thousand)
Method of Investment
(Note 1)
Investment flows Accumulated outflow of investment
from Taiwan as of
December 31, 2011
Percentage of
Ownership
Equity in the
Earnings (gains)
(Note 2)
Carrying value as of December 31, 2011
Accumulated inward
remittance of earnings as of December 31,
2011
Outflow Inflow
Xiamen Commercial Bank
Banking CNY1,072,500 Investment of Fubon Bank (Hong Kong) (100% of the shares held
by the Company)
N/A, Investment of Fubon Bank (Hong Kong)
N/A, Investment of Fubon Bank (Hong Kong)
N/A, Investment of Fubon Bank (Hong Kong)
19.99% (indirect)
346,078 3,123,152 -
Accumulated investment in
Mainland China as of December 31, 2011
Investment amounts authorized by investment
commission, MOEA Upper limited on
investment N/A, Investment of Fubon
Bank (Hong Kong) N/A N/A
Note 1: There are four types of methods of investment:
1) Remitting the investment through a third area to company in Mainland China. 2) Investing to establish the company through a third area and then investing in
company in Mainland China. 3) Investing in the existing company in a third area and then investing in company in
Mainland China. 4) Investing in Mainland China directly. 5) Others.
221
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Note 2: Equity in the earning: 1) If it is prepared but no equity in the earnings, it should be noted. 2) There are three basics of equity in the earning, it should be noted.
a) Auditing and certification of financial statements by International CPA cooperative of R.O.C.
b) Auditing and certification of financial statements by CPA of Taiwan parent company.
c) Others. 4. Commitments and contingencies: see note 37. 5. Significant disaster loss: see note 38. 6. Significant subsequent event: see note 39.
9) The following disclosures are only applicable to Taipei Fubon Bank for the years ended
December 31, 2011 and 2010, in accordance with SFAS No. 28. 1. Asset quality
December 31, 2011
Items
Non-Performing Loan (NPL) Total Loans NPL Ratio
Loan Loss Reserves
(LLR) Coverage
Ratio (Note 3) Corporate loan
Secured 984,371 216,262,029 0.46% 3,139,895 318.97% Unsecured 1,369,071 388,851,686 0.35% 2,950,070 215.48%
Consumer loan
Mortgage (Note 4) 111,329 315,006,418 0.04% 2,022,408 1,816.60% Cash card - 38,388 -% 719 -% Micro credit (note 5) 8,103 15,144,720 0.05% 97,232 1,199.90 Other (note
6) Secured 49 284,456 0.02% 1,432 2,922.98% Unsecured 23,569 25,729,810 0.09% 165,191 700.88%
Total 2,496,492 961,317,507 0.26% 8,376,947 335.55% Overdue
Receivable Account
Receivable Delinquency
Ratio Allowance for Credit Losses
Coverage Ratio
Credit card 17,541 22,595,181 0.08% 589,816 3,362.50% Account receivable – factoring with no
recourse (note 7) - 33,137,541 -% 168,513 -%
Excluded NPL as a result of debt consultation and loans agreement (note 8)
850,218
Excluded overdue receivables as a result of debt consultation and loans agreements (note 8)
900,902
Excluded NPL as a result of debt solvency and restart plan. (note 9)
159,075
Excluded overdue receivables as a result of debt solvency and restart plan. (note 9)
672,870
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010
Items
Non-Performing Loan (NPL) Total Loans NPL Ratio
Loan Loss Reserves
(LLR) Coverage
Ratio (Note 3) Corporate loan
Secured 1,209,115 191,867,314 0.63% 1,571,461 129.97% Non-secured 1,195,480 329,668,754 0.36% 2,067,998 172.98%
Consumer loan
Mortgage (Note 4) 295,515 304,904,295 0.10% 621,449 210.29% Cash card - 58,164 -% 49,632 -% Micro credit (note 5) 9,341 10,627,733 0.09% 1,035,694 11,087.61% Other (note
6) Secured 1,924 384,191 0.50% 20,357 1,058.04% Non-
secured 22,535 24,163,067 0.09% 57,404 254.73%
Total 2,733,910 861,673,518 0.32% 5,423,995 198.40% Overdue
Receivable Account
Receivable Delinquency
Ratio Allowance for Credit Losses
Coverage Ratio
Credit card 35,124 24,410,538 0.14% 755,599 2,151.25% Account receivable – factoring with
no recourse (note 7) - 47,071,112 -% 236,841 -%
Excluded NPL as a result of debt consultation and loans agreement (note 8)
1,153,962
Excluded overdue receivables as a result of debt consultation and loans agreements (note 8)
1,200,709
Excluded NPL as a result of debt solvency and restart plan. (note 9)
172,644
Excluded overdue receivables as a result of debt solvency and restart plan. (note 9)
723,811
Note 1: For loan business: Overdue loans represent the amounts of reported overdue loans pursuant to the “Regulations
Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrual Loans” issued by the MoF. For credit card business: Overdue receivables are regulated by the Banking Bureau letter dated July 6, 2005 (Ref. No. 0944000378).
Note 2: For loan business: NPL Ratio = NPL/Total Loans. For credit card business: Delinquency Ratio = Overdue receivable/Account receivable.
Note 3: For loan business: Coverage Ratio = LLR/NPL
For credit card business: Coverage Ratio = Allowance for credit losses/Overdue receivables.
Note 4: Household mortgage means the purpose of financing is to purchase, build, or fix up the dwelling, and the dwelling owned by the borrower, spouse, or children fully secures the loan.
Note 5: Micro credit is regulated by the Banking Bureau letter dated December 19, 2005 (Ref. No. 09440010950). Note 6: Others in consumer loan refer to secured or non-secured loans excluding mortgage, cash card, micro credit, and credit
card. Note 7: Account receivable – factoring with no recourse: As required by the Banking Bureau letter dated July 19, 2005 (Ref. No.
094000494), provision for bad debt is recognized once no compensation is received from the factoring or insurance company.
Note 8: The amounts of excluded NPL and excluded overdue receivables through financial debt negotiation and loan agreement were disclosed based on the interpretation issued by the Banking Bureau dated April 25, 2006 (Ref. 19510001270).
Note 9: the amounts of excluded NPL and excluded overdue receivables through debt solvency and restart plan were disclosed
based on the interpretation issued by the Banking Bureau dated September 15, 2008 (Ref. 09700318940).
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
2. Concentration of credit extensions December 31, 2011
(Expressed in thousands of NTD, %)
Rank (Note 1) Group Name (Note 2)
Credit Extensions
Balance (Note 3)
% of Net Asset Value
1 A Group 14,548,498 15.80 2 B Group 14,068,590 15.28 3 C Company 13,609,856 14.78 4 D Group 9,814,280 10.66 5 E Group 8,774,598 9.53 6 F Company 8,243,929 8.95 7 G Company 7,442,310 8.08 8 H Group 6,595,769 7.16 9 I Group 6,742,945 7.32
10 J Group 6,120,406 6.65
December 31, 2010
(Expressed in thousands of NTD, %)
Rank (Note 1) Group Name (Note 2)
Credit Extensions
Balance (Note 3)
% of Net Asset Value
1 A Group 14,889,201 17.50 2 B Group 10,866,069 12.77 3 C Company 9,835,938 11.56 4 D Group 9,483,658 11.15 5 E Company 9,439,178 11.10 6 F Group 8,827,989 10.38 7 G Group 6,977,068 8.20 8 H Company 6,952,509 8.17 9 I Group 5,703,948 6.70
10 J Company 5,626,314 6.61 Note 1: Top ten borrowers (excluding government or state-owned utilities) according to total
credit extensions. Note 2: Groups are regulated in the Supplementary Provisions to the Taiwan Stock
Exchange Corporation Criteria for Review of Securities Listings, Article 6.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Note 3: Total credit extensions comprise loans (including import bills negotiated, export bills negotiated, overdrafts, short-term loans, short-term secured loans, receivables from pecuniary finance, medium-term loans, medium-term secured loans, long-term loans, long-term secured loans, and overdue receivables), exchange bills negotiated, factoring receivable without recourse, acceptances receivable, and guarantees issued.
3. Average amounts and average interest rate for interest-earning assets and interest-bearing
liabilities December 31, 2011 Average
amount Average annual interest rate %
Interest-earning assets:
Cash – due from banks – deposits $ 17,970,770 0.29 Due from Central Bank of China and other banks 98,928,272 0.71 Financial assets measured at fair value through
profit or loss 23,194,061 1.09
Bonds and short-term bills purchased under resell agreements
215,180 0.44
Credit card fees receivable – cycle 8,759,563 14.03 Factoring receivable 18,408,616 1.24 Discounts and loans 921,667,198 1.87 Available-for-sale financial assets 38,611,291 2.66 Held-to-maturity investment 282,575,170 0.90 Debt investments in non-active market 5,030,243 3.23
Interest-bearing liabilities: Due to banks 79,699,269 1.04 Bonds and short-term bills sold under repurchase
agreements 30,504,752 1.04
Demand deposits 196,494,190 0.10 Demand savings deposits 363,315,721 0.32 Time deposits 332,841,250 0.90 Time savings deposits 233,851,571 1.26 Negotiable certificates of deposit 5,849,232 0.74 Public treasury savings 18,471,515 0.18 Financial bonds payable 56,283,973 1.79
225
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010 Average
amount Average annual interest rate %
Interest-earning assets:
Cash – due from banks – deposits $ 9,415,406 0.12 Due from Central Bank of China and other banks 119,827,917 0.50 Financial assets measured at fair value through
profit or loss 11,347,743 0.89
Bonds and short-term bills purchased under resell agreements
98,117 0.05
Credit card fees receivable – cycle 10,200,158 13.78 Factoring receivable 20,260,014 0.90 Discounts and loans 861,207,424 1.64 Available-for-sale financial assets 33,615,855 3.04 Held-to-maturity investment 242,021,214 0.70 Debt investments in non-active market 9,405,026 2.77
Interest-bearing liabilities: Due to banks 74,050,112 0.81 Bonds and short-term bills sold under repurchase
agreements 18,273,600 0.34
Demand deposits 177,353,847 0.08 Demand savings deposits 332,145,558 0.26 Time deposits 312,083,897 0.53 Time savings deposits 227,379,492 1.04 Negotiable certificates of deposit 14,428,287 0.39 Public treasury savings 21,171,559 0.16 Bank debentures 51,717,260 1.80
4. Interest rate sensitivity information
Interest rate sensitivity of assets and liabilities (in thousands of NTD, %)
December 31, 2011
1~90 days 91~180 days 181 days ~
1year Over one
year total Interest-rate-sensitive assets 1,009,491,572 58,297,789 36,646,798 49,000,045 1,153,436,204 Interest-rate-sensitive liabilities 412,218,368 498,303,753 45,736,313 71,577,973 1,027,836,407 Interest-rate-sensitivity gap 597,273,204 (440,005,964) (9,089,515) (22,577,928) 125,599,797 Net worth 88,791,233 Ratio of interest-rate-sensitive assets to liabilities 112.22 Ratio of interest-rate-sensitivity gap to net worth 141.46
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010
1~90 days 91~180 days 181 days ~
1year Over one
year total Interest-rate-sensitive assets 948,064,052 88,782,309 49,925,311 26,426,910 1,113,198,582 Interest-rate-sensitive liabilities 418,019,356 522,760,913 27,019,063 65,267,019 1,033,066,351 Interest-rate-sensitivity gap 530,044,696 (433,978,604) 22,906,248 (38,840,109) 80,132,231 Net worth 80,799,422 Ratio of interest-rate-sensitive assets to liabilities 107.76 Ratio of interest-rate-sensitivity gap to net worth 99.17 Note 1: The above amounts include only New Taiwan dollar amounts held by the Bank’s onshore branches (i.e., excluding
foreign currency). According to the regulation, this information should be delivered to the Department of Financial Inspection before the middle of the next month from the data base day.
Note 2: Interest-rate-sensitive assets and liabilities refer to the revenues or costs of interest-earning assets and interest-bearing
liabilities, which are 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 (only
interest-rate-sensitive assets and liabilities within one year, in New Taiwan dollars). Interest rate sensitivity of assets and liabilities (in thousands of USD, %)
December 31, 2011
1~90 days 91~180 days 181 days ~
1year Over one
year total Interest-rate-sensitive assets 4,964,129 673,360 305,982 270,989 6,214,460 Interest-rate-sensitive liabilities 7,686,477 424,369 452,855 183,153 8,746,854 Interest-rate-sensitivity gap (2,722,348) 248,991 (146,873) 87,836 (2,532,394) Net worth 136,299 Ratio of interest-rate-sensitive assets to liabilities 71.05 Ratio of interest-rate-sensitivity gap to net worth (1,857.97)
December 31, 2010
1~90 days 91~180 days 181 days ~
1year Over one
year total Interest-rate-sensitive assets 4,753,489 533,003 306,787 89,897 5,683,176 Interest-rate-sensitive liabilities 7,266,764 443,081 271,779 101,763 8,083,387 Interest-rate-sensitivity gap (2,513,275) 89,922 35,008 (11,866) (2,400,211) Net worth 143,355 Ratio of interest-rate-sensitive assets to liabilities 70.31 Ratio of interest-rate-sensitivity gap to net worth (1,674.31) Note 1: The above amounts include only U.S. dollar amounts held by the onshore branches, OBU, and offshore branches of the
Bank and exclude contingent assets and contingent liabilities. Note 2: Interest-rate-sensitive assets and liabilities refer to the revenues or costs of interest-earning assets and interest-bearing
liabilities, which are 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 (only
interest-rate-sensitive assets and liabilities within 270 days, in U.S. dollars)
227
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
5. Profitability and maturity analysis of assets and liabilities (a) Profitability
Unit: %
Item December 31,
2011 December 31,
2010 Return on total assets
Before income tax 0.70 0.56 After income tax 0.61 0.51
Return on net worth
Before income tax 11.86 9.50 After income tax 10.22 8.75
Profit margin 35.57 32.30
Note 1: Return on total assets = Income before (after) income tax/Average total assets. Note 2: Return on net worth = Income before (after) income tax/Average net worth. Note 3: Profit margin = Income after income tax/Total operating revenues. Note 4: Income before (after) income tax is the income in the years ended December 31,
2011 and 2010.
(b) Maturity analysis of assets and liabilities Maturity analysis (in thousands of NTD)
December 31, 2011
Total Amount for the Remaining Time Before the Maturity Date
1-30 Days 31-90 Days 91-180 Days 181 Days to One Year
Over One Year
Main capital inflow on maturity
1,562,548,781 416,814,348 266,222,381 128,197,185 135,909,640 615,405,227
Main capital outflow on maturity
1,789,624,010 299,665,211 305,701,293 246,032,205 302,647,145 635,578,156
GAP (227,075,229) 117,149,137 (39,478,912) (117,835,020) (166,737,505) (20,172,929)
December 31, 2010
Total Amount for the Remaining Time Before the Maturity Date
1-30 Days 31-90 Days 91-180 Days 181 Days to One Year
Over One Year
Main capital inflow on maturity
1,520,797,889 449,905,009 181,842,802 162,312,596 148,034,133 578,703,349
Main capital outflow on maturity
1,716,881,648 291,802,657 237,877,179 218,187,218 290,127,697 678,886,897
GAP (196,083,759) 158,102,352 (56,034,377) (55,874,622) (142,093,564) (100,183,548)
228
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Note: The above amounts include only New Taiwan dollar amounts held in the onshore branches of the Bank (i.e., excluding foreign currency).
Maturity analysis (in thousands of USD)
December 31, 2011
Total Amount for the Remaining Time Before the Maturity Date
1-30 Days 31-90 Days 91-180 Days 181 Days to One Year
Over One Year
Main capital inflow on maturity
39,707,323 13,133,344 11,403,885 7,392,743 5,326,592 2,450,759
Main capital outflow on maturity
40,924,509 13,972,207 11,503,021 7,109,724 5,862,267 2,477,290
GAP (1,217,186) (838,863) (99,136) 283,019 (535,675) (26,531)
December 31, 2010
Total Amount for the Remaining Time Before the Maturity Date
1-30 Days 31-90 Days 91-180 Days 181 Days to One Year
Over One Year
Main capital inflow on maturity
17,027,511 5,500,416 5,189,951 2,871,872 1,865,393 1,599,879
Main capital outflow on maturity
16,710,276 6,324,783 4,310,764 3,028,545 1,849,744 1,196,440
GAP 317,235 (824,367) 879,187 (156,673) 15,649 403,439 Note 1: The above amounts are book values of the assets and liabilities of the onshore branches and offshore banking unit
of the Bank in U.S. dollars, without off-balance-sheet amounts (for example, the issuance of negotiable certificates of deposits, bonds or stocks).
Note 2: If the overseas assets are at least 10% of the total assets, there should be additional disclosures.
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FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
6. Statement of capital adequacy
December 31, 2011 Consolidated Bank
Eligible
capital Tier 1 capital $ 86,376,303 86,332,043 Tier 2 capital 38,956,135 38,911,875 Tier 3 capital - - Eligible capital 125,332,438 125,243,918
Risk-weighted assets
Credit risk Standardized approach
826,878,444 826,872,794
Internal rating-based approach
- -
Securitization 2,415,295 2,415,295 Operational
risk Basic indicator
approach - -
Standardized approach/Alternative standardized approach
42,505,300 42,454,263
Advance measurement approach
- -
Market risk Standardized approach
57,193,000 57,193,000
Internal models approach
- -
Total risk-weighted assets 928,992,039 928,935,352 Capital adequacy ration 13.49% 13.48% Tier 1 risk-based capital ratio 9.30% 9.29% Tier 2 risk-based capital ratio 4.19% 4.19% Tier 3 risk-based capital ratio -% -% Ratio of common stockholders’ equity to total assets 3.40% 3.40% Ratio of financial leverage 5.79% 5.79%
230
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2010 Consolidated Bank
Eligible
capital Tier 1 capital $ 78,482,382 78,333,916 Tier 2 capital 32,658,529 32,510,063 Tier 3 capital - - Eligible capital 111,140,911 110,843,979
Risk-weighted assets
Credit risk Standardized approach
756,128,008 756,062,368
Internal rating-based approach
- -
Securitization 2,381,127 2,381,127 Operational
risk Basic indicator
approach - -
Standardized approach/Alternative standardized approach
42,899,063 42,800,725
Advance measurement approach
- -
Market risk Standardized approach
52,001,850 51,935,675
Internal models approach
- -
Total risk-weighted assets 853,410,048 853,179,895 Capital adequacy ration 13.02% 12.99% Tier 1 risk-based capital ratio 9.20% 9.18% Tier 2 risk-based capital ratio 3.82% 3.81% Tier 3 risk-based capital ratio -% -% Ratio of common stockholders’ equity to total assets 3.30% 3.30% Ratio of financial leverage 5.54% 5.53% Note 1: These tables were prepared according to the “Regulations Governing the Capital
Adequacy Ratio of Banks” and related calculation tables. Note 2: The formula:
Eligible capital = Tier 1 capital + Tier 2 capital + Tier 3 capital.
231
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
10) The significant effect with foreign financial assets and financial liabilities were as follows:
December 31, 2011 December 31, 2010
Foreign currency (thousand
dollars) Exchange
rate (dollars) NTD
Foreign currency (thousand
dollars) Exchange rate
(dollars) NTD Financial assets: Monetary Items
USD 21,144,302 30.272/ 30.29/ 30.62
640,398,512 19,788,280 29.152/ 29.546/
29.14
551,371,098
HKD 1,536,121 3.899/ 3.897
5,989,833 4,266,169 3.751/ 3.301/ 3.748
15,954,128
AUD 1,076,962 30.62/ 30.748/ 30.805
33,153,327 880,443 29.671/ 30.091/ 29.688
26,213,591
EUR 1,201,116 39.179/ 39.192/
38.98
47,060,667 1,154,817 38.976/ 39.471/ 38.931
44,984,953
JPY 14,286,290 0.389/ 0.39/ 0.392
5,593,866 14,380,897 0.359/ 0.363
5,155,399
SGD 973 23.2928 22,697 926 22.7300 21,471 GBP 35,462 46.52/
46.73/ 46.765
1,658,496 42,547 45.148/ 45.183
1,921,890
RMB 7,348,025 0.9390 6,908,578 438 4.4405 1,945 CHF 70,080,954 0.0580 4,083,166 843 32.4480 27,354 CAD 112 29.6583 3,336 1,442 29.208/
29.167 42,705
ZAR 662,262 3.7310 2,470,675 336,379 4.3980 1,568,881 IDR 2,885,552,902 0.0030 9,638,663 1,326,796,930 0.0030 4,308,174 NZD 245,580 23.395/
23.426 5,752,862 217,262 22.628/
22.859/ 22.549
4,911,143
BRL 518,858 16.2350 8,423,760 74,668 17.5610 1,311,270 MYR - - - 64,039 9.5160 609,391 KRW 53,310 0.0260 1,390 - - - RMB 497,889 4.7750 237,217 - - - Other(note) 2 - 13,138 29 - 663
Financial assets: Non-monetary Items
USD 1,520,100 30.272/ 30.29
46,056,440 1,070,031 29.152/ 29.546/
29.14
31,341,578
JPY 587,908 0.3920 230,441 676,112 0.359/ 0.363
242,379
AUD 1,273 30.8050 11,079 1,397 29.671/ 30.091/ 29.688
41,442
EUR 15,183 39.1920 595,213 18,684 38.976/ 39.471/ 38.931/ 38.8603
728,212
HKD 1,721,387 3.8990 6,712,429 1,050,816 3.751/ 3.301/ 3.748
3,941,202
CAD 669 29.6930 19,861 2,956 29.208/ 29.167
86,237
KRW 680,294 0.0260 17,741 10,333,500 0.0260 268,726 GBP 5,137 46.765.0000 240,198 - - - CHF 1,833 32.2370 59,090 - - - DKK 1,831 5.2720 9,651 - - - SEK 2,689 4.3890 11,804 - - - Other(note) - - - 83 - 3,726
Financial Derivatives USD 296 30.5060 75,200 14,751 29.1520 14,177,621 JPY - 0.3900 345 - 0.3590 (84,115) AUD - - - - 29.6710 (20,623)
232
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2011 December 31, 2010
Foreign currency (thousand
dollars) Exchange
rate (dollars) NTD
Foreign currency (thousand
dollars) Exchange rate
(dollars) NTD ERU - - - - 38.9760 661,623 GBD - - - - 45.1480 2,818
The Equity method of long-term equity Investment
USD 30,092 30.2900 802,438 64,762 29.1520 1,926,754 THB 1,375 0.9601 1,320 912 1.0129 924 RMB 326,172 4.8118 1,569,478 571,669 4.4170 1,683,375 VND 795,805,195 0.0010 1,145,959 - - -
Financial Liabilities: Monetary Items
USD 8,800,542 30.2897 266,565,822 8,971,610 29.1526 261,545,725 HKD 1,724,692 3.8993 6,725,090 3,836,984 3.7497 14,387,543 EUR 310,893 39.1243 12,163,474 214,670 38.8603 8,342,125
Financial Derivatives USD 3,010 30.2900 91,163 3,061 29.1500 89,226
11) Disclosure on adopting IFRSs for the year ended 2011:
1. Under the order No. 0990004943 issued by Financial Supervisory Commission Executive Yuan on February 2, 2010. To assist the adjustment, the Company has set up a special task force and formed an IFRS adoption plan. General Manager and task force are responsible for the conversion plan. Significant plan contents, expected schedules and completion status are summarized as follows:
Plan Contents
Responsible Department (or
Responsible Person)
Status
Set up an interdepartmental IFRSs project team.
Project team Completed
Set up an IFRSs implementation plan. Project team Completed Identify the differences between ROC GAAP
and IFRSs. Project team Completed
Identify the consolidated entities under IFRSs. Project team Completed Evaluate impacts related to optional
exemptions under IFRS based on IFRS 1 – “First-time Adoption of International Financial Reporting Standards”.
Project team Completed
Evaluate the possible impacts on the information systems.
Project team Completed
Evaluate the possible modification of internal control systems.
Project team Completed
Determine the IFRSs accounting policies to apply.
Project team Completed
Select from optional exemptions based on IFRS 1.
Project team Completed
233
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Plan Contents
Responsible Department (or
Responsible Person)
Status
Prepare the opening balance sheet in conformity with the IFRSs.
Project team In Progress
Prepare comparative 2012 financial information based on IFRSs.
Project team In Progress
Modify the related internal control system (including financial reporting process and information systems.
Project team In Progress
2. The significant differences of preparing financial statements which the Company evaluated between current GAAP and IFRSs are listed below:
Accounting issues Difference explanation
Employment benefit (a) Short-term employee benefit:
Accumulating compensated absence The Company recognizes expenses when the absences occur at present to deal with compensated absence. Under IAS No.19 approved by FSC, when the employees render service that increases their entitlement to future compensated absences, the Company shall recognize the expected cost of compensated absences.
(b) Long-term employee benefit a) Defined benefit plan (accounting
policy choice on actuarial gains or losses)
Under R.O.C. GAAP No.18, actuarial gains and losses from defined benefit plan should be amortized over the expected average remaining working lives of the participating employees under the corridor approach. Under IAS No.19, the company may select recognition methods of actuarial gains and losses, one of which is to recognize actuarial gains and losses in other comprehensive income when occurred.
234
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Accounting issues Difference explanation
b) defined benefit plan (preferential deposit for retired employees)
The difference between preferential deposit interest rate and the prevailing interest rate that the subsidiaries give retired employees is subject to IAS No.19. According to Article 28 of amendments of the Regulations Governing the Preparation of Financial Reports by Public Banks, if the preferential deposit interest rate that the subsidiaries have offered to employees in accordance with employment contract is higher than the prevailing interest rate on the market, the excess portion of the interest shall apply to IAS No.19 upon the employees’ retirement.
c) consolation payment There is no definite accounting treatment for consolation payment under ROC GAAP. However, the Company shall adopt actuarial report to recognize employee benefits expense and liability as defined benefit plan under IAS No.19 approved by FSC.
Financial instrument a) Regular way of purchase or sale Under ROC GAAP, the subsidiaries use
settlement date accounting for bond transactions. After adoption to IFRSs, bond transactions shall be recorded by using trade date accounting consistently.
b) Derecognization of financial assets The subsidiaries sell convertible bonds and options to other investors in a convertible assts swap transaction. If the investors of options would like to exercise conversion rights of convertible bonds, the subsidiaries have to buy the convertible bonds back. Because the investment risk is not transferred under IFRSs, the assets may not be derecognized.
c) Financial assets carried at cost under IFRSs
Under Amendments of the Regulations Governing the Preparation of Financial Reports stipulated by the authorities, financial instruments should meet both of the following conditions to be classified as financial assets carried at cost: (1) Equity instruments with no active market or a derivative asset that is linked to and must be settled by delivery of these unquoted equity instruments; and (2) The fair value cannot be measured reliably. If the above conditions are unmet, the financial instruments should be measured at fair value and the value should be estimated using valuation techniques. Gains or losses on valuation should be measured periodically (at least once a month).
235
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Accounting issues Difference explanation
Fixed assets a) Decommissioning cost Under IAS 37 approved by FSC, the Company
should estimate the costs of dismantling, relocating and restoring of the leased assets by the end of the lease term, and recognized those costs as the component of fixed asset and liability. The liabilities of decommissioning cost are estimated based on discounted present value. The Company main decommissioning cost is restoration cost of leased assets.
b) The significant elements of property The accounting for property is based on significant elements to follow IAS 40 and 16 approved by FSC. The significant elements of property divide the part of property into individual elements and depreciate separately.
Special reserve In accordance with Regulations Governing the Reserves Provision by Insurance Companies and IAS 12 approved by FSC, special reserve under liabilities reserve before December 31, 2011, except for some reserve netting aside for regulatory purpose, should be transferred, after deducting income tax, to special capital reserve under stockholder’s equity on January 1, 2012.
Income tax Deferred tax assets IAS 12 requires that deferred tax assets are recognized when realization of tax benefit is probable and valuation allowance is not permitted.
3. The company used IFRSs, which approved by Financial Supervisory Commission Executive
Yuan, as the basis of the above assessment. While the above explanations about the probability of significant difference between ROC GAAP and IFRSs are the preliminary decisions made by current environment and condition, it may be altered when the environment and condition changed.
236
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(41) Disclosure Required 1) Related information of significant transactions:
1. Cumulative purchase or sales of the same investee’s capital stock up to $300,000 or 10% of paid-in capital:
(In Thousands of New Taiwan dollars/Thousands shares)
Purchase or sale
company
Marketable securities Type and
name Account Counter-
party Relationship
January 1, 2011 Purchase Sale December 31, 2011
Share Amount Share Amount Share Price Cost
Gain (loss) on disposal Share Amount
Fubon Financial Holding
Taiwan Sport Lottery
Investment under equity method
Capital increase by cash of the subsidiary
Subsidiary of the Company
25,500 (1,801,695) 195,000 (155,516) (note 1)
25,500 (note 2)
- - - 195,000 (1,957,211)
Fubon Financial Holding
Fubon Bank (Hong Kong)
Investment under equity method
Purchased the rest outstanding shares
Subsidiary of the Company
879,120 14,194,041 293,040 5,433,107 (note 1)
- - - - 1,172,160 19,627,148
Fubon Financial Holding
Fubon Asset Management
Investment under equity method
Fubon Securities
Subsidiary of the Company
59,646 1,280,860 - 6,195 (note 1)
59,646 1,287,055 1,287,055 - - -
Note 1: Include subscribed for Taiwan Sport Lottery and Fubon Bank (Hong Kong) capital increase by shares.
Amount of that was $1,950,000 and $5,644,185, respectively. The surplus was gain or loss on investments under entity method, unrealized gain or loss on financial instrument and cumulative translation
adjustment.
Note 2: Capital reduction to make up for losses.
2. Acquisition of real estate up to $300,000 or 10% of paid-in capital:
Name Property
name Trading
date Trading amount Payment Counter-party Relationship
The ex-transferred information (when counter-party is related-party) Price
deciding basis
Acquiring purpose Other Owner Relationship
Transferred date Amount
Fubon Life Insurance
Lands and buildings of 5F, No. 159, Sec. 6, Tonghua Rd. Da-an Dist., Taipei City
2011.12 358,880 35,888 A Non-related party
- - - - Accreditation report
Real estate investment
Paid in January,
2012
Fubon Life Insurance
Lands of No.544, 547, 547-1, 547-2, 547-3, Sec.5, Qiyan Rd. Beitou Dist., Taipei City and buildings of 153-3, Sec.2 Baxian Rd., Beitou Dist, Taipei City
2011.11 7,005,412 7,005,412 Sanchih Asset Management
Service Co., Ltd.
Non-related party
- - - - Bidding price and
accreditation report
Real estate investment
-
Fubon Life Insurance
Lands and buildings of No. 26-4, 27, 28, 29, 30-3, Sec. 6, Tonghua Rd. Da-an Dist., Taipei City
2011.11 778,357 778,357 Walsin Co., Ltd. Non-related party
- - - - Accreditation report
Real estate investment
-
Fubon Life Insurance
Lands and buildings of No. 159, Sec. 6, Tonghua Rd. Da-an Dist., Taipei City
2011.10 374,375 374,375 LianXiang Investment Co.,
Ltd.
Non-related party
- - - - Bidding price and
accreditation report
Real estate investment
-
Fubon Life Insurance
Lands and buildings of No. 159, Sec. 6, Tonghua Rd. Da-an Dist., Taipei City
2011.09 1,458,240 1,458,240 Shin Kong Life Co., Ltd.
Non-related party
- - - - Bidding price and
accreditation report
Real estate investment
-
Fubon Life Insurance
Lands and buildings of No. 26-4, 27, 28, 29, 30-3 Sec. 6, Tonghua Rd. Da-an Dist, Taipei City
2011.09 1,590,000 1,590,000 Longsheen far Asset
Management Service Co., Ltd.
Non-related party
- - - - Accreditation report
Real estate investment
-
237
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Name Property
name Trading
date Trading amount Payment Counter-party Relationship
The ex-transferred information (when counter-party is related-party) Price
deciding basis
Acquiring purpose Other Owner Relationship
Transferred date Amount
Fubon Life Insurance
Lands and buildings of No. 2 Reu Ai Road Taipei
2011.05 2,011,000 2,011,000 Qing feng Co., Ltd. (Obtained
through foreclosure) A.B
Non-related party
- - - - Bidding price and
accreditation report
Real estate investment
-
Fubon Life Insurance
Lands and buildings of No. 28 Hui-Gud Sec. Xitun dist. Taichung City
2011.01 947,180 947,180 C.D Non-related party
- - - - Accreditation report
Real estate investment
-
Fubon Life Insurance
Lands and buildings of No. 184Hui-Gud Sec. Xitun dist. Taichung City
2010.12 2,172,630 1,722,292 Fong-Yi Construction
Ltd. E
Non-related party
- - - - Accreditation report
Personal -
3. Disposal of real estate up to $300,000 or 10% of paid-in capital: None. 4. Discount of commission fees for transaction with related parties up to $5,000: None. 5. Receivables from related parties up to $300,000 or 10% of paid-in capital:
(In Thousand of New Taiwan Dollars)
Name Counter-party Relationship
Balance of receivables
from related party
Turnover rate
Past-due receivables – related parties
Subsequently received
amount of receivables
from related party
Allowance for doubtful
accounts Amount Resolution Taipei Fubon Bank
Fubon Financial Holding
Parent company
1,092,482 (Note 1)
- - - - -
Taipei Fubon Bank
Taiwan Sport Lottery Fubon Life Insurance
2,146,814
Taipei Fubon Bank
Fubon Life Insurance
561,237
Fubon Life Insurance
Fubon Financial Holding
2,379,048 - - - - -
Note 1: The tax receivable is due to linked tax system.
6. The transaction information of NPL disposition by the subsidiaries:
(1) Summary of transaction information of NPL disposition
Date Counter-
party Content Book value
Selling price
Gain (loss) on disposal
Additional condition
The relationship
of the counter-
party and the
Company 2011.01.11 Macquarie
Bank Limited Enterprise unsecured case
- 58,221 58,221 (note 1)
- -
2011.01.17 Yuanta Asset Management
Enterprise unsecured case
1,159 6,960 5,801 (note 1)
- -
238
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Date Counter-
party Content Book value
Selling price
Gain (loss) on disposal
Additional condition
The relationship
of the counter-
party and the
Company 2011.04.20 Well Fargo
Bank, NA Enterprise unsecured case
107,284 31,512 (75,772) - -
2011.05.13 The Royal Bank of Scotland, Plc
Enterprise unsecured case
- 48,779 48,779 (note 1)
- -
2011.05.17 Yi-Da United Co., Ltd.
Enterprise unsecured case
228,473 501,094 272,621 (note 2)
- -
Note1:The selling price in excess of the carrying value is recognized as the increase in allowance for credit losses. Note2:Except for a $70,182 gain on disposal, the selling price in excess of the carrying value is recognized as the
increase in allowance for credit losses.
(2) The information of a transaction of NPL disposition up to $1,000,000 should be disclosed: None.
7. Types of securitization instruments and other relevant information approved by the
subsidiaries to issue pursuant to financial assets securitization rules or real estate securitization rules: None.
8. Other significant transactions that may have substantial influence upon the decision made by
financial statements users: None.
2) Related information of investees companies: 1. Names, locations, and relevant information of investees upon which the bank exercises
significant-influence:
(In Thousands of New Taiwan Dollars)
Names of investor company
Names of investee company Address
Main business
scope Shareholding
ratio Carrying
value
Investment gain (loss) recognized
Aggregate shareholding of the company and its subsidiaries
Remark No. of shares
No. of pro
forma shares
Total
Number of shares
Shareholding ratio
Fubon Financial Holding
Fubon Insurance Co., Ltd.
Taipei Property insurance
100.00% 23,190,534 3,078,068 817,840 - 817,840 100.00% -
Fubon Life Insurance Co., Ltd.
Taipei Life assurance
100.00% 78,301,431 10,377,900 2,112,317 - 2,112,317 100.00% -
Fubon Securities co., Ltd.
Taipei Securities 100.00% 32,584,246 2,666,131 1,664,355 - 1,664,355 100.00% -
Taipei Fubon Bank Co., Ltd.
Taipei Banking 100.00% 91,983,411 9,338,384 5,109,287 - 5,109,287 100.00% -
239
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Names of investor company
Names of investee company Address
Main business
scope Shareholding
ratio Carrying
value
Investment gain (loss) recognized
Aggregate shareholding of the company and its subsidiaries
Remark No. of shares
No. of pro
forma shares
Total
Number of shares
Shareholding ratio
Fubon Direct Marketing Consulting Co., Ltd.
Taipei Direct Marketing
100.00% 396,251 202,377 14,500 - 14,500 100.00% -
Fubon Financial Holding Venture Capital Co., Ltd.
Taipei Venture Capital
91.67% 10,430,025 7,519,730 273,360 - 273,360 100.00% -
Fubon Bank (Hong Kong)
Hong Kong Banking 100.00% 19,627,148 544,884 1,172,160 - 1,172,160 100.00% -
Fubon Asset Management Service Co., Ltd.
Taipei Creditor’s right purchasing
100.00% 3,015,867 399,417 250,000 - 250,000 100.00% -
Taiwan Sport Lottery Technology Co., Ltd.
Taipei Information Software Service
100.00% (1,957,211) (2,105,516) 195,000 - 195,000 100.00%
Fubon Asset Management
Taipei Asset Management
- - (6,955) 150,000 - 150,000 100.00% All sale to Fubon
Securities Co., Ltd. on March 11,
2011 Fubon Insurance
Fubon Brokers (Thailand) Co., Ltd.
Thailand Insurance brokers
25.00% 1,320 454 4,992 - 4,992 25.00% -
Fubon Venture Capital Co., Ltd.
Taipei Venture Capital
- - - - - - - Dissolved
Sinostar Venture Capital Co., Ltd.
Taipei Venture Capital
- - - - - - - Dissolved
Fubon Insurance
Fubon Insurance (Vietnam) Co., Ltd.
Vietnam Insurance Business
100.00% 576,658 (89,819) - - - 100.00% -
Fubon Insurance
Chung-ke Venture Capital Co., Ltd.
Taipei Venture capital
- - 49 - - - - Reclassified as financial
assets carried at
cost Fubon Insurance
Fubon Property & Casualty Insurance Co., Ltd.
Xiamen Insurance Business
50.00% 784,723 (125,660) 20,000 - 20,000 100.00% -
Fubon Life Insurance
Fubon Venture Capital Co., Ltd.
Taipei Venture Capital
- - - - - - - Dissolved and related investments recordered; Disposal Gain $3,282.
Fubon Life Insurance
Sinostar Venture Capital Co., Ltd.
Taipei Venture Capital
- - - - - - - Dissolved and related investments recordered; Disposal Gain $8,339.
240
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Names of investor company
Names of investee company Address
Main business
scope Shareholding
ratio Carrying
value
Investment gain (loss) recognized
Aggregate shareholding of the company and its subsidiaries
Remark No. of shares
No. of pro
forma shares
Total
Number of shares
Shareholding ratio
Chung-ke Venture Capital Co., Ltd.
Taipei Venture Capital
- - - - - - - No significant influence upon the investment Reclassified as financial assets carried at cost and recognized impairment loss $16,250.
Fubon Property & Casualty Insurance Co., Ltd.
Xiamen Property insurance
50.00% 784,723 (125,660) 20,000 - 20,000 100.00% -
Fubon Insurance (Vietnam) Co., Ltd.
Vietnam Insurance business
100.00% 1,145,959 (5,965) - - - 100.00% Yield fund transferred $4,256 and capital increased $268,840
Fubon Securities
Fubon Futures Co., Ltd.
Taipei Futures 100.00% 1,342,376 103,848 100,000 - 100,000 100.00% -
Fubon Securities (BVI) Ltd.
Taipei Securities 100.00% 353,604 (99,726) 6,550 - 6,550 100.00% -
Fubon Securities Investment Service Co., Ltd.
Taipei Investment Management
100.00% 324,248 15,960 30,000 - 30,000 100.00% -
Fubon Financial Holding Venture Capital Co., Ltd.
Taipei Venture Capital
8.33% 971,839 683,338 273,360 - 273,360 100.00% -
Fubon Asset Management Co., Ltd.
Taipei Asset management
100.00% 2,680,371 (96,857) 192,345 - 192,345 100.00% -
Taipei Fubon Bank
Fubon Construction Management Co., Ltd.
Taipei Construction management, real estate valuation
30.00% 96,239 5,761 6,508 - 6,508 30.00% Note 2
Taipei Fubon Bank Life Assurance Agent Co., Ltd.
Taipei Insurance agent
100.00% 88,521 36,884 2,000 - 2,000 100.00% Note 2
Fubon Direct Marketing Consulting
Fu-Sheng Life Assurance Agent Co., Ltd.
Taipei Insurance agent
100.00% 86,719 95,585 300 - 300 100.00% -
Fu-Sheng General Insurance Agent Co., Ltd.
Taipei Insurance agent
100.00% 34,649 30,854 300 - 30,854 100.00% -
Fubon Bank (Hong Kong) (Note 2)
Fubon Financial (H.K.) Ltd.
Hong Kong Deposit service
100.00% HKD 65,000 HKD 17,147
65,000 - 65,000 100.00% -
Fubon Bank (Hong Kong) (Note 2)
Fubon Bank Securities (H.K.) Ltd.
Hong Kong Securities 100.00% HKD 8,000 HKD 36,259
8,000 - 8,000 100.00% -
Fubon Bank Investment Management Ltd.
Hong Kong Fund management
100.00% HKD 8,000 HKD 337 80 - 80 100.00% -
241
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Names of investor company
Names of investee company Address
Main business
scope Shareholding
ratio Carrying
value
Investment gain (loss) recognized
Aggregate shareholding of the company and its subsidiaries
Remark No. of shares
No. of pro
forma shares
Total
Number of shares
Shareholding ratio
Fubon Nominees (Hong Kong) Limited
Hong Kong Nominees service
100.00% HKD 0.2 HKD 1 0.2 - 0.2 100.00% -
Fubon Capital (HK) Limited
Hong Kong Guarantor and advisor of listed company
87.00% HKD 26,100 HKD (4,053)
26 - 30 100.00% -
Fubon Insurance Broker Limited
Hong Kong - 100.00% HKD 100 HKD 637 100 - 100 100.00% -
Note 1: It had been fully liquidated on May 20, 2009. Note 2: The details of consolidated entities of Fubon Bank (Hong Kong) are its main subsidiary.
2. Loans to others: None. 3. Endorsement and guarantees for others: None. 4. Marketable securities held as of December 31, 2011:
(In Thousands of New Taiwan dollars / Thousands shares)
Held company name
Marketable securities type
and name
Relationship with the securities
issuer Account
December 31, 2011
Remark No. of shares Book value
Shareholding ratio Market price
Fubon Futures Co., Ltd.
Fubon R1 - Available-for-sale financial assets
1,663 23,182 - 23,182 Beneficiary certificate
Fubon R2 - 1,677 19,286 - 19,286 Trident - 926 20,187 - 20,187 Cathay R1 - 5,122 72,118 - 72,118 Cathay R2 - 1,891 23,808 - 23,808 Shin Kong R1 - 3,852 42,141 - 42,141
Fubon Direct Marketing Consulting
Beneficiary certificate – JP Morgan Global Bond A
- Financial assets measured at fair value through profit or loss
641 9,484 - 9,484
Beneficiary certificate – JP Morgan Global Bond B
- 488 5,053 - 5,053
Allianz Glb1 Inv seasons Ret of Bond
- 412 5,156 - 5,156
Fubon R1 - Available-for-sale financial assets
1,105 15,404 - 15,404
Fubon R2 - 1,100 12,650 - 12,650 Cathay R1 - 1,000 14,080 - 14,080 Cathay R2 - 1,100 13,849 - 13,849 Beneficiary
certificate – Fubon Chi-Hsiang Fund
- Financial assets measured at fair value through profit or loss
3,713 56,226 - 56,226
242
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Held company name
Marketable securities type
and name
Relationship with the securities
issuer Account
December 31, 2011
Remark No. of shares Book value
Shareholding ratio Market price
Beneficiary certificate – Fubon Fu Bao Fund
- 3,000 19,800 - 19,800
Beneficiary certificate – Fubon Yield Fund
- 1,000 9,322 - 9,322
Fubon Construction Management Co., Ltd.
Cathay R2 Issue from related parties
Available-for-sale financial assets
800 10,072 - 10,072
Cathay R1 - 15,504 218,296 - 218,296 Fubon Asset Management Co., Ltd.
Beneficiary certificate – Fubon Chi-Hsiang Fund
Fund managed under the company
Financial assets measured at fair value through profit or loss
7,994 121,057 - 121,057
Beneficiary certificate – Mega Diamond Money Market
3,851 46,463 - 46,463
Fubon Asset Management Co., Ltd.
Beneficiary certificate – Fubon Emerging Asia Growth Equity
Fund managed under the company
Financial assets measured at fair value through profit or loss
4,319 36,887 - 36,887 Beneficiary certificate
Beneficiary certificate – Fubon Sapreme
252 9,303 - 9,303
Beneficiary certificate – Fubon Taiwan Heart
846 9,289 - 9,289
Beneficiary certificate – Fubon Taiwan CSRA
444 4,546 - 4,546
Beneficiary Certificate-Fubon Agribusiness Equity
3,170 26,815 - 26,815
Beneficiary certificate – Fubon Aggressive Growth
Fund managed under the company
2,300 31,692 - 31,692
Beneficiary certificate – Fubon Elite
4,180 31,849 - 31,849
Beneficiary certificate – Fubon China Growth
8,089 32,760 - 32,760
Beneficiary certificate – Fubon MSCI Taiwan ETF
67 1,899 - 1,899
Fubon Asset Management Co., Ltd.
Beneficiary certificate – Fubon Taiwan Eight Industries ETF
Fund managed under the company
Financial assets measured at fair value through profit or loss
83 2,561 - 2,561
243
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Held company name
Marketable securities type
and name
Relationship with the securities
issuer Account
December 31, 2011
Remark No. of shares Book value
Shareholding ratio Market price
Beneficiary certificate – Fubon Taiwan Finance ETF
69 1,697 - 1,697
Beneficiary certificate – Fubon Taiwan Technology ETF
50 1,497 - 1,497
Beneficiary certificate – Fubon SSE180 ETF
13 244 - 244
Fubon Financial Holding Venture Capital Co., Ltd.
Chunghwa chemical Synthesis & Biotech Co., Ltd.
- Available-for-sale financial assets
3,000 155,400 3.87 155,400 Listed stock
Bionime Corporation
- 1,075 93,093 2.45 93,093
KD Holding Corporation
- 2,544 356,140 4.40 356,140 Emerging stock
Ser Comm Corporation
- 500 49,875 0.27 49,875
Aver Information Inc.
- 578 16,748 0.59 16,748 Unlisted stock
Fubon Financial Holding Venture Capital Co., Ltd.
H&Q AP Greater China Growth Fund
- - 24,680 4.00 24,680 Private fund
An Shin Food Service Co., Ltd.
- 88 13,860 0.27 13,860 Emerging stock
Omniad Media Incorporation
- Other financial asset
7,675 - 10.21 - Unlisted stock
Pharmaengine, Inc.
- 2,054 1,790 2.56 1,790
EVA Technologies Co., Ltd.
- 3,350 56,548 6.48 56,548
Guo Guang Petrochemical Corp.
- 2,389 - 4.37 -
ADImmue Corp. - 1,140 23,469 0.70 23,469 Unlisted stock
Phalanx Biotech Group
- 182 1,248 0.59 1,248
ConforMIS, Inc. - 450 61,325 1.46 61,325 Rafael
Microelectronics, Inc.
- 800 3,080 5.72 3,080
Jeoutai Technology Co., Ltd.
- 1,570 42,000 8.06 42,000
Century Development Corporation
- 2,378 31,204 1.00 31,204
Yuan-tai Foreign Exchange Brokey Co., Ltd.
- 240 4,800 2.00 4,800
Optimer Pharmaceuticals, Inc.
- 4,000 33,200 3.94 33,200
TIPCO International Limited
- Other financial asset
506 147,202 4.55 147,202
Eversol Company - 1,150 8,050 0.41 8,050 Stem Cyte Inc. - 9,000 257,085 10.12 257,085
244
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Held company name
Marketable securities type
and name
Relationship with the securities
issuer Account
December 31, 2011
Remark No. of shares Book value
Shareholding ratio Market price
Fubon Multimedia Technology Co., Ltd.
- 7,175 108,989 6.22 108,989
Beneficiary certificate – Fubon Chi-Hsiang Fund
Fund managed under a subsidiary of the Company
Financial assets measured at fair value through profit or loss
61,359 929,208 - 929,208 Beneficiary certificate
Beneficiary certificate – Fuh Hwa Series Funds
140,412 1,959,038 - 1,959,038
Beneficiary certificate-Fubon Yield Found
- 64,777 781,535 - 781,535
Beneficiary certificate-Yuanta Wan Tai Money Market
- 34,299 500,971 - 500,971
Beneficiary certificate-Jih Sun Money Market
- 35,131 500,956 - 500,956
Fubon Financial Holding Venture Capital Co., Ltd.
Beneficiary certificate-PCA Well Poll Money Market
- 38,218 500,957 - 500,957 Beneficiary certificate
Note 1: In accordance with the section 20 of “Principles for Compiling the Financial Statements of Financial Holding Companies”, Taipei Fubon Bank, Fubon Bank
(Hong Kong), Fubon Insurance, Fubon Life Insurance and Fubon Securities are not required to disclose their marketable securities held.
5. Cumulative purchase or sales of the same investee’s capital stock up to $300,000 or 10% of
paid-in capital:
Marketable Balance on January 1,
2011 Buy Sell Balance on December 31, 2011
Name
Securities Type and
name Account Counter-
party Shares Amount Shares Amount Shares Amount Book Value
Gain (Loss) on disposal Shares Amount
Fubon Financial Holding Venture Capital Co., Ltd.
Fubon Multimedia Technology Co., Ltd.
77,841 1,562,568 - (381,575) (note)
70,666 9,964,605 1,072,004 8,892,601 7,175 108,989
Note : Net amount was gain on investments under equity method and cash dividend .
245
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
6. Acquisition of real estate up to $300,000 or 10% of paid-in capital:
Name Property
name Trading
date Trading amount Payment Counter-party Relationship
The ex-transferred information (when counter-party is related-party) Price
deciding basis
Acquiring purpose Other Owner Relationship
Transferred date Amount
Fubon Life Insurance
Lands and buildings of No. 159, Sec. 6, Tonghua Rd. Da-an Dist., Taipei City
2011.12 358,880 35,888 Shin Kong Life Co., Ltd.
Non-related party
- - - - Accreditation report
Real estate investment
Paid in January,
2012
Fubon Life Insurance
Lands of No.544, 547, 547-1, 547-2, 547-3, Sec.5, Qiyan Rd. Beitou Dist., Taipei City and lands and buildings of 153-3, Sec.2 Baxian Rd., Beitou Dist, Taipei City
2011.11 7,005,412 7,005,412 Sanchih Asset Management
Service Co., Ltd.
Non-related party
- - - - Bidding price and
accreditation report
Real estate investment
-
Fubon Life Insurance
Lands and buildings of No. 26-4, 27, 28, 29, 30-3, Sec. 6, Tonghua Rd. Da-an Dist., Taipei City
2011.11 778,357 778,357 Walsin Co., Ltd. Non-related party
- - - - Accreditation report
Real estate investment
-
Fubon Life Insurance
Lands and buildings of No. 159, Sec. 6, Tonghua Rd. Da-an Dist., Taipei City
2011.10 374,375 374,375 LianXiang Investment Co.,
Ltd.
Non-related party
- - - - Accreditation report
Real estate investment
-
Fubon Life Insurance
Lands and buildings of No. 159, Sec. 6, Tonghua Rd. Da-an Dist., Taipei City
2011.09 1,458,240 1,458,240 Shin Kong Life Co., Ltd.
Non-related party
- - - - Bidding price and
accreditation report
Real estate investment
-
Fubon Life Insurance
Lands and buildings of No. 26-4, 27, 28, 29, 30-3 Sec. 6, Tonghua Rd. Da-an Dist, Taipei City
2011.09 1,590,000 1,590,000 Longsheen far Asset
Management Service Co., Ltd.
Non-related party
- - - - Accreditation report
Real estate investment
-
Fubon Life Insurance
Lands and buildings of No. 2 Reu Ai Road Taipei
2011.05 2,011,000 2,011,000 Qing feng Co., Ltd. (Obtained
through foreclosure) B
Non-related party
- - - - Bidding price and
accreditation report
Real estate investment
-
Fubon Life Insurance
Lands and buildings of No. 28 Hui-Gud Sec. Xitun dist. Taichung City
2011.01 947,180 947,180 -C, D Non-related party
- - - - Accreditation report
Real estate investment
-
Fubon Life Insurance
Lands and buildings of No. 184Hui-Gud Sec. Xitun dist. Taichung City
2010.12 2,172,630 1,722,292 Fong-Yi Construction
Ltd., E
Non-related party
- - - - Accreditation report
Personal -
7. Disposal of real estate up to $300,000 or 10% of paid-in capital: None. 8. Discount of commission fees for transaction with related parties up to $5,000: None.
246
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
9. Receivables from related parties up to $300,000 or 10% of paid-in capital:
(In thousands of New Taiwan Dollars)
Name Counter-party Relationship
Balance of receivables
from related party
Turnover rate
Past-due receivables – related parties
Subsequently received
amount of receivables
from related party
Allowance for doubtful
accounts Amount Resolution Taipei Fubon Bank
Fubon Financial Holding
Parent company
1,092,482 (Note 1)
- - - - -
Taipei Fubon Bank
Taiwan Sport Lottery Fubon Life Insurance
2,146,814
Taipei Fubon Bank
Fubon Life Insurance
561,237
Fubon Life Insurance
Fubon Financial Holding
2,379,048 - - - - -
Note 1: Tax payables to the subsidiaries, which derived from tax receivable of the Company as a result of combined income tax declaration starting form 2002.
10. Transactions of financial derivatives: for future information please refer to notes 6, 13, 18,
25 and 33. 11. Transaction information of NPL disposition:
(1) Summary of transaction information of NPL disposition
Date Counter-
party Content Book value
Selling price
Gain (loss) on disposal
Additional condition
The relationship of
the counter-party and the
Company 2011.01.11 Macquarie
Bank Limited
Enterprise unsecured case
- 58,221 58,221 (Note 1)
- -
2011.01.17 Yuanta Asset Management
Enterprise unsecured case
1,159 6,960 5,801 (Note 1)
- -
2011.04.20 Wells Fargo Bank, NA
Enterprise unsecured case
107,284 31,512 (75,772) - -
2011.05.13 The Royall Bank of Scotland, Plc
Enterprise unsecured case
- 48,779 48,779 (Note 1)
- -
2011.05.17 Yi-Da United Co., Ltd.
Enterprise unsecured case
228,473 501,094 272,621 (Note 2)
- -
Note 1: When the selling price of NPL disposition exceeds its book value, the excess recognized as allowance for
doubtful accounts.
247
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Note 2: When the selling price of NPL disposition exceeds its book value except recognized as gain on disposal $70,182, the excess recognized as allowance for doubtful accounts.
(2) The information of a transaction of NPL disposition up to $1,000,000 should be
disclosed: None. 12. Types of securitization instruments and other relevant information approved to issue
pursuant to financial assets securitization rules or real estate securitization rules: None. 13. Other significant transactions that may have substantial influence upon the decision made by
financial statement user: None.
3) Related information of subsidiaries’ investment in Mainland China: for further information please refer to Note 40 (10).
(42) Business Segment Financial Information:
1) Operating Segments information are as follows:
December 31, 2011 Bank
business Insurance business
Insurance business
Securities Business Others
Adjustment and reversal Total
Revenue
Revenue by external customers
$ 25,201,845 8,987,045 191,395,963 8,029,213 8,407,025 - 242,021,091
Revenue between 4,363,853 275,598 (2,934,662) 460,505 31,424,019 (33,589,313) - segments
Total revenues $ 29,565,698 9,262,643 188,461,301 8,489,718 39,831,044 (33,589,313) 242,021,091 Segment income (note) $ 11,382,415 3,463,704 11,585,414 2,851,439 38,603,987 (32,078,085) 35,808,874 Segment assets $ 1,739,462,588 71,159,733 1,791,408,334 51,706,472 290,317,993 (325,919,904) 3,618,135,216
December 31, 2010 Bank
business Insurance business
Insurance business
Securities Business Others
Adjustment and reversal Total
Revenue
Revenue by external customers
$ 26,014,847 8,119,839 219,050,062 7,382,727 2,245,678 - 262,813,153
Revenue between 1,038,215 346,324 (927,176) 424,332 22,124,146 (23,005,841) - segments
Total revenues $ 27,053,062 8,466,163 218,122,886 7,807,059 24,369,824 (23,005,841) 262,813,153 Segment income (note) $ 8,888,974 3,059,094 8,577,177 2,366,626 21,049,160 (20,794,045) 23,146,986 Segment assets $ 1,723,301,150 66,511,510 1,616,223,298 65,597,106 259,416,718 (278,274,616) 3,452,775,166
Note: Income tax expense information is not included in segments information.
248
FUBON FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
2) Geographical information
December 31, 2011
Taiwan Hong Kong Other Adjustment and
reversal Total Revenue
Revenue by external customers $ 237,388,058 4,368,151 264,882 - 242,021,091 Revenue between 33,859,790 (270,477) - (33,589,313) - segments
Total revenues $ 271,247,848 4,097,674 264,882 (33,589,313) 242,021,091 Segment income (note) $ 67,347,143 869,694 (329,878) (32,078,085) 35,808,874 Segment assets $ 3,705,201,439 234,760,149 4,093,532 (325,919,904 3,618,135,216
December 31, 2010
Taiwan Hong Kong Other Adjustment and
reversal Total Revenue
Revenue by external customers $ 258,063,562 4,717,714 31,877 - 262,813,153 Revenue between 23,271,161 (265,320) - (23,005,841) - segments
Total revenues $ 281,334,723 4,452,394 31,877 (23,005,841 262,813,153 Segment income (note) $ 43,136,067 930,142 (125,178) (20,794,045) 23,146,986 Segment assets $ 3,487,537,719 241,124,049 2,388,014 (278,274,616 3,452,775,166
The Company should report the following segments: 3) Bank business: Engaged in banking business. 4) Insurance business: Providing a variety of life and property insurance services. 5) Securities business: Engaged in securities business. 6) Others: Engaged in financial holding venture capital and asset management business, etc. Business financial information: For further information please refer Note 40 (6). The Company should report the segments information by business type to offer different business and services. All business types are administered separately and to have different finance and marketing strategies.
Board of DirectorsChairman Daniel M. TsaiFubon Financial
Vice Chairman Richard M. TsaiFubon Financial
Independent DirectorsHong-Chang ChangEx-Dean, College of Management, National Taiwan University
Chi-Yan CheungNon-executive Director, Ping An Insurance (Group) Company of China, Ltd.Chief Executive Officer of Boyu Capital Advisory Co., Ltd.
Yuan-Chi ChaoChairman, Concord Asia Finance Ltd.,
Shau-Kong JawChairman, Broadcasting Corporation of China
DirectorsDah-Jan ChiouCommissioner,Department of Finance, Taipei City Government
Yeh-Shin ChenCommissioner,Department of Labor, Taipei City Government
Li-Wen TsaiChair person,Administrative Appeals Commission, Taipei City Government
Victor KungPresident,Fubon Financial
Tsan-Ming ShihChairman,Fubon Insurance
Peng-Yuan ChengChairman, Fubon life
Jerry HarnPresident,Taipei Fubon Bank
Management CommitteeDaniel M. TsaiChairman, Fubon Financial
Richard M. TsaiVice Chairman, Fubon Financial
Victor KungPresident,Fubon Financial
Tsan-Ming ShihChairman,Fubon Insurance
Benny ChenChairman,Fubon Securities
Peng-Yuan ChengChairman, Fubon life
Jerry HarnPresident,Taipei Fubon Bank
Thomas LiangManaging Director,Fubon Bank (Hong Kong)
Business GroupCorporate & Investment BankingJerry Harn
Financial MarketsVictor KungJerry HarnJohn KuangJerry Wu
Consumer FinanceThomas LiangChu-Ming Hung
Wealth ManagementBenny ChenLeo ChengMorris Huang
Investment ManagementHoward Lin
InsuranceTsan-Ming ShihPeng-Yuan ChengSteve T.H. ChenBenson Chen
Information above as of end of April 2012Fubon annual report is printed on heavy-metal-free paper and with eco-friendly soybean-based ink.
Copyright © 2012 Fubon Financial Holding Co., Ltd. All Rights Reserved. Printed in Taiwan 6/2012
Fubon Financial Holding Co., Ltd.Year of Founding: Dec. 2001Chairman: Daniel M. TsaiPresident: Victor KungCapital: NT$90.24 Billion237 Section 1 Jianguo S Road Taipei TaiwanTel: (8862) 6636-6636Fax: (8862) 6636-0111www.fubon.com
InsuranceFubon Insurance Co., Ltd.Year of Founding: April 1961Chairman: Tsan-Ming ShihPresident: Steve T.H. ChenCapital: NT$3.17 Billion237 Section 1 Jianguo S Road Taipei TaiwanTel: (8862) 2706-7890Fax: (8862) 2704-2915www.fubon.com
Fubon Life Insurance Co., Ltd.Year of Founding: July 1987Chairman: Pen-Yuan ChengPresident: Benson ChenCapital: NT$22.12 Billion108 Section 1 Dunhua S Road Taipei TaiwanTel: (8862) 8771-6699Fax: (8862) 8809-8889www.fubon.com
InvestmentFubon Securities Investment Services Co., Ltd.Year of Founding: May 1987Chairman: Philip HuPresident: Charles HsiaoCapital: NT$300 Million108 Section 1 Dunhua S Road Taipei TaiwanTel: (8862) 2781-5995Fax: (8862) 2773-5601www.fubon.com
Fubon Securities Co., Ltd.Year of Founding: July 1988Chairman: Benny ChenPresident: Leo ChengCapital: NT$16.64 Billion108 Section 1 Dunhua S Road Taipei TaiwanTel: (8862) 8771-6888Fax: (8862) 8771-6636www.fubon.com
Fubon Asset Management Co., Ltd.Year of Founding: Sep. 1992Chairman: Gang ShyyPresident: Peter NiCapital: NT$1.92 Billion108 Section 1 Dunhua S Road Taipei TaiwanTel: (8862) 8771-6688Fax: (8862) 8771-6788www.fubon.com
Fubon Futures Co., Ltd.Year of Founding: May 1998Chairman: Raymond YangPresident: Phoebe ChangCapital: NT$1 Billion9 Xiangyang Road Taipei TaiwanTel: (8862) 2388-2626Fax: (8862) 2370-1110www.fubon.com
Fubon Financial Holding Venture Capital Corp.Year of Founding: Oct. 2003Chairman: Howard LinPresident: Chu-Hsin LeeCapital: NT$2.73 Billion108 Section 1 Dunhua S Road Taipei TaiwanTel: (8862) 6606-9088Fax: (8862) 8771-4697
BankingTaipei Fubon Commercial Bank Co., Ltd.Year of Founding: April 1969Chairman: Daniel M. TsaiPresident: Jerry HarnCapital: NT$51.09 Billion169 Section 4 Ren Ai Road Taipei TaiwanTel: (8862) 2771-6699Fax: (8862) 6606-9398www.fubon.com
Fubon Bank (Hong Kong) LimitedYear of Founding: Jan. 1970Chairman: Richard M. TsaiManaging Director: Thomas LiangCapital: NT$9.11 BillionFubon Bank Building, 38 Des Voeux Road Central, Hong KongTel: (852) 2842-6222Fax: (852) 2810-1483www.fubonbank.com.hk
Fubon Direct Marketing Co., Ltd.Year of Founding: Aug. 1997Chairman: Gordon YehPresident: Alex YehCapital: NT$145 Million17F, 9 Xiangyang Road Taipei TaiwanTel: (8862) 2370-5199Fax: (8862) 2370-5100www.fubon.com
Fubon AMC Co., Ltd.Year of Founding: Aug. 2004Chairman: Chao-Yang KaoPresident: Chin-Chyuan LaiCapital: NT$2.5 Billion50 Section 2 Zhongshan N Road Taipei TaiwanTel: (8862) 6618-0588Fax: (8862) 6608-0166
Taiwan Sport Lottery Co., Ltd.Year of Founding: Aug. 2007Chairman: Jerry HarnPresident: Chu-Min HongCapital: NT$1.95 Billion50 Section 2 Zhongshan N Road Taipei TaiwanTel: (8862) 6608-5885Fax: (8862) 6608-1968www.i-win.com.tw
Aetna Life Insurance Company of America, Taiwan Branch was establ ished in 1987 and then bought by ING Group in 2000 and renamed ING Life Taiwan. The branch became an ING Life subsidiary in 2006, which was later bought by the Fubon Group. Fubon Life was launched in 1993. The two insurers formally merged in 2009.
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