TAIPEI FUBON COMMERCIAL BANK€¦ · 1 -I.Message to Shareholders In 2013, despite continuing...

1. Spokesperson

Name：Jerry Harn

Title ：President

Tel ：（886）2-2771-6699#62111

E-mail：[email protected]

Acting Spokesperson

Name：Sunny Yao

Title ：Executive VP

Tel ：（886）2-2771-6699#62700

E-mail：[email protected]

2. Contact Information – Corporate Headquarters and Branches

Please see page 20

3. Stock Registration Agent

Name：Fubon Securities Co., Ltd. Address：2F, No.17, Hsuchang St.,Taipei, Taiwan, R.O.C.

Website：www.fubon.com

Tel：（886）2-2361-1300

4. Credit Rating Institution

Name Address Tel

Taiwan Ratings Corporation 49F. Taipei 101 Tower, No.7, Sec. 5,

Xinyi Rd., Taipei city 110, Taiwan

(R.O.C.)

(886)-2-8722 5800

Moody‟s Investors Service Room 2510, One International Finance

Centre One Harbour View Street Central,

Hong Kong

(886)-852-2509

0200

5. Certified Public Accountants for Fiscal Year 2013

CPAs：Jessie Wu, S. C. Huang

Company：Deloitte & Touche

Address：12F., No. 156, Sec. 3, Minsheng E. Rd., Taipei City 105, Taiwan (R.O.C.)

Website：www.deloitte.com.tw

Tel：（886）2-2545-9988

6. Exchange Houses where Overseas Securities are Listed：None

7. Website：www.fubon.com

mailto:[email protected]

http://www.fubon.com/

http://www.fubon.com/

CONTENTS

I. Message to Shareholders 1

II. Corporate Profile 4 1. Introduction 4

2. Organizational Structure 6

III. Business Operations 10 1. Business Information 10

2. Business Strategies and Business Plans for 2013 12

3. Research & Development Plans 15

4. Employees Profile 15

IV. Special Notes 16 1. Dividend Policy and Implementation Status 16

2.Implementation of the Internal Controls System 17

V. Headquarters and Branches 20

Appendix：Annual Financial Reports for

2013 and 2012

27

- 1 -

I. Message to Shareholders

In 2013, despite continuing recovery, the global economy witnessed only limited growth

momentum, making Taiwan‟s economic performance fail to meet expectations. Weak demand in

Europe, sub-par growth in China, lower domestic demand due to a decline in substantive wages,

and low stock trading added further to the headwinds on Taiwan's economy in the first half of the

year. The economy gradually picked up in the second half, thanks to gradual stabilization of a

number of international economic indices and sustained private investment. According to the

Cabinet-level Directorate General of Budget, Accounting, and Statistics (DGBAS), Taiwan's

economy grew by 2.11% in 2013, slightly higher than 2012's 1.48%.

Amid the lackluster economic performance, Taipei Fubon Bank still managed to stage steady

growth in both sales and profit margin, thanks to the backing of the abundant resources of its parent

firm, Fubon Financial Holding, and further strengthening of cross sales with affiliates and customer

relationships. In institutional banking, the bank adjusted customer makeup and bolstered its

platform for renminbi (RMB)-denominated products by expanding cross-border RMB businesses,

loans, and transactions. In retail banking, the bank boosted customer satisfaction with

wealth-management services, strengthened management of customer investment portfolios,

deepened understanding of customers' risk tolerance and needs for wealth management, and offered,

through advanced risk-management mechanism, tailor-made wealth-management products. In

housing loans, the bank closely followed market trends and endeavored to consolidate existing

assets to enhance the quality of customers and collateral. The bank also raised its product visibility,

customer satisfaction, and profit margins by increasing sales of products with higher interest

spreads, raising added value on housing loans, and making greater use of digital marketing tools. In

the credit-card business, the bank actively cultivated topnotch customer segments and attracted

market attention by seizing market trends. It also built up customer loyalty with Fubon cards

highlighting "convenience" and "fun." In the unsecured-loan sector, the bank continued to cultivate

quality credit-card holders, solicit salary-transfer accounts, and group customers, in addition to

lifting product visibility and competitiveness through flexible risk management, convenient

payment channels, and digital-media promotion.

While pursuing business growth and profits, the bank still carefully implemented risk

management. Consequently, as of the end of 2013, the bank's non-performing loan (NPL) rate and

NPL coverage rate stood at the remarkable levels of 0.12% and 973.96%, respectively, laying a

solid foundation for the bank's development. Thanks to satisfactory business performance and asset

quality, Taiwan Ratings announced on Nov. 19, 2013 that it maintained the bank's long-term credit

rating at "twAA+" and short-term credit rating at "twA-1+," on top of a "stable" outlook,

underscoring the bank's industry-beating profitability and asset quality.

In 2014, major international forecast bodies have taken a positive outlook for the global

economy despite a number of uncertainties, such as the impact of the scaling down of the U.S.

quantitative easing policy on emerging economies. The optimism is linked to the subsidence of the

European sovereign-debt crisis, recovery of the U.S. economy, and steady growth of the Japanese

economy. With the government also planning measures to bolster the economy, the DGBAS

predicted that Taiwan's economy will grow 2.82% in 2014. Fubon hopes to enhance business

performance and profits through organizational restructuring and joint marketing. In addition, it will

actively upgrade service quality and develop competitive products to meet customer needs.

Following its takeover of Shanghai-based First Sino Bank, the bank will also continue to advance

towards its goal of becoming a premier regional bank in Asia by way of business cooperation and

integration of resources through a financial service platform spanning China, Taiwan, and Hong

Kong.

- 2 -

Overview of operations in 2013 and plans for 2014:

1. 2013 Business Report

As of the end of 2013, the bank's outstanding deposits stood at NT$1,351.2 billion, up 8.36%

over a year earlier and outstanding loans reached NT$1,102.7 billion, up 7.42%. Net interest

income amounted to NT$15.78 billion in 2013, up 7.83%, with fee income growing 2.06% to

NT$8.45 billion and total net income jumping 15% to NT$33.63 billion. Operating expenses grew

by 5.69% to NT$15.58 billion. In 2013, after-tax net profits hit NT$12.1 billion, with after-tax

earnings per share reaching NT$1.57.

2. Summary of 2014 Business Plan

With Taiwan's economy expected to grow moderately in 2014, the bank will further enhance

risk vigilance and strengthen risk recognition, implement risk-management mechanisms, and

increase operational efficiency and quality. Moreover, the bank will step up efforts to establish a

service-oriented corporate culture with an aim to become the most trustworthy bank in the minds of

customers.

(1). Institutional Banking Business

In institutional banking, the bank will continue to provide various products and

services to customers under the strategy of consolidating existing businesses and

tapping business opportunities across the Taiwan Straits, taking advantage of a platform

spanning Taiwan, mainland China, Vietnam, and the U.S., as well as joint efforts by

customer- and product-oriented marketing teams.

In order to expand its business scale, the bank will accelerate deployment of

overseas offices, enhance the operations of overseas branches, broaden its service reach

to meet the global operational needs of customers, and set up regional and industrial

matrixes. The bank will also continue cultivating the customer base of small- and

medium-sized enterprises (SMEs), increase the asset share contributed by SMEs, and

further expand cross sales of products to utilize internal resources and cultivate core

customers.

In product planning and infrastructure, the bank will continue launching new

types of trade financing businesses and actively deploying RMB-related businesses to

increase business scale in this segment and meet customer needs. In addition, the bank

will continue establishing basic core systems, strengthening credit-reviewing function,

and integrating the inquiry function of financial trading systems, as well as set up

overseas core systems and overseas business network to enhance operating efficiency

and support the development of regional business.

In financial trading, the bank will expand the scope and capability for quotes for

RMB-denominated products, develop foreign currency-denominated bond trading, and

diversify deployment in positions of various currencies to respond to market changes,

meet customer needs and achieve balanced development for different profit sources.

Meanwhile, the bank will further strengthen cooperation and strengthen market-making

function with peers to hone the brand image of Taipei Fubon Bank in the international

financial market.

- 3 -

(2). Retail Banking Business

In the mortgage segment, the bank will consolidate existing mortgage assets and

offer a spectrum of products for customers. In terms of sales channels, the bank will

intensify cross-sales of products and expand the magnitude and depth of dealings with

customers.

Regarding credit cards, the bank will strengthen cultivation of high-consumption

customer groups and promote the status of Taipei Fubon card as the first-choice card to

increase customer loyalty. The bank will concentrate on high-value cards, eliminate

weak cards, and launch new co-branded cards in partnership with major enterprises.

Customer satisfaction is an important factor in the wealth-management business.

In line with the principle of active risk management for customers, the bank will

continue building customer wealth. It will also offer customers a wider range of

products, as well as innovative and complete wealth-management packages. In addition,

the bank will strengthen product and channel services to create higher value for

customers and become the wealth-management team most trusted by customers.

Realizing the importance of "Knowing Your Customer（KYC）," the bank will

deeply understand the risk tolerance of customers to meet their wealth-management

needs at different stages of life. In terms of product strategy, the bank will further push

diversified allocation for wealth management, in terms of currencies, risk, and assets.

The bank will continue establishing and improving its digital platform, as well as

develop innovative application services to provide real-time and convenient

digital-channel services. The bank will enhance the effectiveness of digital-marketing

services by utilizing digital-channel marketing to strengthen communications with

customers and boost sales.

3. Credit Rating

Rating Date Credit Rating

Institution

Long-term

Credit Ratings

Short-term

Credit Ratings

Credit

Worthiness Outlook

2013/6/26 Moody‟s A2 P-1 C- Stable

2013/11/19 Taiwan Ratings

Corporation twAA+ twA-1+ --- Stable

- 4 -

II. Corporate Profile

1. Introduction

（1）Date of Establishment

The bank inaugurated operations on April 21, 1969, after receiving approval of

establishment from the Ministry of Finance (MOF. No. 7864).

（2）History of Bank

The bank's predecessor is Taipei City Bank, established by the Taipei City

Government on April 21, 1969, to coordinate with national financial policy, adjust

municipal finances, support municipal development and serve as the city coffers.

Initially, its business scope was confined to Taipei City. Originally a financial agency,

it was reorganized into a company limited by shares on July 1, 1984.

On Jan. 1, 1993, as part of the effort for establishing a corporate identification system,

the bank was renamed "Taipei Bank Co., Ltd.," or "TAIPEIBANK" for short. Thanks

to the government's financial-liberalization policy, the bank set up a branch in

Kaohsiung City in 1994. On Jan. 20, 1995, it was approved to reorganize from a

regional bank to a national bank, which enabled it to expand throughout Taiwan. It

went public on July 23, 1997, raising NT$2 billion of fresh capital through issuance of

new shares for subscription by employees and general public. In line with the

government policy, the bank was privatized on Nov. 30, 1999. To facilitate long-term

development, the bank was converted into a wholly-owned subsidiary of Fubon

Financial Holding on Dec. 23, 2002, when it was delisted from the Taiwan Stock

Exchange.

Fubon Financial Holding continued to operate Taipei Bank independently of its

existing banking subsidiary Fubon Bank but steadily integrated the information

systems, workflows, and organizations/employees of the two banks, while retaining

their respective management advantages and brand assets and minimizing the impact

of merger.

After an ambitious two-year merger process, Taipei Bank and Fubon Bank became a

unified entity on Jan. 1, 2005, under the new name of "Taipei Fubon Bank." The

merger, the first between a former government-owned bank and a private bank in

Taiwan, greatly expanded the profit-making potential of Fubon Financial Holding.

- 5 -

Taipei Fubon Bank incorporated Fubon Bills Finance, a wholly owned subsidiary of

the bank, on Dec. 25, 2006, thereby removing the overlapping businesses of the two

entities.

On March 6, 2010, the bank acquired the Hanoi branch and the sub-branch in Ho Chi

Minh City of Chinfon Commercial Bank. The bank's Vietnamese operations now

include three branches in Hanoi, Ho Chi Minh City, and Binh Duong.

Fubon Insurance Agency, originally a wholly owned subsidiary of the bank,

underwent clearance on Aug. 31, 2010, according to a resolution passed by its board

of directors, with Taipei Fubon Bank serving as its bookkeeper.

The bank acquired a 10% stake in First Sino Bank on Dec. 31, 2013 and then gained

control of the latter by increasing the stake to 51% on Jan. 7, 2014.

In 2013, there were no changes in the bank's management rights and there were no

major incidents affecting shareholders' equity or the bank's operations.

- 6 -

2. Organizational Structure

(1) Organization

Taipei Fubon Bank Organizational Chart

Shareholders’ Meeting

Board of Directors

AuditingDepartment

Asset/Liability Management Committee

Institutional Banking

Corporate Banking

Corporate Finance

Transactional Banking Product

Credit-Institutional

Banking

Commercial Banking

Planning & Business

Administration-Institutional

Banking

Small Business Banking

Overseas Business

Financial Trading & Product

Structuring

Treasury Sales

Administration Service

Accounting

Human Resources

General Affairs

Legal Affairs

Corporate Planning

Risk Management

Operational Risk

Management

Market Risk Management

Retail Credit Risk

Management

Corporate Credit Risk

Management

ERM Planning

IT

Application System

Development

Technical Support

IT StrategyDevelopment

Customer

Segment

Management-Retail Banking

Lottery Business

Planning &

Business

Administration -Retail Banking

Supervisors

Chairman

Wealth Management

Marketing

Human Affairs Appraisal CommitteePresident

Chief Auditor Trust Asset Evaluation Committee

Government Banking

Customer

Service -Retail Banking

eBanking -Retail Banking

Corporate System

Development

Financial Market Planning

Financial Market

Research

Trust

Central

Operation -Retail Banking

IT

-Retail Banking

ITCoverage Products Operations Credit Risk

ManagementSupporting

Financial

MarketWealth

Management

Consumer

Finance

Common

Platform

Treasury

OperationService -

Institutional Banking

IT-Institutional Banking

Operational Risk Management Committee

Credit Risk Management Committee

Market Risk Management Committee

Compliance

Wealth Management

Product

Branch Operation

ManagementCredit Card

Consumer Lending

Marketing

Consumer Lending Product

Core Banking System

Credit

Management

Credit -Retail Banking

Marketing Communication

Retail Banking

- 7 -

（2）Board Members and Supervisors

Title Name Representing

Organization

Background & Education Date

Elected

Term

Chairman Daniel Tsai Fubon Financial

Holding Co.

Chairman, Taipei Fubon Commercial

Bank

Chairman, Fubon Insurance

Graduate School of Law, University of

Georgetown

2011/06/

24

3 yrs

Vice

Chairman

Richard Tsai Fubon Financial

Holding Co.

Vice Chairman, Taipei Fubon

Commercial Bank

Chairman, Fubon Life

Graduate School of Finance, New

York University

2011/06/

24

3 yrs

Standing and

independent

director

Hong-Chang Chang Fubon Financial

Holding Co.

Ph.D., Wharton School University of

Pennsylvania

2011/06/

24

3 yrs

Standing and

independent

director

Yuan-Chi Chao Fubon Financial

Holding Co.

President, Da An Commercial Bank

President, China Development

Financial Holding

Chairman and president, First

Financial Holding

Master of Finance, University of New

York

2011/10/

06

3 yrs

Standing

Director

Jerry Harn Fubon Financial

Holding Co.

President, Taipei Fubon Commercial

Bank

Senior Vice President, Chinatrust

Commercial Bank

MBA ,The Ohio State University

2011/06/

24

3 yrs

Independent

Director

Wei-Yi Lin Fubon Financial

Holding Co.

Director, business department, Central

Bank of the Republic of China

(Taiwan)

Chairman, Central Deposit Insurance

Corporation,

Chairman, Taiwan Depository &

Clearing Corporation

Doctor, Lincoln University

2011/06/

24

3 yrs

Director Goethe Tsai Fubon Financial

Holding Co.

Prosecutor, Taipei District Court

Master of law, National Taiwan

University

2011/10/

06

3 yrs

Director Patrick Chang Fubon Financial

Holding Co.

Chief risk-management officer, Taipei

Fubon Commercial Bank (Executive V

P)

Senior vice president, Taiwan branch,

HSBC

MBA, University of Chicago

2011/06/

24

3 yrs

Director Victor Kung Fubon Financial

Holding Co.

President, Fubon Financial Holding

Co.

Executive Vice President, Walden

International Investment Group

MA－Economics

Graduate School of Arts and Science,

New York University

MBA－Finance

Stern School, New York University

2011/06/

24

3 yrs

Director John Y. Kuang Fubon Financial

Holding Co.

Senior Executive VP, Taipei Fubon

Commercial Bank

Co-Head of Wholesales Banking,

Head of Global Markets in Standard

Chartered Bank Taipei

2011/06/

24

3 yrs

- 8 -


Organization


Elected

Term

President of Fixed Income Group,

Polaris Securities Co., Ltd.

B.S in International Trade from the

Business Administration Dept.,

National Taiwan University

Director Morris Huang Fubon Financial

Holding Co.

Senior Executive VP, Taipei Fubon

Commercial Bank

MBA ,The Ohio State University

2011/06/

24

3 yrs

Director Benny Chen (Note2) Fubon Financial

Holding Co.

Chairman, Fubon Securities Co., Ltd.

Country Business Manager - Global

Consumer Group, Citibank, China

Citigroup

Deputy President, Chinatrust Financial

Holding Company

Senior Vice President, McDonald‟s

Corporation in Taiwan.

MBA, Southern Illinois University

2011/06/

24

3 yrs

Director Jen-Shou Hsu Fubon Financial

Holding Co.

President, Taiwan Stock Exchange

Chairman, Bank Taiwan Securities

Chairman, Chunghwa Post Co., Ltd.

MBA,Chinese Culture University

2013/10/

01

3 yrs

Director Thomas Liang Fubon Financial

Holding Co.

President, consumer-banking group,

Fubon Financial Holding Co.

President, Retail Banking, Taipei

Fubon Commercial Bank

Managing director, Fubon Bank (Hong

Kong)

Master, Operations Research, Case

Western Reserve University

2012/06/

23

3 yrs

Director Yan-Kwong Chan Fubon Financial

Holding Co.

Executive vice president, Taipei Fubon

Commercial Bank

MBA, Bath University

2011/06/

24

3 yrs

Director Chao-Yang Kao

(Note3)

Fubon Financial

Holding Co.



Chairman, Fubon AMC

President, Xiamen Bank

Bachelor, Department of Law,


2012/06/

23

3 yrs

Supervisor Chia-Chen Lin

(Note4)

Fubon Financial

Holding Co.

President, Fubon Commercial Bank.

B.S in Dept. of Economics, National

Taiwan University

2011/06/

24

3 yrs

Supervisor Chao-Yang Kao Fubon Financial

Holding Co.



Chairman, Fubon AMC

President, Xiamen Bank

Bachelor, Department of Law,


2013/10/

01

3 yrs

Supervisor Bang-Ren Liu (Note5) Fubon Financial

Holding Co.

Executive Vice President, Taipei


B.S in Dept.of Accountancy &

Statistics, National Cheng Kung

University

2011/06/

24

3 yrs

Supervisor Kung-Liang Yeh Fubon Financial

Holding Co.

Senior advisor, wealth-management

business group, Fubon Financial

Holding Co.

Chairman, Fubon Securities

Chairman, Fubon Direct Marketing

Consulting

Master, Graduate School of Finance,

2013/10/

01

3 yrs

- 9 -


Organization


Elected

Term


Supervisor Ruey-Chang Hu

(Note6)

Fubon Financial

Holding Co.

Senior Vice President, Fubon

Commercial Bank.

B.S in Dept. of Business, National

Taiwan University

2011/06/

24

3 yrs

Supervisor Tsan-Ming Shin Fubon Financial

Holding Co.

Senior advisor, insurance business

group, Fubon Financial Holding Co.

Chairman, Fubon Insurance

Bachelor, department of law, Soochow

University

2013/10/

01

3 yrs

Note 1：The tenure of the 11th board of directors and supervisors of the company is June 24, 2011 - June 23, 2014.

Note 2：Benny Chen resigned the tenure of the 11th board of directors on October 1, 2013.

Note 3：Chao-Yang Kao resigned the tenure of the 11th board of directors on October 1, 2013.

Note 4：Chia-Chen Lin resigned the tenure of the 11th board of Supervisors on October 1, 2013.

Note 5：Bang-Ren Liu resigned the tenure of the 11th board of Supervisors on October 1, 2013.

Note 6：Ruey-Chang Hu resigned the tenure of the 11th board of Supervisors on October 1, 2013.

（3）Major Shareholder of Major Institutional Shareholder

Institutional Shareholders Major Shareholder of Major Institutional Shareholder

Fubon Financial

Holding Company Taipei City Government、Ming Tong Co.、Dao Ying Co.

- 10 -

III. Business Operations

1. Business Information

（1） Breakdown of Total Revenues Unit：﹪

49.9144.87

47.3149.44

2.785.69

0.00

10.00

20.00

30.00

40.00

50.00

2013 49.91 47.31 2.78

2012 44.87 49.44 5.69

IB RB OB

Note：

IB ：Institutional Banking Business

RB ：Retail Banking Business

OB ：Others Business

（2） Business Performance

Institutional Banking Business

In 2013, the bank made major gains in institutional banking, in terms of loans and

deposits by successfully cultivating SME business, meeting the financing needs of

Taiwanese-invested businesses in mainland China, and expanding trade-financing

business. The bank also performed strongly in financial marketing and trading. As a

result, the bank achieved double-digit growth in the institutional banking segment over

the year. Post-provision net profits also scored phenomenal growth, thanks to adequate

control in business outlays and expense for provisions.

Changes in scale of major businesses:

In 2013, an expanded customer base and robust trade financing business pushed

government and private enterprise loan assets up to NT$317.1 billion at the end of

2013, consolidating the bank's leading position among private peers with a 3.39%

market share.

In 2013, when the market for letter of credit (L/C) issuance in Taiwan dropped 1.1%,

the bank's L/C issuance volume declined 1.7% and its L/C market position ranked

11th at 2.97%. Gains in interbank forfaiting business on the secondary market helped

to push up the bank's L/C negotiation business by 26% over the year, compared to a

9.9% growth nationwide, boosting the bank's share of this market to 3.71%.

- 11 -

In 2013, due to economic slowdown and the thinning gross margin of Taiwan's

electronics industry, major electronics firms, for cost consideration, had much less

need for the service of accounts-receivable purchase by banks, most of which

suffered considerable declines in this business. Compared to its peers, the bank

experienced a less severe decline in the business thanks to phenomenal growth of

accounts-receivable purchases related to cross-strait trade.

According to statistics compiled by International Financing Review, the

syndicated-loan market in Taiwan reached US$24.15 billion in 2013, up 10.8%,

mainly due to higher amount of major cases, offsetting the decrease of total

syndicated-loan cases to 161, down from 2012's 173. The bank improved on 2012's

performance in terms of ranking, market share, and the value of cases in which it

served as the arranger, ranking fourth in the market and first among private banks.

The bank posted extraordinary growth in the financial marketing business by clearly

assessing the market terrain and providing products meeting customer needs. The

bank generated strong profits in forex business, helped by increased fluctuations on

the forex market triggered by the QE exit, opening of RMB-denominated businesses

for domestic banking units (DBUs), and achievements of the bank in promoting

interbank market making business. The bank retained a second-place ranking in the

outstanding amount of nominal principal for exchange rate-based derivatives. In the

fixed-yield business, the bank ranked second in trading of domestic bonds, with a

market share of 7.89%.

In institutional trust business, the bank served as trustee for NT$199 billion in bond

issuance, ranking first in the market and up 49% from 2012. As of the end of 2013,

outstanding value of realties under the bank's trust hit NT$27,164 million, up 58%

over a year earlier, ranking fourth place: a major improvement over the seventh

place showing a year earlier.

In government-coffers business, the bank provided loans for various government

projects and financed various major construction projects of the Taipei City

Government. Taking advantage of the experience for government coffers-related

business, the bank actively took part in the bidding and price negotiation for loans

for other municipal governments and central-government agencies. In 2013, the

bank's government coffers-related loans averaged NT$187.8 billion. It also

augmented its branch network by opening other fee-payment channels. In

cooperation with various agencies of Taipei City Government, the bank increased

surrogate-collection channels for fee payment to broaden its financial services and

set up a quality and extensive service network.

Retail Banking Business

In the deposit and remittance business, backed by the stable and positive image of its

parent Fubon Financial Holding, the bank continued to tap the abundant group

marketing resources and offered competitive deposit rates, boosting outstanding

deposits which stood at NT$856.1 billion as of the end of 2013, up 6.9% over a year

earlier. Following the opening of RMB operations at DBUs, the bank will strive to

boost its share of foreign-currency deposits, as well as improve its deposit structure, in

the current low interest spread environment.

In the insurance business, the bank increased sales of dual-currency products to assist

customers with currency allocation. For professional and regular investors with

- 12 -

different risk-withstanding capabilities, the bank provided structured products with

different structures and multiple currency denominations to meet the

wealth-management needs of customers. As of the end of 2013, the bank's outstanding

amount of insurance products stood at NT$508.1 billion, up 7.1% over a year earlier.

In consumer lending, the bank retained quality mortgage assets, with new housing loans

amounting to NT$97.8 billion in 2013. This boosted the outstanding amount of

mortgage to NT$357.9 billion at the end of the year. Despite the sluggish economy, the

outstanding amount of the bank's unsecured loans grew 6.3% in 2013, thanks to deep

cultivation of quality card holders, salary-transfer accounts, and group accounts, as well

as a flexible marketing strategy and risk-management policy, along with convenient

repayment channels.

In the credit-card business, the bank launched digital daily-life cards to tap young

customer groups. The strategy boosted the amount of card issuance to 420,000 in 2013

and the amount of cards in circulation to 2.3 million.

In individual trust, the bank concentrated on promotion of designated separately

managed accounts in 2013, with accumulated trust assets amounting to US$89.4

million, including products linked to global dynamic investments and global fixed-yield

investments. Such products stressed disciplined investments and good risk management,

offering customers tailor-made services combining trust and wealth management to

meet their wealth-management needs.

2. Business Strategies and Business Plans for 2014

（1）Business Strategies


In line with the cross-border operating mode of institutional customers, the bank will

accelerate overseas deployment to expand service reach.

Seizing business opportunities connected with market opening, both at home and

abroad, the bank will utilize its innovative and diverse product planning capability to

provide a full spectrum of financial services meeting a broad range of customer needs.

The bank will integrate various financial-market businesses, including forex, fix-yield

products, and financial marketing, and will also strengthen product packaging and

financial trading capabilities to become a major market maker and provider of

inter-peer products on the domestic financial market.

The bank will establish basic core systems to lay a solid foundation for long-term

development.

The bank will continue to streamline operating flow and improve operational efficacy,

as well as maintain quality service to boost customer satisfaction.

The bank will strengthen human resources to support long-term development, continue

recruiting quality manpower, and carry out various educational and training activities

through internal and external channels to meet future development needs.

- 13 -


Products: The bank will tap its extensive business intelligence to identify features of

different customer segments and develop tailored products, as well as regularly review

the risk-withstanding capabilities of customers, as the basis for diversifying asset

allocation, expanding the scale of wealth-management customer groups, and increasing

customer stickiness.

Pricing: In line with the principle of risk-based prices, the bank will set appropriate

interest and fee rates according to the risk levels of different customer groups.

Channels: The bank will expand its digital platform, establish new channels, and add

conduits for business solicitation. It will integrate physical and virtual channels to

strengthen product promotion, expand its customer base, and enhance customer

satisfaction.

Marketing: Taking advantage of multiple media channels, the bank will analyze target

customer groups, formulate marketing strategies, and utilize lively visual design and

intensive promotion to increase market visibility.

Services:

The bank will review its human resource flow (manpower planning, recruitment,

education and training, performance evaluation, career development, and talent

retention) as part of effort to expand its business team and strengthen professional

expertise, as well as replace consultation-oriented personal wealth-management

service for one-way marketing.

The bank will review the layout of branch offices and improve movement routes to

create a friendly and comfortable experience, forge a new image, and duplicate the

successful experience of exemplary branches to strengthen service quality and

customer relationships.

Risk management: The bank will follow the principle of "know your customer" and

deeply grasp customers' risk tolerance to meet the customer needs at different stages of

life. It will also continue to use risk-management mechanisms to keep the overall

risk-exposure level of customers at a relatively low level.

（2）Business Plans


With domestic interest rates expected to remain at relatively low level, the bank will

increase the shares of forex funds and demand deposits to widen interest spread. It will

also enhance the share of the SME assets to increase loan yield rates.

To expand business scope, the bank will accelerate overseas deployment, expand

overseas branches, and widen service reach to meet the global operating needs of

customers. The bank will also actively grasp the needs of offshore funds and business

opportunities associated with cross-border trade financing to sustain business growth.

The bank will further develop financial-trading business, including expanding the scope

and capability for quotes for RMB-denominated products, develop forex bond trading,

and continue strengthening cooperation with peers to increase the bank's

- 14 -

market-making capability among peers.

The bank will improve infrastructure, including the establishment of core systems to

back up long-term development, strengthen review function and integrate the inquiry

function of financial trading systems, and establish overseas core systems and overseas

business network to facilitate overseas expansion.

Strictly adhering to the principle of risk management, the bank will closely follow

industrial development trends, enhance risk vigilance, and strengthen risk recognition to

maintain good asset quality.

The bank will continue to recruit quality manpower and cultivate talent to support

business development and expansion of business footholds, as well as establish a talent

bank to increase the quantity and quality of its marketing team.

The bank will improve systems and simplify operating flow as coffers of Taipei City.

The bank will provide coffers service to other government agencies based on its

extensive experience as the coffers for Taipei City.

The bank will solicit surrogate-collection business from various government agencies to

tap new financial business opportunities.


In wealth management, the bank will offer a full range of products to meet the needs of

different customer groups, as well as develop convenient and effective transaction

mechanisms to augment sales volume and customer satisfaction.

In the area of personal finance, the bank will strengthen inter-bloc cooperation to jointly

develop quality customer sources, review and adjust pricing strategies, widen product

interest spreads, and enhance maintenance of quality channel strategy.

In the credit card segment, the bank will strengthen cultivation of high-consumption

groups and hone its first-choice card status to enhance customer loyalty. The bank will

eliminate weak cards and concentrate resources on the promotion of high-value banking

cards while rolling out new co-branded cards in partnership with major firms.

In e-commerce, the bank will continue establishing and improving digital platforms,

develop new innovative application services, offer real-time and convenient digital

channel services, and use digital-marketing channels to strengthen communications

with customers, boost sales, and enhance digital-marketing capabilities.

The bank will strengthen international business cooperation, jointly develop quality

customer sources within the group, and conduct cross sales or business transfers to

expand magnitude and depth of customer dealings.

The bank will enhance the quality of personal banking services, boost the quality of

counter services, and accelerate renovation of branches, as well as improve service

design to offer a brand new service experience to customers.

The bank will enhance efficiency of back-end support, continue integrating and

renovating information systems, and conduct operational improvement.

- 15 -

3. Research ＆ Development Plans

To boost the operating efficiency and management efficacy of overseas branches, the

bank will set up core systems at overseas branches and complete online linkages with

systems at its Hong Kong and Los Angeles branches to enable efficient and accurate

data processing and support overseas business development.

In 2014, the bank began improving the functions of its new credit-examination system

and establishing a digital platform to enhance review efficiency and control function for

loans to micro enterprises.

The bank will offer traditional medium- and long-term insurance products denominated

in different currencies to meet the insurance and wealth-management needs of

customers with different asset scales and in different age brackets. With the

increasingly optimistic outlook for investment markets, the bank will provide

investment-oriented insurance products to strengthen insurance-cum-wealth

management services for customers.

The bank will update its mutual-fund websites to strengthen contact with customers

through increased interaction and thereby enhance service quality and achieve sales

goals. In line with regulatory loosening, the bank will increase its line of

RMB-denominated funds and provide a more comprehensive product lineup.

To provide customers with a range of convenient payment channels, the bank launched

an automated clearing house (ACH) payment mechanism on May 1, 2012. It has also

been steadily improving customer services through the system with the addition of new

functions, such as text message notifications, to enhance customer satisfaction and

boost usage.

The bank will actively promote e-services based on user experience and plan more

intuitive, simple, and personalized Internet banking and mobile-banking platforms to

increase customer usage and satisfaction.

4. Employees Profile

Year 2012 2013 As on March

31,2014

Number of

employees

Staff 6,291 6,438 6,409

Workers 127 122 124

Total 6,418 6,560 6,533

Average age (years) 36.66 37.60 37.81

Average seniority（years） 9.01 9.11 9.23

Education level

Graduate or higher 14.73％ 15.90％ 16.09％

College/University 77.89％ 77.63％ 77.58％

Senior high school 7.21％ 6.35％ 6.15％

Below senior high 0.17％ 0.12％ 0.18％

Note：Overseas contract/temporary staff is excluded from the above table.

- 16 -

IV. Special Notes

1. Dividend Policy and Implementation Status

（1）Dividend Policy

After yearly budget settlements, after-tax profits, if they exist, will be first used to make

up deficits from the previous year, with 30% of the balance being set aside for legal

reserves. Of the remainder, 1%-5% will be appropriated as employee bonuses, while

the remainder will be incorporated into the accumulated retained earnings of past years.

The board of directors will then make a proposal for payout of dividends, which will be

submitted to the shareholders‟ meeting for final ratification. Should the Bank‟s

legally-required reserves consist of equivalent paid-in capital or reach levels according

to acceptable financial standards set by the regulator as per item 2, article 50 of the

Banking Law, including appropriation of earnings for legally-required reserves

according to the Company Law, the company can be exempt from restrictions regarding

appropriation of earnings for legally-required reserves and cash-dividend payout.

Measures for the bonus payout will be formulated by the board of directors.

Before legal reserves equal paid-in capital and when the capital/risk-based assets ratio

meets the requirements of the Banking Law, the ceiling for the payout of cash earnings

should comply with the stipulations of the Banking Law and the requirements of the

regulator.

（2）Implementation Status

In 2014, the appropriation of the 2013 earnings and dividends per share was proposed by the

board of directors as follows:

Dividends Dividend Per Share

Cash dividends NTD＄2,500,000,009 NTD＄0.30

Stock dividends NTD＄5,571,010,390 NTD＄0.67

- 17 -

2. Implementation of the Internal Controls System

- 18 -

- 19 -

- 20 -

Headquarters and Branches

Headquarters Address and Telephone Number

Headquarter

No.169, Sec. 4, Ren‟ai Rd., Da‟an Dist., Taipei City 106, Taiwan

(R.O.C.)

886(2)27716699

Business Department

No.50, Sec. 2, Zhongshan N. Rd., Zhongshan Dist., Taipei City 104,

Taiwan (R.O.C.)

886(2)25425656

Lottery Department

10F, No.50, Sec. 2, Zhongshan N. Rd., Zhongshan Dist., Taipei City 104,

Taiwan (R.O.C.)

886(2)66085885

Government Banking Department

B1, No.1, Shihfu Rd., Xinyi Dist., Taipei City, Taiwan 110, Taiwan

(R.O.C.)

886(2)27209001

Trust Department

3F/4F, No.138, Sec. 3, Minsheng E. Rd., Songshan Dist., Taipei City

105, Taiwan (R.O.C.)

886(2)27186888

Securities Department（Dealer and Underwrite）

18F, No.169, Sec. 4, Ren‟ai Rd., Da‟an Dist., Taipei City 106, Taiwan

(R.O.C.)

886(2)27716699

Branches Address and Telephone Number

Code Branch Name Address Tel.

012-5608 Offshore Banking

Branch

5F, No.169, Sec. 4, Ren‟ai Rd., Da‟an Dist.,

Taipei City 106, Taiwan (R.O.C.) 886(2)27716699

012-2032 Changan E. Road

Branch No.36, Sec. 1, Chang‟an E. Rd., Zhongshan

Dist., Taipei City 104, Taiwan (R.O.C.)

886(2)25212481

012-2205 Chengdong Branch No.90, Sec. 2, Nanjing E. Rd., Zhongshan

Dist., Taipei City 104, Taiwan (R.O.C.) 886(2)25116388

012-2216 Nongan Branch No.369, Songjiang Rd., Zhongshan Dist.,


012-3006 Shilin Branch No.288, Zhongzheng Rd., Shilin Dist.,


012-3017 Shidong Branch No.360, Sec. 6, Zhongshan N. Rd., Shilin


012-3028 Ruiguang Branch No.392, Ruiguang Rd., Neihu Dist., Taipei

City 114, Taiwan (R.O.C.) 886(2)26562989

012-3039 Yucheng Branch No.126, Sec. 6, Zhongxiao E. Rd., Nangang


012-3040 Fugang Branch No.310, Sec. 4, Chengde Rd., Shilin Dist.,


012-3051 Zhongxiao Branch No.107, Sec. 4, Zhongxiao E. Rd., Da‟an


012-3062 Chengde Branch No.142, Sec. 2, Chengde Rd., Datong Dist.,


012-3073 Longjiang Branch No.28, Sec. 3, Nanjing E. Rd., Zhongshan


- 21 -



012-3109 Yanping Branch No.69, Sec. 2, Yanping N. Rd., Datong


012-3202 Muzha Branch No.92, Sec. 3, Muzha Rd., Wenshan Dist.,


012-3213 Muxin Branch No.236, Sec. 3, Muxin Rd., Wenshan Dist.,


012-3305 Longshan Branch No.161, Xining S. Rd., Wanhua Dist.,


012-3408 Bade Branch No.178, Sec. 3, Bade Rd., Songshan Dist.,


012-3419 Yongchun Branch No.655, Songshan Rd., Xinyi Dist., Taipei

City 110, Taiwan (R.O.C.) 886(2)27592921

012-3420 Yongji Branch No.199, Yongji Rd., Xinyi Dist., Taipei

City 110, Taiwan (R.O.C.) 886(2)27628700

012-3501 Zhongshan Branch No.162, Sec. 2, Zhongshan N. Rd.,

Zhongshan Dist., Taipei City 104, Taiwan

(R.O.C.)

886(2)25963171

012-3604 Beitou Branch No.2, Sec. 1, Zhongyang N. Rd., Beitou


012-3615 Shipai Branch No.216, Wenlin N. Rd., Beitou Dist., Taipei

City 112, Taiwan (R.O.C.) 886(2)28271616

012-3707 Daan Branch No.37, Sec. 4, Ren‟ai Rd., Da‟an Dist.,


012-3800 Datong Branch No.186, Sec. 3, Chongqing N. Rd., Datong


012-3903 Guting Branch No.100, Sec. 3, Roosevelt Rd., Zhongzheng


012-4003 Shuangyuan Branch No.19, Dongyuan St., Wanhua Dist., Taipei

City 108, Taiwan (R.O.C.) 886(2)23030374

012-4014 Wanhua Branch No.482, Wanda Rd., Wanhua Dist., Taipei

City 108, Taiwan (R.O.C.) 886(2)23325901

012-4106 Jiancheng Branch No.22, Nanjing W. Rd., Datong Dist.,


012-4117 Shifu Branch 1F., No.1, Shifu Rd., Xinyi Dist., Taipei

City 110, Taiwan (R.O.C.) 886(2)27298999

012-4209 Nangang Branch No.19-5, Sanchong Rd., Nangang Dist.,


012-4302 Jingmei Branch No.64, Jingwen St., Wenshan Dist., Taipei

City 116, Taiwan (R.O.C.) 886(2)29352636

012-4313 Xinglong Branch No.69, Sec. 3, Xinglong Rd., Wenshan


012-4405 Neihu Branch No.6, Ln. 174, Sec. 3, Chenggong Rd.,

Neihu Dist., Taipei City 114, Taiwan

(R.O.C.)

886(2)27961820

012-4427 Wende Branch No.42, Wende Rd., Neihu Dist., Taipei City

114, Taiwan (R.O.C.) 886(2)26582620

012-4508 Dunhua Branch No.201, Dunhua N. Rd., Songshan Dist.,


012-4542 Minsheng Branch No.163-1, Sec. 5, Minsheng E. Rd.,

Songshan Dist., Taipei City 105, Taiwan 886(2)27640853

- 22 -



(R.O.C.)

012-4601 Xinyi Branch No.299, Sec. 4, Xinyi Rd., Da‟an Dist.,


012-4612 Zhuangjing Branch No.286, Zhuangjing Rd., Xinyi Dist., Taipei

City 110, Taiwan (R.O.C.) 886(2)27226206

012-4623 Xinsheng Mini-

Branch

No.157, Sec. 2, Xinyi Rd., Zhongzheng


012-4704 Songjiang Branch No.200, Songjiang Rd., Zhongshan Dist.,


012-4807 Heping Branch No.236, Sec. 2, Fuxing S. Rd., Da‟an Dist.,


012-4900 Yanji Branch No.389, Sec. 4, Ren‟ai Rd., Da‟an Dist.,


012-5000 Chengzhong Branch No.7, Qingdao W. Rd., Zhongzheng Dist.,


012-5103 Nanmen Branch No.17, Jinhua St., Zhongzheng Dist., Taipei

City 100, Taiwan (R.O.C.) 886(2)23971640

012-5206 Fuxing Branch No.234, Fuxing N. Rd., Zhongshan Dist.,


012-5309 Xisong Branch No.75-1, Sec. 4, Nanjing E. Rd., Songshan


012-5402 Zhangan Branch No.76, Songjiang Rd., Zhongshan Dist.,


012-5505 Guilin Branch No.52, Guilin Rd., Wanhua Dist., Taipei

City 108, Taiwan (R.O.C.) 886(2)23026226

012-5701 Dunhe Branch No.77, Sec. 2, Dunhua S. Rd., Da‟an Dist.,


012-5804 Dongmen Branch No.61, Sec. 2, Ren‟ai Rd., Zhongzheng


012-5907 Zhonglun Branch No.6, Fuxing N. Rd., Zhongshan Dist.,


012-6007 Keelung Road Branch No.21, Sec. 2, Keelung Rd., Xinyi Dist.,


012-6100 Jinhua Branch No.178, Sec. 1, Heping E. Rd., Da‟an Dist.,


012-6203 Songnan Branch No.412, Sec. 5, Zhongxiao E. Rd., Xinyi


012-6214 Huaisheng Branch No.215, Sec. 3, Zhongxiao E. Rd., Da‟an


012-6306 Minquan Branch No.37, Sec. 3, Minquan E. Rd., Zhongshan


012-6409 Jilin Branch No.146, Jilin Rd., Zhongshan Dist., Taipei

City 104, Taiwan (R.O.C.) 886(2)25681248

012-6502 Shezi Branch No.225, Sec. 5, Yanping N. Rd., Shilin


012-6605 Gangdou Branch No.358, Zhongshan 2nd Rd., Lingya Dist.,

Kaohsiung City 802, Taiwan (R.O.C.) 886(7)3356226

012-6683 Xihu Branch No.240, Sec. 1, Neihu Rd., Neihu Dist.,


- 23 -



012-6694 Jincheng Branch No.46, Sec. 3, Jincheng Rd., Tucheng Dist.,

New Taipei City 236, Taiwan (R.O.C.) 886(2)22631678

012-6708 Wanlong Branch No.136, Sec. 6, Roosevelt Rd., Wenshan


012-6719 Zhonggang Branch No.160, Sec. 1, Taichung Port Rd.,

Taichung City 403, Taiwan (R.O.C.) 886(4)23207711

012-6720 Xinzhuang Branch No.227, Xintai Rd., Xinzhuang Dist., New


012-6731 Taoyuan Branch No.33, Zhonghua Rd., Taoyuan City,

Taoyuan County 330, Taiwan (R.O.C.) 886(3)3367171

012-6742 Anping Branch No.279, Sec. 2, Minsheng Rd., West Central

Dist., Tainan City 700, Taiwan (R.O.C.) 886(6)2265265

012-6764 Songlong

Mini-Branch

No.176-1, Sec. 1, Keelung Rd., Xinyi Dist.,


012-6775 Puqian Branch No.143, Sec. 2, Zhongshan Rd., Banqiao

Dist., New Taipei City 220, Taiwan

(R.O.C.)

886(2)89535118

012-6786 Beizhongli Branch No.268, Yuanhua Rd., Zhongli City,


012-6797 Sanchong Branch No.36, Sec. 2, Zhongxiao Rd., Sanchong


(R.O.C.)

886(2)89836868

012-6801 Fengyuan Branch No.139, Xiangyang Rd., Fengyuan Dist.,


012-6812 Shuanghe Branch No.696, Jingping Rd., Zhonghe Dist., New


012-6823 Gushan Branch No.387, Huarong Rd., Gushan Dist.,


012-6845 Fengcheng Branch No.126, Minsheng Rd., East Dist., Hsinchu

City 300, Taiwan (R.O.C.) 886(3)5343888

012-6856 Changhua Branch No.349, Sec. 2, Zhongshan Rd., Changhua

City, Changhua County 500, Taiwan

(R.O.C.)

886(4)7261333

012-6867 Donghu Branch No.69, Sec. 3, Kangning Rd., Neihu Dist.,


012-6878 Yonghe Branch No.407, Dehe Rd., Yonghe Dist., New


012-6889 Gangshan

Mini-Branch

No.178, Zhongshan N. Rd., Gangshan Dist.,


012-6890 Taipei 101 Branch 1F., No.45, Shifu Rd., Xinyi Dist., Taipei

City 110, Taiwan (R.O.C.) 886(2)81018585

012-7015 Shuanglian Branch No.13, Sec. 1, Minsheng E. Rd., Zhongshan


012-7026 Nanjing E. Road

Branch

No.139, Sec. 2, Nanjing E. Rd., Zhongshan


012-7037 Dunbei Branch No.138, Sec. 3, Minsheng E. Rd., Songshan


012-7048 Renai Branch No.237, Sec. 1, Jianguo S. Rd., Da‟an Dist.,


012-7059 Kaohsiung Branch No.1, Liuhe 1st Rd., Xinxing Dist., 886(7)2391515

- 24 -



Kaohsiung City 800, Taiwan (R.O.C.)

012-7060 Zhongzheng Branch No.476, Zhongzheng Rd., Taoyuan City,


012-7071 Taichong Branch No.196, Sec. 2, Liuchuan W. Rd., Taichung

City 403, Taiwan (R.O.C.) 886(4)22221911

012-7093 Songshan Branch No.421, Songshan Rd., Xinyi Dist., Taipei

City 110, Taiwan (R.O.C.) 886(2)27281199

012-7107 Tucheng Branch No.100, Sec. 1, Zhongyang Rd., Tucheng


(R.O.C.)

886(2)22709898

012-7118 Tainan Branch No.166-6, Zhongshan Rd., West Central

Dist., Tainan City 700, Taiwan (R.O.C.) 886(6)2290266

012-7129 Fengshan Branch No.223, Ziyou Rd., Fengshan Dist.,


012-7130 Zhongli Branch No.119, Sec. 2, Zhongbei Rd., Zhongli City,


012-7152 Anhe Branch B1F., No.169, Sec. 4, Ren‟ai Rd., Da‟an


012-7163 Zhengyi Branch No.279, Zhengyi N. Rd., Sanchong Dist.,


012-7174 Danan Branch No.968, Sec. 1, Jieshou Rd., Bade City,


012-7185 Chiayi Branch No.395, Ren‟ai Rd., West Dist., Chiayi City

600, Taiwan (R.O.C.) 886(5)2231688

012-7196 Lingya Branch No.39, Zhonghua 4th Rd., Lingya Dist.,


012-7211 Banqiao Branch No.266, Sec. 1, Wenhua Rd., Banqiao Dist.,


012-7222 Beitaichong Branch No.333, Sec. 4, Wenxin Rd., Beitun Dist.,


012-7233 Sanmin Branch No.530, Dashun 2nd Rd., Sanmin Dist.,


012-7244 Jianguo Branch No.196, Sec. 2, Jianguo N. Rd., Zhongshan


012-7255 Hsinchu Branch No.141, Zhongzheng Rd., Hsinchu City

300, Taiwan (R.O.C.) 886(3)5278988

012-7266 Xindian Branch No.266, Sec. 2, Beixin Rd., Xindian Dist.,


012-7277 Tianmu Branch No.36, Tianmu E. Rd., Shilin Dist., Taipei

City 111, Taiwan (R.O.C.) 886(2)28763232

012-7288 Xizhi Branch No.175, Sec. 1, Datong Rd., Xizhi Dist.,


012-7303 Yongkang Branch No.856, Dawan Rd., Yongkang Dist.,

Tainan City 710, Taiwan (R.O.C.) 886(6)2736099

012-7314 Xiangyang Branch No.9, Xiangyang Rd., Zhongzheng Dist.,


012-7336 Wugu Branch No.445, Huacheng Rd., Xinzhuang Dist.,


012-7347 Xinying Branch No.301, Minzhi Rd., Xinying Dist., Tainan

City 730, Taiwan (R.O.C.) 886(6)6569889

- 25 -



012-7358 Bingdong Branch No.459, Heping Rd., Pingtung City,

Pingtung County 900, Taiwan (R.O.C.) 886(8)7336899

012-7369 Qianzhen Branch No.289, Baotai Rd., Qianzhen Dist.,


012-7370 Dunnan Branch No.108, Sec. 1, Dunhua S. Rd., Songshan


012-7381 Baosheng Branch No.3, Baosheng Rd., Yonghe Dist., New


012-7392 Yuanlin Branch No.596, Juguang Rd., Yuanlin Township,

Changhua County 510, Taiwan (R.O.C.) 886(4)8369189

012-7406 Luodong Branch 1F., No.286, Xingdong Rd., Luodong

Township, Yilan County 265, Taiwan

(R.O.C.)

886(3)9566611

012-7417 Ruihu Branch No.62, Ruihu St., Neihu Dist., Taipei City

114, Taiwan (R.O.C.) 886(2)26591088

012-7428 Jihe Mini-Branch No.172-1, Sec. 2, Keelung Rd., Da‟ an


012-7439 Nanchang

Mini-Branch

No.65, Sec. 1, Heping W. Rd., Zhongzheng


012-7451 Hualian Mini-Branch No.256, Linsen Rd., Hualien City, Hualien

County 970, Taiwan (R.O.C.) 886(3)8353838

012-7462 Zhubei Branch No.263, Guangming 6th Rd., Zhubei City,

Hsinchu County 302, Taiwan (R.O.C.) 886(3)5586199

012-7473 Nantaizhong Branch No.272, Sec. 1, Wenxin Rd., Nantun Dist.,


012-7484 Boai Branch No.450, Bo‟ai 2nd Rd., Kaohsiung City

813, Taiwan (R.O.C.) 886(7)8628668

012-7495 Luzhou Branch No.71, Sanmin Rd., Luzhou Dist., New


012-7509 Huajiang Branch No.110, Sec. 2, Shuangshi Rd., Banqiao


(R.O.C.)

886(2)22530598

012-7510 Dazhi Branch No.602, Mingshui Rd., Zhongshan Dist.,


012-7521 Shulin Branch No.27, Wenhua St., Shulin Dist., New


012-7532 Keelung Branch No.279, Ren 1st Rd., Ren‟ai Dist., Keelung

City 200, Taiwan (R.O.C.) 886(2)24292888

012-7543 Zhuke Branch No.186, Guanxin Rd., East Dist., Hsinchu

City 300, Taiwan (R.O.C.) 886(3)6663328

- Los Angeles Branch 17800 CASTLETON STREET, SUITE 588,

CITY OF INDUSTRY, CA 91748, U.S.A. +1-626-363-18

66

- Hong Kong Branch 18th/F, CENTRAL TOWER 28 QUEEN‟S

RD. CENTRAL H.K. +852-2822-7700

- Binh Duong Branch UNIT 1, FLOOR 2, MINH SANG PLAZA,

NO.888 BINH DUONG BOULEVARD,

THUAN GIAO WARD, THUAN AN

TOWN, BINH DUONG PROVINCE,

VIETNAM

+84-650-627-88

99

Hanoi Branch 22nd/F, CHARMVIT TOWER BUILDING, +84-4-3772-221

- 26 -



NO. 117, TRAN DUY HUNG ROAD,

CAU GIAY DISTRICT, HANOI,

VIETNAM

2

Ho Chi Minh City

Branch

NO. 253 DIEN BIEN PHU STREET,

DISTRICT 3, HCMC, VIETNAM +84-8-3932-588

8

Suzhou

Representative

Office

RM611, 6F, INTERNATIONAL

FINANCIAL CENTRE, 23B TIME

SQUARE, HUACHI STREET, SIP

SUZHOU, CHINA

+86-512-6238-9

958

- 27 -

Appendix

Annual Financial Reports

for 2013 and 2012

- 28 -

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholder

TAIPEI FUBON COMMERCIAL BANK Co., Ltd.

We have audited the accompanying consolidated balance sheets of TAIPEI FUBON

COMMERCIAL BANK Co., Ltd. (the “Bank”) and its subsidiary as of December 31, 2013,

December 31, 2012 and January 1, 2012 and the related consolidated statements of comprehensive

income, changes in equity and cash flows for the years ended December 31, 2013 and 2012.

These consolidated financial statements are the responsibility of the Bank‟s management. Our

responsibility is to express an opinion on these consolidated financial statements based on our

audits.

We conducted our audits in accordance with the Rules Governing the Audit of Financial

Statements of Financial Institutions by Certified Public Accountants and auditing standards

generally accepted in the Republic of China. Those rules and standards require that we plan and

perform the audit to obtain reasonable assurance about whether the consolidated 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 consolidated financial statement presentation. We

believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material

respects, the consolidated financial position of TAIPEI FUBON COMMERCIAL BANK Co., Ltd.

and its subsidiary as of December 31, 2013, December 31, 2012 and January 1, 2012, and their

consolidated financial performance and their consolidated cash flows for the years ended December

31, 2013 and 2012, in conformity with the Regulations Governing the Preparation of Financial

Reports by Public Banks, International Financial Reporting Standards (IFRS), International

Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC)

endorsed by the Financial Supervisory Commission of the Republic of China, and certain other

guidelines issued by the authorities.

- 29 -

We have also audited the financial statements of the parent bank, TAIPEI FUBON

COMMERCIAL BANK Co., Ltd., as of and for the years ended December 31, 2013 and 2012 on

which we have issued an unqualified report.

March 19, 2014

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated

financial position, financial performance and cash flows in accordance with accounting principles

and practices generally accepted in the Republic of China and not those of any other jurisdictions.

The standards, procedures and practices to audit such consolidated financial statements are those

generally accepted and applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying

consolidated financial statements have been translated into English from the original Chinese

version prepared and used in the Republic of China. If there is any conflict between the English

version and the original Chinese version or any difference in the interpretation of the two versions,

the Chinese-language independent auditors’ report and consolidated financial statements shall

prevail.

- 30 -

TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

December 31, 2013 December 31, 2012 January 1, 2012

ASSETS Amount % Amount % Amount %

CASH AND CASH EQUIVALENTS (Notes 4, 6 and 41) $ 74,257,224 4 $ 31,820,002 2 $ 27,224,781 2

DUE FROM THE CENTRAL BANK OF CHINA AND OTHER BANKS (Notes 6, 7, 17 and 41) 91,888,019 5 70,851,850 5 73,099,143 5

FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4, 8, 23, 41

and 42) 73,231,661 4 84,693,492 5 59,641,819 4

DERIVATIVE FINANCIAL ASSETS FOR HEDGING (Notes 4 and 9) 285,784 - 478,744 - 693,488 -

SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL (Notes 4, 6 and 10) 20,179,897 1 16,343,491 1 200,000 -

RECEIVABLES, NET (Notes 4, 11, 17 and 41) 88,146,920 5 59,647,287 4 66,137,039 5

CURRENT TAX ASSETS (Notes 4, 39 and 41) 411,519 - 532,680 - 1,258,173 -

DISCOUNTS AND LOANS, NET (Notes 4, 12, 17 and 41) 1,102,747,108 63 1,026,535,634 64 952,718,962 63

AVAILABLE-FOR-SALE FINANCIAL ASSETS, NET (Notes 4, 9, 13, 23, 41 and 42) 69,228,489 4 67,271,936 4 50,346,936 3

HELD-TO-MATURITY FINANCIAL ASSETS (Notes 4, 14, 23 and 42) 209,762,227 12 227,013,136 14 256,826,642 17

INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD (Notes 4 and 15) 135,557 - 118,951 - 96,239 -

OTHER FINANCIAL ASSETS, NET (Notes 4, 16, 17 and 42) 16,339,822 1 2,204,848 - 2,787,024 -

PROPERTY AND EQUIPMENT, NET (Notes 4 and 18) 11,294,121 1 11,262,646 1 11,278,155 1

INVESTMENT PROPERTIES, NET (Notes 4 and 19) 1,720,295 - 1,775,982 - 1,734,175 -

INTANGIBLE ASSETS (Notes 4 and 20) 1,625,376 - 1,585,803 - 1,753,629 -

DEFERRED TAX ASSETS (Notes 4 and 39) 370,189 - 345,288 - 335,317 -

OTHER ASSETS (Notes 21 and 41) 4,134,747 - 2,461,325 - 1,601,246 -

TOTAL $ 1,765,758,955 100 $ 1,604,943,095 100 $ 1,507,732,768 100

LIABILITIES AND EQUITY

DUE TO THE CENTRAL BANK OF CHINA AND OTHER BANKS (Notes 22 and 41) $ 83,355,116 5 $ 69,753,342 4 $ 56,759,776 4

FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4, 8 and 41) 28,000,514 2 19,612,456 1 22,747,531 2

DERIVATIVE FINANCIAL LIABILITIES FOR HEDGING (Notes 4 and 9) 852,396 - 352,920 - 428,152 -

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Notes 4, 23 and 41) 27,945,876 1 26,360,932 2 28,503,088 2

PAYABLES (Notes 24 and 41) 28,795,930 2 33,007,120 2 28,503,723 2

CURRENT TAX LIABILITIES (Notes 4, 39 and 41) 1,588,497 - 1,508,732 - 993,236 -

DEPOSITS AND REMITTANCES (Notes 25 and 41) 1,351,974,078 76 1,247,741,397 78 1,183,392,509 78

BANK DEBENTURES (Notes 9 and 26) 65,271,143 4 66,929,382 4 62,143,488 4

OTHER FINANCIAL LIABILITIES (Notes 27 and 41) 37,850,450 2 27,644,584 2 25,502,063 2

PROVISIONS (Notes 4, 17, 28 and 29) 1,876,127 - 1,513,794 - 1,279,039 -

DEFERRED TAX LIABILITIES (Notes 4 and 39) 398,957 - 592,491 - 501,022 -

OTHER LIABILITIES (Notes 30 and 41) 4,614,527 - 3,493,022 - 4,248,933 -

Total liabilities 1,632,523,611 92 1,498,510,172 93 1,415,002,560 94

EQUITY (Notes 4 and 31)

Attributable to owner of the Bank

Capital stock

Ordinary share 82,065,712 5 57,430,769 4 51,092,871 3

Capital surplus 13,856,908 1 13,613,508 1 13,613,508 1

Retained earnings

Legal reserve 20,947,968 1 17,049,707 1 14,333,465 1

Special reserve 1,535,698 - 1,535,698 - 1,535,698 -

Unappropriated earnings 11,702,393 1 12,704,760 1 9,054,140 1

Total retained earnings 34,186,059 2 31,290,165 2 24,923,303 2

Other equity 3,126,665 - 4,098,481 - 3,100,526 -

Total equity attributable to owner of the Bank 133,235,344 8 106,432,923 7 92,730,208 6

Total equity 133,235,344 8 106,432,923 7 92,730,208 6

TOTAL $ 1,765,758,955 100 $ 1,604,943,095 100 $ 1,507,732,768 100

The accompanying notes are an integral part of the consolidated financial statements.

- 31 -


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

For the Year Ended December 31 Percentage

Increase

2013 2012 (Decrease)

Amount % Amount % %

NET INTEREST (Notes 4, 32 and 41)

Interest revenues $ 27,679,582 82 $ 26,299,212 90 5

Interest expenses (11,904,448) (35) (11,668,978) (40) 2

Total net interest 15,775,134 47 14,630,234 50 8

NET REVENUES OTHER THAN

INTEREST (Note 4)

Commission and fee revenues, net

(Notes 33 and 41) 8,445,023 25 8,274,956 28 2

Gains on financial assets and liabilities

at fair value through profit or loss

(Notes 8, 34 and 41) 5,560,925 16 4,028,160 14 38

Realized gains on available-for-sale

financial assets (Notes 31 and 35) 1,703,727 5 744,332 2 129

Foreign exchange gains, net 1,867,661 6 1,139,902 4 64

Reversal of impairment loss on assets

(Notes 16, 19 and 20) 3,908 - 49,055 - (92)

Share of the profit of the associate

(Note 15) 8,719 - 7,157 - 22

Losses due to shortfall of guaranteed

sports lottery earnings (649,064) (2) (395,589) (1) 64

Other noninterest net revenues

(Notes 19, 37 and 41) 913,138 3 763,312 3 20

Total net revenues other than

interest 17,854,037 53 14,611,285 50 22

TOTAL NET REVENUES 33,629,171 100 29,241,519 100 15

ALLOWANCE (REVERSAL OF

ALLOWANCE) FOR CREDIT

LOSSES AND LOSSES ON

GUARANTEES (Notes 4 and 17) 3,857,105 12 (542,317) (2) 811

OPERATING EXPENSES (Notes 4, 29,

36, 37, 38 and 41)

Employee benefits 9,307,663 28 8,655,036 30 8

Depreciation and amortization 751,055 2 759,276 3 (1)

Others 5,523,356 16 5,329,099 18 4

Total operating expenses 15,582,074 46 14,743,411 51 6

(Continued)

- 32 -


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

For the Year Ended December 31 Percentage

Increase

2013 2012 (Decrease)

Amount % Amount % %

NET PROFIT BEFORE INCOME TAX

FROM CONTINUING

OPERATIONS 14,189,992 42 15,040,425 51 (6)

INCOME TAX EXPENSE (Notes 4

and 39) 2,085,385 6 2,067,131 7 1

NET PROFIT FOR THE YEAR 12,104,607 36 12,973,294 44 (7)

OTHER COMPREHENSIVE INCOME

(Note 4)

Exchange differences on translating

foreign operations 159,094 1 (223,631) (1) 171

Unrealized (loss) gain on

available-for-sale financial assets

(Note 31) (1,271,749) (4) 1,281,665 5 (199)

Actuarial loss arising from defined

benefit plans (Note 29) (135,868) - (323,535) (1) (58)

Share of the other comprehensive

income of the associate (Note 31) 13,460 - 15,555 - (13)

Income tax relating to the components

of other comprehensive income

(Note 39) 150,477 - (20,633) - 829

Other comprehensive income for

the year, net of income tax (1,084,586) (3) 729,421 3 (249)

TOTAL COMPREHENSIVE INCOME

FOR THE YEAR $ 11,020,021 33 $ 13,702,715 47 (20)

NET PROFIT ATTRIBUTE TO

OWNER OF THE BANK $ 12,104,607 36 $ 12,973,294 44 (7)

TOTAL COMPREHENSIVE INCOME

FOR THE YEAR ATTRIBUTE TO

OWNER OF THE BANK $ 11,020,021 33 $ 13,702,715 47 (20)

EARNINGS PER SHARE (Note 40)

Basic $ 1.57 $ 1.79

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

- 33 -


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


Other Equity (Notes 4 and 31)

Exchange

Differences on

Unrealized

Gain (Loss) on

Capital Stock (Note 31) Retained Earnings (Notes 4 and 31) Translating Available-for-

Shares

(Thousands) Amount

Capital Surplus

(Note 31) Legal Reserve Special Reserve

Unappropriated

Earnings Total

Foreign

Operations

sale Financial

Assets Total Equity

BALANCE, JANUARY 1, 2012 5,109,287 $ 51,092,871 $ 13,613,508 $ 14,333,465 $ 1,535,698 $ 9,054,140 $ 24,923,303 $ 20,056 $ 3,080,470 $ 92,730,208

Appropriation of the 2011 earnings

Legal reserve - - - 2,716,242 - (2,716,242) - - - -

Stock dividends 633,790 6,337,898 - - - (6,337,898) (6,337,898) - - -

Net profit for the year ended December 31, 2012 - - - - - 12,973,294 12,973,294 - - 12,973,294

Other comprehensive income for the year ended

December 31, 2012, net of income tax - - - - - (268,534) (268,534) (223,631) 1,221,586 729,421

Total comprehensive income for the year ended

December 31, 2012 - - - - - 12,704,760 12,704,760 (223,631) 1,221,586 13,702,715

BALANCE, DECEMBER 31, 2012 5,743,077 57,430,769 13,613,508 17,049,707 1,535,698 12,704,760 31,290,165 (203,575) 4,302,056 106,432,923

Appropriation of the 2012 earnings

Legal reserve - - - 3,898,261 - (3,898,261) - - - -

Stock dividends 909,594 9,095,943 - - - (9,095,943) (9,095,943) - - -

Other changes in capital surplus

Issue of share dividends from capital surplus 612,308 6,123,077 (6,123,077) - - - - - - -

Net profit for the year ended December 31, 2013 - - - - - 12,104,607 12,104,607 - - 12,104,607

Other comprehensive loss for the year ended

December 31, 2013, net of income tax - - - - - (112,770) (112,770) 159,094 (1,130,910) (1,084,586)

Total comprehensive income for the year ended

December 31, 2013 - - - - - 11,991,837 11,991,837 159,094 (1,130,910) 11,020,021

Issue of ordinary shares for cash 941,592 9,415,923 6,366,477 - - - - - - 15,782,400

BALANCE, DECEMBER 31, 2013 8,206,571 $ 82,065,712 $ 13,856,908 $ 20,947,968 $ 1,535,698 $ 11,702,393 $ 34,186,059 $ (44,481) $ 3,171,146 $ 133,235,344

The accompanying notes are an integral part of the consolidated financial statements.

- 34 -


CONSOLIDATED STATEMENTS OF CASH FLOWS


For the Year Ended December 31

2013 2012

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax from continuing operations $ 14,189,992 $ 15,040,425

Adjustments for:

Depreciation expenses 446,825 474,413

Amortization expenses 316,052 296,752

Allowance (reversal of allowance) for credit losses 3,697,691 (465,091)

Interest expenses 11,904,448 11,668,978

Interest revenues (27,679,582) (26,299,212)

Dividend income (601,255) (661,198)

Changes in reserve for losses on guarantees 159,414 (77,226)

Changes in provisions (2,057) (38,537)

Share of profit of the associate (8,719) (7,157)

Loss on disposal of property and equipment 5,253 22,062

Loss on disposal of intangible asset 350 -

Impairment loss on financial assets 1,422 4,260

Reversal of impairment loss on financial assets (94,130) (12,120)

Impairment loss on nonfinancial assets 88,800 -

Reversal of impairment loss on nonfinancial assets - (41,195)

Other adjustments (113,863) (53,252)

Subtotal (11,879,351) (15,188,523)

Changes in operating assets and liabilities

Increase in due from the Central Bank of China and other banks (7,508,275) (11,779,940)

Decrease (increase) in financial assets at fair value through profit or

loss 11,461,831 (25,051,673)

Increase in securities purchased under agreements to resell (400,347) -

(Increase) decrease in receivables (28,283,931) 7,420,693

Increase in discounts and loans (80,073,231) (73,869,628)

Increase in available-for-sale financial assets (2,780,242) (27,717,281)

Decrease in held-to-maturity financial assets 17,250,909 41,866,110

(Increase) decrease in other financial assets (10,440,660) 948,583

Increase in due to the Central Bank of China and other banks 13,601,774 12,993,566

Increase (decrease) in financial liabilities at fair value through profit

or loss 8,388,058 (3,135,075)

Increase (decrease) in securities sold under agreements to repurchase 1,584,944 (2,142,156)

(Decrease) increase in payables (4,147,772) 4,242,016

Increase in deposits and remittances 104,232,681 64,348,888

Increase in other financial liabilities 10,205,866 2,142,521

Increase in provision for employee benefits 68,919 27,461

Increase (decrease) in other liabilities 383,077 (779,195)

Net cash provided by (used in) operations 35,854,242 (10,633,208)

Interest received 28,100,094 25,558,104

Dividends received 608,018 660,008

Interest paid (11,967,866) (11,407,597)

Income tax paid (1,952,417) (765,277)

Net cash provided by operating activities 50,642,071 3,412,030

(Continued)

- 35 -


CONSOLIDATED STATEMENTS OF CASH FLOWS



2013 2012

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of financial assets carried at cost $ (3,455,948) $ -

Proceeds of the capital reduction of financial assets carried at cost 76,280 -

Payments for property and equipment (445,969) (526,723)

Proceeds of the disposal of property and equipment 542 5,691

Payments for intangible assets (244,681) (52,105)

Proceeds of the sale of nonperforming loans - 42,512

Increase in other assets (1,849,541) (897,918)

Net cash used in investing activities (5,919,317) (1,428,543)

CASH FLOWS FROM FINANCING ACTIVITIES

Issuance of bank debentures 4,250,000 6,000,000

Repayment of bank debentures (5,550,000) (1,000,000)

Proceeds of the issue of ordinary shares 15,782,400 -

Net cash provided by financing activities 14,482,400 5,000,000

EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE

OF CASH HELD IN FOREIGN CURRENCIES 190,278 (266,253)

NET INCREASE IN CASH AND CASH EQUIVALENTS 59,395,432 6,717,234

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE

YEAR 63,315,057 56,597,823

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 122,710,489 $ 63,315,057

Reconciliation of the amounts in the consolidated statements of cash flows with the equivalent items reported in

the consolidated balance sheets at December 31, 2013 and 2012:


2013 2012

Cash and cash equivalents in consolidated balance sheets $ 74,257,224 $ 31,820,002

Due from the Central Banks and other banks that meet the definition of

cash and cash equivalents in IAS 7

28,673,715 15,151,564

Securities purchased under agreements to resell that meet the definition

of cash and cash equivalents in IAS 7

19,779,550 16,343,491

Cash and cash equivalents in consolidated statements of cash flows $ 122,710,489 $ 63,315,057

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

- 36 -


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

(Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Stated)

1. GENERAL INFORMATION

TAIPEI FUBON COMMERCIAL BANK Co., Ltd. (the “Bank”) started as a financial institution under the

Taipei City Government (TCG) in 1969. On July 1, 1984, it was reorganized into a limited liability

corporation and was renamed City Bank of Taipei Co., Ltd. On January 1, 1993, the Bank was renamed

TAIPEIBANK Co., Ltd. (“TAIPEIBANK”). On November 30, 1999, the Bank was privatized through the

sale of its shares to the public, with TCG‟s holdings reduced to less than 50% of the Bank‟s outstanding

capital stock. In their special meeting on October 4, 2002, the stockholder approved a share swap, which

resulted in the Bank‟s becoming a wholly owned subsidiary of the Fubon Financial Holdings Company

(FFH). The board of directors designated December 23, 2002 as the effective date of the share swap and

of the delisting of the Bank‟s stock from the Taiwan Stock Exchange.

To fully harness the synergy of two diversified business operations and reduce operating costs, the boards

of directors of the Bank and Fubon Bank Co., Ltd. (“Fubon Bank,” a wholly owned subsidiary of FFH)

decided on January 1, 2005 to combine these two entities. On January 1, 2005, the Bank acquired the

assets and liabilities of Fubon Bank through a share swap and had its name changed to Taipei Fubon

Commercial Bank Co., Ltd.

On September 20, 2006, the boards of directors of the Bank and Fubon Bills Finance Co., Ltd. (FBFC)

decided to merge the Bank and FBFC to strengthen their operating synergy and lower operating costs, with

the Bank as the survivor entity. The Bank set December 25, 2006 as the effective merger date.

Pursuant to the terms and conditions set out in the “Sale and Assumption Agreement” signed by the Bank,

Chinfon Commercial Bank Co., Ltd. (hereinafter referred to as “Chinfon Bank”), Central Deposit Insurance

Corp. and the Executive Yuan‟s Financial Reconstruction Trust Corporation on October 30, 2009, effective

midnight, March 6, 2010, the Bank assumed the assets, liabilities and businesses of the Hanoi branch and

Ho Chi Minh City subbranch of Chinfon Bank under the conditions that the acquirer has obtained the

competent authority‟s approval and completed the settlement procedure.

The Bank engages in the following: (a) act for the municipal treasures of Taipei City; (b) management of

municipal treasury bills of Taipei City; (c) all commercial banking operations authorized under the Banking

Act; (d) securities and trust operations; (e) lottery operations; (f) futures trading (It is terminated on June 1,

2013); and (g) other authorized operations.

The Bank has its head office in Taipei City, and as of December 31, 2013, had 4 major operating

departments - Banking, Trust, Public Treasury and Lottery departments - with 132 branches (including one

offshore banking unit (OBU), 5 overseas branches), and 1 overseas representative office.

The operations of the Bank‟s Trust Department are (1) planning, managing and operating a trust business;

and (2) custodianship of nondiscretionary trust funds in domestic and overseas securities and mutual funds.

These operations are regulated under the Banking Act and the Trust Law.

The Bank was granted the right to run the Taiwan Sports Lottery from 2008 to 2013 by the Ministry of

Finance.

Taipei Fubon Bank Life Insurance Agency Co., Ltd. was incorporated in accordance with the Company

Law on June 26, 2000 and mainly engages in the life insurance agency business.

- 37 -

The Bank‟s ultimate parent is Fubon Financial Holdings Company, which holds all the ordinary shares of

the Bank.

The functional currency of the Bank is the New Taiwan dollar, and the consolidated financial statements are

presented in New Taiwan dollars.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the board of directors and authorized for issue on

March 19, 2014.

3. APPLICATION OF NEW AND REVISED STANDARDS, AMENDMENTS AND

INTERPRETATIONS

a. New, amended and revised standards and interpretations in issue but not yet effective

The Bank and its subsidiaries have not applied the following International Financial Reporting

Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC

Interpretations (SIC) issued by the IASB. On January 28, 2014, the Financial Supervisory

Commission (FSC) announced the framework for the adoption of updated IFRSs version in the ROC.

Under this framework, starting January 1, 2015, the previous version of IFRSs endorsed by the FSC

(the 2010 IFRSs version) currently applied by companies with shares listed on the Taiwan Stock

Exchange or traded on the Taiwan GreTai Securities Market or Emerging Stock Market and the

financial industry regulated by the FSC will be replaced by the updated IFRSs without IFRS 9 (the 2013

IFRSs version). However, as of the date that the consolidated financial statements were authorized for

issue, the FSC has not endorsed the following new, amended and revised standards and interpretations

issued by the IASB (the “New IFRSs”) included in the 2013 IFRSs version. Furthermore, the FSC has

not announced the effective date for the following New IFRSs that are not included in the 2013 IFRSs

version.

The New IFRSs Included in the

2013 IFRSs Version Not Yet Endorsed by the FSC

Effective Date

Announced by IASB (Note 1)

Improvements to IFRSs (2009) - amendment to IAS 39 January 1, 2009 and January 1,

2010, as appropriate

Amendment to IAS 39 “Embedded Derivatives” Effective for annual periods

ending on or after June 30,

2009

Improvements to IFRSs (2010) July 1, 2010 and January 1,

2011, as appropriate

Annual Improvements to IFRSs 2009-2011 Cycle January 1, 2013

Amendment to IFRS 1 “Limited Exemption from Comparative IFRS 7

Disclosures for First-time Adopters”

July 1, 2010

Amendment to IFRS 1 “Severe Hyperinflation and Removal of Fixed

Dates for First-time Adopters”

July 1, 2011

Amendment to IFRS 1 “Government Loans” January 1, 2013

Amendment to IFRS 7 “Disclosure - Offsetting Financial Assets and

Financial Liabilities”

January 1, 2013

Amendment to IFRS 7 “Disclosure - Transfer of Financial Assets” July 1, 2011

IFRS 10 “Consolidated Financial Statements” January 1, 2013

IFRS 11 “Joint Arrangements” January 1, 2013

(Continued)

- 38 -

The New IFRSs Included in the

2013 IFRSs Version Not Yet Endorsed by the FSC

Effective Date


IFRS 12 “Disclosure of Interests in Other Entities” January 1, 2013

Amendments to IFRS 10, IFRS 11 and IFRS 12 “Consolidated

Financial Statements, Joint Arrangements and Disclosure of

Interests in Other Entities: Transition Guidance”

January 1, 2013

Amendments to IFRS 10 and IFRS 12 and IAS 27 “Investment

Entities”

January 1, 2014

IFRS 13 “Fair Value Measurement” January 1, 2013

Amendment to IAS 1 “Presentation of Other Comprehensive Income” July 1, 2012

Amendment to IAS 12 “Deferred Tax: Recovery of Underlying

Assets”

January 1, 2012

IAS 19 (Revised 2011) “Employee Benefits” January 1, 2013

IAS 27 (Revised 2011) “Separate Financial Statements” January 1, 2013

IAS 28 (Revised 2011) “Investments in Associates and Joint

Ventures”

January 1, 2013

Amendment to IAS 32 “Offsetting Financial Assets and Financial

Liabilities”

January 1, 2014

IFRIC 20 “Stripping Costs in Production Phase of a Surface Mine” January 1, 2013

(Concluded)

The New IFRSs Not Included in the 2013 IFRSs Version

Effective Date


Annual Improvements to IFRSs 2010-2012 Cycle July 1, 2014 (Note 2)

Annual Improvements to IFRSs 2011-2013 Cycle July 1, 2014

IFRS 9 “Financial Instruments” Effective date not determined

Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of

IFRS 9 and Transition Disclosures”

Effective date not determined

Amendment to IAS 19 “Defined Benefit Plans: Employee

Contributions”

July 1, 2014

Amendment to IAS 36 “Impairment of Assets: Recoverable Amount

Disclosures for Non-financial Assets”

January 1, 2014

Amendment to IAS 39 “Novation of Derivatives and Continuation of

Hedge Accounting”

January 1, 2014

IFRIC 21 “Levies” January 1, 2014

(Concluded)

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on

or after the respective effective dates.

Note 2: The amendment to IFRS 2 applies to share-based payment transactions for which the grant

date is on or after July 1, 2014; the amendment to IFRS 3 applies to business combinations for

which the acquisition date is on or after July 1, 2014; the amendment to IFRS 13 is effective

immediately; the remaining amendments are effective for annual periods beginning on or after

July 1, 2014.

- 39 -

b. Significant impending changes in accounting policy resulted from new, amended and revised standards

and interpretations in issue but not yet effective

Except for the following, the initial application of the above new, amended and revised standards and

interpretations have not had any material impact on the Bank and its subsidiary‟s accounting policies:

1) IFRS 9 “Financial Instruments”

With regards to financial assets, all recognized financial assets that are within the scope of IAS 39

“Financial Instruments: Recognition and Measurement” to be subsequently measured at amortized

cost or fair value. Specifically, financial assets that are held within a business model whose

objective is to collect the contractual cash flows, and that have contractual cash flows that are solely

payments of principal and interest on the principal outstanding are generally measured at amortized

cost at the end of subsequent accounting periods. All other financial assets are measured at their

fair values at the balance sheet date. However, the Bank and its subsidiary may make an

irrevocable election to present subsequent changes in the fair value of an equity investment (that is

not held for trading) in other comprehensive income, with only dividend income generally

recognized in profit or loss.

As for financial liabilities, the main changes in the classification and measurement relate to the

subsequent measurement of financial liabilities designated as at fair value through profit or loss.

The amount of change in the fair value of such financial liability attributable to changes in the credit

risk of that liability, is presented in other comprehensive income and the remaining amount of

change in the fair value of that liability is presented in profit or loss, unless the recognition of the

effects of changes in the liability's credit risk in other comprehensive income would create or

enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial

liability's credit risk are not subsequently reclassified to profit or loss. If the above accounting

treatment would create or enlarge an accounting mismatch in profit or loss, the Bank and its

subsidiary present all gains or losses on that liability in profit or loss.

The main changes in hedge accounting amended the application requirements for hedge accounting

to better reflect the entity‟s risk management activities. Compared with IAS 39, the main changes

include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening

the risk eligible for hedge accounting of nonfinancial items; (2) changing the way hedging

derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing

retrospective effectiveness assessment with the principle of economic relationship between the

hedging instrument and the hedged item.

The mandatory effective date of IFRS 9, which was previously set at January 1, 2015, was removed

and will be reconsidered once the standard is complete with a new impairment model and

finalization of any limited amendments to classification and measurement.

2) New and revised standards on consolidation, joint arrangement, and associates and disclosure

a) IFRS 10 “Consolidated Financial Statements”

IFRS 10 replaces IAS 27 “Consolidated and Separate Financial Statements” and SIC 12

“Consolidation - Special Purpose Entities”. The Bank and its subsidiary consider their ability

of control over other entities for consolidation. The Bank and its subsidiary have control over

an investee if and only if they have a) power over the investee; b) exposure, or rights, to variable

returns from its involvement with the investee and c) the ability to use its power over the

investee to affect the amount of its returns. Additional guidance has been included in IFRS 10

to explain when an investor has control over an investee.

- 40 -

b) IFRS 12 “Disclosure of Interests in Other Entities”

IFRS 12 is a new disclosure standard and is applicable to entities that have interests in

subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. In

general, the disclosure requirements in IFRS 12 are more extensive than in the current

standards.

c) Revision to IAS 28 “Investments in Associates and Joint Ventures”

Revised IAS 28 requires when a portion of an investment in associates meets the criteria to be

classified as held for sale, that portion is classified as held for sale. Any retained portion that

has not been classified as held for sale is accounted for using the equity method. Under

current IAS 28, when a portion of an investment in associates meets the criteria to be classified

as held for sale, the entire investment is classified as held for sale and ceases to apply the equity

method.

3) IFRS 13 “Fair Value Measurement”

IFRS 13 establishes a single source of guidance for fair value measurements. It defines fair value,

establishes a framework for measuring fair value, and requires disclosures about fair value

measurements. The disclosure requirements in IFRS 13 are more extensive than those required in

the current standards. For example, quantitative and qualitative disclosures based on the

three-level fair value hierarchy currently required for financial instruments only will be extended by

IFRS 13 to cover all assets and liabilities within its scope.

4) Amendments to IAS 1 “Presentation of Items of Other Comprehensive Income”

The amendments to IAS 1 require items of other comprehensive income to be grouped into those

that (1) will not be reclassified subsequently to profit or loss; and (2) will be reclassified

subsequently to profit or loss when specific conditions are met. Income taxes on related items of

other comprehensive income are grouped on the same basis. Under current IAS 1, there were no

such requirements.

5) Revision to IAS 19 “Employee Benefits”

Revised IAS 19 requires the recognition of changes in defined benefit obligations and in the fair

value of plan assets when they occur, and hence eliminate the “corridor approach” permitted under

current IAS 19 and accelerate the recognition of past service costs. The revision requires all

actuarial gains and losses to be recognized immediately through other comprehensive income in

order for the net pension asset or liability to reflect the full value of the plan deficit or surplus.

Furthermore, the interest cost and expected return on plan assets used in current IAS 19 are replaced

with a “net interest” amount, which is calculated by applying the discount rate to the net defined

benefit liability or asset.

6) Amendments to IAS 36 “Recoverable Amount Disclosures for Non-financial Assets”

In issuing IFRS 13 “Fair Value Measurement”, the IASB made some consequential amendments to

the disclosure requirements in IAS 36 “Impairment of Assets”, introducing a requirement to

disclose in every reporting period the recoverable amount of an asset or each cash-generating unit.

The amendment clarifies that the disclosure of such recoverable amount is required during the

period when an impairment loss has been recognized or reversed. Furthermore, the Bank and its

subsidiary are required to disclose the discount rate used in current and previous measurements of

the recoverable amount based on fair value less costs of disposal measured using a present value

technique.

- 41 -

7) Annual Improvements to IFRSs: 2010-2012 Cycle

Several standards including IFRS 2 “Share-Based Payment”, IFRS 3 “Business Combinations” and

IFRS 8 “Operating Segments” were amended in this annual improvement.

The amended IFRS 2 changes the definitions of „vesting condition‟ and „market condition‟ and adds

definitions for 'performance condition' and 'service condition'. The amendment clarifies that a

performance target can be based on the operations (i.e. a non-market condition) of the Group or

another entity in the same group or the market price of the equity instruments of the Group or

another entity in the same group (i.e. a market condition); that a performance target can relate either

to the performance of the Group as a whole or to some part of it (e.g. a division); and that the period

for achieving a performance condition must not extend beyond the end of the related service period.

In addition, a share market index target is not a performance condition because it not only reflects

the performance of the Group, but also of other entities outside the Group.

IFRS 3 was amended to clarify that contingent consideration should be measured at fair value,

irrespective of whether the contingent consideration is a financial instrument within the scope of

IFRS 9 or IAS 39. Changes in fair value should be recognized in profit or loss.

The amended IFRS 8 requires an entity to disclose the judgments made by management in applying

the aggregation criteria to operating segments, including a description of the operating segments

aggregated and the economic indicators assessed in determining whether the operating segments

have „similar economic characteristics‟. The amendment also clarifies that a reconciliation of the

total of the reportable segments‟ assets to the entity‟s assets should only be provided if the

segments‟ assets are regularly provided to the chief operating decision-maker.

IFRS 13 was amended to clarify that the issuance of IFRS 13 did not remove the ability to measure

short-term receivables and payables with no stated interest rate at their invoice amounts without

discounting, if the effect of not discounting is immaterial.

IAS 24 was amended to clarify that a management entity providing key management personnel

services to the Bank and its subsidiary is a related party of the Bank and its subsidiary.

Consequently, the Bank and its subsidiary are required to disclose as related party transactions the

amounts incurred for the service paid or payable to the management entity for the provision of key

management personnel services. However, disclosure of the components of such compensation is

not required.

c. The impact of the application of New IFRSs and the Regulations Governing the Preparation of

Financial Reports by Public Banks (the “Regulations”) in issue but not yet effective on the Bank and its

subsidiary‟s consolidated financial statements is as follows:

As of the date the consolidated financial statements were authorized for issue, the Bank and its

subsidiary are continuingly assessing the possible impact that the application of the above New IFRSs

will have on the Bank and its subsidiary's financial position and operating result, and will disclose the

relevant impact when the assessment is complete.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Under Rule No. 100000073410 issued by the Financial Supervisory Commission (FSC) on April 7, 2011,

the Bank and its subsidiary should prepare consolidated financial statements in accordance with the

Regulations Governing the Preparation of Financial Reports by Public Banks and the International

Financial Reporting Standards, International Accounting Standards, and the Interpretations endorsed by the

FSC. The date of transition to IFRSs was January 1, 2012. The Bank and its subsidiary‟s consolidated

financial statements for the year ended December 31, 2013 is their first IFRS consolidated financial

statements. Refer to Note 54 for the impact of IFRS conversion on the consolidated financial statements.

- 42 -

Statement of Compliance

The consolidated financial statements have been prepared in accordance with the Regulations Governing

the Preparation of Financial Reports by Public Banks, IFRSs endorsed by the FSC and certain other

guidelines issued by the authority.

Basis of Preparation

The consolidated financial statements have been prepared on the historical cost basis except for certain

financial instruments that are measured at fair values. Historical cost is generally based on the fair value

of the consideration given in exchange for assets.

The opening consolidated balance sheets as of the date of transition to IFRSs was prepared in accordance

with IFRS 1 “First-time Adoption of International Financial Reporting Standards”. The applicable IFRSs

have been applied retrospectively by the Bank and its subsidiary except for some aspects where other IFRSs

prohibit retrospective application and specified areas where IFRS 1 grants limited exemptions from the

requirements of other IFRSs. For the exemptions that the Bank and its subsidiary elected, refer to

Note 54. The accounting policies are summarized as follows.

Current and Noncurrent Assets and Liabilities

Since the Bank accounts for major parts of the consolidated accounts, and the operating cycle in the

banking industry cannot be clearly identified, accounts included in the consolidated financial statements of

the Bank and its subsidiary were not classified as current or noncurrent. Nevertheless, accounts were

properly categorized according to the nature of each account and sequenced by their liquidity. Please refer

to Note 47 for the maturity analysis of assets and liabilities.

Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the Bank and the entity

controlled by the Bank (i.e. its subsidiary). Control is achieved when the Bank has the power to govern

the financial and operating policies of an entity so as to obtain benefits from its activities.

The consolidated entities as of December 31, 2013, December 31, 2012 and January 1, 2012, were as

follows:

% of Ownership

Investor Investee Main Business December 31,

2013

December 31,

2012

January 1,

2012

The Bank Taipei Fubon Bank Life Insurance

Agency Co., Ltd.

Life insurance agent 100 100 100

When necessary, adjustments are made to the financial statements of its subsidiary to bring its accounting

policies into line with those used by the Bank. All significant intragroup transactions, balances, income

and expenses are eliminated upon consolidation (refer to Table 4).

Foreign Currencies

At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at

the rates prevailing at that date. Nonmonetary items measured at fair value that are denominated in

foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined.

Nonmonetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

- 43 -

Exchange differences arising from settlement are recognized in profit or loss in the period in which they

arise. Exchange differences on monetary items arising from translation at period end are recognized in

profit or loss except for cash flow hedges or effective portions of hedge of net investments in foreign

operations are recognized in other comprehensive income.

Exchange differences arising on the retranslation of nonmonetary assets (such as equity instruments) or

liabilities measured at fair value are included in profit or loss for the period at the rates prevailing at the end

of reporting period except for exchange differences arising on the retranslation of nonmonetary items in

respect of which gains and losses are recognized directly in other comprehensive income, in which case, the

exchange differences are also recognized directly in other comprehensive income.

For the purposes of presenting consolidated financial statements, the assets and liabilities of the Bank‟s

foreign operations are translated into New Taiwan dollars using exchange rates prevailing at the end of each

reporting period. Income and expense items are translated at the average exchange rates for the period,

unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the

dates of the transactions are used. Exchange differences arising are recognized in other comprehensive

income and accumulated in equity.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, demand deposits, time deposits that can be readily

terminated without deduction of principal, and highly liquid investments that are readily convertible to

known amounts of cash and which are subject to an insignificant risk of changes in value. For

consolidated statement of cash flows, cash and cash equivalents include cash and cash equivalents in

consolidated balance sheets, and those amounts of due from the Central Bank of China and other banks and

securities purchased under agreements to resell that meet the definition of cash and cash equivalents in

IAS 7, etc.

Investment in Associates

An associate is an entity over which the Bank and its subsidiary have significant influence and that is

neither a subsidiary nor an interest in a joint venture.

The results and assets and liabilities of associates are incorporated in these consolidated financial

statements using the equity method of accounting. Under the equity method, an investment in an associate

is initially recognized at cost and adjusted thereafter to recognize the Bank and its subsidiary‟s share of the

profit or loss and other comprehensive income of the associate. The Bank and its subsidiary also

recognize the changes in the Bank and its subsidiary‟s share of equity of associates.

Financial Instruments

Financial assets and financial liabilities are recognized when the Bank and its subsidiary become a party to

the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are

directly attributable to the acquisition or issue of financial assets and financial liabilities (other than

financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from

the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair

value through profit or loss are recognized immediately in profit or loss.

a. Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date

basis.

- 44 -

1) Measurement category

Financial assets are classified into the following specified categories: Financial assets at fair value

through profit or loss, held-to-maturity investments, available-for-sale financial assets and loans and

receivables.

a) Financial assets at fair value through profit or loss

Financial assets are classified as at fair value through profit or loss when the financial asset is

either held for trading or it is designated as at fair value through profit or loss.

A financial asset may be designated as at fair value through profit or loss upon initial

recognition if:

i. Such designation eliminates or significantly reduces a measurement or recognition

inconsistency that would otherwise arise; or

ii. The financial asset forms part of a group of financial assets or financial liabilities or both,

which is managed and its performance is evaluated on a fair value basis, in accordance with

the Company‟s documented risk management or investment strategy, and information about

the grouping is provided internally on that basis; or

iii. The contract contains one or more embedded derivatives so that the entire hybrid (combined)

contract can be designated as at fair value through profit or loss.

Financial assets at fair value through profit or loss are stated at fair value, with any gains or

losses arising on remeasurement recognized in profit or loss.

b) Held-to-maturity investments

Held-to-maturity investments are nonderivative financial assets with fixed or determinable

payments and fixed maturity dates that the Bank and its subsidiary have the positive intent and

ability to hold to maturity other than those that the Bank and its subsidiary upon initial

recognition designate as at fair value through profit or loss, or designate as available for sale, or

meet the definition of loans and receivables.

Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost

using the effective interest method less any impairment.

c) Available-for-sale financial assets

Available-for-sale financial assets are nonderivatives that are either designated as

available-for-sale or are not classified as loans and receivables, held-to-maturity investments or

financial assets at fair value through profit or loss.

Available-for-sale financial assets are measured at fair value. Changes in the carrying amount

of available-for-sale monetary financial assets relating to changes in foreign currency exchange

rates, interest income calculated using the effective interest method and dividends on

available-for-sale equity investments are recognized in profit or loss. Other changes in the

carrying amount of available-for-sale financial assets are recognized in other comprehensive

income and will be reclassified to profit or loss when the investment is disposed of or is

determined to be impaired.

Dividends on available-for-sale equity instruments are recognized in profit or loss when the

Bank and its subsidiary‟s right to receive the dividends is established.

- 45 -

Available-for-sale equity investments that do not have a quoted market price in an active market

and whose fair value cannot be reliably measured and derivatives that are linked to and must be

settled by delivery of such unquoted equity investments are measured at cost less any identified

impairment loss at the end of each reporting period and are recognized in a separate line item as

financial assets carried at cost. If, in a subsequent period, the fair value of the financial assets

can be reliably measured, the financial assets are remeasured at fair value. The difference

between carrying amount and fair value is recognized in profit or loss or other comprehensive

income on financial assets.

d) Loans and receivables

Loans and receivables (including discounts and loans, receivables, cash and cash equivalent,

debt investments with no active market, etc.) are measured at amortized cost using the effective

interest method, less any impairment. Interest income is recognized by applying the effective

interest rate, except for short-term receivables when the effect of discounting is immaterial.

2) Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of

impairment at the end of each reporting period. Financial assets are considered to be impaired

when there is objective evidence that, as a result of one or more events that occurred after the initial

recognition of the financial asset, the estimated future cash flows of the investment have been

affected.

The objective evidence of impairment could include significant financial difficulty of the issuer or

counterparty, breach of contract (such as a default or delinquency of interest or principal payments),

it becoming that the borrower will enter bankruptcy or financial reorganization, or the

disappearance of an active market for financial asset because of financial difficulties.

a) Financial assets carried at amortized cost

For certain categories of financial assets, such as discounts and loans, and receivables are

assessed for impairment on a collective basis even if they were assessed not to be impaired

individually. Objective evidence of impairment for a portfolio of discounts and loans and

receivables could include the Bank and its subsidiary‟s past experience of collecting payments,

an increase in the number of delayed payments in the portfolio, as well as observable changes in

national or local economic conditions that correlate with default on discounts and loans and

receivables.

For financial assets carried at amortized cost, the amount of the impairment loss recognized is

the difference between the asset‟s carrying amount and the present value of estimated future

cash flows, discounted at the financial asset‟s original effective interest rate.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the

impairment loss decreases and the decrease can be related objectively to an event occurring after

the impairment was recognized, the previously recognized impairment loss is reversed through

profit or loss to the extent that the carrying amount of the investment at the date the impairment

is reversed does not exceed what the amortized cost would have been had the impairment not

been recognized.

Pursuant to “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets

and Deal with Non-performing/Nonaccrual Loans” (the “Regulations”) issued by the authority,

the Bank assesses the recoverability of credit assets on the basis of a customer‟s financial

position, delinquency in interest or principal payments, and the Bank‟s internal valuation of

collaterals.

- 46 -

Under the regulations, the Bank categorize the credit assets into Normal, Special Mention,

Substandard, Doubtful, and Loss, and then make minimum provisions at 0.5% of the normal

credits (other than those loans to ROC government), 2% of special mention, 10% of

substandard, 50% of doubtful, and 100% of loss. In addition, in accordance with Rule No.

10010006830 subsequently issued by the FSC, the coverage ratio of loans should be more than

1%.

Credits deemed uncollectible may be written off if the write-off is approved by the board of

directors. Recoveries of amounts previously written off are credited to the allowance account.

b) Available-for-sale financial assets

For available-for-sale equity investments, a significant or prolonged decline in the fair value of

the security below its cost is considered to be objective evidence of impairment.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or

losses previously recognized in other comprehensive income are reclassified to profit or loss in

the period.

In respect of available-for-sale equity securities, impairment loss previously recognized in profit

or loss are not reversed through profit or loss. Any increase in fair value subsequent to an

impairment loss is recognized in other comprehensive income and accumulated under the

heading of investments revaluation reserve. In respect of available-for-sale debt securities,

impairment loss are subsequently reversed through profit or loss if an increase in the fair value

of the investment can be objectively related to an event occurring after the recognition of the

impairment loss.

c) Financial assets carried at cost

For financial assets that are carried at cost, the amount of the impairment loss is measured as the

difference between the asset‟s carrying amount and the present value of the estimated future

cash flows discounted at the current market rate of return for a similar financial asset. Such

impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced through the use of an allowance account.

When those financial assets are considered uncollectible, it is written off against the allowance

account. Subsequent recoveries of amounts previously written off are credited against the

allowance account. Changes in the carrying amount of the allowance account are recognized

in profit or loss

3) Derecognition of financial assets

The Bank and its subsidiary derecognize a financial asset only when the contractual rights to the

cash flows from the asset expire, or when it transfers the financial asset and substantially all the

risks and rewards of ownership of the asset to another party. If the Bank and its subsidiary neither

transfer nor retain substantially all the risks and rewards of ownership and continue to control the

transferred asset, the Bank and its subsidiary recognize their retained interest in the asset and an

associated liability for amounts they may have to pay. If the Bank and its subsidiary retain

substantially all the risks and rewards of ownership of a transferred financial asset, the Bank and its

subsidiary continue to recognize the financial asset and also recognize a collateralized borrowing

for the proceeds received.

On derecognition of a financial asset in its entirety, the difference between the asset‟s carrying

amount and the sum of the consideration received and receivable and the cumulative gain or loss

that had been recognized in other comprehensive income and accumulated in equity is recognized in

profit or loss.

- 47 -

On derecognition of a financial asset other than in its entirety (e.g. when the Bank and its subsidiary

retain an option to repurchase part of a transferred asset), the Bank and its subsidiary allocate the

previous carrying amount of the financial asset between the part they continue to recognize under

continuing involvement, and the part they no longer recognize on the basis of the relative fair values

of those parts on the date of the transfer. The difference between the carrying amount allocated to

the part that is no longer recognized and the sum of the consideration received for the part no longer

recognized and any cumulative gain or loss allocated to it that had been recognized in other

comprehensive income is recognized in profit or loss. A cumulative gain or loss that had been

recognized in other comprehensive income is allocated between the part that continues to be

recognized and the part that is no longer recognized on the basis of the relative fair values of those

parts.

b. Equity instruments

Debt and equity instruments issued by the Bank and its subsidiary are classified as either financial

liabilities or as equity in accordance with the substance of the contractual arrangements and the

definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after

deducting all of its liabilities. Equity instruments issued by the Bank and its subsidiary are recognized

at the proceeds received, net of direct issue costs.

Repurchase of the Bank‟s own equity instruments is recognized and deducted directly in equity. No

gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Bank‟s own

equity instruments.

c. Financial liabilities

1) Subsequent measurement

Except the following situation, all the financial liabilities are measured at amortized cost using the

effective interest method, less any impairment (see above for the definition of effective interest

method):

a) Financial liabilities at fair value through profit or loss

Financial liabilities are classified as at fair value through profit or loss when the financial

liability is either held for trading or it is designated as at fair value through profit or loss.

A financial liability may be designated as at fair value through profit or loss upon initial

recognition when doing so results in more relevant information and if:

i. Such designation eliminates or significantly reduces a measurement or recognition

inconsistency that would otherwise arise; or

ii. The financial liability forms part of the Bank and its subsidiary of financial assets or

financial liabilities or both, which is managed and its performance is evaluated on a fair

value basis, in accordance with the Bank and its subsidiary‟s documented risk management

or investment strategy, and information about the grouping is provided internally on that

basis.

iii. The contract contains one or more embedded derivatives so that the entire combined

contract (asset or liability) can be designated as at fair value through profit or loss.

- 48 -

Financial liabilities at fair value through profit or loss are stated at fair value, with any gains or

losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized

in profit or loss incorporates any interest paid on the financial liability and is included in the

other gains and losses line item. Fair value is determined in the manner described in Note 46.

b) Financial guarantee contracts

Financial guarantee contracts issued by the Bank and its subsidiary are initially measured at

their fair values and, if not designated as at fair value through profit or loss, are subsequently

measured at the higher of the best estimate of the obligation under the contract or the amount

initially recognized less cumulative amortization recognized.

2) Derecognition of financial liabilities

The difference between the carrying amount of the financial liability derecognized and the

consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in

profit or loss.

d. Derivative financial instruments

Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and

are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain

or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a

hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature

of the hedge relationship. When the fair value of derivative financial instruments is positive, the

derivative is recognized as a financial asset; when the fair value of derivative financial instruments is

negative, the derivative is recognized as a financial liability.

Derivatives embedded in nonderivative host contracts are treated as separate derivatives when they

meet the definition of a derivative, their risks and characteristics are not closely related to those of the

host contracts and the contracts are not measured at fair value through profit or loss.

Hedge Accounting

The Bank and its subsidiary designate certain hedging instruments, which include derivatives, embedded

derivatives and nonderivatives in respect of foreign currency risk, as either fair value hedges or cash flow

hedges.

At the inception of the hedge relationship, the Bank and its subsidiary document the relationship between

the hedging instrument and the hedged item, along with their risk management objectives and its strategy

for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing

basis, the Bank and its subsidiary document whether the hedging instrument is highly effective in offsetting

the exposure of changes in fair values or cash flows of the hedged item attributable to the hedged risk.

Note 9 sets out details of the fair values of the derivative instruments used for hedging purposes.

a. Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are

recognized in profit or loss immediately, together with any changes in the fair value of the hedged asset

or liability that are attributable to the hedged risk. The change in the fair value of the hedging

instrument and the change in the hedged item attributable to the hedged risk are recognized in profit or

loss in the line item relating to the hedged item.

- 49 -

Hedge accounting is discontinued prospectively when the Bank and its subsidiary revoke the designated

hedging relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or

when it no longer meets the criteria for hedge accounting. The fair value adjustment to the carrying

amount of the hedged instrument arising from the hedged risk for which the effective interest method is

used is amortized to profit or loss from the date of hedge accounting is discontinued. The adjustment

is based on a recalculated effective interest rate at the date amortization begins is amortized fully by

maturity of the financial instrument.

b. Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash

flow hedges is recognized in other comprehensive income and accumulated under the heading of cash

flow hedging reserve. The gain or loss relating to the ineffective portion is recognized immediately in

profit or loss.

The associated gains or losses that were recognized in other comprehensive income are reclassified

from equity to profit or loss as a reclassification adjustment in the line item relating to the hedged item

in the same period when the hedged item affects profit or loss. If a hedge of a forecast transaction

subsequently results in the recognition of a nonfinancial asset or a nonfinancial liability, the associated

gains and losses that were recognized in other comprehensive income are removed from equity and are

included in the initial cost of the nonfinancial asset or nonfinancial liability.

Hedge accounting is discontinued prospectively when the Bank and its subsidiary revoke the designated

hedging relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or

when it no longer meets the criteria for hedge accounting. The cumulative gain or loss on the hedging

instrument that has been previously recognized in other comprehensive income from the period when

the hedge was effective remains separately in equity until the forecast transaction occurs. When the

forecast transaction is ultimately recognized in profit or loss, the associated gains or losses that were

recognized in other comprehensive income are reclassified from equity to profit or loss or are included

in the initial cost of the nonfinancial asset or nonfinancial liability. When a forecast transaction is no

longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or

loss.

Nonperforming Loans

Under the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal

with Nonperforming/Nonaccrual Loans” issued by the authority, loans and other credits (including the

accrued interests) that remained unpaid as they fall due are transferred to nonperforming loans, if the

transfer is approved by the board of directors.

Nonperforming loans transferred from loans are recognized as discounts and loans, and those transferred

from other credits are recognized as other financial assets.

Repurchase and Resell Transactions

Securities under agreement to repurchase or to resell are accounted for securities sold under agreements to

purchase or securities purchased under agreements to resell. Related interest expenses and interest

revenues are accrued over the period between the date of sale and repurchase or the date of purchase and

resale.

Property and Equipment

Property and equipment are stated at cost, less subsequent accumulated depreciation and subsequent

accumulated impairment loss.

- 50 -

Depreciation is recognized using the straight-line method. Each significant part is depreciated separately.

The estimated useful lives, residual values and depreciation method are reviewed at the end of each

reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as

the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or

loss.

Investment Properties

Investment properties are properties held to earn rentals and/or for capital appreciation.

Investment properties are measured initially at cost, including transaction costs. Subsequent to initial

recognition, investment properties are measured at cost less accumulated depreciation and accumulated

impairment loss.

Depreciation is recognized so as to write off the cost of assets less their residual values over their useful

lives, using the straight-line method.

Any gain or loss arising on derecognition of the property is calculated as the difference between the net

disposal proceeds and the carrying amount of the asset and is included in profit or loss in the period in

which the property is derecognized.

Goodwill

Goodwill arose from winning the bid for the Hanoi branch and Ho Chi Minh City subbranch of Chinfon

Bank from the Financial Restructuring Fund. Goodwill arising on an acquisition of a business is carried at

cost as established at the date of acquisition of the business less accumulated impairment loss.

For the purposes of impairment testing, goodwill is allocated to each of the Bank and its subsidiary‟s

cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of

the combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more

frequently when there is an indication that the unit may be impaired, by comparing its carrying amount,

including the allocated goodwill, with its recoverable amount. However, if the goodwill allocated to a

cash-generating unit was acquired in a business combination during the current annual period, that unit

shall be tested for impairment before the end of the current annual period. If the recoverable amount of

the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the

carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based

on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly

in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

If goodwill has been allocated to a cash-generating unit and the entity disposes of an operation within that

unit, the goodwill associated with the operation disposed of is included in the carrying amount of the

operation when determining the gain or loss on disposal, and is measured on the basis of the relative values

of the operation disposed of and the portion of the cash-generating unit retained.

Intangible Assets

a. Customer relationships

Customer relationships arose from winning the bid for the Hanoi branch and Ho Chi Minh City

subbranch of Chinfon Bank from the Financial Restructuring Fund. Customer relationships are

amortized by a straight-line method over 7 years.

- 51 -

b. Operating right

Operating right arose from winning the bid for the Hanoi branch and Ho Chi Minh City subbranch of

Chinfon Bank from the Financial Restructuring Fund. Operating right is amortized by the straight-line

method over 97 years.

c. Core deposits

Core deposits arose from wining the bid for the Hanoi branch and Ho Chi Minh City subbranch of

Chinfon Bank from the Financial Restructuring Fund. Core deposit intangible is amortized by the

straight-line method over 10 years.

d. Computer software

Computer software is amortized by the straight-line method over 5 years.

Intangible assets mentioned above are initially measured at cost and subsequently measured at cost less

accumulated amortization and accumulated impairment loss. Amortization is recognized on a straight-line

basis over their estimated useful lives. The estimated useful life, residual value, and amortization method

are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted

for on a prospective basis. The residual value of an intangible asset with a finite useful life shall be

assumed to be zero unless the Bank and its subsidiary expect to dispose of the intangible asset before the

end of its economic life.

Impairment of Tangible and Intangible Assets Other than Goodwill

At the end of each reporting period, the Bank and its subsidiary review the carrying amounts of their

tangible and intangible assets, excluding goodwill, to determine whether there is any indication that those

assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset

is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate

the recoverable amount of an individual asset, the Bank and its subsidiary estimate the recoverable amount

of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of

allocation can be identified, corporate assets are also allocated to the individual cash-generating units;

otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and

consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable

amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying

amount of the asset or cash-generating unit is reduced to its recoverable amount.

When an impairment loss subsequently is reversed, the carrying amount of the asset or cash-generating unit

is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount

that would have been determined had no impairment loss been recognized for the asset or cash-generating

unit in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

Employee Benefits

a. Retirement benefit

Payments to defined contribution retirement benefit plans are recognized as an expense when

employees have rendered service entitling them to the contributions.

- 52 -

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the

Projected Unit Credit Method. Actuarial gains and losses on the defined benefit obligation are

recognized immediately in other comprehensive income. Past service cost is recognized immediately

to the extent that the benefits are already vested, and otherwise is amortized on a straight-line basis over

the average period until the benefits become vested.

The retirement benefit obligation recognized in the consolidated balance sheets represents the present

value of the defined benefit obligation as adjusted for unrecognized past service cost, and as reduced by

the fair value of plan assets. Any asset resulting from this calculation is limited to the unrecognized

past service cost, plus the present value of available refunds and reductions in future contributions to the

plan.

Curtailment or settlement gains or losses on the defined benefit plan are recognized when the

curtailment or settlement occurs.

b. Employee benefit - employees‟ preferential deposits

The Bank and its subsidiary offered preferential interest rate to its current employees and retired

employees for their deposits within a prescribed amount. The preferential interest rate in excess of

market interest rate is considered employee benefits.

Under Article 28 of the Regulations Governing the Preparation of Financial Reports by Public Banks, if

the Bank‟s preferential deposit interest rate for an employee as stated in the employment contract

exceeds the market interest rate, the excess will be subject to IAS 19 “Employee Benefits” upon the

employees‟ retirement. The actuarial valuation assumptions and parameters are based on the

guidelines announced by the authority, if any.

Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determined

pension cost rate at the end of the prior financial year, adjusted for significant market fluctuations since that

time and for significant curtailments, settlements, or other significant one-time events.

Income Tax

Income tax expense represents the sum of the tax currently payable and deferred tax.

a. Current tax

According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for

as income tax in the year the stockholders approve to retain the earnings.

Adjustments of prior years‟ tax liabilities are added to or deducted from the current year‟s tax provision.

b. Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and

liabilities in the consolidated financial statements and the corresponding tax bases used in the

computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable

temporary differences. Deferred tax assets are generally recognized for all deductible temporary

differences to the extent that it is probable that taxable profits will be available against which those

deductible temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced

to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or

part of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at the

end of each reporting period and recognized to the to the extent that it has become probable that future

taxable profit will allow the deferred tax asset to be recovered.

- 53 -

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in

which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been

enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax

liabilities and assets reflects the tax consequences that would follow from the manner in which the Bank

and its subsidiary expect, at the end of the reporting period, to recover or settle the carrying amount of

their assets and liabilities.

c. Current and deferred tax for the period

Current and deferred tax are recognized in profit or loss, except when they relate to items that are

recognized in other comprehensive income or directly in equity, in which case, the current and deferred

tax are also recognized in other comprehensive income or directly in equity respectively.

Recognition of Interest Revenue and Interest Expense

Except for financial assets and liabilities at fair value through profit or loss, all interest-earning financial

assets and interest-bearing financial liabilities are accrued using the effective interest rate method and are

accounted for as interest revenue and interest expense in the consolidated statement of comprehensive

income.

Once a financial asset or a group of similar financial assets has been written down as a result of an

impairment loss, interest revenue is recognized using the interest rate that is used to discount the future cash

flows when assessing impairment.

Recognition of Commission Fee Revenue and Commission Fee Expense

Commission fee revenue and expense are recognized when loans or other services are provided. Service

fees on significant projects are recognized when the project has been completed, for instance, loan

syndication fees are recognized as revenue when the syndication has been completed. If fee revenue and

expense are related to provide service on loans, fee revenue and expense are either recognized over the

period that service is performed or as an adjustment to the effective interest rate on the loans and

receivables, mainly depend on their materiality.

Operating Leases

Rental payments or receipts under operating lease are recognized in profit or loss on a straight-line basis

over the lease term and are included in the “other operating expenses” or “other noninterest net revenues”.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY

In the application of the Bank and its subsidiary‟s accounting policies, management is required to make

judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not

readily apparent from other sources. The estimates and associated assumptions are based on historical

experience and other factors that are considered to be relevant. Actual results may differ from these

estimates.

The estimates and underlying assumptions are reviewed by management on an ongoing basis. Revisions

to accounting estimates are recognized in the period in which the estimate is revised if the revision affects

only that period or in the period of the revision and future periods if the revision affects both current and

future periods.

- 54 -

a. Held-to-maturity financial assets

Management has reviewed the Bank and its subsidiary‟s held-to-maturity financial assets in light of

their capital maintenance and liquidity requirements and has confirmed the Bank and its subsidiary‟s

positive intention and ability to hold those assets to maturity.

Please refer to Note 14 for related information on held-to-maturity financial assets.

b. Estimated impairment loss of loans and receivables

The Bank and its subsidiary review loan portfolios and receivables to assess impairment periodically.

In determining whether an impairment loss should be recognized, the Bank and its subsidiary make

judgments as to whether there is any observable data indicating that an impairment loss occurs. This

evidence may include observable data indicating that there has been an adverse change in the payment

status of borrowers in the portfolio (e.g. payment delinquency or default), national or economic

condition that correlates with defaults on the assets in the portfolio. For the purpose of assessing

impairment, the management determines the future cash flows in the portfolio using estimates based on

historical loss experience for financial assets grouped on the basis of similar credit risk characteristics.

The methodology and assumptions used for estimating both the amount and timing of future cash flows

are reviewed regularly to decrease any difference between estimated loss and actual loss.

Please refer to Notes 17 and 47 for impairment loss on loans and receivables.

c. Fair value of financial instruments

The fair value of non-active market or non-quoted financial instruments is determined using valuation

techniques. In this case, the fair value is based on observable data of similar financial instruments or

valuation model. If there are no observable market parameters, the fair value of financial instruments

is evaluated based on appropriate assumptions. When the fair value are determined by the valuation

model, the model shall be calibrated to ensure that all output data and the results reflect the actual

market price. The models use only observable data as possible.

Please refer to Notes 46 and 47 for information on assumptions used when determining fair value of

financial instruments and sensitive analysis.

d. Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the

cash-generating units to which goodwill has been allocated. The calculation of the value in use

requires management to estimate the future cash flows expected to arise from the cash-generating unit

and a suitable discount rate in order to calculate present value. When the actual future cash flows are

less than expected, a material impairment loss may arise.

Please refer to Note 20 for related information.

e. Retirement benefit

The present value of the retirement benefit obligations is determined by the actuarial result using a

number of assumptions. Any changes in these assumptions will affect the carrying amount of

retirement benefit obligations. The assumptions used in determining the net cost (income) for

pensions include the discount rate. The Bank and its subsidiary determined the appropriate discount

rate at the end of each year, which is used to determine the present value of estimated future cash

outflows expected to be required to settle the retirement benefit obligation. In determining the

appropriate discount rate, the Bank and its subsidiary should consider the interest rates of high-quality

corporate bonds or government bonds, the currency of those bonds should be the same as the currency

of the benefits paid and the maturity of those bonds should be matched with the maturity of pension

- 55 -

liability. Other key assumptions for retirement benefit obligations are based on current market

conditions.

Please refer to Note 29 for retirement benefit plan.

6. CASH AND CASH EQUIVALENTS

December 31,

2013

December 31,

2012 January 1, 2012

Cash on hand $ 6,910,761 $ 6,489,072 $ 6,519,031

Due from other banks 64,016,718 19,653,700 15,788,153

Notes and checks for clearing 3,329,745 5,677,230 4,917,597

$ 74,257,224 $ 31,820,002 $ 27,224,781

For consolidated statement of cash flow, cash and cash equivalents include accounts listed below:

December 31,

2013

December 31,

2012 January 1, 2012

Cash and cash equivalents in consolidated

balance sheets $ 74,257,224 $ 31,820,002 $ 27,224,781

Due from the Central Bank of China and other

banks that meet the definition of cash and cash

equivalents in IAS 7 28,673,715 15,151,564 29,173,042

Securities purchased under agreements to resell

that meet the definition of cash and cash

equivalents in IAS 7 19,779,550 16,343,491 200,000

Cash and cash equivalents in consolidated

statement of cash flows $ 122,710,489 $ 63,315,057 $ 56,597,823

7. DUE FROM THE CENTRAL BANK OF CHINA AND OTHER BANKS, NET

December 31,

2013

December 31,

2012 January 1, 2012

Call loans to banks $ 42,541,643 $ 25,992,501 $ 34,177,704

Deposit reserve - checking account 14,382,807 12,381,802 10,450,483

Required deposit reserve 30,117,991 29,084,112 27,345,650

Deposit reserve - foreign-currency deposits 685,815 2,141,639 516,782

Due from the Central Bank of China 2,340 2,747 2,563

Due from the Central Bank of China - interbank

settlement funds 1,007,423 1,254,792 605,961

Due from the Central Bank of China - time

deposits 3,150,000 - -

91,888,019 70,857,593 73,099,143

Less: Allowance for credit losses (Note 17) - 5,743 -

$ 91,888,019 $ 70,851,850 $ 73,099,143

- 56 -

Under a directive issued by the Central Bank of China, New Taiwan dollar (NTD)-denominated deposit

reserves are determined by applying a prescribed percentage to the average monthly balances of customers‟

NTD-denominated deposits. These required deposit reserves are subject to withdrawal restrictions. In

addition, foreign-currency deposit reserves are determined by applying a prescribed percentage to the

balances of foreign-currency deposits. These reserves may be withdrawn anytime but bear no interests.

Allowance for credit loss is provided by the general provision of Vietnam branches in accordance with

Vietnam‟s local regulations.

8. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

December 31,

2013

December 31,

2012 January 1, 2012

Held-for-trading financial assets

Commercial paper $ 12,400,611 $ 20,663,557 $ 11,594,415

Corporate bonds 10,386,231 16,737,342 6,167,509

Government bonds 8,914,118 16,540,781 11,579,037

Bank debentures 1,003,857 2,309,874 805,743

Beneficiary securities 389,444 409,733 325,081

Treasury bills - 1,734,939 2,385,669

Listed stocks and beneficiary certificates - 265,567 238,046

Convertible corporate bonds - 33,280 63,520

Others - 499 -

33,094,261 58,695,572 33,159,020

Derivatives

Currency swap contracts 13,879,297 8,910,689 7,862,375

Interest rate swap contracts 6,262,058 6,995,630 10,819,982

Forward contracts 2,682,636 1,347,389 1,274,795

Option contracts 2,202,698 1,255,133 2,193,632

Cross-currency swap contracts 1,279,193 1,228,063 1,503,988

Others 986,176 207,455 89,804

27,292,058 19,944,359 23,744,576

60,386,319 78,639,931 56,903,596

Financial assets designated as at

fair value through profit or loss

Convertible corporate bonds 10,545,239 3,825,331 -

Credit-linked notes 2,300,103 2,228,230 2,438,743

Bank debentures - - 299,480

12,845,342 6,053,561 2,738,223

$ 73,231,661 $ 84,693,492 $ 59,641,819

Held-for-trading financial liabilities

Borrowed bonds $ 99,980 $ - $ -

Derivatives

Currency swap contracts 13,456,226 9,146,317 6,157,272

Interest rate swap contracts 6,225,779 6,787,720 10,703,826



(Continued)

- 57 -

December 31,

2013

December 31,

2012 January 1, 2012

Cross-currency swap contracts $ 1,380,075 $ 679,394 $ 1,592,074

Others 876,415 36,856 29,519

27,900,534 19,612,456 22,747,531

$ 28,000,514 $ 19,612,456 $ 22,747,531

(Concluded)

The Bank and its subsidiary engage in derivative transactions mainly to accommodate customers‟ needs, to

manage their exposure positions, and to accommodate their fund needs in different currencies.

The above financial assets were designated as at fair value through profit or loss because those assets are

hybrid instruments or when such designation eliminates or significantly reduces a measurement or

recognition inconsistency.

The contract (notional) amounts of the Bank and its subsidiary‟s outstanding derivative financial

instruments as of December 31, 2013, December 31, 2012 and January 1, 2012 were summarized as

follows:

Notional Amount

December 31,

2013

December 31,

2012 January 1, 2012

Currency swap contracts $ 1,795,801,464 $ 1,817,653,177 $ 1,669,029,094

Interest rate swap contracts 1,408,452,375 1,291,614,959 1,491,718,210



Cross-currency swap contracts 200,413,356 111,909,600 62,959,310

Futures contracts 34,925,395 6,118,518 1,817,382

Stock price swap contracts 19,489,129 1,861,306 21,534

Commodity swap contracts 681,452 847,693 861,020

Commodity forward contracts 234,410 419,028 630,834

Credit default swap contracts - - 302,897

Gains on financial assets and liabilities at fair value through profit or loss for the years ended December 31,

2013 and 2012 were as follows:


2013 2012

Net gain on held-for-trading financial assets and liabilities $ 4,918,306 $ 3,646,457

Net gain on financial assets designated as at fair value through profit

or loss 642,619 381,703

$ 5,560,925 $ 4,028,160

- 58 -

9. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING

December 31,

2013

December 31,

2012 January 1, 2012

Hedging derivative financial assets

Fair value hedge-interest rate swap $ 285,784 $ 478,744 $ 693,488

Hedging derivative financial liabilities

Fair value hedge-interest rate swap $ 852,396 $ 352,920 $ 428,152

Fair Value Hedge

The Bank and its subsidiary are exposed to the risk of fair value fluctuation due to the change of interest

rate on the corporate bonds and bank debentures included in available-for-sale financial assets and bank

debentures issued. Since the risk is considered to be material, the Bank and its subsidiary enter into

interest rate swap contracts to hedge against this risk.


Hedged Items

Hedging

Instruments

Nominal

Amount Fair Value

Nominal

Amount Fair Value

Nominal

Amount Fair Value

Bank debentures Interest rate

swap contract

$ 24,150,000 $ 121,143 $ 25,450,000 $ 478,744 $ 23,550,000 $ 693,488

Available-for-sale financial

assets - corporate bonds

Interest rate

swap contract

3,986,431 (350,696 ) 728,332 (20,862 ) 861,441 (53,890 )


assets - bank debentures

Interest rate

swap contract

13,118,279 (337,059 ) 7,511,512 (332,058 ) 7,146,904 (374,262 )

Gains (losses) on hedging instruments and hedged items for the years ended December 31, 2013 and 2012

were as follows:


2013 2012

Losses on hedging instruments $ (975,592) $ (60,482)

Gains (losses) on hedged items $ 990,966 $ (15,500)

10. SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

December 31,

2013

December 31,

2012 January 1, 2012

Commercial papers $ 10,322,852 $ 4,959,905 $ -

Government bonds 7,717,582 9,913,184 200,000

Corporate bonds 1,433,163 1,470,402 -

Negotiable certificate of deposits 706,300 - -

$ 20,179,897 $ 16,343,491 $ 200,000

Date of agreement to resell 2014.01.02-

2014.03.27

2013.01.02-

2013.01.28

2012.01.03

Amount of agreement to resell $ 20,190,811 $ 16,348,924 $ 200,046

- 59 -

11. RECEIVABLES, NET

December 31,

2013

December 31,

2012 January 1, 2012

Accounts receivable - forfaiting $ 32,411,109 $ 5,795,996 $ 8,926,519

Credit card receivable 24,134,211 21,723,216 22,497,972

Accounts receivable - factoring 19,777,437 20,970,301 24,211,022

Interest receivable 4,189,155 3,871,239 3,106,847

Acceptances 2,836,206 3,025,267 3,330,505

Sports lottery related receivable 2,631,482 2,659,450 2,164,233

Accounts receivable 1,061,329 835,874 1,208,669

Others 1,972,722 1,490,547 1,603,102

89,013,651 60,371,890 67,048,869

Less: Allowance for credit losses (Note 17) 866,731 724,603 911,830

$ 88,146,920 $ 59,647,287 $ 66,137,039

Please refer to Note 47 for impairment loss analysis of receivables.

The Bank and its subsidiary have accrued allowance for credit losses on receivables. Please refer to Note

17 for the movements of allowance for credit losses.

12. DISCOUNTS AND LOANS, NET

December 31,

2013

December 31,

2012 January 1, 2012

Discount and overdraft $ 1,299,740 $ 1,545,401 $ 1,827,420

Accounts receivables - financing 10,156,329 4,238,561 1,917,902

Short-term loans 262,342,016 231,527,588 193,302,964

Short-term secured loans 48,061,118 37,357,978 48,696,578

Medium-term loans 203,811,762 189,249,345 178,266,816

Medium-term secured loans 105,303,711 99,047,096 105,442,820

Long-term loans 49,985,817 58,074,311 51,626,338

Long-term secured loans 424,563,190 409,193,074 374,147,654

Import and export bill negotiation 9,789,918 4,395,228 3,715,976

Nonperforming loans transferred from loans 1,093,390 1,231,922 2,373,039

1,116,406,991 1,035,860,504 961,317,507

Less: Allowance for credit losses (Note 17) 13,217,588 8,924,275 8,376,947

Less: Adjustments of premium and discount 442,295 400,595 221,598

$ 1,102,747,108 $ 1,026,535,634 $ 952,718,962

During the years ended December 31, 2013 and 2012, the Bank had not written off credits that had not been

subject to legal proceedings.

Please refer to Note 47 for impairment loss analysis of discounts and loans.

The Bank and its subsidiary have made an allowance for credit losses on discounts and loans. Please refer

to Note 17 for the movements of allowance for credit losses.

- 60 -

13. AVAILABLE-FOR-SALE FINANCIAL ASSETS, NET

December 31,

2013

December 31,

2012 January 1, 2012

Commercial papers $ 19,521,434 $ 26,935,303 $ -

Bank debentures 15,150,087 12,797,389 18,890,591


Stocks 9,206,976 10,707,269 10,087,574

Corporate bonds 7,542,231 2,150,452 8,635,398

Treasury bills 4,735,498 4,123,599 779,642

Beneficiary securities 1,057,145 1,011,606 3,466,044

Negotiable certificate of deposits - 100,165 -

69,564,083 67,607,530 50,682,530

Less: Accumulated impairment loss 335,594 335,594 335,594

$ 69,228,489 $ 67,271,936 $ 50,346,936

14. HELD-TO-MATURITY FINANCIAL ASSETS

December 31,

2013

December 31,

2012 January 1, 2012

Negotiable certificates of deposits $ 173,256,069 $ 198,033,122 $ 240,111,637

Bank debentures 16,243,272 16,152,099 2,392,287

Corporate bonds 10,268,750 9,674,751 12,893,191

Commercial papers 5,106,897 - -


Beneficiary securities 1,183,566 1,785,399 -

$ 209,762,227 $ 227,013,136 $ 256,826,642

Because of a change of intention, the Bank and its subsidiary reclassify their beneficiary securities

amounting to $2,567,568 thousand and bank debentures amounting to $9,485,036 thousand, from

available-for-sale financial assets to held-to-maturity financial assets in January 2012.

15. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD


Amount % Amount % Amount %

Fubon Real Estate Management

Co., Ltd.

$ 135,557 30 $ 118,951 30 $ 96,239 30

The Bank and its subsidiary‟s investment accounted for by the equity method had not been pledged as

security or collateral.

Investment income from equity investments for the years ended December 31, 2013 and 2012 is

summarized as follows:


2013 2012

Fubon Real Estate Management Co., Ltd. $ 8,719 $ 7,157

- 61 -

The summarized financial information of the Bank and its subsidiary‟s associate is set out below:

December 31,

2013

December 31,

2012 January 1, 2012

Total assets $ 465,624 $ 408,998 $ 331,987

Total liabilities $ 13,765 $ 12,495 $ 11,190


2013 2012

Revenue $ 72,869 $ 63,272

Profit for the year $ 29,062 $ 23,854

Other comprehensive income $ 44,866 $ 51,850

The Bank and its subsidiary‟s share of profit and other comprehensive income of the associate for the years

ended December 31, 2013 and 2012 was based on the associate‟s financial statements for the same

reporting periods as those of the Bank, which had been audited by independent auditors.

16. OTHER FINANCIAL ASSETS, NET

December 31,

2013

December 31,

2012 January 1, 2012

Time deposits not qualifying as cash equivalents $ 12,042,366 $ - $ -

Financial assets carried at cost, net 4,010,787 647,541 653,604

Debt instruments with no active markets, net 272,219 1,552,058 2,129,839

Nonperforming loans transferred from other than

loans 58,820 21,992 24,553

Bills purchased 10,654 3,768 2,580

16,394,846 2,225,359 2,810,576

Less: Allowance for credit losses (Note 17) 55,024 20,511 23,552

$ 16,339,822 $ 2,204,848 $ 2,787,024

a. Financial assets carried at cost, net

December 31,

2013

December 31,

2012 January 1, 2012

Unlisted common stocks

First Sino Bank $ 3,455,948 $ - $ -

Taiwan Asset Management Co., Ltd. 225,000 300,000 300,000

Taiwan Financial Asset Service Co., Ltd. 100,000 100,000 100,000

Financial Information Service Co., Ltd. 91,000 91,000 91,000

Easy Card Investment Holding Co., Ltd. 47,500 47,500 47,500

Others 130,960 147,240 149,707

4,050,408 685,740 688,207

Less: Accumulated impairment loss 39,621 38,199 34,603

$ 4,010,787 $ 647,541 $ 653,604

- 62 -

The Bank and its subsidiary recognized an impairment loss on certain unlisted common stocks because

of objective evidence of impairment. The movements of accumulated impairment loss are shown

below:


2013 2012

Balance, beginning of the year $ 38,199 $ 34,603

Impairment loss 1,422 4,260

Write-off - (664)

Balance, end of the year $ 39,621 $ 38,199

Financial assets carried at cost were classified as available-for-sale financial assets according to

financial asset measurement categories.

Management believed that the above unlisted equity investments held by the Bank and its subsidiary,

whose fair value cannot be reliably measured due to the range of reasonable fair value estimates was so

significant; therefore they were measured at cost less impairment at the end of reporting period.

b. Debt investments with no active market, net

December 31,

2013

December 31,

2012 January 1, 2012

Bank debentures $ 272,219 $ 1,552,058 $ 1,833,616

Corporate bonds - 91,705 107,895

Collateralized debt obligation - - 296,223

272,219 1,643,763 2,237,734

Less: Accumulated impairment loss - 91,705 107,895

$ 272,219 $ 1,552,058 $ 2,129,839

An impairment loss on corporate bonds had been fully accrued. However, there were bond

repayments during the years ended December 31, 2013 and 2012; thus, the Bank and its subsidiary

recognized gains on the reversal of impairment loss. The movements of accumulated impairment loss

are shown below:


2013 2012

Balance, beginning of the year $ 91,705 $ 107,895

Reversal of impairment loss (94,130) (12,120)

Effect of foreign currency exchange differences 2,425 (4,070)

Balance, end of the year $ - $ 91,705

- 63 -

17. ALLOWANCE FOR CREDIT LOSSES

The movements of allowance for credit losses and reserve for losses on guarantees liabilities for the years

ended December 31, 2013 and 2012 are summarized as follows (for more information, please refer to Note

47):

For the Year Ended December 31, 2013

Due from the

Central Bank

of China and

Other Banks Receivables

Discounts and

Loans

Other

Financial

Assets

Reserve for

Losses on

Guarantees Total

Balance, January 1, 2013 $ 5,743 $ 724,603 $ 8,924,275 $ 20,511 $ 307,353 $ 9,982,485

Allowance (reversal of

allowance) for bad debts (5,944 ) 96,627 3,828,946 (221,938 ) 159,414 3,857,105 Write-offs - (49,269 ) (305,580 ) (261,363 ) - (616,212 )

Recovery of written-off credits - 90,373 737,136 517,814 - 1,345,323

Effects of exchange rate

changes 201 4,397 32,811 - 189 37,598

Balance, December 31, 2013 $ - $ 866,731 $ 13,217,588 $ 55,024 $ 466,956 $ 14,606,299


Due from the

Central Bank

of China and

Other Banks Receivables

Discounts and

Loans

Other

Financial

Assets

Reserve for

Losses on

Guarantees Total

Balance, January 1, 2012 $ - $ 911,830 $ 8,376,947 $ 23,552 $ 385,057 $ 9,697,386

Allowance (reversal of allowance) for bad debts 5,755 (159,693 ) 47,394 (358,547 ) (77,226 ) (542,317 )

Write-offs - (21,869 ) (509,775 ) (268,125 ) - (799,769 )

Recovery of written-off credits - - 1,046,659 623,631 - 1,670,290 Effects of exchange rate

changes (12 ) (5,665 ) (36,950 ) - (478 ) (43,105 )

Balance, December 31, 2012 $ 5,743 $ 724,603 $ 8,924,275 $ 20,511 $ 307,353 $ 9,982,485

18. PROPERTY AND EQUIPMENT, NET


Land Buildings

Machinery and

Computer

Equipment

Transportation

Equipment

Office and

Other

Equipment

Construction in

Progress and

Prepayments

for Equipment Total

Cost

Balance at January 1, 2013 $ 6,774,522 $ 4,491,083 $ 2,076,983 $ 245,405 $ 1,670,486 $ 343,849 $ 15,602,328

Additions - - 121,521 9,800 62,414 252,234 445,969

Disposals - - (164,577 ) (12,054 ) (46,952 ) - (223,583 )

Reclassification 33,792 13,700 70,590 7,105 63,898 (161,537 ) 27,548

Effect of foreign currency

exchange differences - - 1,646 547 4,581 - 6,774

Balance at December 31,

2013 6,808,314 4,504,783 2,106,163 250,803 1,754,427 434,546 15,859,036

Accumulated depreciation

Balance at January 1, 2013 - 1,457,548 1,580,282 163,103 1,138,749 - 4,339,682

Depreciation - 79,506 175,281 25,618 154,598 - 435,003

Disposals - - (160,830 ) (11,316 ) (42,165 ) - (214,311 )

Reclassification - 3,627 - - - - 3,627


exchange differences - - 255 301 358 - 914


2013 - 1,540,681 1,594,988 177,706 1,251,540 - 4,564,915

Carrying amount at

December 31, 2013 $ 6,808,314 $ 2,964,102 $ 511,175 $ 73,097 $ 502,887 $ 434,546 $ 11,294,121

- 64 -


Land Buildings

Machinery and

Computer

Equipment

Transportation

Equipment

Office and

Other

Equipment

Construction in

Progress and

Prepayments

for Equipment Total

Cost

Balance at January 1, 2012 $ 6,768,690 $ 4,515,139 $ 2,512,576 $ 252,025 $ 2,092,659 $ 190,463 $ 16,331,552

Additions - - 136,685 13,155 60,792 316,091 526,723

Disposals - - (626,326 ) (19,232 ) (548,936 ) (146 ) (1,194,640 )

Reclassification 5,832 (24,056 ) 56,089 161 72,383 (162,557 ) (52,148 )


exchange differences - - (2,041 ) (704 ) (6,412 ) (2 ) (9,159 )


2012 6,774,522 4,491,083 2,076,983 245,405 1,670,486 343,849 15,602,328


Balance at January 1, 2012 - 1,384,185 2,009,895 154,369 1,504,948 - 5,053,397

Depreciation - 79,085 176,196 27,766 179,477 - 462,524

Disposals - - (603,632 ) (18,549 ) (543,018 ) - (1,165,199 )

Reclassification - (5,722 ) - - - - (5,722 )


exchange differences - - (2,177 ) (483 ) (2,658 ) - (5,318 )


2012 - 1,457,548 1,580,282 163,103 1,138,749 - 4,339,682

Carrying amount at

January 1, 2012, net $ 6,768,690 $ 3,130,954 $ 502,681 $ 97,656 $ 587,711 $ 190,463 $ 11,278,155

Carrying amount at

December 31, 2012 $ 6,774,522 $ 3,033,535 $ 496,701 $ 82,302 $ 531,737 $ 343,849 $ 11,262,646

The above items of property and equipment were depreciated on a straight-line basis at the following rates

per annum:

Buildings 46-61 years

Machinery and computer equipment 3-16 years

Transportation equipment 3-11 years

Office and other equipment 3-21 years

Lease assets 47 years

19. INVESTMENT PROPERTIES, NET

December 31, 2013

Item Cost

Accumulated

Depreciation

Accumulated

Impairment

Loss

Carrying

Amount

Land $ 1,325,179 $ - $ 45,848 $ 1,279,331

Buildings 867,834 314,395 112,475 440,964

$ 2,193,013 $ 314,395 $ 158,323 $ 1,720,295

December 31, 2012

Item Cost

Accumulated

Depreciation

Accumulated

Impairment

Loss

Carrying

Amount

Land $ 1,358,971 $ - $ 45,848 $ 1,313,123

Buildings 881,534 306,200 112,475 462,859

$ 2,240,505 $ 306,200 $ 158,323 $ 1,775,982

- 65 -

January 1, 2012

Item Cost

Accumulated

Depreciation

Accumulated

Impairment

Loss

Carrying

Amount

Land $ 1,364,803 $ - $ 69,633 $ 1,295,170

Buildings 857,478 288,589 129,884 439,005

$ 2,222,281 $ 288,589 $ 199,517 $ 1,734,175

The movements of investment properties are listed below:


2013 2012

Cost

Balance, beginning of the year $ 2,240,505 $ 2,222,281

Additions - -

Reclassification (47,492) 18,224

Balance, end of the year 2,193,013 2,240,505


Balance, beginning of the year 306,200 288,589

Depreciation 11,822 11,889

Reclassification (3,627) 5,722

Balance, end of the year 314,395 306,200

Accumulated impairment loss

Balance, beginning of the year 158,323 199,517

Impairment loss - (41,194)

Reclassification - -

Balance, end of the year 158,323 158,323

Carrying amount $ 1,720,295 $ 1,775,982

The fair values of the Bank and its subsidiary‟s investment properties as of December 31, 2013, December

31, 2012 and January 1, 2012 were $3,284,408 thousand, $3,239,227 thousand and $3,192,270 thousand,

respectively. The fair values had been based on valuations carried out as of the balance sheet dates by

qualified independent appraisers. Appraisal approaches included the sales comparison approach, income

approach and cost approach. In making the valuations, the appraisers need choose an appropriate

approach based on location, supply, demand, and characteristics of the subject property, and use the

weighted-average value. The sales comparison approach is a method based on the value of similar

properties, through which comparison, analysis and adjustment are made to estimate the value of the subject

property. Two of the methods used under the income approach are direct capitalization and discounted

cash flow analysis. The cost approach involves adding to an estimated land value the appraiser's estimate

of the reproduction or replacement cost of the building, less depreciation.

For the years ended December 31, 2013 and 2012, the rental income from investment properties was

$85,266 thousand and $84,427 thousand, respectively. For the years ended December 31, 2013 and 2012,

the direct operating expense were $20,941 thousand and $20,980 thousand, respectively, which included $6

thousand and $10 thousand from investment properties not earning rental income, respectively.

The investment properties held by the Bank and its subsidiary were depreciated over 61 years, using the

straight-line method.

http://www.investorwords.com/14432/land.html

http://www.investorwords.com/238/appraiser.html

http://www.investorwords.com/4181/replacement_cost.html

http://www.investorwords.com/10174/less.html

http://www.investorwords.com/1416/depreciation.html

- 66 -

20. INTANGIBLE ASSETS

December 31,

2013

December 31,

2012 January 1, 2012

Operating right $ 549,431 $ 555,328 $ 561,226

Computer software 497,523 307,377 413,430

Core deposits 344,157 399,966 455,775

Goodwill 234,055 322,855 322,855

Customer relationships 210 277 343

$ 1,625,376 $ 1,585,803 $ 1,753,629

The movements of intangible assets are listed below:


2013 2012

Goodwill Others Total Goodwill Others Total

Balance, beginning of the

year $ 322,855 $ 1,262,948 $ 1,585,803 $ 322,855 $ 1,430,774 $ 1,753,629

Additions - 244,681 244,681 - 52,105 52,105

Disposals - (350) (350) - - -

Amortization - (279,339) (279,339) - (246,396) (246,396)

Impairment loss (88,800) - (88,800) - - -

Reclassification - 162,827 162,827 - 26,787 26,787


exchange differences - 554 554 - (322) (322)

Balance, end of the year $ 234,055 $ 1,391,321 $ 1,625,376 $ 322,855 $ 1,262,948 $ 1,585,803

The above operating right, core deposits, customer relationships and goodwill arised on the bank‟s

acquisition of the Hanoi branch and Ho Chi Minh City subbranch of Chinfon Bank, which were monitored

by Financial Restructuring Fund.

For the purpose of goodwill impairment testing, branches in Vietnam were deemed as a cash generating

unit, and the recoverable amounts of these branches were determined on the basis of their net fair value.

The key assumptions used in the net fair value calculation included the branches‟ profitability, business

cycle and prosperity, the overall state of the Vietnam‟s economy, and the estimated salvage value of the

Vietnam branches.

For the year ended December 31, 2013, the Bank recognized an impairment loss of $88,000 thousand and

no goodwill impairment was resulted from the assessment as of December 31, 2012 and January 1, 2012.

21. OTHER ASSETS

December 31,

2013

December 31,

2012 January 1, 2012

Refundable deposits $ 3,675,824 $ 2,062,994 $ 1,245,103

Prepaid expense 363,750 237,424 195,434

Others 95,173 160,907 160,709

$ 4,134,747 $ 2,461,325 $ 1,601,246

- 67 -

22. DUE TO THE CENTRAL BANK OF CHINA AND OTHER BANKS

December 31,

2013

December 31,

2012 January 1, 2012

Call loans $ 80,067,622 $ 64,622,043 $ 51,065,074

Deposit from Chunghwa Post Co., Ltd. 3,078,589 4,675,206 5,497,437

Due to the Central Bank of China and other banks 208,364 456,093 162,595

Overdrafts of the Bank 541 - 34,670

$ 83,355,116 $ 69,753,342 $ 56,759,776

23. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

December 31,

2013

December 31,

2012 January 1, 2012

Bank debentures $ 21,603,089 $ 19,059,145 $ 12,157,138

Corporate bonds 3,469,009 142,505 7,916,769


Beneficiary securities 851,015 715,444 2,285,229

$ 27,945,876 $ 26,360,932 $ 28,503,088

Date of agreement to repurchase 2014.01.02-

2014.06.20

2013.01.02-

2013.03.28

2012.01.02-

2012.05.31

Amount of agreement to repurchase $ 27,984,559 $ 26,396,701 $ 28,541,270

As of December 31, 2013, December 31, 2012 and January 1, 2012, the Bank and its subsidiary‟s

investments in financial assets at fair value through profit or loss, available-for-sale financial assets and

held-to-maturity financial assets sold under repurchase agreements were listed below:

December 31,

2013

December 31,

2012 January 1, 2012

Financial assets at fair value through profit or loss $ - $ 239,352 $ 481,469

Available-for-sale financial assets 18,859,740 15,319,292 29,112,072

Held-to-maturity financial assets 10,686,550 13,018,419 484,759

24. PAYABLES

December 31,

2013

December 31,

2012 January 1, 2012

Accounts payable - factoring $ 7,119,104 $ 6,419,759 $ 7,434,117

Sports lottery related 4,144,196 2,971,669 2,548,087

Accrued expenses 3,707,292 3,908,033 3,539,415

Checks for clearing 3,329,745 5,677,230 4,917,597

Accrued interest 3,206,638 3,270,056 3,008,675

Acceptances 2,824,375 3,002,890 3,332,662

Others 4,464,580 7,757,483 3,723,170

$ 28,795,930 $ 33,007,120 $ 28,503,723

- 68 -

25. DEPOSITS AND REMITTANCES

December 31,

2013

December 31,

2012 January 1, 2012

Checking $ 12,604,951 $ 12,806,863 $ 14,242,325

Public treasury 21,692,182 24,255,272 19,423,914

Demand 237,802,417 199,771,537 200,825,687

Savings 667,563,316 632,907,754 606,288,155

Time 411,041,073 375,593,969 338,369,239

Negotiable certificates of deposit 412,700 1,522,700 3,582,800

Outward remittances 857,439 883,302 660,389

$ 1,351,974,078 $ 1,247,741,397 $ 1,183,392,509

26. BANK DEBENTURES

To maintain its capital adequacy ratio and the medium-term to long-term working capital, the Bank

(“Taipei Fubon Bank”), TAIPEIBANK, and Fubon Bills Finance Co., Ltd. had applied and obtained

approval to issue bank debentures from the Financial Supervisory Commission. The outstanding balances

of bank debentures as of December 31, 2013, December 31, 2012 and January 1, 2012 are summarized as

follows:

December 31,

2013

December 31,

2012 January 1, 2012

Financial liabilities - fair value hedge

TAIPEIBANK

First issue of dominant bank debentures in

2003; floating interest rate; maturity: July

2013 $ - $ 5,000,000 $ 5,000,000

Taipei Fubon Bank

Third issue of subordinated bank debentures

in 2008; fixed 3.09%; maturity: May 2015 2,500,000 2,500,000 2,500,000

Fourth issue of subordinated bank debentures

in 2008; fixed 3.14%; maturity: June 2015 500,000 500,000 500,000

First issue of subordinated bank debentures in

2009; fixed 2.2%; maturity: November

2016 300,000 300,000 300,000

Second issue of subordinated bank debentures

in 2009; fixed 2.2%; maturity: December

2016 600,000 600,000 600,000


2010; fixed 2.2%; maturity: January 2017 600,000 600,000 600,000

Third issue of dominant bank debentures in

2010; fixed 1.6%; maturity: March 2015 600,000 600,000 600,000



Fifth issue of dominant bank debentures in

2010; fixed 1.6%; maturity: May 2015 3,800,000 3,800,000 3,800,000

(Continued)

- 69 -

December 31,

2013

December 31,

2012 January 1, 2012


2010; fixed 1.7%; maturity: May 2017 $ 500,000 $ 500,000 $ 500,000

Seventh issue of subordinated bank

debentures in 2010; fixed 1.55%; maturity:

October 2020 900,000 900,000 900,000

Eighth issue of subordinated bank debentures

in 2010; fixed 1.5%; maturity: November

2017 2,550,000 2,550,000 2,550,000


2011; fixed 1.65%; maturity: March 2018 1,700,000 1,700,000 1,700,000


in 2011; fixed 1.7%; maturity: August

2018 1,500,000 1,500,000 1,500,000



2018 2,500,000 2,500,000 1,900,000


2012; fixed 1.48%; maturity: April 2019 1,300,000 1,300,000 -


in 2012; fixed 1.68%; maturity: May 2022 3,700,000 - -

24,150,000 20,450,000 18,550,000

Valuation adjustments of bank debentures 121,143 479,382 693,488

24,271,143 25,929,382 24,243,488

Bank debentures - non-hedged

Former Fubon Bills Finance Co., Ltd.

First issue of dominant bank debentures in

2005; fixed 2.1%; maturity: July 2012 - - 1,000,000

Taipei Fubon Bank


2007; fixed 2.9%; maturity: June 2013 - 550,000 550,000


2008; fixed 3.05%; maturity: January

2014 4,250,000 4,250,000 4,250,000


2008; floating interest rate; maturity:

January 2015 100,000 100,000 100,000


in 2008; fixed 3.05%; maturity: March

2015 1,350,000 1,350,000 1,350,000


in 2008; floating interest rate; maturity:

March 2015 1,200,000 1,200,000 1,200,000


in 2008; fixed 3.09%; maturity: May 2015 2,500,000 2,500,000 2,500,000


in 2008; fixed 3.14%; maturity: June 2015 2,300,000 2,300,000 2,300,000


2009; fixed 2.2%; maturity: November

2016 1,700,000 1,700,000 1,700,000

(Continued)

- 70 -

December 31,

2013

December 31,

2012 January 1, 2012



2016 $ 1,450,000 $ 1,450,000 $ 1,450,000


2010; fixed 2.2%; maturity: January 2017 1,650,000 1,650,000 1,650,000


2010; fixed 2.5%; maturity: January 2020 2,400,000 2,400,000 2,400,000


in 2010; fixed 2.3%; maturity: January

2017 600,000 600,000 600,000






in 2010; fixed 2.5%; maturity: March

2020 2,000,000 2,000,000 2,000,000


2010; fixed 1.6%; maturity: May 2015 1,700,000 1,700,000 1,700,000

Sixth issue of subordinated bank debentures


2017 4,500,000 4,500,000 4,500,000

Sixth issue of subordinated bank debentures


2020 1,900,000 1,900,000 1,900,000





2018 950,000 950,000 950,000



2018 1,500,000 1,500,000 2,100,000


in 2012; fixed 1.68%; maturity: May 2022 1,000,000 4,700,000 -


2013; fixed 1.52%; maturity: August 2020 3,750,000 - -



2023 500,000 - -

41,000,000 41,000,000 36,900,000

41,000,000 41,000,000 37,900,000

$ 65,271,143 $ 66,929,382 $ 62,143,488

(Concluded)

- 71 -

27. OTHER FINANCIAL LIABILITIES

December 31,

2013

December 31,

2012 January 1, 2012

Principals of structured products $ 37,683,700 $ 27,244,584 $ 24,876,563

Funds obtained from the government - intended

for specific types of loans 166,750 400,000 625,500

$ 37,850,450 $ 27,644,584 $ 25,502,063

28. PROVISIONS

December 31,

2013

December 31,

2012 January 1, 2012

Provisions for employee benefits (Note 29) $ 1,242,095 $ 1,037,308 $ 686,312

Reserve for losses on guarantees (Note 17) 466,956 307,353 385,057

Others 167,076 169,133 207,670

$ 1,876,127 $ 1,513,794 $ 1,279,039

29. EMPLOYEE BENEFITS PLANS

December 31,

2013

December 31,

2012 January 1, 2012

Provisions for employee benefits

Defined benefit plans $ 567,819 $ 428,054 $ 213,679

Preferential interest rate plan for employees‟

deposits 608,645 548,328 396,377

Other long-term employee benefits plan 65,145 60,345 69,398

Others 486 581 6,858

$ 1,242,095 $ 1,037,308 $ 686,312

a. Defined contribution plans

The Bank and its subsidiary adopted a pension plan under the Labor Pension Act (the “LPA”), which is

a state-managed defined contribution plan. Under the LPA, the entity makes monthly contributions to

employees‟ individual pension accounts at 6% of monthly salaries and wages.

The total expense recognized in profit or loss for the years ended December 31, 2013 and 2012 was

$240,353 thousand and $228,450 thousand, respectively, represents contributions payable to these plans

by the Bank and its subsidiary at rates specified in the rules of the plans.

b. Defined benefit plans

The Bank adopted the defined benefit plan under the Labor Standard Law, pension benefits are

calculated on the basis of the length of service and average monthly salaries of the six months before

retirement. The Bank contributes amounts equal to 2% of total monthly salaries and wages to a

pension fund administered by the pension fund monitoring committee. Pension contributions are

deposited in the Bank of Taiwan in the committee‟s name.

- 72 -

The actuarial valuations of plan assets and the present value of the defined benefit obligation were

carried out by qualifying actuaries. The principal assumptions used for the purposes of the actuarial

valuations were as follows:

The principal assumptions used for the purposes of the actuarial valuations were as follows:

Valuation Date

December 31,

2013

December 31,

2012 January 1, 2012

Discount rate 1.85% 1.60% 1.75%

Expected return on plan assets 2.00% 1.875% 2.00%

Expected rate of salary increase 2.25% 2.25% 2.25%

Amounts recognized in profit or loss in respect of these defined benefit plans are as follows:


2013 2012

Current service cost $ 102,754 $ 99,550

Interest cost 38,634 39,278

Expected return on plan assets (38,120) (41,526)

Past service cost (1,583) (2,836)

$ 101,685 $ 94,466

Actuarial losses (net of income tax) recognized in other comprehensive income for the years ended

December 31, 2013 and 2012 was $74,268 thousand and $134,894 thousand, respectively. The

cumulative amount of actuarial losses recognized in other comprehensive income as of December 31,

2013 and 2012 was $209,162 thousand and $134,894 thousand, respectively.

Actual return on plan assets recognized were $25,838 thousand and 19,349 thousand for the years ended

December 31, 2013 and 2012.

The amount included in the consolidated balance sheet arising from the Bank and its subsidiary‟s

obligation in respect of its defined benefit plans was as follows:

December 31,

2013

December 31,

2012 January 1, 2012

Present value of funded defined benefit

obligation $ 2,624,063 $ 2,491,520 $ 2,272,728

Fair value of plan assets (2,076,100) (2,086,158) (2,084,577)

Deficit 547,963 405,362 188,151

Past service cost not yet recognized 19,856 22,692 25,528

Net liability arising from defined benefit

obligation $ 567,819 $ 428,054 $ 213,679

- 73 -

Movements in the present value of the defined benefit obligations were as follows:


2013 2012

Opening defined benefit obligation $ 2,491,520 $ 2,272,728

Current service cost 102,754 99,550


Past service cost 1,253 -

Actuarial losses 77,198 140,346

Benefits paid (87,296) (60,382)

Closing defined benefit obligation $ 2,624,063 $ 2,491,520

Movements in the fair value of the plan assets were as follows:


2013 2012

Opening fair value of plan assets $ 2,086,158 $ 2,084,577

Expected return on plan assets 38,120 41,526

Contributions from the employer 44,372 38,508

Actuarial losses (12,282) (22,177)

Benefits paid (80,268) (56,276)

Closing fair value of plan assets $ 2,076,100 $ 2,086,158

The major categories of plan assets at the end of the reporting period for each category were as follows:

December 31,

2013

December 31,

2012 January 1, 2012

Equity instruments 45 37 41

Cash and short-term bills 27 34 31

Fixed-income instruments 18 16 16

Debt instruments 10 11 12

Others - 2 -

100 100 100

The overall expected rate of return was based on historical return trends and analysts‟ predictions of the

market for the asset over the life of the related obligation, with reference to the use of the Labor Pension

Fund by Labor Pension Fund Supervision Committee, taking into consideration the effect of possible

differences between the guaranteed minimum income and the return on local banks‟ two-year time

deposits.

The Bank chose to disclose the history of experience adjustments as the amounts determined for each

accounting period prospectively from the date of transition to IFRSs (please refer Note 54):

December 31,

2013

December 31,

2012 January 1, 2012

Present value of defined benefit obligation $ 2,624,063 $ 2,491,520 $ 2,272,728

Fair value of plan assets $ 2,076,100 $ 2,086,158 $ 2,084,577

Deficit $ 547,963 $ 405,362 $ 188,151

Experience adjustments on plan liabilities $ 77,198 $ 140,346 $ -

Experience adjustments on plan assets $ 12,282 $ 22,177 $ -

- 74 -

The Bank expects to make a contribution of $44,400 thousand and $38,560 thousand, respectively to

the defined benefit plans during the annual period beginning after 2013 and 2012.

As of December 31, 2013, assuming that all factors remained constant, (a) except for a 0.5%

increase/decrease in discount rate, the present value of defined benefit obligations would have

decreased by $132,980 thousand or increased by $143,793 thousand, respectively; and (b) except for a

0.5% increase/decrease in expected salary rate, the present value of defined benefit obligations would

have increased by $139,344 thousand or decreased by $130,166 thousand, respectively.

c. Preferential interest rate plan for employees‟ deposits

The Bank was obligated to pay retired employees fixed preferential interest rate for their deposits in

conformity with “Rules of Deposits of Taipei Fubon Commercial Bank”.

The principal assumptions used for the purposes of the actuarial valuations were as follows:

Valuation Date

December 31,

2013

December 31,

2012 January 1, 2012

Discount rate 4.00% 4.00% 4.00%

Expected return on employees‟ deposits 2.00% 2.00% 2.00%

Withdrawal percentage of preferential

deposits 1.32% 1.00% 1.24%

Amounts recognized in profit or loss in respect of these employee‟s preferential deposits are as follows:


2013 2012

Interest cost $ 21,933 $ 15,855

Past service cost 36,478 19,086

$ 58,411 $ 34,941

Actuarial losses (net of income tax) recognized in other comprehensive income for the years ended

December 31, 2013 and 2012 was $38,502 thousand and $133,640 thousand, respectively. The

cumulative amount of actuarial losses recognized in other comprehensive income as of December 31,

2013 and 2012 was $172,142 thousand and $133,640 thousand, respectively.

The amount included in the consolidated balance sheets arising from the Bank and its subsidiary‟s

obligations for the employees‟ preferential deposits were as follows:

December 31,

2013

December 31,

2012 January 1, 2012

Present value of funded retired benefit

obligation $ 608,645 $ 548,328 $ 396,377

Fair value of plan assets - - -

Net liability arising from retired benefit

obligation $ 608,645 $ 548,328 $ 396,377

- 75 -

Movements in the present value of the defined benefit obligations were as follows:


2013 2012

Opening defined benefit obligation $ 548,328 $ 396,377


Past service cost 36,478 19,086

Actuarial losses 46,388 161,012

Benefits paid (44,482) (44,002)

Closing defined benefit obligation $ 608,645 $ 548,328

The Bank and its subsidiary chose to disclose the history of experience adjustments as the amounts

determined for each accounting period prospectively from the date of transition to IFRSs:

December 31,

2013

December 31,

2012 January 1, 2012

Present value of defined benefit obligation $ 608,645 $ 548,328 $ 396,377

Fair value of plan assets $ - $ - $ -

Deficit $ 608,645 $ 548,328 $ 396,377

Experience adjustments on plan liabilities $ 46,388 $ 161,012 $ -

Experience adjustments on plan assets $ - $ - $ -

As of December 31, 2013, assuming that all variables had remained constant (a) except for a discount

rate increase/decrease by 0.5%, the present value of defined benefit obligations would have decreased

by $27,158 thousand or increased by $29,359 thousand, respectively; and (b) except for a 0.5%

increase/decrease in the withdrawal percentage of preferential deposits, the present value of defined

benefit obligations would have decreased by $20,689 thousand or increased by $22,137 thousand,

respectively.

30. OTHER LIABILITIES

December 31,

2013

December 31,

2012 January 1, 2012

Advance receipts $ 1,986,755 $ 1,655,213 $ 2,496,059

Guarantee deposits received 1,091,114 697,842 772,241

Suspense account and clearing payments 1,026,279 673,510 455,703

Others 510,379 466,457 524,930

$ 4,614,527 $ 3,493,022 $ 4,248,933

- 76 -

31. EQUITY

a. Capital stock

Common stock

December 31,

2013

December 31,

2012 January 1, 2012

Numbers of shares authorized (in thousands) 10,000,000 8,000,000 5,109,287

Capital stock authorized $ 100,000,000 $ 80,000,000 $ 51,092,871

Number of shares issued and received (in

thousands) 8,206,571 5,743,077 5,109,287

Outstanding and issued shares $ 82,065,712 $ 57,430,769 $ 51,092,871

As of December 31, 2013, the Bank‟s authorized capital stock consisted of 10,000,000 thousand shares

with a par value of NT$10, for a total amount of $100,000,000 thousand; there were 8,206,571 shares

issued and outstanding, which amounted to $82,065,712 thousand.

On December 27, 2012, the Bank‟s board of directors, resolved to increase its capital through a private

placement of 380,000 thousand shares. On January 28, 2013, an issue price of $18.33 with total

amount of $6,965,400 thousand issued was resolved by the Bank‟s board of directors and the issued

capital was increased by $3,800,000 thousand. The subscription date was determined at January 30,

2013.

On June 26, 2013, the Bank‟s board of directors, exercising the power delegated by the stockholder‟s

meeting, approved the capitalization of $9,095,943 thousand of retained earnings and $6,123,077

thousand of capital surplus, for a total of $15,219,020 thousand and the issuance of 1,521,902 thousand

shares. The subscription date was July 24, 2013.

On August 23, 2013, the Bank‟s board of director resolved to increase its capital through a private

placement of US300,000 thousand dollars approximately the equivalent amount in New Taiwan dollars

of shares with a par value of $15.7. The total New Taiwan dollar amount of $8,817,000 thousand was

calculated at the exchange rate on the subscription date of October 31, 2013, and issued capital stock

was increased by 561,592 shares, amounting to $5,615,923 thousand.

On December 30, 2013, the Bank‟s board of directors resolved to increase its capital through private

placement, with between 61,996,280 shares and 371,977,681 shares to be issued at NT$16.13 per share.

On the subscription date of January 16, 2014, capital stock was increased by 154,000 shares, amounting

to $1,540,000 thousand.

b. Capital surplus

December 31,

2013

December 31,

2012 January 1, 2012

Arising from consolidation excess $ 7,490,431 $ 13,613,508 $ 13,613,508

Arising from issuance of common shares 6,366,477 - -

$ 13,856,908 $ 13,613,508 $ 13,613,508

- 77 -

Arising from

Consolidation

Excess

Arising from

Issuance of

Common

Shares

Balance, January 1, 2013 $ 13,613,508 $ -

Issuance of common shares - 6,366,477

Issue of share dividends from capital surplus (6,123,077) -

Balance, December 31, 2013 $ 7,490,431 $ 6,366,477

The capital surplus arising from shares issued in excess of par (additional paid-in capital from issuance

of common shares, issuance of shares in a business combination, and treasury stock transactions, etc.)

and donations may be used to offset a deficit; in addition, when the Bank has no deficit, such capital

surplus may be distributed as cash dividends or transferred to capital (limited to a prescribed certain

percentage of the Bank‟s paid-in capital and once a year).

c. Legal reserves

According to the Banking Act, the Bank, when appropriating its earnings, shall set aside 30% of its

after-tax earnings as legal reserve. According to the Company Law, the appropriations for legal

reserve should be made until it equals to the Bank‟s paid-in-capital. Legal reserve may be used to

offset deficit. If the Bank had no deficit, and the legal reserve has exceeded 25% of its paid-in capital,

the excess may be transferred to capital or distributed in cash. In addition, according to the Banking

Act, unless and until the legal reserve equals the Bank‟s paid-in capital, the maximum amounts that

may be distributed in cash shall not exceed 15% of the Bank‟s paid-in-capital.

d. Special reserve

December 31,

2013

December 31,

2012 January 1, 2012

Appropriations by TAIPEIBANK under its

articles of incorporation $ 1,285,676 $ 1,285,676 $ 1,285,676

Transferred from trading loss reserve 123,497 123,497 123,497

Arising from first-time adoption of IFRSs 126,525 126,525 126,525

$ 1,535,698 $ 1,535,698 $ 1,535,698

Under Rule No. 1010012865 issued by the FSC on April 6, 2012 and the directive titled “Questions and

Answers for Special Reserves Appropriated Following Adoption of IFRSs,” on the first-time adoption

of IFRSs, a company should appropriate to a special reserve an amount that was the same as these of

unrealized revaluation increment and cumulative translation differences (gains) transferred to retained

earnings as a result of the company‟s use of exemptions under IFRS 1. However, at the date of

transitions to IFRSs, if the increase in retained earnings that resulted from all IFRSs adjustments is not

sufficient for this appropriation, only the increase in retained earnings that resulted from all IFRSs

adjustments will be appropriated to special reserve. The special reserve appropriated as above may be

reversed to retained earnings in proportion to the usage, disposal or reclassification of the related assets

and thereafter distributed. The special reserve appropriated on the first-time adoption of IFRSs may

be used to offset deficits in subsequent years. No appropriation of earnings shall be made until any

shortage of the aforementioned special reserve is appropriated in subsequent years if the company has

earnings and the original need to appropriate a special reserve is not eliminated.

- 78 -

The increase in retained earnings that resulted from all IFRSs adjustments was not enough for this

appropriation; therefore, the Bank and its subsidiary appropriated to the special reserve an amount of

$126,525 thousand, the increase in retained earnings that resulted from all IFRSs adjustments on

transition to IFRSs.

e. Appropriation of earnings and dividend policy

Under the Bank‟s Articles of Incorporation, the Bank should make appropriations from its net income

(less any deficit) in the following order:

1) 30% as legal reserve;

2) 1%-5% as bonus to employees;

3) Dividends to stockholders. All or part of the remainder and unappropriated accumulated earnings

generated in prior years can be distributed as dividends to stockholders, as proposed by the board of

directors and approved by stockholder‟s meeting. If the legal reserve reaches the Bank‟s paid-in

capital, or if the Bank has meet the standards of sound finance and business practices prescribed by

the regulatory authorities as stated in Article 50 of the Banking Act and has set aside legal reserve

in compliance with the Company Law, the restrictions stipulated in the preceding paragraph shall

not prevail.

On November 12, 2009, the Financial Supervisory Commission prescribed the regulations for the

standards of sound finance and business practices as stated in Article 50 of the Banking Act. On April

30, 2012, the regulations were amended, specifying the criteria for sound finance and business.

Appropriations of earnings should be resolved by the stockholder‟s meeting held in, and reflected in the

financial statements of, the following year. Under the Financial Holdings Company Law, the Bank‟s

board of directors is designated to exercise the power of stockholder‟s meetings, and the regulations

with regards to the stockholder‟s meetings included in the Company Law shall not prevail.

For the years ended December 31, 2013 and 2012, the bonus to employees were $84,732 thousand and

$90,959 thousand, respectively. The estimates of the bonus to employees were based on past

experience. Bonus to employees was accrued at 1% of the reminder of net income after 30% of net

income was appropriated as legal reserve.

Material differences between such estimated amounts and the amounts proposed by the board of

directors in the following year are adjusted for in the current year. If the actual amounts subsequently

resolved by the stockholder differ from the proposed amounts, the differences are recorded in the year

of stockholder‟s resolution as a change in accounting estimate.

Under the Integrated Income Tax System, local resident and corporate stockholders are allowed tax

credits equal to their proportionate share of the income tax paid by the Bank on the date of dividend

distribution.

On June 26, 2013 and June 27, 2012, the board of directors exercised the power and authority of

shareholder‟s meeting, and resolved the appropriations of the 2012 and 2011 earnings, respectively.

The appropriations and dividends per share were as follows:

Appropriations of Earnings Per Share (NT$)

2012 2011 2012 2011

Legal reserve $ 3,898,261 $ 2,716,242

Stock dividends 9,095,943 6,337,898 $ 1.49 $ 1.24

$ 12,994,204 $ 9,054,140

- 79 -

On June 26, 2013 and June 27, 2012, the board of directors resolved and proposed, on behalf of the

stockholder‟s meeting, the appropriations of bonus to employees, which were $90,959 thousand and

$63,379 thousand for 2012 and 2011, respectively. The approved amounts do not differ from the

accrual amounts reflected in the consolidated financial statements for the years ended December 31,

2012 and 2011.

Information on the appropriation of earnings is available on the Market Observation Post System

website of the Taiwan Stock Exchange.

f. Unrealized gains or losses on available-for-sale financial assets


2013 2012

Balance, beginning of the year $ 4,302,056 $ 3,080,470

Unrealized gain arising on revaluation of available-for-sale

financial assets (91,578) 1,452,866

Income tax relating to unrealized gain arising on revaluation of

available-for-sale financial assets 127,379 (75,634)

Cumulative gain reclassified to profit or loss on sale of

available-for-sale financial assets (1,180,171) (171,201)

Share of unrealized gain on revaluation of available-for-sale

financial assets of the associate accounted for by the equity

method 13,460 15,555

Balance, end of the year $ 3,171,146 $ 4,302,056

32. NET INTEREST


2013 2012

Interest revenue

Discounts and loans $ 21,205,283 $ 20,267,837

Held-to-maturity financial assets 2,330,143 3,021,544

Due from bank and call loans to banks 1,654,699 887,055

Available-for-sale financial assets 750,331 573,264

Others 1,739,126 1,549,512

27,679,582 26,299,212

Interest expense

Deposits 9,175,817 9,014,674

Bank debentures 1,175,092 1,155,587

Structured products 651,546 422,385

Due to the Central Bank of China and other banks 558,743 583,449

Others 343,250 492,883

11,904,448 11,668,978

$ 15,775,134 $ 14,630,234

Interest revenue and interest expense shown on the table above exclude those from financial assets and

liabilities at fair value through profit or loss.

For the years ended December 31, 2013 and 2012, the interests accrued on impaired financial assets were

$544,347 thousand and $590,510 thousand, respectively.

- 80 -

33. COMMISSION AND FEE REVENUES, NET


2013 2012

Commission and fee revenue

Trust and custody business $ 3,128,515 $ 2,472,134

Agency income 3,239,882 3,916,157

Credit card business 1,866,366 1,742,715

Credit business 1,265,980 1,150,791

Sports lottery business 495,746 494,755

Others 559,840 556,318

10,556,329 10,332,870

Commission and fee expense

Credit card business 787,850 782,871

Sports lottery business 445,831 442,985

Office space expense 263,455 295,989

Interbank service fee 213,875 209,035

Marketing bonus 107,389 76,298

Others 292,906 250,736

2,111,306 2,057,914

$ 8,445,023 $ 8,274,956

The Bank and its subsidiary provided custody, trust, investment management and consultation services to

the third parties, which involve the Bank and its subsidiary‟s planning, management, and trading rules of

financial instruments. Trust funds or investment portfolios managed and administered on behalf of

investors were not included in the Bank and its subsidiary‟s financial statements, but separate accounts

were established and separate financial statements were prepared for the purpose of internal management.

34. GAINS ON FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT

LOSS


2013 2012

Interest revenue $ 555,730 $ 589,099

Realized gain

Options 2,922,179 948,061

Currency swap contracts 1,383,822 1,114,429

Forward contracts 1,187,347 422,938

Others 391,078 490,661

5,884,426 2,976,089

Gains (losses) on valuation

Options (281,988) 277,644

Convertible corporate bonds 560,446 136,794

Currency swap contracts 97,712 131,119

Interest rate swap contracts (174,954) (103,022)

Forward contracts (1,257,571) (369,920)

Others 177,124 390,357

(879,231) 462,972

$ 5,560,925 $ 4,028,160

- 81 -

35. REALIZED GAINS ON AVAILABLE-FOR-SALE FINANCIAL ASSETS


2013 2012

Beneficiary securities and stocks $ 1,055,189 $ 45,215

Dividends revenue 523,556 573,131

Bank debentures 112,658 7,870

Government bonds 10,432 56,921

Corporate bonds (1,813) 54,209

Others 3,705 6,986

$ 1,703,727 $ 744,332

36. EMPLOYEE BENEFITS EXPENSE


2013 2012

Salaries and wages $ 6,763,350 $ 6,428,427

Labor insurance, national health insurance, and group insurance for

life 571,607 513,390

Pension 349,898 329,980

Other employee benefits expense 1,622,808 1,383,239

$ 9,307,663 $ 8,655,036

37. DEPRECIATION AND AMORTIZATION


2013 2012

Depreciation $ 435,003 $ 462,524

Amortization 316,052 296,752

$ 751,055 $ 759,276

Depreciation on investment property

(included in other noninterest net revenue) $ 11,822 $ 11,889

38. OTHER OPERATING EXPENSES


2013 2012

Rental $ 1,795,360 $ 1,746,883

Taxation and government fee 892,331 877,144

Professional services 495,534 548,621

Insurance 388,994 369,499

Advertisement 323,459 251,677

Others 1,627,678 1,535,275

$ 5,523,356 $ 5,329,099

- 82 -

39. INCOME TAXES

Since 2003, Fubon Financial Holdings Co., Ltd. has been using the linked-tax system for filing regular

corporate income tax and 10% income tax on undistributed earnings with its eligible subsidiaries, including

the Bank.

a. Income tax recognized in profit or loss

The major components of tax expense were as follows:


2013 2012

Current tax

In respect of the current period $ 2,151,675 $ 1,872,283

In respect of prior periods (983) 138,128

2,150,692 2,010,411

Deferred tax

In respect of the current period (65,307) 56,720

Income tax expense recognized in profit or loss $ 2,085,385 $ 2,067,131

A reconciliation of accounting profit and current income tax expense is as follows:


2013 2012

Income tax expense calculated at statutory rate (17%) $ 2,412,298 $ 2,556,872

Tax-exempt income (803,422) (664,640)

Unqualified items in determining taxable income 368,136 (5,687)

Overseas branches income tax expense 108,099 180,821

Adjustments for prior years‟ tax (983) (2,632)

Others 1,257 2,397

Income tax expense recognized in profit or loss $ 2,085,385 $ 2,067,131

b. Income tax recognized in other comprehensive income


2013 2012

Deferred tax

Recognized in other comprehensive income

Unrealized gains and losses for available-for-sale financial

assets $ 127,379 $ (75,634)

Defined benefit plan actuarial losses 23,098 55,001

$ 150,477 $ (20,633)

- 83 -

c. Current tax assets and liabilities

December 31,

2013

December 31,

2012 January 1, 2012

Current tax assets

Linked-tax receivable $ 385,912 $ 509,226 $ 1,092,483

Prepaid income tax 25,607 23,454 165,690

$ 411,519 $ 532,680 $ 1,258,173

Current tax liabilities

Linked-tax payable $ 1,243,044 $ 1,188,567 $ 730,417

Income tax payable 345,453 320,165 262,819

$ 1,588,497 $ 1,508,732 $ 993,236

d. Deferred tax assets and liabilities

The movements of deferred tax assets and deferred tax liabilities were as follows:

For the year ended December 31, 2013

Opening

Balance

Recognized in

Profit or Loss

Recognized in

Other

Comprehensive

Income

Exchange

Differences Closing Balance

Deferred tax assets

Temporary differences

Employee benefit plans $ 196,213 $ 18,934 $ 23,098 $ - $ 238,245

Overseas branches 98,417 (18,772) (3,350) 2,651 78,946

Impairment loss 18,585 (236) - - 18,349

Unrealized loss on foreign

exchange 22,156 (5,541) - - 16,615

Others 9,917 4,839 3,278 - 18,034

$ 345,288 $ (776) $ 23,026 $ 2,651 $ 370,189

Deferred tax liabilities


Land value increment tax $ 270,467 $ - $ - $ - $ 270,467

Unrealized gain on

derivative financial

instrument 138,758 (70,686) - - 68,072

Intangible assets 55,815 4,603 - - 60,418

Available-for-sale

financial assets 127,451 - (127,451) - -

$ 592,491 $ (66,083) $ (127,451) $ - $ 398,957

- 84 -


Opening

Balance

Recognized in

Profit or Loss

Recognized in

Other

Comprehensive

Income

Exchange

Differences Closing Balance

Deferred tax assets


Employee benefit plans $ 138,352 $ 2,860 $ 55,001 $ - $ 196,213

Overseas branches 146,170 (9,812) (33,796) (4,145) 98,417

Impairment loss 22,080 (3,495) - - 18,585

Unrealized loss on foreign

exchange 14,309 7,847 - - 22,156

Others 14,406 (4,489) - - 9,917

$ 335,317 $ (7,089) $ 21,205 $ (4,145) $ 345,288

Deferred tax liabilities


Land value increment tax $ 270,467 $ - $ - $ - $ 270,467

Unrealized gain on

derivative financial

instrument 108,827 29,931 - - 138,758

Intangible assets 36,115 19,700 - - 55,815

Available-for-sale

financial assets 85,613 - 41,838 - 127,451

$ 501,022 $ 49,631 $ 41,838 $ - $ 592,491

e. The information on the integrated income tax system is as follows:

1) The Bank and its subsidiary do not have unappropriated earnings generated before January 1, 1998.

2) The information on the imputation credits account is as follows:

December 31,

2013

December 31,

2012 January 1, 2012

The Bank $ 88,146 $ 115,970 $ 14,850

Taipei Fubon Bank Life Insurance

Agency Co., Ltd. $ 8,439 $ 9,873 $ 14,539

3) Creditable tax ratio

The Bank‟s estimated creditable tax ratio for distribution of earnings of 2013 was 0.75%, and actual

creditable tax ratio for distribution of earnings of 2012 was 0.93%.

Taipei Fubon Bank Life Insurance Agency Co., Ltd.‟s expected creditable tax ratio for distribution

of earnings of 2013 was 20.48%, and the actual creditable tax ratio for distribution of earnings of

2012 was 20.48%.

Under the Income Tax Law, for distribution of earnings generated after January 1, 1998, the

imputation credits allocated to ROC resident shareholders of the Bank was calculated based on the

creditable ratio as of the date of dividend distribution. The actual imputation credits allocated to

shareholders of the Bank was based on the balance of the Imputation Credit Accounts (ICA) as of

the date of dividend distribution. Therefore, the expected creditable ratio for the 2013 earnings

may differ from the actual creditable ratio to be used in allocating imputation credits to the

shareholders.

- 85 -

According to legal interpretation No. 10204562810 announced by the Taxation Administration of

the Ministry of Finance, when calculating imputation credits in the year of first-time adoption of

IFRSs, the cumulative retained earnings include the net increase or net decrease in retained earnings

arising from first-time adoption of IFRSs. The actual imputation credits allocated to shareholders

of the Bank was limited to the balance of ICA as of the date of dividend distribution.

f. Income tax returns of the TAIPEIBANK Co., Ltd. and the Fubon Bank through 2007 and 2004 had

been assessed by the Taipei National Tax Administrative (TNTA). The Bank disagreed with the tax

authorities‟ assessment of the Bank‟s 2003 to 2007 tax returns with regards to the amortization of

premium on bonds and had applied for a re-examination and an administrative appeal. Income tax

returns of the former Fubon Bills Finance Co., Ltd. through 2006 had been assessed by TNTA. TNTA

decided to give a tax refund at 65% of tax paid on interest income earned by the Bank, and the Bank

accepted this refund of the withholding tax denied.

g. Income tax returns of the Taipei Fubon Bank Life Insurance Agency Co., Ltd. through 2011 had been

assessed by the TNTA.

40. EARNINGS PER SHARE


2013 2012

Basic earnings per share

From continuing operations $ 1.57 $ 1.79

The earnings and weighted average number of ordinary shares outstanding in the computation of earnings

per share from continuing operations were as follows:

Net Profit for the Year


2013 2012

Profit for the year attributable to owner of the Bank $ 12,104,607 $ 12,973,294

Shares


2013 2012

Weighted average number of ordinary shares in computation of basic

earnings per share 7,709,140 7,264,979

The weighted average number of shares outstanding used for earnings per share calculation has been

retroactively adjusted for the issuance of bonus shares. This adjustment caused the basic earnings per

share for the year ended December 31, 2012 to decrease from $2.26 to $1.79.

- 86 -

41. RELATED-PARTY TRANSACTIONS

The Bank and its subsidiary‟s related parties were as follows:

a. Related parties

Related Party Relationship with the Bank and Its Subsidiary

Fubon Financial Holdings Co., Ltd. (FFH) Parent company

Fubon Insurance Co., Ltd. (“Fubon Insurance”) Subsidiary of FFH

Fubon Life Insurance Co., Ltd. (“Fubon Life

Insurance”)

Subsidiary of FFH

Fubon Securities Co., Ltd. (“Fubon Securities”) Subsidiary of FFH

Fubon Bank (Hong Kong) Limited (“Fubon Bank

(Hong Kong)”)

Subsidiary of FFH

Fubon Securities Investment Trust Co., Ltd.

(“Fubon Securities Investment Trust”)

Equity-method investee of FFH‟s subsidiary

Fubon Direct Marketing Consulting Co., Ltd.

(“Fubon Direct Marketing Consulting”)

Subsidiary of FFH

Fubon Insurance Brokers (Philippines) Co., Ltd. Equity-method investee of FFH‟s subsidiary

Fubon Insurance Brokers (Thailand) Co., Ltd. Equity-method investee of FFH‟s subsidiary

Fubon Asset Management Co., Ltd. (“Fubon

Asset Management”)

Subsidiary of FFH

Fubon Financial Holding Venture Co., Ltd. Subsidiary of FFH

Taiwan Sports Lottery Co., Ltd. (“Taiwan Sports

Lottery”)

Subsidiary of FFH

Fubon Insurance (Vietnam) Co., Ltd. Equity-method investee of FFH‟s subsidiary

Fubon Real Estate Management Co., Ltd. Equity-method investee of the Bank

Taipei City Government (TCG) and its

departments

Major stockholder of parent company

Chung Hsing Land Development Co., Ltd.

(CHLDC)

Major stockholder of parent company

Ming Tong Co., Ltd. Major stockholder of parent company

Tao Yin Co., Ltd. Major stockholder of parent company

Fu Sheng Travel Service Co., Ltd. Related party in substance

Fubon Securities (BVI) Co., Ltd. Equity-method investee of FFH‟s subsidiary

Fubon Securities USA, Inc. Related party in substance until third quarter, 2013

Fubon Futures Co., Ltd. Equity-method investee of FFH‟s subsidiary

Fubon Securities Investment Consulting Co., Ltd.

(“Fubon Investment”)

Equity-method investee of FFH‟s subsidiary

Fu-Sheng Properties Insurance Agent Co., Ltd. Equity-method investee of FFH‟s subsidiary

Fu-Sheng Life Assurance Agent Co., Ltd. Equity-method investee of FFH‟s subsidiary

Fuly Properties Insurance Agent Co., Ltd. Related party in substance

Fuly Life Assurance Agent Co., Ltd. Related party in substance

Fubon Properties Insurance Equity-method investee of FFH‟s subsidiary

Fubon Life Insurance (Vietnam) Equity-method investee of FFH‟s subsidiary

Asian Crown International Co., Ltd. Related party in substance

Fortune Kingdom Corporation Related party in substance

Hong Kong Fubon Multimedia Technology Co.,

Ltd.

Related party in substance

Taipei Fubon Commercial Bank Charity

Foundation


Fubon Securities Investment‟s affiliate funds Related party in substance

Taiwan Mobile Co., Ltd. (“Taiwan Mobile”) Related party in substance

(Continued)

- 87 -


EasyCard Co., Ltd. Related party in substance

Taiwan Fixed Network Co., Ltd. Related party in substance

Fubon Art Foundation Related party in substance

Fubon Charity Foundation Related party in substance

Fubon Culture and Education Foundation Related party in substance

Fubon Building Management Maintain Co., Ltd.

(“Fubon Building Management”)


Fubon Land Development Co., Ltd. (“Fubon Land

Development”)


Taiwan High Speed Rail Corporation Related party in substance

Taiwan Customer Service Technology Co., Ltd. Related party in substance

Win TV Broadcasting Co., Ltd. Related party in substance

Taiwan Stock Exchange Corporation Related party in substance

Straits Exchange Foundation (SEF) Related party in substance

Fubon Construction Co., Ltd. Related party in substance

Fubon Real Estate Co., Ltd. Related party in substance

Taiwan Digital Communication Co., Ltd. Related party in substance

Sinostar Investment Consulting Co., Ltd. Related party in substance

Kuo Chi Investment Co., Ltd. Related party in substance

Wealth Media Technology Co., Ltd. Related party in substance

Youth Development Foundation Related party in substance

China University of Technology Related party in substance

World Vision Taiwan Related party in substance

The Chinese Commercial & Industrial

Coordination Society

Related party in substance until second quarter,

2013

Taiwan Residential Earthquake Insurance Fund Related party in substance

Taiwan Futures Exchange Corporation Related party in substance

Taiwan Mobile Foundation Related party in substance

Tai-Shin Investment Co., Ltd. Related party in substance

Taiwan Integrated Shareholder Service Company Related party in substance

Tai Shin Communication Co., Ltd. Related party in substance

Safety and Health Technology Center Related party in substance

Chien Kuo Construction Co., Ltd. Related party in substance

Century Development Corporation Related party in substance

Motor Vehicle Accident Compensation Fund Related party in substance until third quarter, 2013

Vision Venture Capital Corporation Related party in substance

TFN Media Co., Ltd. Related party in substance

Taiwan Depository & Clearing Corporation Related party in substance

Hong Fu Investment Related party in substance

DaFu Media Corporation Related party in substance

Taiwan Mobile Basketball & Entertainment Related party in substance

PTI Technology Inc. Related party in substance

Kbro Co., Ltd. Related party in substance

Mangrove Cable TV Inc. Related party in substance until second quarter,

2013

Taiwan Cogeneration Corporation Related party in substance

Fubon Multimedia Technology Co., Ltd. Related party in substance

Silicon Power & Communication Inc. Related party in substance

Easy Card Investment holding Corporation Related party in substance

Han Cheng Financial Management Co., Ltd. Related party in substance

Mercuries Data Systems Ltd. Related party in substance

Key Ware Electronics Co., Ltd. Related party in substance

(Continued)

- 88 -


Motomax Electric Co., Ltd. Related party in substance

Broadcasting Corporation of China Related party in substance

FB Top Select Absolute Return Income Fund Related party in substance

FB Top Select China Columbus Fund Related party in substance

FB Top Select Series SPC Related party in substance

Dayu Optoelectronics Co., Ltd. Related party in substance

Taiwan Corporate Governance Association Related party in substance

General Chamber of Commerce of the Republic of

China


The Non-life Insurance Association of the

Republic of China


Chung-Hua Institution for Economic Research Related party in substance

Taiwan Fixed Newly Created Investment Co., Ltd. Related party in substance

Taiwan Units Networked Investment Co., Ltd. Related party in substance

Taiwan Financial Assets Service Co., Ltd. Related party in substance

Nice Co., Ltd. Related party in substance

Good TV Broadcasting Corp., Ltd. Related party in substance

Foundation Taipei Jianguo High School Alumni

Association Cultural and Educational

Foundation


Taiwan After-Care Association Related party in substance

Commerce Development Research Institute Related party in substance

Foundation following Yun Insurance Cultural and

Educational Foundation


Bo Yu Investment Consultants Limited Related party in substance

Love to Speak Co., Ltd. Related party in substance

Cheng Xin Technology Development Corporation,

Ltd.


Fubon Gehna (Beijing) Enterprise, Ltd. Related party in substance until third quarter, 2013

The Hsinchu Private Foundation Jianhui Social

Cultural Foundation


Warwick Century Venture Capital Shares, Ltd. Related party in substance

Dengfeng Venture Capital Co., Ltd. Related party in substance

Jung Shing Policy Foundation Related party in substance

The Sound of Music the Broadcasting Foundation Related party in substance

Da Ka Co., Ltd. Related party in substance

Sheng Ting Co., Ltd. Related party in substance

Sheng Hau Co., Ltd. Related party in substance

Taiwan advanced materials Co., Ltd. Related party in substance

Tai Tung communication Co., Ltd. Related party in substance

China Evangelical Seminary Related party in substance

Fubon Taiwan Phoenix Fund LDC Related party in substance

University of Southern California Related party in substance

Chi Duen Consultant Co., Ltd. Related party in substance

Han You Management Consultant Co., Ltd. Related party in substance

Cheng Da Financial Management Consultant Co.,

Ltd.


Yung Jia Financial Management Consultant Co.,

Ltd.


Taiwan Sotheby‟s International Realty Related party in substance

Phycos International Co., Ltd. Related party in substance

(Continued)

http://www.google.com.tw/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=22&ved=0CDoQFjABOBQ&url=http%3A%2F%2Fwww.securities.com%2FPublic%2Fcompany-profile%2FTW%2F%25E9%259B%25B7%25E9%25A3%258E_%252332929%253B_%252320221%253B_%252326377%253B_%252338480%253B_%252320844%253B_%252321496%253B__Motomax_Electric_Co_Ltd__zh_1711166.html&ei=jtBqT7ydKLGJmQXA9bGQBg&usg=AFQjCNGwII2y3AeYstuLbyIyyKVOkKPnSw&sig2=AG3mmnWQheaXr-s-kDzqqA

- 89 -


Asia Real Estate Management Co., Ltd. Related party in substance

Xiamen Bank Co., Ltd. Related party in substance

Founder Fubon Fund Related party in substance

Fubon Shing Ji Investment Co., Ltd. Related party in substance

Krob Entertainment Co., Ltd. Related party in substance

NTU Law Foundation Related party in substance

Taiwan Academy of Banking and Finance Related party in substance

Taiwan Art & Business Interdisplinary Foundation Related party in substance

Taiwan Telecommunication Industry

Development Association


Asia Business Council Related party in substance

Environmental Quality Protection Foundation Related party in substance

Casetek Holdings Limited Related party in substance

Financial Engineering Association of Taiwan Related party in substance

GreTai Securities Market Related party in substance

Fuji Investment Co., Ltd. Related party in substance

Pingnan Cable TV Co., Ltd. Related party in substance

Giant Cable TV Co., Ltd. Related party in substance

Formosa Cancer Foundation Related party in substance

One Production Film Co. Related party in substance

Allied Industrial Corp. Ltd. Related party in substance

Ruji Investment Co., Ltd. Related party in substance

Founder Fubon Venture Co., Ltd. Related party in substance

Stemcyte Taiwan Co., Ltd. Related party in substance

Lidium Venture Management Co., Ltd. Related party in substance

Hualu Venture Management Co., Ltd. Related party in substance

Stem Cytle Inc. Related party in substance

Zuan Shi Investment Corp., Ltd. Related party in substance

Standard Chartered PLC Related party in substance

Syneu Rx Biotechnology and Medicine Co., Ltd. Related party in substance

Taiwan Mobile Digitimes Services Co., Ltd Related party in substance

The Bankers Association of Taipei Related party in substance

The Bankers Association of The Republic of

China


Police of The Republic of China Related party in substance

Gabriel Broadcasting Foundation Related party in substance

Taiwan Biotechnology and Medicine

Development Foundation


Tang Quan Biotechnology and Medicine Co., Ltd. Related party in substance

Taipei Foundation of Universal Design Education Related party in substance

Taoyuan Metro Corporation Related party in substance

Jiao Da Culture Foundation Related party in substance

Citibank Taiwan Related party in substance until fourth quarter,

2012

Eutech Microelectronics Inc. Related party in substance

Cross-strait Entrepreneur Purple Mountain

Summit


Chinese Taipei Football Association, ROC Related party in substance

Taipei Municipal Chien Kuo High School Alumni

Association


(Continued)

- 90 -


FocalTech Systems Co., Ltd. Related party in substance

Taiwan Securities Association Related party in substance

China Research and Development Association for

Financial Service


Taiwan Venture Capital Association Related party in substance

Taiwan Private Equity Association Related party in substance

Taipei New Horizon Related party in substance

Dao Ji Co., Ltd. Related party in substance

Dao Ji Investment Co., Ltd. Related party in substance

Taishin Financial Holding Co,. Ltd. Related party in substance

Hau Ming Co., Ltd. Related party in substance

Hau Wei Co., Ltd. Related party in substance

Hong Kong Fubon Multimedia Technology Co.,

Ltd.


Taipei new horizon Related party in substance

China World Vision Related party in substance

Sheng Yen Education Foundation Related party in substance

Taiwan Insurance Association Related party in substance

Academy of Promoting Economic Legislation Related party in substance

Social Enterprise Foundation Related party in substance

First Sino Bank Related party in substance

Taishin International Bank Co., Ltd. Related party in substance

Others Directors, supervisors, managers and their relatives

within the second degree of consanguinity

(Concluded)

b. Significant transactions with related parties are summarized as follows:


Ending Balance

Highest

Balance for the

Period

% of the

Account

Balance

Allowance for

Credit Loss Rate (%) Interest Income

Allowance for

Credit Loss

1) Loans $ 49,471,182 $ 79,363,022 4.49 $ 43,182 0-19.98 $ 844,962 $ 28,169


Number of Accounts or

Name of Related Highest Ending Type of

Is the

Transaction

at Arm’s

Length

Commercial

Category Party Balance Balance Normal Overdue Collaterals Term

Consumer loans

for employees

62 $ 23,380 $ 22,807 v $ - Unsecured Yes

Housing mortgage

loans

342 2,660,667 2,604,295 v - Properties Yes

Others Department of Urban

Development, TCG

1,400,790 1,199,429 v - Public treasury

guarantees

Yes

TCG 13,564,823 7,951,330 v - Public treasury

guarantees

Yes

Department of Rapid

Transit Systems, TCG


guarantees

Yes

Taipei Municipal

Secured Swan Loans

Service

4,355 3,321 v - Public treasury

guarantees

Yes

Fubon Land

Development

1,690,000 1,690,000 v - Land and

buildings, stock

Yes

Department of Finance,

TCG

7,500,000 7,500,000 v - Unsecured Yes

Taipei New Horizon 32,500 - v Unsecured Yes

$ 79,363,022 $ 49,471,182

- 91 -


Ending Balance

Highest

Balance for the

Period

% of the

Account

Balance

Allowance for

Credit Loss Rate (%) Interest Income

Allowance for

Credit Loss

Loans $ 45,950,642 $ 72,711,322 4.48 $ 15,013 0-19.98 $ 798,422 $ 3,470


Number of Accounts or

Name of Related Highest Ending Type of

Is the

Transaction

at Arm’s

Length

Commercial

Category Party Balance Balance Normal Overdue Collaterals Term

Consumer loans

for employees

75 $ 24,321 $ 23,787 v $ - Unsecured Yes

Housing mortgage

loans

342 2,538,516 2,481,784 v - Land and

buildings

Yes

Others Department of Urban

Development, TCG


guarantees

Yes

TCG 20,164,823 13,564,823 v - Public treasury

guarantees

Yes

Department of Rapid

Transit Systems, TCG


guarantees

Yes

Taipei Municipal

Secured Swan Loans

Service

6,161 4,355 v - Public treasury

guarantees

Yes

Fubon Land

Development

490,000 490,000 v - Land and

buildings

Yes

Hanns Touch Solution,

Inc.

861,606

-

v - Unsecured Yes

$ 72,711,322 $ 45,950,642


2013 2012

% of

the Interest

% of

the Interest

Ending Account Rate Income Ending Account Rate Income

Balance Balance (%) (Expense) Balance Balance (%) (Expense)

2) Deposits $ 85,498,800 6.32 0-6.395 $ (481,319 ) $ 79,404,045 6.36 0-6.395 $ (630,455 )

3) Due from other banks - call

loans $ - - - $ - $ - - 1.3 $ 71

4) Due to other banks - call

loans $ - - - $ (4 ) $ - - 0.22.2.00 $ (20 )

5) Due from other banks -

deposits $ 1,993,295 3.11 4.9 $ 22,168 $ 54,769 2.79 - $ -

6) Guarantees $ 1,198 - 0.85-1 $ 35 $ 1,165 - 1 $ 66


Related Party

Highest

Balance in

Current Period

Ending

Balance

Reserve for

Losses on

Guarantees

(Note) Rates Type of Collaterals

TCG $ 1,205 $ 1,198 $ - 1% Public treasury

guarantees

Taipei New Horizon $ 32,500 $ - $ - 0.85% Unsecured


Related Party

Highest

Balance in

Current Period

Ending

Balance

Reserve for

Losses on

Guarantees

(Note) Rates Type of Collaterals

TCG $ 1,165 $ 1,165 $ - 1% Public treasury guarantees

TFN Media Co., Ltd. $ 9,000 $ - $ - 1% Certificate of deposits

Note: The reserve for losses on guarantees was a collective provision for the Bank‟s entire credits.

- 92 -

7) Securities


Related Parties Type 2013 2012

Fubon Securities Bonds purchased $ - $ 149,856

Fubon Life Insurance Bonds purchased 7,381,012 5,375,251

Bonds sold 3,165,481 4,108,654

Fubon Insurance Bonds purchased - 305,194

Fu-Sheng Properties Insurance Agent Bonds sold - 2,044

Fu-Sheng Life Assurance Agent Bonds sold - 3,066

Citibank Taiwan Bonds sold - 1,103,268

Hantai Life Insurance Bonds purchased - 708,270

Related Parties Type December 31,

2013

December 31,

2012

January 1,

2012

Taiwan High Speed Rail Corporation Bonds sold under agreements to repurchase

$ - $ - $ 391,000

Fubon Life Insurance Bonds sold under agreements to

repurchase

- - 1,450,000

Taiwan Fixed Network Bonds sold under agreements to

repurchase

- 339,156 407,459

Fuji Investment Co., Ltd. Bonds sold under agreements to repurchase

81,000 22,506 -

Taiwan Sports Lottery Bonds sold under agreements to

repurchase

- 22,000 -

Ruji Investment Co., Ltd. Bonds sold under agreements to

repurchase

- 26,098 -

Directors, supervisors, managers and their relatives within the second degree of

consanguinity

Bonds sold under agreements to repurchase

1,179,606 596,814 1,256,902

8) Mutual fund and stock transactions


Fund

Units (In

Thousands) Amount

Units (In

Thousands) Amount Units (In

Thousands) Amount

Fubon No. 1 REIT 57,680 $ 963,256 57,680 $ 1,013,438 57,680 $ 804,059 Fubon No. 2 REIT 1,848 24,209 1,008 13,648 - -

Fubon Fund - - 34,943 265,567 35,266 238,046

9) Derivative financial instruments


Contract

(Notional) Gains (Losses) Balance Sheet

Related Party Derivative Instrument Contract Period Amount on Valuation Account Balance

Fubon Bank (Hong Kong) Interest rate swap

contract

2010.11.26-2020.03.19 $ 1,692,209 $ (107,134 ) Revaluation of held-for-

trading financial assets

$ 182,491

Fubon Life Insurance Interest rate swap

contract

2007.09.27-2018.06.24 2,750,000 152,706 Revaluation of held-for-

trading financial

liabilities

(610,816 )

Department of Cultural Affairs,

TCG

Forward contracts 2010.02.03-2014.03.03 24,132 (3,881 ) Revaluation of held-for-


1,381

Fubon Securities Investment Trust Currency swap contracts 2013.12.05-2014.02.24 1,361,970 13,438 Revaluation of held-for-


14,192


Contract



Fubon Bank (Hong Kong) Interest rate swap

contract

2010.11.26-2020.03.19 $ 1,646,173 $ 22,386 Revaluation of

held-for-trading financial

assets

$ 289,625

Fubon Securities Interest rate swap

contract

2008.03.26-2013.03.28 300,000 (20,063 ) Revaluation of


assets

1,180

Fubon Securities Interest rate swap

contract

2008.01.23-2013.06.10 1,500,000 40,166 Revaluation of


liabilities

(12,243 )

(Continued)

- 93 -


Contract



Fubon Life Insurance Interest rate swap

contract

2007.09.27-2018.06.24 $ 2,750,000 $ 46,065 Revaluation of


liabilities

$ (763,522 )

Department of Cultural Affairs,

TCG

Forward contracts 2010.02.03-2014.03.03 41,948 (2,045 ) Revaluation of held-for-


5,262

Fubon Securities Investment Trust Currency swap contracts 2012.11.16-2013.03.11 785,850 754 Revaluation of held-for-


754

Fubon Securities Investment Trust Currency swap contracts 2012.10.03-2013.01.22 195,970 (1,158 ) Revaluation of held-for-

trading financial

liabilities

(1,158 )

(Concluded)

10) Lease

Rental Revenue (Expense) for

the Year Ended December 31

Name Bank’s Role Payment Frequency Deposits Lease Term 2013 2012

TCG Lessee Rentals payable monthly $ 2,378 December 2015 $ (25,769 ) $ (23,800 )

Fubon Securities Lessee Rentals payable monthly 1,549 July 2015 (8,923 ) (8,179 )

Lessor Rentals received monthly 6,379 March 2018 39,998 41,673

Fubon Insurance Lessee Rentals payable monthly 21,770 September 2016 (129,015 ) (131,333 )

Fubon Life Insurance Lessee Rentals payable monthly 1,051 September 2016 (6,332 ) (6,332 )

CHLDC Lessee Rentals payable monthly 28,278 December 2014 (177,573 ) (176,827 )

Ming Tong Co., Ltd. Lessee Rentals payable monthly 3,370 April 2016 (20,220 ) (20,220 )

Taiwan Mobile Lessee Rentals payable monthly 2,282 March 2017 (7,784 ) (7,784 )

Lessor Rentals received monthly 444 October 2018 7,399 7,330

Fubon Asset Management Lessor Rentals received monthly 1,139 November 2014 7,175 7,014

Taiwan Sports Lottery Lessor Rentals received monthly 1,907 January 2014 11,442 11,442

Fubon Charity Foundation Lessee Rentals payable monthly 509 November 2015 (6,281 ) (3,204 )

Taiwan Fixed Network Lessor Rentals received annually 20 June 2016 126 126

Others Lessee Rentals payable monthly 70 March 2014 (420 ) (420 )

11) Insurance

The Bank entered into several insurance contracts with Fubon Insurance, as follows:

Insurance Insurance

Insured Item/Insurance Type Insurance Period Amount Premium


Cash on hand 2013.04.20-2014.04.20 $ 200,000 $ 390

Safe burglary insurance 2013.04.20-2014.04.20 150,600 1,398

Computer equipment 2013.11.01-2014.11.01 2,455,063 4,910

Commercial fire insurance 2013.03.01-2014.03.01 5,792,552 9,926

Public accident 2013.04.20-2014.04.20 468,000 645

Car insurance 2012.12.31-2013.12.31 - 45

Combined insurance for the Bank 2013.04.20-2014.04.20 122,500 8,850

Motorcycle insurance 2013.06.04-2014.06.04 - 165

Fidelity insurance 2013.01.01-2014.01.01 Note 5,901


Cash on hand 2012.04.20-2013.04.20 200,000 409

Safe burglary insurance 2012.04.20-2013.04.20 150,000 671

Computer equipment 2012.11.01-2013.11.01 2,302,230 4,720

Commercial fire insurance 2012.03.01-2013.03.01 6,284,377 10,879

Public accident 2012.04.20-2013.04.20 468,000 672

Car insurance 2011.12.31-2012.12.31 - 45

Combined insurance for the Bank 2012.04.20-2013.04.20 122,500 8,980

Motorcycle insurance 2012.06.04-2013.06.04 - 207

Fidelity insurance 2012.01.01-2013.01.01 Note 6,642

Note: The insurance coverage for each employee was $1,000 thousand, $3,000 thousand or

$5,000 thousand, depending on the nature of his/her job function.

- 94 -

12) Marketing collaboration

The Bank entered into a collaboration arrangement with Fubon Securities for deal settlement of

securities, cost sharing, and cross-selling. Under this contract, the expense allocation was based

on the average balance that the customers of Fubon Securities deposited in the Bank. The

allocation costs for office space that the Bank paid to Fubon Securities were $261,447 thousand and

$293,918 thousand for the years ended December 31, 2013 and 2012, respectively.

13) Donation

For public welfare lottery‟s purpose of social welfare, 30% of the Lottery department‟s net income

was contributed to a public welfare foundation in prior years when the public welfare lotteries were

issued. For the years ended December 31, 2013 and 2012, the Bank donated $18,700 thousand

and $16,500 thousand, to Taipei Fubon Bank Charity Foundation, the Bank also contributed

$15,000 thousand for the year ended December 31, 2012, to Taipei Fubon Culture and Education

Foundation.

14) Compensation of key management personnel


2013 2012

Short-term employee benefits $ 313,192 $ 252,835

Post-employment benefits 8,793 2,889

Others 834 969

$ 322,819 $ 256,693

15) Linked-tax system

The Bank‟s parent company, FFH, uses the linked-tax system for filing income tax returns of FFH

and eligible subsidiaries, which include the Bank.

December 31,

2013

December 31,

2012 January 1, 2012

Linked-tax receivable (included in current

tax assets) $ 385,912 $ 509,226 $ 1,092,483

Linked-tax payable (included in current

tax liabilities) 1,243,044 1,188,567 730,417

16) Others

December 31,

2013

December 31,

2012 January 1, 2012

Receivables - Taiwan Sports Lottery $ 2,570,942 $ 2,429,382 $ 2,146,814

Receivables - Fubon Life Insurance 465,095 501,738 563,810

Receivables - others 57,679 64,069 42,290

Payables - Taiwan Sports Lottery 85,985 88,065 75,509

Payables - others 103,654 52,101 31,583

Refundable deposits - others 161,553 172,374 53,924

Guarantee deposits received - others 9,097 9,978 8,866

Principals of structured products - Fubon

Life Insurance 2,750,000 2,750,000 2,750,000

- 95 -


2013 2012

Commission and fee revenue - Fubon Life Insurance $ 3,490,853 $ 4,133,084

Commission and fee revenue - others 455,595 354,069

Other revenue - Taiwan Sports Lottery 2,605,273 2,366,616

Other revenue - Fubon Asset Management 42,120 48,290

Other revenue - others 1,316 1,200

Commission and fee expense - Taiwan Sports Lottery 415,296 421,217

Commission and fee expense - others 142,283 118,919

Donation - others 56,920 32,471

Insurance expense - others 129,031 139,136

Other operating expense - others 144,560 220,098

Transactions between the Bank and related parties were at arm‟s length commercial terms, except

for the preferential interest rates offered to employees for their savings and loans of up to certain

amounts.

Under the Banking Act, 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.

42. PLEDGED ASSETS

The following assets had been provided as refundable deposits:

December 31,

2013

December 31,

2012 January 1, 2012

Government bonds (included in financial assets at

fair value through profit or loss) $ 323,450 $ 322,467 $ -

Government bonds (included in available-for-sale

financial assets) 372,540 413,231 773,503

Negotiable certificates of deposit of the Central

Bank (included in held-to-maturity financial

assets) 20,000,000 20,000,000 20,000,000

Negotiable certificates of deposit (included in

held-to-maturity financial assets) 65,891 64,099 66,637

Government bonds (included in held-to-maturity

financial assets) 1,261,342 1,357,865 1,420,659

Pledged time deposits (included in other financial

assets) 692,090 - -

$ 22,715,313 $ 22,157,662 $ 22,260,799

The above negotiable certificates of deposit of the Central Bank amounted to $10,000,000 thousand on

December 31, 2013, December 31, 2012 and January 1, 2012 had been provided as collaterals for day-term

overdraft to comply with the Central Bank‟s clearing system requirement for real-time gross settlement

(RTGS). The unused overdraft amount at the end of the day may also be treated as liquidity reserve.

In addition, negotiable certificates of deposit of the Central Bank amounted to $10,000,000 thousand on

December 31, 2013, December 31, 2012 and January 1, 2012 were provided for the Central Bank as

collaterals for the Bank‟s foreign currency call loans.

- 96 -

Other pledged assets had been placed with (a) courts for meeting requirements for judiciary provisional

seizure of debtors‟ property, (b) the National Credit Card Center for the Bank‟s potential obligations on

credit card activities, (c) the Central Bank for the Bank‟s potential obligations on its trust activities, and (d)

foreign governments for the Bank‟s potential obligations on its overseas operations.

43. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

a. Except for disclosed in other notes of consolidated financial statements, as of December 31, 2013,

December 31, 2012 and January 1, 2012, the Bank and its subsidiary had commitments as follows:

December 31,

2013

December 31,

2012 January 1, 2012

Collections for customers $ 62,330,124 $ 48,702,671 $ 52,903,597

Agency loans payable 33,116,682 36,742,068 40,192,791

Travelers‟ checks consigned-in 813,173 833,655 708,518

Marketable securities under custody 213,536,978 243,618,331 247,591,096

Trust assets 294,693,857 308,911,492 307,218,177

Management for book-entry government

bonds 308,825,400 357,025,500 370,799,700

b. Operating lease commitment is the future minimum payment under non-cancellable operating lease

where the Bank and its subsidiary are the lessees. The capital commitments of the Bank and its

subsidiary were the amount of contractual commitment for acquisition of buildings and equipment.

The analysis of maturity for operating lease commitments and capital outflow commitments were as

follows:

December 31, 2013 Less than 1 Year 1-5 Years Over 5 Years Total

Operating lease commitments Operating lease expense (lessee) $ 226,634 $ 189,567 $ 19,267 $ 435,468

Capital commitments 74,711 285,076 - 359,787

Total 301,345 474,643 19,267 795,255

December 31, 2012 Less than 1 Year 1-5 Years Over 5 Years Total

Operating lease commitments

Operating lease expense (lessee) $ 188,908 $ 323,356 $ 75,576 $ 587,840


Total 265,226 357,899 75,576 698,701

January 1, 2012 Less than 1 Year 1-5 Years Over 5 Years Total

Operating lease commitments

Operating lease expense (lessee) $ 194,450 $ 329,824 $ 85,994 $ 610,268


Total 269,476 366,855 85,994 722,325

As of December 31, 2013, December 31, 2012 and January 1, 2012, the refundable deposits paid under

operating lease amounted to $179,686 thousand, $173,790 thousand and $166,958 thousand,

respectively.

c. The Bank sold its Fubon Nei-hu building to Taiwan Land Bank Co., Ltd., the trust company of Fubon

No. 2 REITs, and then leased back the building. The disposal gain of $295,819 thousand was

recognized over the three-year lease term.

However, at the end of the lease term in April 2009, the Bank renewed the lease, thereby extending the

lease term to another 10 years. Consequently, the unrealized profit on the sale and leaseback

transaction was recognized over 124 months commencing from January 1, 2009.

- 97 -

d. For the period from May 2, 2008 to December 31, 2013, the Bank was designated as the institution to

run the sports lottery program and was required to cover any shortfall of the guaranteed 80% of

earnings to be turned over to the Sports Administration. However, as a result of some unexpected

factors such as the delay in setting up the operating channels, the shortfall amounts calculated by the

Bank were lower than those calculated by the Sports Administration. Although the Bank disagreed

with the higher calculations by the authorities, the Bank paid these amounts within the deadline.

Nevertheless, to protect its interest, the Bank had filed administrative appeals; related information is

shown below.

Year

Amount

Remitted on

the Basis of

Actual

Revenue

Additional

Amount

Requested by

the Authorities

Amount Paid

by the Bank

Additional

Amount the

Bank Need

Pay

Notes

2008 $ 6.80 $ 3.90 $ 3.90 $ - The retrial was still in

proceedings under Taipei

High Administrative Court

(THAC) as of December 31,

2013.

2009 18.48 3.98 3.98 - The retrial was still in

proceedings under Taipei

High Administrative Court

(THAC) as of December 31,

2013.

2010 19.75 15.87 15.87 - The Supreme Administrative

Court ruled that the

supplementary payments

need not be adjusted.

2011 16.60 23.53 23.53 - The Bank filed for

administrative appeal and

THAC adjudicated the case

in favor of the Bank. The

Sports Administration

appealed against the

decision. The Sports

Administration appealed

THAC‟ s decision. This

case was still pending.

2012 19.65 26.85 26.85 - The decision on the appeal

was still pending as of

December 31, 2013.

2013 27.75 - - - As of December 31, 2013, the

authorities had not yet

determined if they agreed

with the amount remitted by

the Bank.

As of December 31, 2013, the Bank had remitted more than NT$10 billion in guaranteed earnings.

The remitted amounts are used to promote sports events and subsidize the national pension plan and the

national health insurance program, as well as social welfare activities. Those contributions also form

part of national finance revenue as well as show the Bank‟s carrying out its corporate social

responsibility.

e. Acting as an agent, the Bank had sold to customers financial products linked to securities issued by

Lehman Brothers Company (LEH) and other companies. However, LEH filed for bankruptcy in

September 2008. The customers then filed a claim against the Bank. The Bank had estimated a

settlement loss of $420,000 thousand and accrued it accordingly in 2009 and 2008. As of December

31, 2013, the Bank had paid compensation of $330,928 thousand.

- 98 -

44. TRUST BUSINESS UNDER THE TRUST LAW

The trust-related items shown below were managed by the Bank‟s Trust Department. However, these

items were not included in the Bank and its subsidiary‟s consolidated financial statements.

Balance Sheets of Trust Accounts

December 31, 2013 and 2012

December 31,

2013

December 31,

2012

December 31,

2013

December 31,

2012

Bank deposits $ 2,699,995 $ 2,063,968 Payables $ 1,639 $ 263

Short-term investment Capital

Mutual funds 175,397,506 186,779,423 Money 190,220,217 202,237,563

Bonds 6,504,463 6,965,851 Marketable securities 4,394,140 9,815,415

Stocks 14,876,276 23,031,615 Real estate 28,632,685 18,371,386

Borrowed stock - common stock 747,463 805,517 Public welfare 238,088 58,328

197,525,708 217,582,406 Employee benefits 4,831,480 9,712,390

228,316,610 240,195,082

Securities investment trust fund under

custody 68,760,821 72,627,187 Securities investment trust fund under

custody 68,760,821 72,627,187

Real estate

Land 19,824,401 12,510,623 Reserves and cumulative earnings

Buildings 100,081 158,857 Cumulative earnings (4,090,476 ) (5,301,228 )

Construction in progress 5,782,851 3,968,451 Net income 1,705,263 1,390,188

25,707,333 16,637,931 (2,385,213 ) (3,911,040 )

Total trust assets $ 294,693,857 $ 308,911,492 Total trust liabilities $ 294,693,857 $ 308,911,492

Trust Income Statement



2013 2012

Trust income

Interest income $ 4,696 $ 2,412

Borrowed stock income 18,128 56,828

Others 8,335 5,626

Cash dividends 4,965,096 4,504,194

Realized capital income - common stock 106,234 17,271

Realized capital income - mutual funds 231,578 280,515

Gains from assets trading 4,225,111 1,996,082

Distribution of beneficiary certificates 32,167 12,560

Total trust income 9,591,345 6,875,488

Trust expense

Trust administrative expense 346,224 321,141

Supervision fee 539 600

Commission and fees 727 1,771

Income tax expense 462 276

Others 1,163 976

Service fees on loans 304 955

Realized capital loss - common stock 666,070 246,123

Realized capital loss - mutual funds 55,261 5,992

Losses from assets trading 6,815,332 4,907,466

Total trust expense 7,886,082 5,485,300

Net income $ 1,705,263 $ 1,390,188

- 99 -

Trust Property of Trust Accounts



Investment Portfolio 2013 2012

Bank deposits $ 2,699,995 $ 2,063,968

Short-term investments

Mutual funds 175,397,506 186,779,423

Bonds 6,504,463 6,965,851

Stocks 14,876,276 23,031,615

Borrowed stock - common stock 747,463 805,517

197,525,708 217,582,406

Securities investment trust fund under custody 68,760,821 72,627,187

Real estate

Land 19,824,401 12,510,623

Buildings 100,081 158,857

Construction in progress 5,782,851 3,968,451

25,707,333 16,637,931

$ 294,693,857 $ 308,911,492

45. ALLOCATION OF REVENUE, COST AND EXPENSE RESULTING FROM INTERCOMPANY

SHARING OF RESOURCES

The Bank entered a marketing collaboration agreement with Fubon Financial Holdings Company (FFH)

and its subsidiaries for cross-selling business. The collaboration arrangements include sharing of office

spaces, manpower, and business support. Cost allocation and payments are made according to the related

rules concerning cross-selling and the contractual agreements with FFH and its subsidiary.

Please refer to Note 41 for revenues and expenses related to cross-selling for years ended December 31,

2013 and 2012.

46. FINANCIAL INSTRUMENTS

a. Fair value information

1) Fair value of financial instruments


Carrying

Amount Fair Value

Carrying

Amount Fair Value

Carrying

Amount Fair Value

Financial assets

Loans and receivables

Cash and cash equivalents $ 74,257,224 $ 74,257,224 $ 31,820,002 $ 31,820,002 $ 27,224,781 $ 27,224,781

Due from the Central Bank of China and other

banks 91,888,019 91,888,019 70,851,850 70,851,850 73,099,143 73,099,143

Securities purchased under agreements to

resell 20,179,897 20,179,897 16,343,491 16,343,491 200,000 200,000

Receivables 88,146,920 88,634,659 59,647,287 59,694,209 66,137,039 66,248,451

Discounts and loans 1,102,747,108 1,109,101,844 1,026,535,634 1,029,813,440 952,718,962 955,529,617

Other financial assets (except for financial

assets carried at cost) 12,329,035 12,342,646 1,557,307 1,604,302 2,133,420 2,207,829

Financial assets carried at fair value

Financial assets at fair value through profit and

loss 73,231,661 73,231,661 84,693,492 84,693,492 59,641,819 59,641,819

Hedging derivative financial assets 285,784 285,784 478,744 478,744 693,488 693,488

Available-for-sale financial assets

Available-for-sale financial assets 69,228,489 69,228,489 67,271,936 67,271,936 50,346,936 50,346,936

Other financial assets - financial assets carried

at cost 4,010,787 4,010,787 647,541 647,541 653,604 653,604

Held-to-maturity financial assets 209,762,227 210,192,483 227,013,136 227,758,569 256,826,642 256,761,765

(Continued)

- 100 -


Carrying

Amount Fair Value

Carrying

Amount Fair Value Carrying

Amount Fair Value

Financial liabilities

Financial liabilities carried at amortized cost

Due to the Central Bank of China and other

banks $ 83,355,116 $ 83,355,116 $ 69,753,342 $ 69,753,342 $ 56,759,776 $ 56,759,776

Securities sold under agreements to repurchase 27,945,876 27,945,876 26,360,932 26,360,932 28,503,088 28,503,088

Payables 28,795,930 28,795,930 33,007,120 33,007,120 28,503,723 28,503,723

Deposit and remittance 1,351,974,078 1,351,974,078 1,247,741,397 1,247,741,397 1,183,392,509 1,183,392,509

Bank debentures 65,271,143 65,979,493 66,929,382 67,381,007 62,143,488 62,480,622

Other financial liabilities 37,850,450 37,850,450 27,644,584 27,644,584 25,502,063 25,502,063

Financial liabilities carried at fair value

Financial liabilities at fair value through profit

and loss 28,000,514 28,000,514 19,612,456 19,612,456 22,747,531 22,747,531

Hedging derivative financial liabilities 852,396 852,396 352,920 352,920 428,152 428,152

(Concluded)

b. Fair value of financial instruments not carried at fair value

Methods and assumptions applied in estimating the fair values of financial instruments not carried at

fair value are as follows:

1) The carrying amounts of financial instruments such as cash and cash equivalents, due from the

Central Bank of China and other banks, securities purchased under agreements to resell, due to the

Central Bank of China and other banks, securities sold under agreements to repurchase, payables,

and funds obtained from the government - intended for specific types of loans, approximate to their

fair values because of the short maturities of these instruments.

2) The fair values of discounts and loans, account receivable, bills purchased and nonperforming loans

are measured based on the amounts after adjusting unamortized discounts or premiums and

estimated impairment loss.

3) Deposits and principals of structured products are interest bearing financial liabilities; therefore, the

carrying amounts are approximate to their fair values.

4) Held-to-maturity financial assets, debt instruments with no active market and bank debentures are

based on their quoted prices in an active market. For those instruments with no quoted market

prices, their fair values are determined using valuation techniques incorporating estimates and

assumptions consistent with those generally used by other market participants to price financial

instruments, which is readily available to the Bank.

5) The fair value of equity investment accounted for financial assets carried at cost have no quoted

prices in an active market, and the variability in the range of fair value measurements is significant

or the probabilities of the various estimates within the range can not be reasonably assessed, hence,

the carrying amounts are considered as the fair value.

c. The financial instruments measured at fair value

The financial assets should be measured by marking-to-market on a daily basis whenever possible, then

by marking-to-model only if marking-to-market is infeasible in practice.

1) Marking-to-market

This method should be employed at the first place. Following are the principals when using

marking-to-market:

a) Ensure the consistency and integrity of market data.

b) The source of market data should be transparent, easy to access, and can be referred to

independent resources.

- 101 -

c) Listed securities with tradable prices should be valued at closing prices.

d) Evaluating unlisted securities which lack tradable closing prices should use quoted prices from

independent brokers;

e) Follow the guidelines required by regulatory authorities.

2) Marking-to-model

The methodology of „marking-to-model‟ is suggested if marking-to-market is infeasible. This

valuation methodology is based upon the model inputs to derive the value of the trading positions.

Senior managers should acknowledges the scope, uncertainties and the effects regarding the

valuation models. In addition to complying with the Banks‟ regulations regarding model

valuation, the Bank should consider the following:

a) The consistency and completeness of model inputs.

b) Valuation models should be made based on proper assumptions. The Bank should also

consider the internal control system, market risk management framework and mathematical

expertise to calculate. Moreover, the model validation should be implemented by a

quantitative team which is independent of the market risk-taking unit.

c) Construct the standard procedure for model alteration and the backup system, and test the

valuation results by historical backup data periodically.

d. Three-level fair value hierarchy

1) The definitions of the hierarchy is listed below:

a) Level 1

Level 1 financial instruments are traded in an active market and have the identical price for the

same goods. “Active market” should fit the following characteristics:

i. All financial instruments in the market are homogeneous;

ii. Willing buyers and sellers exist in the market all the time;

iii. The public can access the price information easily.

The products categorized in this level usually have high liquidity or are traded in futures market

or exchanges, such as the spot foreign exchange, listed stocks and Taiwan treasury benchmark

index bond.

b) Level 2

The products categorized in this level have the prices that can be inferred from either direct or

indirect observable inputs other than active market‟s prices. Examples of these inputs are:

i. Quoted prices from the similar products in the active market. This means the fair value

can be derived from the current trading prices of similar products. It is also noted that

whether they are similar products should be judged on the characteristics and trading rules.

The fair price valuation in this circumstance may make some adjustment due to time lags,

trading rule‟s differences, interested parties‟ prices, and the correlation of price between

itself and the similar goods;

- 102 -

ii. Quoted prices for identical or similar financial instruments in inactive markets;

iii. When marking-to-model, the input of model in this level should be observable (such as

interest rates, yield curves and volatilities). The observable inputs mean that they can be

attained from market and can reflect the expectation of market participants;

iv. Inputs which can be derived from other observable prices or whose correlation can be

verified through other observable market data.

The products categorized in this level are simple model or valuation model generally accepted

by the market. For example, forward contracts, cross-currency swap, simple interest bearing

bonds and simple foreign exchange options.

c) Level 3

The fair prices of the products in this level are based on the inputs other than the direct market

data. For example, historical volatility used in valuing options is an unobservable input,

because it can not represent the entire market participants‟ expectation for future volatility.

The products categorized in this level are complex derivate financial instruments or products

which prices are provided by brokers. For example, complex foreign exchange options,

commodity option and complex interest rate options.

e. The fair value hierarchies of the Bank and its subsidiary‟s financial instruments as of December 31,

2013, December 31, 2012 and January 1, 2012 were as follows:

December 31, 2013

Item Total Level 1 Level 2 Level 3

Nonderivative financial instruments

Assets

Financial assets at fair value through

profit or loss


Investment in bonds $ 20,304,206 $ 957,070 $ 19,347,136 $ -

Others 12,790,055 389,444 12,400,611 -


fair value through profit or loss 12,845,342 10,022,679 227,125 2,595,538


Investment in stocks 8,871,382 8,871,382 - -

Investment in bonds 35,043,030 18,516,147 16,196,621 330,262

Others 25,314,077 1,057,145 24,256,932 -

Liabilities


profit or loss 99,980 - 99,980 -

Derivative financial instruments

Assets


profit or loss 27,292,058 109,627 22,975,243 4,207,188

Hedging derivative financial assets 285,784 - 285,784 -

Liabilities

Financial liabilities at fair value

through profit or loss 27,900,534 - 24,147,048 3,753,486

Hedging derivative financial

liabilities 852,396 - 852,396 -

- 103 -

December 31, 2012



Assets


profit or loss


Investment in bonds $ 35,621,277 $ 548,123 $ 35,073,154 $ -

Others 23,074,295 675,300 22,398,995 -


fair value through profit or loss 6,053,561 - 3,825,331 2,228,230



Investment in bonds 24,729,588 524,646 24,204,942 -

Others 32,170,673 1,011,606 31,159,067 -


Assets


profit or loss 19,944,359 170,564 17,938,445 1,835,350

Hedging derivative financial assets 478,744 - 446,856 31,888

Liabilities




liabilities 352,920 - 352,920 -

January 1, 2012



Assets


profit or loss


Investment in bonds $ 18,615,809 $ 3,927,530 $ 14,688,279 $ -

Others 14,543,211 563,127 13,980,084 -


fair value through profit or loss 2,738,223 - 299,480 2,438,743



Investment in bonds 36,349,270 - 36,349,270 -

Others 4,245,686 898,476 3,347,210 -


Assets


profit or loss 23,744,576 56,924 22,313,856 1,373,796

Hedging derivative financial assets 693,488 - 625,707 67,781

Liabilities




liabilities 428,152 - 428,152 -

- 104 -

f. Reconciliation of Level 3 items of financial instruments

1) Reconciliation of Level 3 items of financial assets



Name Beginning

Balance

Gains (Losses) on Valuation Increase Decrease

Ending Balance Profit and Loss

Other

Comprehensive

Income

Purchase/

Issued

Transfer to

Level 3

Disposed/

Sold

Transfer Out of

Level 3

Financial assets at fair value

through profit or loss

Held-for-trading financial

assets $ 1,835,350 $ 843,221 $ - $ 6,353,813 $ - $ 4,796,357 $ 28,839 $ 4,207,188

Financial assets designated as

at fair value through profit

or loss 2,228,230 70,942 - 300,777 295,435 299,846 - 2,595,538


assets - - - 330,262 297,954 297,954 - 330,262


assets 31,888 (28,475 ) - - - 3,413 - -

Note: Transfers to Level 3 were due to lack of observable valuation inputs for certain Financial

assets designated as at fair value through profit or loss and available-for sale financial

assets. Transfers out of Level 3 were due to valuation inputs for certain derivative

products becoming observable.



Name Beginning

Balance

Gains (Losses) on Valuation Increase Decrease

Ending Balance Profit and Loss

Other

Comprehensive

Income

Purchase/

Issued

Transfer to

Level 3

Disposed/

Sold

Transfer Out of

Level 3



Held-for-trading financial

assets $ 1,373,796 $ (316,959 ) $ - $ 2,412,028 $ 249,374 $ 1,813,020 $ 69,869 $ 1,835,350

Financial assets designated as

at fair value through profit

or loss 2,438,743 81,895 - - - 292,408 - 2,228,230


assets 67,781 (113,872 ) - - 77,979 - - 31,888

Note: Transfers to Level 3 were due to lack of observable valuation inputs for certain derivative

products. Transfers out of Level 3 were due to valuation inputs for certain derivative


As of December 31, 2013 and 2012, the valuation gains and losses included in profit and loss for

assets still held were $509,820 thousand and $20,180 thousand, respectively.

2) Reconciliation of Level 3 items of financial liabilities



Name Beginning

Balance

Valuation

Gain/Loss

Reflected on

Profit or Loss

Increase Decrease

Ending Balance Purchase/

Issued

Transfer to

Level 3

Disposed/

Sold

Transfer Out of

Level 3

Financial liabilities at fair value through

profit or loss

Held-for-trading financial liabilities $ 1,674,481 $ 771,382 $ 5,597,573 $ - $ 4,261,111 $ 28,839 $ 3,753,486

Hedging derivative financial liabilities - 1,030 - - 1,030 - -

Note: Transfers out of Level 3 were due to valuation inputs for certain derivative products

becoming observable.

- 105 -



Name Beginning

Balance

Valuation

Gain/Loss

Reflected on

Profit or Loss

Increase Decrease

Ending Balance Purchase/

Issued

Transfer to

Level 3

Disposed/

Sold

Transfer Out of

Level 3


profit or loss

Held-for-trading financial liabilities $ 1,362,156 $ (250,124 ) $ 2,019,650 $ 79,068 $ 1,466,400 $ 69,869 $ 1,674,481

Note: Transfers to Level 3 were due to lack of observable valuation inputs for certain derivative

products. Transfers out of Level 3 were due to valuation inputs for certain derivative


As of December 31, 2013 and 2012, the valuation losses and gains included in profit and loss for

liabilities still held were $397,843 thousand and $65,038 thousand, respectively.

g. Transfer between Level 1 and Level 2

The Bank and its subsidiary transferred part of the foreign-currency bonds from Level 2 to Level 1 to

improve the valuation quality of the hierarchy and enhance quoting standards. Furthermore, the

valuation standards changed due to the liquidity changes in NTD bond markets; thus, part of the NTD

bonds were transferred from Level 1 to Level 2.

h. Sensitivity analysis of Level 3 fair value if reasonably possible alternative assumptions used

Although the Bank and its subsidiary believe that their estimates of fair value are appropriate, the use of

different methodology or assumptions could lead to different measurements of fair value. For fair

value measurements in Level 3 of the fair value hierarchy, a 10% change in either direction of the

quotes from respective counterparties would have the following effects:

Name

December 31, 2013

Effect on Profit and Loss Effect on Other

Comprehensive Income

Favorable Unfavorable Favorable Unfavorable

Assets


profit or loss

Held-for-trading financial assets $ 420,719 $ (420,719) $ - $ -

Financial assets designated as at fair

value through profit or loss 259,554 (259,554) - -

Available-for-sale financial assets - - 33,026 (33,026)

Liabilities


profit or loss

Held-for-trading financial liabilities 375,349 (375,349) - -

- 106 -

Name

December 31, 2012

Effect on Profit and Loss Effect on Other

Comprehensive Income

Favorable Unfavorable Favorable Unfavorable

Assets


profit or loss

Held for trading financial assets $ 183,535 $ (183,535) $ - $ -

Financial assets designated as at fair

value through profit or loss 222,823 (222,823) - -

Hedging derivative financial assets 3,189 (3,189) - -

Liabilities


profit or loss

Held for trading financial liabilities 167,448 (167,448) - -

47. FINANCIAL RISK MANAGEMENT

a. Overview

The Bank and its subsidiary have been fully devoted in establishing a robust risk management culture

and environment, improving the comprehensive risk management system, pursuing the optimization of

risks and rewards, formulating faultless risk management procedures and related business hedging

strategies, complying with the risk management requirements of the Basel Accord framework,

continually elevating professional level in risk management, assisting business sustainable growth, and

optimizing stockholder‟s value.

The major risks faced by the Bank and its subsidiary on and off balance sheet include credit risk, market

risk (including interest rate risk, foreign exchange risk, equity risk and commodity risk) and liquidity

risk.

The Bank and its subsidiary have duly established risk management policies, principles, rules and

regulations approved by the Board of Directors, to ensure consistent compliance with the

comprehensive risk management systems, and to identify, measure, monitor, transfer, and mitigate the

Bank and its subsidiary‟s credit risk, market risk, and liquidity risk.

b. Risk management framework

The Bank adopts the international best practice of three lines of defense in its risk management

framework to ensure operating effectiveness of risk management system. Business, operation, and

management units each undertake the first line of defense role to ensure compliance with risk

management requirements and implementation of the risk control procedures while performing their job

functions. Risk management units assume an independent role in enacting the second line of defense,

responsible for designing risk management system, monitoring risk exposures and submitting risk

reports. Audit department conducts the third defense line by independently examining the compliance

of various risk management system and requirements.

- 107 -

The Board of Directors oversees the establishment of the Bank‟s effective risk management system and

mechanism, approves the risk management policies, principles, regulations and rules, and reviews

important risk management reports. The Bank has established Assets/Liability Management

Committee under the Chairman in charge of the Bank‟s business strategy, managing assets and

liabilities and capital adequacy, and to sustain liquidity and enhance managing the sources and

utilization of capital in order to pursuit the Bank‟s best interests under acceptable risks. The

Committee is chaired by the Bank‟s Chairman and composed of Vice Chairman, President and senior

managers of relevant departments. The Committee meetings are held monthly and anytime per

business needs.

To strengthen risk management functions, Credit Risk Management Committee, Market Risk

Management Committee, and Operational Risk Management Committee have been established under

the Bank‟s Chairman. The members of the committees include the President and senior managers of

relevant departments. The committees are chaired by the Bank President. The committees meetings

are held monthly and anytime per business needs to review the mechanism for credit, market and

operational risk management, review credit risk and country risk exposures, changes in positions and

assets quality, monitor market risk limits and exposures, and inspect operational losses event and

relevant remedial courses of action.

Furthermore, the Bank has established the Risk Management Division independent of business units,

responsible for monitoring and managing relevant risks and submitting risk management reports to the

Board periodically.

c. Credit risk

1) Credit risk definitions and sources

Credit risk refers to the risk of losses caused by borrowers, debtors, or counterparties‟ failure to

fulfill their contractual obligations due to deteriorating financial position or other factors. It arises

principally from business like discount, loan, credit card, due from or call loan to banks, debt

investment and derivatives etc., but also from off-balance sheet products such as guarantee,

acceptance, letter of credit and commitment.

2) Strategy/objectives/policies and procedures

The Bank has established solid credit risk policies and procedures. A robust credit risk strategy

taking into account of economic environment, industry sector and financial sector as well as

corporate business plan is in place. The Bank pursues the optimization of risks and rewards.

Comprehensive credit risk management systems and tools have been deployed effectively to

identify, evaluate, monitor and report credit risks including default risk, counter-party risk and

concentration risk.

3) Credit risk management framework

a) To strengthen risk management function, under the supervision of the Board of Directors, the

Bank has established the Credit Risk Management Committee which is composed of senior

management and chaired by the President to monitor the bank‟s credit risk and country risk

control, risk acceptance and management strategy in respect of credit business, securities

investment and transaction and derivatives.

- 108 -

b) To enhance the independency of credit risk management, the Bank has established Risk

Management Division, under which, there are two credit risk management departments, i.e.

Institutional Credit Risk Management Department and Consumer Credit Risk Management

Department, responsible for measuring the Bank‟s risk exposures, monitoring risk limits,

reporting, coordinating to develop the mechanism for managing credit risk and validating risk

models.

c) In business lines, the Bank has business units undertake the role ensuring to comply with

control requirements while performing daily business operation.

d) Furthermore, the Bank has established Institutional Credit Review Committee, and Retail Credit

Review Committee respectively to review credit above a certain limit to strengthen control on

large amount credit cases.

e) Audit department, which is under the supervision of the Board of Directors, conducts the third

defense line examining the effectiveness of internal control functions independently.

4) Credit risk measurement, control and reporting

a) The Bank has established credit risk measurements and control procedures including

underwriting, risk rating, limit control, account maintenance, pre-settlement limit control and

collection management systems, which enable the Bank to manage limit controls on country

risk, single legal entity and group exposure risk and industry concentration risk effectively.

Other than aforementioned control procedure, the Bank has established vigorous review and

early warning mechanism to ensure the Bank to undertake proper courses of actions on credit

risk management.

b) The Bank regularly performs the credit risk stress testing based on the guideline issued by

Financial Supervisory Commission, and continues to develop scenario analysis and stress

testing to provide senior management with an assessment of risk tolerance, as well as to provide

the reference of credit portfolio management.

c) The Bank has completed several Basel Accord credit risk management projects including risk

data warehousing system, internal risk rating system and risk-weighted assets calculation

system. The development and revision of score card and rating models are validated

independently by Risk Management Division to monitor the model performance and stability.

5) Credit risk mitigation

The Bank has established sophisticated limits in controlling concentration risks on credit,

investment and counter-parties exposures. Risk rating is assessed for each borrower based on

stringent evaluation of obligor risk and facility risk. Furthermore, the Bank has set centralized

approval process with documented guidelines and dual authorizations. Appropriate collaterals are

required based on borrowers‟ financials and debt service capabilities to mitigate credit risk.

6) The regulatory capital requirement

The Bank presently adopts the standardized approach for credit risk capital charge.

- 109 -

7) Maximum exposure to credit risk

The maximum exposure to credit risk is represented by the carrying amount of each financial asset

in the balance sheet without taking into consideration any collateral held or other credit

enhancements. The maximum credit exposures of the off-balance sheet financial instruments

(before taking account of any collateral held or other credit enhancements) are summarized as

follows:

Off-Balance Sheet Item

Maximum Exposure Amount

December 31,

2013

December 31,

2012 January 1, 2012

Irrevocable loan commitments $ 53,885,168 $ 45,008,084 $ 50,882,470

Standby letters of credit 10,095,464 8,447,155 10,291,019

Financial guarantees 46,561,501 61,052,693 75,732,813

Unused credit card facility 213,219,858 198,844,737 193,747,817

Total $ 323,761,991 $ 313,352,669 $ 330,654,119

8) Concentrations of credit risk exposure

Concentrations of credit risk arise when a number of counterparties or exposure have comparable

economic characteristics, or such counterparties are engaged in similar activities, or operate in the

same geographical areas or industry sectors, so that their collective ability to meet contractual

obligations is uniformly affected by changes in economic or other conditions.

Credit risk concentrations can arise in a bank‟s assets, liabilities, or off-balance sheet items, through

the execution or processing of transactions (either product or service), or through a combination of

exposures across these broad categories. It includes credit, loan and deposits, call loan to banks,

investment, receivables and derivatives. The Bank maintains a diversified portfolio, limits its

exposure to any one geographic region, country or individual creditor and monitors the exposure on

a continuous basis. The Bank‟s most significant concentrations of credit risk are summarized as

follows:

a) By industry



Private enterprise $ 443,620,068 38.05 $ 384,349,893 34.94 $ 369,992,490 35.56

Public enterprise 76,713,090 6.58 94,394,809 8.58 109,869,944 10.56

Government organization 158,983,921 13.64 167,395,120 15.22 137,118,135 13.18

Non-profit organization 455,704 0.04 798,077 0.07 829,834 0.08

Private organization 450,071,691 38.61 413,300,014 37.58 384,765,157 36.98

Financial Institution 35,960,224 3.08 39,700,551 3.61 37,810,869 3.64

Total 1,165,804,698 100.00 1,099,938,464 100.00 1,040,386,429 100.00

b) By geographical area

The Bank and is subsidiary‟s operations are mainly in Taiwan.

c) By collaterals



Unsecured $ 506,662,777 43.46 $ 487,854,053 44.35 $ 444,984,372 42.77

Secured 659,141,921 56.54 612,084,411 55.65 595,402,057 57.23

Financial instruments 28,169,752 2.42 26,149,873 2.38 27,575,311 2.65

Accounts receivable 102,809 0.01 267,728 0.02 414,183 0.04

Properties 492,595,817 42.25 449,929,784 40.91 426,828,301 41.03

Guarantees 82,315,758 7.06 77,124,879 7.01 80,245,875 7.71

Others 55,957,785 4.80 58,612,147 5.33 60,338,387 5.80

Total 1,165,804,698 100.00 1,099,938,464 100.00 1,040,386,429 100.00

- 110 -

9) Credit quality and impairment assessment

Some financial assets like cash and cash equivalents, due from Central Bank and call loan to banks,

financial asset at fair value through profit or loss, repos and debt securities, refundable deposits,

guaranty bond and clearing and settlement fund are regarded as very low credit risk owing to the

good credit rating of counterparties.

Besides the aforementioned financial assets, the credit quality of discounts, loans, receivables and

investments are divided into three classifications.

The three credit quality classifications defined below each encompass a range of more granular,

internal credit rating grades assigned to wholesale and retail lending business, as well as the

external ratings attributed by external agencies to investment.

Quality classification definitions:

a) Good: Exposures demonstrate a good capacity to meet financial commitments, with low

default risk and/or low levels of expected loss.

b) Moderate: Exposures require closer monitoring and demonstrate an average to fair capacity to

meet financial commitments, with moderate default risk.

c) Substandard: Exposures require varying degrees of special attention and default risk is of

greater concern.

i. Credit analysis for receivables and discounts and loans

December 31,

2013

Neither Past Due Nor Impaired Amount

Overdue But

Not Yet

Impaired (B)

Impaired

Amount (C)

Total

(A)+(B)+(C)

Loss Recognized (D)

Net Total

(A)+(B)+

(C)- (D) Good Moderate Substandard Subtotal (A)

With Objective

Evidence of

Impairment

With No

Objective

Evidence of

Impairment

Receivables $ 63,348,981 $ 23,229,382 $ 985,341 $ 87,563,704 $ 186,345 $ 1,263,602 $ 89,013,651 $ 185,862 $ 680,869 $ 88,146,920

Credit card

business 17,226,908 5,089,476 446,586 22,762,970 168,916 1,202,325 24,134,211 169,373 126,632 23,838,206

Account

receivable - factoring 9,053,504 10,250,789 470,337 19,774,630 - 2,807 19,777,437 2,807 201,209 19,573,421

Account

receivable -

forfaiting 27,584,960 4,826,149 - 32,411,109 - - 32,411,109 - 324,111 32,086,998

Acceptances 415,320 2,397,534 11,676 2,824,530 - 11,676 2,836,206 238 28,241 2,807,727

Others 9,068,289 665,434 56,742 9,790,465 17,429 46,794 9,854,688 13,444 676 9,840,568

Bill purchased 136 10,518 - 10,654 - - 10,654 - 107 10,547

Nonperforming

loans transferred

from other than

loans - - - - - 58,820 58,820 54,917 - 3,903

Discounts and loans 606,629,596 459,044,730 25,570,198 1,091,244,524 2,637,120 22,525,347 1,116,406,991 3,836,101 9,381,487 1,103,189,403

Consumer

finance 355,274,274 26,602,385 20,500,272 402,376,931 1,736,547 2,184,619 406,298,097 70,239 4,085,541 402,142,317

Corporate

banking 251,355,322 432,442,345 5,069,926 688,867,593 900,573 20,340,728 710,108,894 3,765,862 5,295,946 701,047,086

Note: Total loan is the original amount without the adjustments of premium or discounts

$442,295 thousand.

December 31,

2012


Overdue But

Not Yet

Impaired (B)

Impaired

Amount (C)

Total

(A)+(B)+(C)

Loss Recognized (D)

Net Total

(A)+(B)+

(C)-(D) Good Moderate Substandard Subtotal (A)

With Objective

Evidence of

Impairment

With No

Objective

Evidence of

Impairment

Receivables $ 41,078,135 $ 16,913,540 $ 579,949 $ 58,571,624 $ 173,316 $ 1,626,950 $ 60,371,890 $ 435,757 $ 288,846 $ 59,647,287

Credit card

business 14,521,151 5,157,354 442,999 20,121,504 155,309 1,446,403 21,723,216 300,237 139,249 21,283,730

Account receivable -

factoring 14,408,330 6,491,508 67,744 20,967,582 - 2,719 20,970,301 2,719 104,968 20,862,614

Account

receivable -

forfaiting 4,062,490 1,733,506 - 5,795,996 - - 5,795,996 - 28,980 5,767,016

Acceptances 113,241 2,912,026 - 3,025,267 - - 3,025,267 - 15,126 3,010,141

Others 7,972,923 619,146 69,206 8,661,275 18,007 177,828 8,857,110 132,801 523 8,723,786

Bill purchased 31 3,737 - 3,768 - - 3,768 - 19 3,749

Nonperforming

loans transferred

from other than

loans - - - - - 21,992 21,992 20,492 - 1,500 Discounts and

loans 577,834,059 399,937,029 30,582,700 1,008,353,788 1,863,298 25,643,418 1,035,860,504 3,660,893 5,263,382 1,026,936,229

Consumer

finance 323,810,223 27,227,420 27,447,532 378,485,175 1,768,382 2,429,224 382,682,781 64,586 2,487,226 380,130,969

Corporate

banking 254,023,836 372,709,609 3,135,168 629,868,613 94,916 23,214,194 653,177,723 3,596,307 2,776,156 646,805,260

- 111 -


$400,595 thousand.

January 1, 2012


Overdue But

Not Yet

Impaired (B)

Impaired

Amount (C)

Total

(A)+(B)+(C)

Loss Recognized (D)

Net Total

(A)+(B)+


With Objective

Evidence of

Impairment

With No

Objective

Evidence of

Impairment

Receivables $ 42,850,941 $ 20,121,293 $ 1,654,926 $ 64,627,160 $ 112,383 $ 2,309,326 $ 67,048,869 $ 605,651 $ 306,179 $ 66,137,039

Credit card

business 14,204,425 4,820,948 1,590,879 20,616,252 104,468 1,777,252 22,497,972 456,446 116,180 21,925,346

Account

receivable -

factoring 12,813,594 11,359,952 37,476 24,211,022 - - 24,211,022 - 123,881 24,087,141

Account

receivable -

forfaiting 8,919,250 7,269 - 8,926,519 - - 8,926,519 - 44,632 8,881,887

Acceptances 64,979 3,265,526 - 3,330,505 - - 3,330,505 - 16,720 3,313,785

Others 6,848,693 667,598 26,571 7,542,862 7,915 532,074 8,082,851 149,205 4,766 7,928,880 Bill purchased 161 2,419 - 2,580 - - 2,580 - 12 2,568

Nonperforming

loans transferred

from other than

loans - - - - - 24,553 24,553 23,540 - 1,013

Discounts and

loans 516,816,771 402,156,694 25,935,150 944,908,615 1,699,661 14,709,231 961,317,507 3,888,222 4,488,725 952,940,560

Consumer

finance 302,693,057 26,958,352 22,038,324 351,689,733 1,694,039 2,820,020 356,203,792 75,375 2,211,607 353,916,810

Corporate

banking 214,123,714 375,198,342 3,896,826 593,218,882 5,622 11,889,211 605,113,715 3,812,847 2,277,118 599,023,750


$221,598 thousand.

ii. Credit analysis for neither past due nor impaired discounts and loans according to internal

rating standards are as follows:

December 31, 2013 Neither Past Due Nor Impaired Amount

Good Moderate Substandard Total

Consumer finance

Mortgage $ 327,310,495 $ 19,576,655 $ 8,473,147 $ 355,360,297

Cash card - - 1,165 1,165

Micro credit - 6,508,287 12,025,338 18,533,625

Others 27,963,779 517,443 622 28,481,844

Corporate banking

Secured 44,203,288 159,196,959 2,198,378 205,598,625

Unsecured 207,152,034 273,245,386 2,871,548 483,268,968

Total 606,629,596 459,044,730 25,570,198 1,091,244,524

December 31, 2012 Neither Past Due Nor Impaired Amount


Consumer finance

Mortgage $ 296,869,798 $ 20,441,783 $ 16,322,711 $ 333,634,292

Cash card - - 2,262 2,262

Micro credit - 6,447,625 11,122,134 17,569,759

Others 26,940,425 338,012 425 27,278,862

Corporate banking

Secured 48,878,259 142,860,698 1,893,484 193,632,441

Unsecured 205,145,577 229,848,911 1,241,684 436,236,172

Total 577,834,059 399,937,029 30,582,700 1,008,353,788

January 1, 2012 Neither Past Due Nor Impaired Amount


Consumer finance

Mortgage $ 277,045,125 $ 21,185,866 $ 13,636,640 $ 311,867,631

Cash card - - 3,716 3,716

Micro credit - 5,606,954 8,397,453 14,004,407

Others 25,647,932 165,532 515 25,813,979

Corporate banking

Secured 55,034,636 152,107,662 2,279,420 209,421,718

Unsecured 159,089,078 223,090,680 1,617,406 383,797,164

Total 516,816,771 402,156,694 25,935,150 944,908,615

- 112 -

iii Credit analysis for marketable securities


December 31, 2013

Neither Past Due Nor Impaired Amount Overdue But

Non-impaired

Amount (B)

Impaired

Amount (C)

Total

(A)+(B)+(C)

Impaired Loss

Recognized (D)

Net Total

(A)+(B)+


Available-for-sale

financial assets

Investment in bonds $ 25,673,799 $ 9,369,231 $ - $ 35,043,030 $ - $ - $ 35,043,030 $ - $ 35,043,030

Others 12,107,117 12,149,815 - 24,256,932 - - 24,256,932 - 24,256,932

Held-to-maturity

financial assets

Investment in bonds 21,442,431 8,773,264 - 30,215,695 - - 30,215,695 - 30,215,695 Others 179,101,607 444,925 - 179,546,532 - - 179,546,532 - 179,546,532

Other financial assets

Investment in bonds - 272,219 - 272,219 - - 272,219 - 272,219

Total 238,324,954 31,009,454 - 269,334,408 - - 269,334,408 - 269,334,408

Note 1: Available-for-sale financial assets did not include equity investments and

beneficiary securities, and related information: Original cost of $7,198,851

thousand, valuation amounting to $3,065,270 thousand and cumulative

impairment amounting to $335,594 thousand.

Note 2: Other financial assets did not include equity investment of financial assets carried

at cost, original cost was $4,050,408 thousand and accumulated impairment

amounted to $39,621 thousand.


December 31, 2012


Non-impaired

Amount (B)

Impaired

Amount (C)

Total

(A)+(B)+(C)

Impaired Loss

Recognized (D)

Net Total

(A)+(B)+


Available-for-sale

financial assets

Investment in bonds $ 22,422,761 $ 2,306,827 $ - $ 24,729,588 $ - $ - $ 24,729,588 $ - $ 24,729,588

Others 15,481,303 15,677,764 - 31,159,067 - - 31,159,067 - 31,159,067

Held-to-maturity

financial assets

Investment in bonds 16,628,877 10,565,738 - 27,194,615 - - 27,194,615 - 27,194,615

Others 199,818,521 - - 199,818,521 - - 199,818,521 - 199,818,521


Investment in bonds 1,287,245 264,813 - 1,552,058 - 91,705 1,643,763 91,705 1,552,058

Total 255,638,707 28,815,142 - 284,453,849 - 91,705 284,545,554 91,705 284,453,849






at cost, original cost was $685,740 thousand and accumulated impairment



January 1, 2012


Non-impaired

Amount (B)

Impaired

Amount (C)

Total

(A)+(B)+(C)

Impaired Loss

Recognized (D)

Net Total

(A)+(B)+


Available-for-sale

financial assets

Investment in bonds $ 28,203,465 $ 8,145,805 $ - $ 36,349,270 $ - $ - $ 36,349,270 $ - $ 36,349,270 Others 3,347,210 - - 3,347,210 - - 3,347,210 - 3,347,210

Held-to-maturity

financial assets

Investment in bonds 8,816,169 7,898,836 - 16,715,005 - - 16,715,005 - 16,715,005

Others 240,111,637 - - 240,111,637 - - 240,111,637 - 240,111,637


Investment in bonds 1,854,538 275,301 - 2,129,839 - 107,895 2,237,734 107,895 2,129,839

Total 282,333,019 16,319,942 - 298,652,961 - 107,895 298,760,856 107,895 298,652,961






at cost, original cost was $688,207 thousand and accumulated impairment


- 113 -

10) Aging analysis for overdue but not yet impaired financial assets

Delays in processing payments by borrowers and other administrative reasons could result in

financial assets overdue but not yet impaired. According to the Bank and its subsidiary‟s internal

risk management policies, financial assets overdue within 90 days are not considered impairment

loss, unless other evidences provided.

Aging analysis for overdue but not yet impaired financial assets was as follows:

December 31, 2013

Overdue Less

Than One

Month

Overdue One

to Three

Months

Overdue Over

Three to Six

Months

Total

Accounts receivable

Credit card $ 112,925 $ 55,991 $ - $ 168,916

Others 13,405 4,024 - 17,429

Discounts and loans

Consumer finance 1,618,318 118,229 - 1,736,547

Corporate banking 900,573 - - 900,573

December 31, 2012

Overdue Less

Than One

Month

Overdue One

to Three

Months

Overdue Over

Three to Six

Months

Total

Accounts receivable

Credit card $ 105,394 $ 49,915 $ - $ 155,309

Others 14,964 2,999 44 18,007

Discounts and loans


Corporate banking 91,376 1,048 2,492 94,916

January 1, 2012

Overdue Less

Than One

Month

Overdue One

to Three

Months

Overdue Over

Three to Six

Months

Total

Accounts receivable

Credit card $ 70,148 $ 34,320 $ - $ 104,468

Others 6,817 1,098 - 7,915

Discounts and loans


Corporate banking 3,441 2,181 - 5,622

11) Analysis of impairment for financial assets

Part of the Bank and its subsidiary‟s investments included in available-for-sale financial assets or

financial assets carried at cost and investments in bonds included in debt instruments with no active

market were considered impaired because there were some objective evidences of impairment loss

provided by investee companies. Please refer to Notes 13 and 16.

- 114 -

The Bank and its subsidiary have assessed whether loans and receivables have objective evident of

impairment. The assessment on December 31, 2013, December 31, 2012 and January 1, 2012, are

as follows:

Discounts and loans

Type of Impairment Assessment

Discounts and Loans Allowance for Credit Losses

December 31, 2013 December 31, 2012 January 1, 2012 December 31, 2013 December 31, 2012 January 1, 2012

With objective evidence of

impairment

Individually

assessed for

impairment

$ 20,340,728 $ 23,214,194 $ 11,889,211 $ 3,765,862 $ 3,596,307 $ 3,812,847

Collectively

assessed for

impairment

2,184,619 2,429,224 2,820,020 70,239 64,586 75,375

With no objective evidence

of impairment

Collectively

assessed for

impairment

1,093,881,644 1,010,217,086 946,608,276 9,381,487 5,263,382 4,488,725

Receivables

Type of Impairment Assessment

Discounts and Loans Allowance for Credit Losses

December 31,

2013

December 31,

2012 January 1, 2012

December 31,

2013

December 31,

2012 January 1, 2012

With objective evidence

of impairment

Individually

assessed for

impairment

$ 46,091 $ 114,525 $ 104,995 $ 9,822 $ 87,792 $ 93,955

Collectively

assessed for

impairment

1,276,331 1,534,417 2,228,884 230,957 368,457 535,236

With no objective

evidence of

impairment

Collectively

assessed for

impairment

87,760,703 58,748,708 64,742,123 680,976 288,865 306,191

Note 1: The receivables are those originated by the Bank and its subsidiary, and not net of the

allowance for credit losses and adjustments for discount (premium).

Note 2: The above receivables and allowances include nonperforming loans reclassified from

other than loans and bills purchased.

12) Collateral and other credit enhancements held

On the basis of the result of the credit evaluation, the Bank may require collaterals before drawings

are made on the credit facilities. Appropriate collaterals are required based on borrowers‟

financials and debt service capabilities to mitigate credit risk. All guarantees and appraisal

procedures follow the relative regulations of the authorities and internal rules of the bank. The

internal rules of the bank include the acceptable types of collaterals, appraisal methods, appraisal

process, and post-approval collateral management, which require closely monitoring on the value of

collaterals in order to ensure repayment security. The main collateral types are summarized as

follows:

a) Real estate

b) Other property

c) Securities/stock

d) Certificate of deposits/deposit

e) Guaranteed by credit guarantee fund or government

d. Liquidity risk

1) Source and definition of liquidity risk

Liquidity risk means banks can not provide sufficient funding for asset size growth and obligation

of matured liabilities, using late-payment to counterparties or emergency funding raise to cover

funding gaps.

- 115 -

2) Liquidity risk management strategy and principles

a) The Bank‟s strategy is to lower liquidity risk by acquiring stable, low interest-rate, sufficient

funding to cover asset size growth and obligation of matured liabilities, and escape funding gaps

from overrun in funding usage and demand.

b) The principle is to harmony with the Bank‟s deposit, loan and financial transaction growth.

The Bank adjust funding strategy depending on market fund change and the central bank‟s

policies to increase fund utilization and lower liquidity risk; not only pay attention to period

adjustment of long-term and short-term securities to match the timing of large amount loan

drawdown and repayment, but also analyze stability and percentages of various type of deposits

to manage funding liquidity.

Funding liquidity management indicators, analyses, and explanations are reported in the

Asset/Liability and Risk Management Committee for discussion and reported to Board of Directors

(Managing Directors) for reference.

3) Qualitative explanation

The Bank‟s management policy is to match maturities and interest rates of assets and liabilities, and

control un-matched gap. Because of uncertainties of terms and conditions or types, the maturities

and interest rates of assets and liabilities usually do not match perfectly, resulting in potential gain

or loss. To maintain proper liquidity, the Bank uses appropriate ways to group assets and

liabilities to evaluate liquidity and monitors the ratios of short-term negative funding gap to total

asset in main currencies.

4) Quantitative explanation

The analysis of cash inflow and outflow in assets and liabilities held for liquidity risk was by the

remaining periods which were from reporting date to contractual maturity dates. The maturity

analysis of financial assets and liabilities, derivatives assets and liabilities, and off balance sheet

items in main currencies was as follows (except for non-deliverable derivatives, all were

non-discounted contractual cash flow):

a) The maturity analysis of financial assets and liabilities - NTD

December 31, 2013 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total

Assets

Cash, call loans and deposits due

from/to other banks $ 28,662,099 $ 4,027,229 $ 3,399,384 $ 5,675,476 $ 15,950,413 $ 57,714,601

Investment in marketable

securities (Note) 174,236,148 21,552,743 17,715,004 25,030,341 31,945,082 270,479,318

Securities purchased under

agreements to resell 15,779,517 4,400,380 - - - 20,179,897

Loans (included overdue loans) 114,589,673 73,304,003 64,935,068 97,827,021 544,010,835 894,666,600

Deliverable derivative assets 133,381,808 128,423,765 67,852,205 69,555,079 43,206,376 442,419,233

Non-deliverable derivative assets 4,849,682 - - - 236,195 5,085,877

Other capital inflow on maturity 12,604,868 3,746,871 6,253,065 7,349,212 36,129,348 66,083,364

Subtotal 484,103,795 235,454,991 160,154,726 205,437,129 671,478,249 1,756,628,890

Liabilities

Due to the Central Bank of China

and other banks 15,485,564 1,261,750 1,734,252 83,587 90,000 18,655,153

Deposits and remittances 140,637,888 134,291,900 113,383,939 189,301,314 426,948,324 1,004,563,365

Securities sold under agreements

to repurchase 1,921,197 51,041 50,525 - - 2,022,763

Payables 419,700 425,848 380,498 385,825 732,048 2,343,919

Bank debentures - 4,250,000 - 35,000 61,152,894 65,437,894

Deliverable derivative liabilities 136,063,951 155,408,234 83,879,428 56,305,168 53,181,249 484,838,030

Non-deliverable derivative

liabilities 5,235,203 - - - 115,051 5,350,254

Other capital outflow on maturity 14,450,842 1,583,909 5,640,992 1,158,288 13,706,747 36,540,778

Subtotal 314,214,345 297,272,682 205,069,634 247,269,182 555,926,313 1,619,752,156

- 116 -


Assets




securities (Note) 213,051,729 29,944,346 24,191,465 20,101,507 27,426,213 314,715,260


agreements to resell 16,343,491 - - - - 16,343,491



Non-deliverable derivative assets 5,975,253 - - 31,888 446,856 6,453,997


Subtotal 477,004,722 179,143,975 159,461,149 158,375,395 637,892,097 1,611,877,338

Liabilities


and other banks 17,864,544 1,914,513 3,202,221 527,797 264,675 23,773,750

Deposits and remittances 122,761,280 145,247,143 102,675,283 214,372,451 403,462,516 988,518,673


to repurchase 6,367,622 223,570 - - - 6,591,192

Payables 10,322,547 1,416,518 3,328,198 714,843 846,776 16,628,882

Bank debentures - - 550,000 5,077,547 61,701,835 67,329,382



liabilities 6,282,413 - - - - 6,282,413

Other capital outflow on maturity 9,898,818 2,916,930 318,252 1,016,194 19,116,716 33,266,910

Subtotal 261,313,155 273,205,361 173,859,023 269,907,284 527,997,510 1,506,282,333

January 1, 2012 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total

Assets




securities (Note) 172,668,112 62,332,563 14,700,000 24,304,908 30,977,256 304,982,839


agreements to resell 200,000 - - - - 200,000



Non-deliverable derivative assets 10,012,307 - - - 693,488 10,705,795


Subtotal 416,833,656 266,222,381 128,197,186 135,909,640 615,476,971 1,562,639,834

Liabilities


and other banks 2,655,743 1,512,879 3,147,858 640,700 288,823 8,246,003

Deposits and remittances 128,363,725 125,624,014 120,430,463 170,652,323 398,192,722 943,263,247


to repurchase 10,566,959 3,380,494 67,995 - - 14,015,448

Payables 21,617,000 1,128,604 832,673 500,464 807,949 24,886,690

Bank debentures - - 30,000 1,045,500 61,693,488 62,768,988



liabilities 10,348,491 - - - - 10,348,491

Other capital outflow on maturity 4,914,036 2,993,933 3,585,776 1,218,538 28,900,340 41,612,623

Subtotal 283,823,499 274,016,951 198,505,691 207,596,191 501,261,599 1,465,203,931

Note: Investment in marketable securities include financial assets at fair value through profit

or loss, available-for-sale financial assets, and held-to-maturity financial assets.

b) The maturity analysis of financial assets and liabilities - USD


Assets


from/to other banks $ 1,572,910 $ 249,537 $ 60,000 $ 152,698 $ - $ 2,035,145


securities (Note) 41,119 25,052 94,610 66,531 1,066,814 1,294,126

Loans (included overdue loans) 1,415,478 824,089 596,939 518,861 1,238,284 4,593,651


Non-deliverable derivative assets 134,038 - - - 1,656 135,694

Other capital inflow on maturity 908,016 233,310 118,756 180,183 126,957 1,567,222

Subtotal 10,819,864 7,667,593 4,087,881 3,246,669 4,256,752 30,078,759

Liabilities


and other banks 613,510 442,000 - - - 1,055,510

Deposits and remittances 1,982,934 792,640 553,764 844,541 2,379,697 6,553,576


to repurchase 29,121 4,613 43,216 27,084 508,698 612,732

Payables 4,211 2,515 1,559 370 372 9,027



liabilities 153,367 19 232 267 22,361 176,246

Other capital outflow on maturity 1,041,204 121,909 76,115 22,163 255,311 1,516,702

Subtotal 11,150,769 7,099,892 3,439,425 3,598,127 4,667,071 29,955,284

- 117 -


Assets


from/to other banks $ 748,281 $ 65,830 $ - $ - $ - $ 814,111


securities (Note) - 15,068 32,470 42,340 968,244 1,058,122

Loans (included overdue loans) 1,784,142 1,013,824 603,269 413,846 1,455,581 5,270,662


Non-deliverable derivative assets 62,052 - - - - 62,052

Other capital inflow on maturity 12,226,754 6,488,002 3,837,237 1,824,710 170,959 24,547,662

Subtotal 18,955,961 12,684,629 7,060,732 4,134,199 4,050,208 46,885,729

Liabilities


and other banks 1,217,380 190,910 - - - 1,408,290

Deposits and remittances 2,631,417 650,576 749,597 1,145,366 1,522,041 6,698,997


to repurchase - - 13,982 9,259 329,248 352,489

Payables 3,963 1,625 504 107 77 6,276



liabilities 67,594 - 139 68 9,977 77,778

Other capital outflow on maturity 11,689,674 6,392,837 3,893,795 1,710,121 301,602 23,988,029

Subtotal 20,375,297 11,564,729 6,965,961 4,240,371 3,522,847 46,669,205


Assets


from/to other banks $ 869,409 $ 261,000 $ 20,000 $ - $ - $ 1,150,409


securities (Note) 9,989 19,920 20,960 41,248 760,528 852,645

Loans (included overdue loans) 1,161,349 821,662 630,175 390,708 1,248,546 4,252,440

Deliverable derivative assets 4,415,420 5,259,303 2,555,770 1,264,313 363,061 13,857,867

Non-deliverable derivative assets 78,621 - - - - 78,621

Other capital inflow on maturity 6,598,556 5,042,000 4,165,838 3,630,323 78,624 19,515,341

Subtotal 13,133,344 11,403,885 7,392,743 5,326,592 2,450,759 39,707,323

Liabilities


and other banks 1,030,495 642,770 - - - 1,673,265

Deposits and remittances 2,274,896 1,080,422 762,702 957,344 1,457,295 6,532,659


to repurchase 293,810 - - - - 293,810

Payables 865,564 1,967 449 112 3,405 871,497

Deliverable derivative liabilities 3,949,498 4,721,083 1,981,634 942,599 376,254 11,971,068


liabilities 81,835 38 79 - 10,464 92,416

Other capital outflow on maturity 5,298,456 4,768,893 4,014,419 3,595,467 216,067 17,893,302

Subtotal 13,794,554 11,215,173 6,759,283 5,495,522 2,063,485 39,328,017

Note: Investment in marketable securities include financial assets at fair value through profit

or loss, available-for-sale financial assets, and held-to-maturity financial assets.

c) The maturity analysis of derivatives assets and liabilities - NTD


Assets

Deliverable derivative assets

Forward contracts $ 2,051,852 $ 223,429 $ 200,923 $ 38,133 $ 27,757 $ 2,542,094

Currency exchange 122,435,501 100,897,901 60,932,549 42,468,508 3,633,420 330,367,879

Cross-currency swap 8,894,455 27,302,435 6,718,733 27,048,438 39,545,199 109,509,260

Subtotal 133,381,808 128,423,765 67,852,205 69,555,079 43,206,376 442,419,233

Non-deliverable derivative assets

Foreign exchange derivative

instrument 186,476 - - - - 186,476

Interest rate derivative

instrument - hedging - - - - 236,195 236,195


instrument - non-hedging 3,812,920 - - - - 3,812,920

Equity derivative instrument 834,945 - - - - 834,945

Product derivative instruments 15,341 - - - - 15,341

Subtotal 4,849,682 - - - 236,195 5,085,877

Liabilities

Deliverable derivative liabilities

Forward contracts 2,113,319 638,257 238,515 410,921 - 3,401,012



Subtotal 136,063,951 155,408,234 83,879,428 56,305,168 53,181,249 484,838,030


liabilities


instrument 133,363 - - - - 133,363







Subtotal 5,235,203 - - - 115,051 5,350,254

- 118 -


Assets


Forward contracts $ 101,611 $ 203,044 $ 205,747 $ 297,958 $ 217,723 $ 1,026,083

Currency exchange 92,022,514 74,538,742 47,206,508 28,296,357 91,762 242,155,883

Cross-currency swap 13,501 7,384,948 8,054,431 8,521,370 38,365,765 62,340,015

Subtotal 92,137,626 82,126,734 55,466,686 37,115,685 38,675,250 305,521,981



instrument 82,246 - - - - 82,246


instrument - hedging - - - 31,888 446,856 478,744





Subtotal 5,975,253 - - 31,888 446,856 6,453,997

Liabilities


Forward contracts 3,642,687 3,772,804 319,371 93,360 - 7,828,222



Subtotal 87,815,931 121,486,687 63,785,069 48,198,452 42,604,992 363,891,131


liabilities


instrument 68,219 - - - - 68,219


instrument - hedging 6,199,796 - - - - 6,199,796



Subtotal 6,282,413 - - - - 6,282,413


Assets





Subtotal 86,352,476 117,697,602 51,898,238 23,344,742 11,764,860 291,057,918



instrument 11,869 - - - - 11,869





Equity derivative instrument 72 - - - - 72


Subtotal 10,012,307 - - - 693,488 10,705,795

Liabilities


Forward contracts 1,979,901 2,767,696 671,927 12,238 - 5,431,762



Subtotal 105,357,545 139,377,027 70,410,926 33,538,666 11,378,277 360,062,441


liabilities


instrument (1,940 ) - - - - (1,940 )





Subtotal 10,348,491 - - - - 10,348,491

d) The maturity analysis of derivatives assets and liabilities - USD


Assets




Cross-currency swap 66,800 863,414 273,810 197,868 1,410,300 2,812,192

Subtotal 6,748,303 6,335,605 3,217,576 2,328,396 1,823,041 20,452,921



instrument 91,320 - - - - 91,320


instrument - hedging - - - 1,656 1,656

Interest rate derivative -

non-hedging 41,764 - - - - 41,764


Product derivative instrument 231 - - - - 231

Subtotal 134,038 - - - 1,656 135,694

(Continued)

- 119 -


Liabilities


Forward contracts $ 1,072,413 $ 635,130 $ 260,562 $ 168,493 $ - $ 2,136,598



Subtotal 7,326,422 5,736,196 2,764,539 2,703,702 1,500,632 20,031,491


liabilities


instrument 93,691 - - - - 93,691


instrument - hedging 76 19 232 267 22,361 22,955


non-hedging 58,647 - - - - 58,647

Equity derivative instruments 723 - - - - 723


Subtotal 153,367 19 232 267 22,361 176,246

(Concluded)


Assets


Forward contracts $ 249,142 $ 313,856 $ 133,856 $ 90,665 $ 200 $ 787,719



Subtotal 4,134,732 5,101,905 2,587,756 1,853,303 1,455,424 15,133,120



instrument 25,658 - - - - 25,658


instrument 35,377 - - - - 35,377

Equity derivative instruments 78 - - - - 78


Subtotal 62,052 - - - - 62,052

Liabilities


Forward contracts 613,496 554,172 265,525 79,060 31,118 1,543,371


Cross-currency swap 450 243,728 271,845 292,828 1,285,749 2,094,600

Subtotal 4,765,269 4,328,781 2,307,944 1,375,450 1,359,902 14,137,346


liabilities


instrument 26,338 - - - - 26,338


instrument - hedging - - 139 68 9,977 10,184


non-hedging 40,249 - - - - 40,249

Equity derivative instruments $ 78 $ - $ - $ - $ - $ 78


Subtotal 67,594 - 139 68 9,977 77,778


Assets


Forward contracts $ 145,180 $ 246,971 $ 101,610 $ 84,133 $ - $ 577,894

Currency exchange 4,205,281 4,883,332 2,214,467 875,361 40,000 12,218,441

Cross-currency swap 64,959 129,000 239,693 304,819 323,061 1,061,532

Subtotal 4,415,420 5,259,303 2,555,770 1,264,313 363,061 13,857,867



instrument 47,559 - - - - 47,559


instrument 29,931 - - - - 29,931


Credit derivative instrument 110 - - - - 110

Subtotal 78,621 - - - - 78,621

Liabilities


Forward contracts 412,851 480,321 200,882 128,943 9,362 1,232,359

Currency exchange 3,474,268 4,057,030 1,557,432 629,208 21,484 9,739,422

Cross-currency swap 62,379 183,732 223,320 184,448 345,408 999,287

Subtotal 3,949,498 4,721,083 1,981,634 942,599 376,254 11,971,068


liabilities


instrument 51,167 - - - - 51,167


instrument - hedging 10 38 79 - 10,464 10,591


non-hedging 29,576 - - - - 29,576


Credit derivative instrument 17 - - - - 17

Subtotal 81,835 38 79 - 10,464 92,416

- 120 -

e) The maturity analysis of off-balance sheet items

The maturity analysis of off-balance sheet items shows the remaining balance from the balance

sheet date to the maturity date. For the sent financial guarantee contracts, the maximum

amounts are possibly asked for settlement in the earliest period. The amounts in the table

below were on cash flow basis; therefore, some disclosed amounts will not match with the

consolidated balance sheet.


Standby and irrevocable loan

commitment $ 53,885,168 $ - $ - $ - $ - $ 53,885,168

Unused letters of credit 10,095,464 - - - - 10,095,464

Other guarantee amounts 8,171,212 126,479 1,316,915 4,240,575 32,706,320 46,561,501

Total 72,151,844 126,479 1,316,915 4,240,575 32,706,320 110,542,133



commitment $ 45,008,084 $ - $ - $ - $ - $ 45,008,084


Other guarantee amounts 7,915,551 155,698 4,464,743 2,982,172 45,534,529 61,052,693

Total 61,370,790 155,698 4,464,743 2,982,172 45,534,529 114,507,932



commitment $ 50,882,470 $ - $ - $ - $ - $ 50,882,470


Other guarantee amounts 10,576,444 891,628 199,698 10,201,293 53,863,750 75,732,813

Total 71,749,933 891,628 199,698 10,201,293 53,863,750 136,906,302

e. Market risk

1) Market risk definition and classifications

Market risk refers to unfavorable changes in the market (such as changes in interest rates, exchange

rates, stock prices and commodity prices), which may cause a potential loss on or off the balance

sheet. Based on the Bank‟s policies on risk measurement and management, financial instruments

are recorded in either the trading book or the banking book, and the Bank performs risk

measurement and management accordingly.

Trading book positions follow the definitions below:

a) Positions held for earning profits from changes in bid-ask spread or changes in price and interest

rate;

b) Positions held for the brokerage business or proprietary trading;

c) Positions held for full or partial offsetting risk from other positions; and

d) Positions held for trading within approved market risk limits.

Trading book positions should not be under any restrictive trading contract and should be

completely hedged against risks. Positions that do not qualify for recording in the trading book are

recorded in the banking book.

2) Market risk strategy and procedures

The Bank has comprehensive policies on market risk management and has a systematic mechanism

for deal execution, clearing and settlement. The trading book instruments, which are exposed to

risk factors, are as follows: Interest rate-related instruments, exchange rate-related instruments,

securities and commodities. The risk management systems apply the Bank‟s management policies

and market risk limits to identify, measure, monitor and control market risks.

- 121 -

3) Market risk management framework

Under the supervision of the Board of Directors, the Bank has established the Market Risk

Management Committee, which is composed of senior management and chaired by the President to

monitor the Bank‟s market risk control, risk acceptance and management strategies for the trading

business, securities investments and transactions, and derivatives.

The Market Risk Management Department under the Risk Management Division is responsible for

formulating policies on and procedures for market risk management, enforcing market risk limits,

reporting market risk events timely and validating valuation models independently. The

independent audit department under the Board of Directors is an added support for the market risk

management framework.

4) Market risk measurement, control and reporting

The Market Risk Management Department is responsible for monitoring compliance with the daily

market risk limit (including the analysis of risk sensitivity factors such as Delta, Vega, DV01, and

VaR) and loss control. The Bank has established a market risk management system and related

market risk management procedures to be able to observe the VaR limit. In addition, the Bank

does backtesting to check the effectiveness of the VaR calculation module and updates the on-line

risk control management and trading system. The valuation and VaR models are evaluated

independently by the Market Risk Management Department to ensure their stability and

effectiveness.

5) Measurement of trading book market risk

The Bank‟s measurement of trading book market risk includes methods for determining degrees

(known as the “Greeks”) of sensitivity to risk and measures (such as VaR and stress testing) of the

risk of loss on specific portfolios of financial assets. These measures provide consistent and

comparable measurement of various types of risks across different trading desks.

a) VaR (Value at Risk)

VaR is a tool that measures “the worst expected loss over a given time horizon under normal

market conditions at a given level of confidence.” The Bank adopts various risk models to

evaluate the worst loss on current net positions within one day, with a 99% confidence level.

Some of the methods for VaR calculation are the (a) historical simulation, which is used to

calculate common VaR and stressed VaR; and (b) Monte Carlo simulation, which also involves

the GED (generalized error distribution) model, which strengthens the predictability of this

model. This model has the advantage of backward-looking (i.e., based on experience) and

forward-looking (i.e., based on a cognitive map of action-outcome linkages) assessment risk

measurement and is able to cover most market risk scenarios.

To ensure the accuracy of VaR measures, the Bank does statistical hypothesis testing and

backtesting periodically. In addition to carrying out Bernoulli trials, the Bank does two

statistical tests suggested by the Basel Committee on Banking Supervision after the 2007-2008

financial crisis: (a) the unconditional coverage test, which is used to check if a VaR

calculation reasonably reflects actual conditions; and (b) the conditional coverage test, which is

used to examine whether a VaR model can help the Bank forecast portfolio returns on the basis

of certain information. Both tests help the Bank determine if its risk models are effective tools

for forecasting and responding to different risk scenarios.

http://en.wikipedia.org/wiki/Basel_Committee_on_Banking_Supervision

- 122 -

Trading book VaR information is shown below:


Common VaR Highest Lowest Mean

End of

Period

Equity $ 7,895 $ - $ 5,225 $ -

Interest Rate 75,329 20,833 34,721 31,885

Exchange Rate 11,433 1,058 5,386 1,058

Volatility 9,748 3,164 6,448 3,164

Diversification Effect - - (19,065) (5,471)

Common VaR of trading book $ 75,735 $ 14,717 $ 32,715 $ 30,636


Common VaR Beginning

of Period Highest Lowest Mean

End of

Period

Equity $ 7,948 $ 52,899 $ 9,250 $ 13,929 $ 9,744

Interest Rate 38,009 35,237 19,212 26,477 23,978

Exchange Rate 2,472 4,837 649 2,541 1,978

Volatility 7,036 11,623 3,346 6,804 3,935

Diversification Effect (13,487) - - (18,477) (16,589)

Common VaR of trading

book $ 41,978 $ 57,182 $ 19,355 $ 31,274 $ 23,046

The above VaRs are calculated on the basis of changes in risk factors. If one product includes

several risk factors, it will be classified under different risk factors. For example, forward

contracts are exposed to interest rate risk and exchange rate risk; foreign exchange option is

exposed to exchange rate risk and volatility risk. (Note: The highest and lowest VaRs may

occur on different dates; the related diversification effects were not disclosed in the above table

because it has no significant meaning.)

b) Stress testing

As described earlier, VaR is the worst loss likely to occur over a holding period with a given

confidence level during normal fluctuation. However, VaR cannot be used to predict the loss

when an extreme event or systematic risk occurs. Thus, stress testing is introduced to capture

the above risk by measuring the potential impact on trading book portfolio during the abnormal

market period, compensating the insufficiency of common VaR.

6) Measurement of banking book market risk

a) Interest rate risk

Interest rate risk refers to the possible loss on investment portfolio value due to interest rate

changes. The interest rate-sensitive assets/liabilities include banking book debt securities.

The characteristics of banking book debt securities differ from those of trading book securities,

which are for short-term trading. The valuation basis of banking book debt securities includes

fair value and accrued interest.

- 123 -

Banking book interest rate risk refers to possible loss due to unfavorable changes in interest

rates for the banking book portfolio. One of the methods used to determine exposure to

interest rate risks is earnings analysis, which focuses on the effects interest rate changes on the

earnings of the banking book portfolio, especially earnings in the short term. Had the interest

rate increased/decreased 100bps (basis points) as of December 31, 2013, December 31, 2012

and January 1, 2012 and all other factors been held constant, the earnings would have

decreased/increased by $2,209 million, $2,118 million and $1,807 million, respectively.

b) Exchange rate risk

Banking book exchange rate risk refers to the risk of loss due to unfavorable changes in

exchange rates for the Bank‟s foreign currency operating funds to be used for the launch of a

foreign exchange business or the establishment of overseas branches. These exchange rate

differences are reflected under either the statement of comprehensive income or “exchange

differences on translating foreign operations in equity.

The Bank has a foreign exchange business and overseas branches. The percentage of the

foreign currency operating funds used for the foreign exchange business operations is low when

compared with the Bank‟s entire foreign currency position. For the operating funds of

overseas branches, the Bank considers the ratio of exchange differences on translating foreign

operations to net assets immaterial.

c) Equity risk

The Bank‟s equity instruments as shown in the banking book have two groups. The first

consists of investments in accordance with Article 74 of the Banking Act. The second group

refers to investments in promising companies with a higher cash dividend payout ratio. For

the second group, even though changes in equity prices may influence the stockholder‟s equity,

the Bank holds these investments for a long term and has strict regulations on buying or selling

these investments.

The sensitivity analysis for the second equity positions group is listed below:


The Influence

on the Income

Statement

The Influence

on the Balance

Sheet

The Influence

on the Income

Statement

The Influence

on the Balance

Sheet

The Influence

on the Income

Statement

The Influence

on the Balance

Sheet

Stock prices increased by 10% $ - $ 1,031,797 $ 40,973 $ 1,042,753 $ - $ 994,358

Stock prices

decreased by 10% - (1,031,797 ) (40,973 ) (1,042,753 ) - (994,358 )

7) Foreign currency rate risk information

The table below shows the foreign currency risk information for financial assets and liabilities

denominated in foreign currency at carrying value as of December 31, 2013, December 31, 2012

and January 1, 2012.

December 31, 2013

Foreign

Currencies

Exchange

Rate

New Taiwan

Dollars

Financial assets

Currency item

USD 11,999,142 29.9506 $ 359,381,490

CNY 17,171,320 4.9435 84,886,421

(Continued)

- 124 -

December 31, 2013

Foreign

Currencies

Exchange

Rate

New Taiwan

Dollars

JPY $ 59,108,975 0.2849 $ 16,840,147

HKD 5,919,884 3.8628 22,867,329

AUD 413,294 26.7294 11,047,107

EUR 282,725 41.2616 11,665,680


Currency item

USD 12,198,629 29.9506 365,356,259

CNY 13,563,841 4.9435 67,052,847

AUD 1,159,487 26.7294 30,992,390

JPY 71,405,810 0.2849 20,343,515

EUR 597,539 41.2616 24,655,423

HKD 3,347,049 3.8628 12,928,982

(Concluded)

December 31, 2012

Foreign

Currencies

Exchange

Rate

New Taiwan

Dollars

Financial assets

Currency item

USD 6,829,977 29.1358 $ 198,996,858

CNY 4,554,990 4.6808 21,320,999

JPY 57,503,593 0.3378 19,424,714

HKD 2,889,738 3.7585 10,861,079

AUD 340,534 30.2662 10,306,669

EUR 284,841 38.5349 10,976,320

Noncurrency item

USD 32,803 29.1358 955,749


Currency item

USD 8,117,689 29.1358 236,515,359

CNY 5,425,644 4.6808 25,396,355

AUD 748,395 30.2662 22,651,068

JPY 55,112,396 0.3378 18,616,967

EUR 326,396 38.5349 12,577,628

HKD 2,725,717 3.7585 10,244,609

- 125 -

January 1, 2012

Foreign

Currencies

Exchange

Rate

New Taiwan

Dollars

Financial assets

Currency item

USD 7,320,542 30.2897 $ 221,737,018

CNY 2,012,486 4.8151 9,690,321

JPY 53,915,798 0.3901 21,032,553

EUR 273,666 39.1243 10,706,986

AUD 291,691 30.7632 8,973,359

HKD 2,126,490 3.8993 8,291,824

Noncurrency item

USD 23,337 30.2897 706,874


Currency item

USD 8,954,477 30.2897 271,228,127

AUD 750,880 30.7632 23,099,467

CNY 2,096,110 4.8151 10,092,980

EUR 369,698 39.1243 14,464,158

JPY 18,942,854 0.3901 7,389,607

HKD 2,009,877 3.8993 7,837,113

48. CAPITAL MANAGEMENT

a. Overview

Under the “Regulation Governing the Capital Adequacy and Capital Category of Banks” implementing

Article 44 of the Banking Act for minimum requirements on the eligible capital and risk-weighted

assets (capital adequacy ratio), the Bank‟s eligible capital and consolidated eligible capital should be

higher than the statutory requirement. This is the fundamental principle of capital management.

For sound operations, the Bank has established internal control policies to ensure its capital adequacy

ratio meets the minimum regulatory requirement.

b. Capital management procedures

The Bank‟s capital is managed by the planning department in the administrative division. Eligible

capital is calculated according to “Regulations Governing the Capital Adequacy and Capital Category

of Banks,” and reported to the authority quarterly. Eligible capital is classified into net Tier 1 Capital

(the aggregate amount of net common equity Tier 1 and net additional Tier 1 Capital) and net Tier 2

Capital.

1) Net Tier 1 capital

a) Net common equity Tier 1: Common equity mainly includes common shares, capital surplus,

retained earnings and other equity, with the total less the following items: Intangible assets,

the deferred tax assets due to losses from the previous year, unrealized gains on

available-for-sale financial assets, the revaluation surplus of real estate, and 50% of the amount

of investments related to financial industry booked in banking book.

- 126 -

b) Net additional Tier 1 Capital: There was no balance.

2) Net Tier 2 capital

This capital base comprises the total amount of long-term subordinated bank debentures, the

increase in retained earnings resulting from using fair value or revaluation as the deemed cost of the

real estate on the translation date of IFRSs, and 45% of the amount of unrealized gain on

available-for-sale financial assets, operating reserves and loan loss provision allowance (the amount

is determined when the expected loss based on the historical experience is more than allowance the

Bank recognized) less 50% of the amount of investments related to financial industry booked in

banking book.

The Bank perform the evaluation of capital adequacy quarterly, and also evaluate the demand of

capital in the future, and raise the capital if needed to maintain capital adequacy.

c. Statement of capital adequacy

As of December 31, 2013, the Bank had met the authorities‟ minimum requirements for capital

adequacy ratio.

49. RECLASSIFICATIONS

On January 1, 2012, the Bank reclassified its financial assets. The fair values at the reclassification date

were as follows:

Before

Reclassification

After

Reclassification

Available-for-sale financial assets $ 12,052,604 $ -

Held-to-maturity financial assets - 12,052,604

$ 12,052,604 $ 12,052,604

The effective interest rates for the available-for-sale financial assets that have been reclassified to

held-to-maturity financial assets ranged from 0.52% to 9.95%. The estimated recoverable cash flows

amounted to $13,966,953 thousand.

The carrying amounts and fair values of the reclassified financial assets (excluding those that had been

derecognized) as of December 31, 2013 and 2012 were as follows:


2013 2012

Held-to-maturity financial assets

Carrying amounts $ 4,910,374 $ 8,330,944

Fair value 5,045,856 8,564,177

- 127 -

The gains or losses recorded for the reclassified financial assets (excluding those that had been

derecognized before December 31, 2013 and 2012) for the years ended December 31, 2013 and 2012 and

the pro forma adjustments recognized in other equity assuming no reclassifications had been made were as

follows:


2013 2012

Held-to-maturity financial assets

Gains recognized $ 203,248 $ 384,004

Pro forma adjustments recognized in other equity 291,286 361,419

50. BUSINESS COMBINATIONS

a. Subsidiaries acquired

Principal Activity Date of Acquisition

Proportion of

Voting Equity

Interests

Acquired (%)

Consideration

Transferred

First Sino Bank Banking industry January 7, 2014 51% $ 17,705,238

The Bank acquired 10% interest in First Sino Bank on December 31, 2013 and acquired an additional

41% interest on January 7, 2014, increasing its interest to 51%.

The purpose of the acquisition of interest in First Sino Bank is to gain majority control over the bank in

Mainland China for more growth potential and profitability. That is, the Bank‟s business development

in Mainland China, Taiwan and Hong Kong will further expand and the Bank‟s profitability will be

enhanced.

b. Considerations transferred

Acquisition-related costs were excluded from the consideration transferred and recognized as an

expense in the current year.

c. Assets acquired and liabilities assumed at the date of acquisition

First Sino Bank

Assets

Cash and cash equivalents $ 13,720,123

Due from the Central Bank of China and other banks 37,702,764

Financial assets at fair value through profit or loss 262,663

Securities purchased under agreements to resell 1,010,990

Receivables, net 4,173,683

Discounts and loans, net 149,788,605

Available-for-sale financial assets 6,215,285

Held-to-maturity financial assets, net 22,398,276

Property and equipment, net 7,902,304

Intangible assets 14,116,802

Deferred tax assets 738,113

Other assets, net 74,750

(Continued)

- 128 -

First Sino Bank

Liabilities

Due to the Central Bank of China and other banks $ (3,532,267)

Call loans (603,254)

Financial liabilities at fair value through profit or loss (231,464)

Payables (5,757,706)

Current tax liabilities (14,289)

Deposits and remittances (216,771,710)

Other liabilities (476,914)

$ 30,716,754

(Concluded)

The initial accounting for the acquisition of First Sino Bank had only been provisionally determined at

the end of the reporting period. The discount and loans acquired in these transactions had a fair value

of 149,788,605 thousand, and gross contractual amounts of 153,639,642 thousand, respectively. The

best estimate of the contractual cash flows not expected to be collected as at the acquisition date are

3,850,437 thousand.

d. Non-controlling interests

The non-controlling interest (49% ownership interest in First Sino Bank) recognized at the acquisition

date was measured by reference to the non-controlling interest‟s proportionate share of the acquiree‟s

net identifiable assets

e. Goodwill arising on acquisition

First Sino Bank

Consideration transferred $ 17,705,238

Plus: Non-controlling interests 15,051,209

Less: Fair value of identifiable net assets acquired (30,716,754)

Goodwill arising on acquisition $ 2,039,693

Goodwill arose in the acquisition of First Sino Bank because the cost of the combination included a

control premium. In addition, the consideration paid for the combination effectively included amounts

in relation to the benefit of expected synergies, revenue growth, and future market development.

At the date of finalization of these consolidated financial statements, the necessary market valuations

and other calculations had not been finalized and they have therefore only been provisionally

determined based on management‟s best estimate.

51. ASSET QUALITY, CONCENTRATION OF CREDIT EXTENSIONS, INTEREST RATE

SENSITIVITY, PROFITABILITY AND MATURITY ANALYSIS OF ASSETS AND LIABILITIES

The information showed below only includes the Bank.

a. Asset quality

See Table 1.

- 129 -

b. Concentration of credit extensions

December 31, 2013

(In Thousands of New Taiwan Dollars, %)

Rank

(Note 1) Group Name (Note 2)

Credit

Extensions

Balance

(Note 3)

% of Net

Asset

Value

(Note 4)

1 A Group (LCD and its component manufacturing industry) $ 11,197,824 8.40

2 B Group (iron and steel smelting industry) 10,130,817 7.60

3 C Group (LCD and its component manufacturing industry) 9,720,720 7.30

4 D Group (wire and cable manufacturing industry) 6,401,663 4.80

5 E Group (real estate industry) 6,296,303 4.73

6 F Group (real estate industry) 5,919,173 4.44

7 G Group (computer and its peripheral devices and software

wholesale industry)

5,815,184 4.36

8 H Group (petrochemical raw material manufacturing

industry)

5,653,787 4.24

9 I Group (real estate industry) 5,500,312 4.13

10 J Group (ocean transport industry) 5,252,689 3.94

December 31, 2012


Rank

(Note 1) Group Name (Note 2)

Credit

Extensions

Balance

(Note 3)

% of Net

Asset

Value

(Note 4)

1 A Group (LCD and its component manufacturing industry) $ 12,362,933 11.58

2 B Group (iron and steel smelting industry) 12,176,822 11.41

3 C Group (LCD and its component manufacturing industry) 11,407,350 10.69

4 D Group (unclassified other electronic component industry) 8,021,559 7.52

5 E Group (real estate industry) 6,942,000 6.50

6 F Group (artificial fiber manufacturing industry) 6,481,182 6.07

7 G Group (wire and cable manufacturing industry) 6,031,928 5.65

8 H Group (Electronic component manufacturing industry) 5,795,046 5.43

9 I Group (Textile industry) 5,658,850 5.30

10 J Group (petrochemical raw material manufacturing industry) 5,646,400 5.29

Note 1: The list shows ranking by total amounts of credit, endorsement or other transactions

(excluding those of government-owned or state-run enterprises). If the borrower is a

member of a group enterprise, the total amount of credit, endorsement or other transactions of

the entire group enterprise must be listed and disclosed by code and line of industry. The

industry of the group enterprise should be presented as the industry of the member firm with

the highest risk exposure. The lines of industry should be described in accordance with the

Standard Industrial Classification System of the Republic of China published by the

Directorate-General of Budget, Accounting and Statistics under the Executive Yuan.

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

Supplementary Provisions to the Taiwan Stock Exchange Corporation Criteria for Review of

Securities Listings.

- 130 -

Note 3: The total amount of credits, endorsements or other transactions is the sum of various loans

(including import and export negotiations, discounted, overdrafts, unsecured and secured

short-term loans, margin loans receivable, unsecured and secured medium-term loans,

unsecured and secured long-term loans and overdue loans), exchange bills negotiated,

accounts receivable factored without recourse, acceptances and guarantees.

Note 4: Net asset value is based on each of period.

c. Interest rate sensitivity information

Interest Rate Sensitivity (New Taiwan Dollars)

December 31, 2013


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

One Year Over One Year Total

Interest rate-sensitive assets $ 1,068,471,159 $ 70,041,731 $ 40,002,242 $ 32,356,566 $ 1,210,871,698

Interest rate-sensitive liabilities 404,124,091 542,227,919 63,260,364 78,474,337 1,088,086,711

Interest rate sensitivity gap 664,347,068 (472,186,188 ) (23,258,122 ) (46,117,771 ) 122,784,987

Net worth 122,610,587

Ratio of interest rate-sensitive assets to liabilities 111.28%

Ratio of the interest rate sensitivity gap to net worth 100.14%

Note 1: The above amounts included only New Taiwan dollar amounts held by the Bank, and exclude

contingent assets and contingent liabilities.

Note 2: Interest-rate sensitive assets and liabilities mean the revenues or costs of interest-earnings

assets and interest-bearing liabilities 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 (New Taiwan dollars).

Interest Rate Sensitivity (New Taiwan Dollars)

December 31, 2012




Interest rate-sensitive assets $ 1,032,445,032 $ 85,738,834 42,979,644 $ 61,690,192 $ 1,222,853,702

Interest rate-sensitive liabilities 396,600,808 504,042,331 103,978,232 82,535,155 1,087,156,526

Interest rate sensitivity gap 635,844,224 (418,303,497 ) (60,998,588 ) (20,844,963 ) 135,697,176

Net worth 98,821,821


Ratio of the interest rate sensitivity gap to net worth 137.31%

Note 1: The above amounts included only New Taiwan dollar amounts held by the onshore branches

of the Bank (i.e., excluding foreign currency). In compliance with Central Bank‟s

supervision policies, the above data is prepared for off-site monitoring by 15th of next month.



Note 3: Interest rate sensitivity gap = Interest rate-sensitive assets - Interest rate-sensitive liabilities.


sensitive liabilities (New Taiwan dollars).

- 131 -

Interest Rate Sensitivity (U.S. Dollars)

December 31, 2013

(In Thousands of U.S. Dollars, %)



Interest rate-sensitive assets $ 8,000,996 $ 718,393 $ 912,070 $ 528,821 $ 10,160,280

Interest rate-sensitive liabilities 9,515,632 526,345 811,685 225,044 11,078,706

Interest rate sensitivity gap (1,514,636 ) 192,048 100,385 303,777 (918,426 )

Net worth 312,930


Ratio of the interest rate sensitivity gap to net worth (293.49% )

Note 1: The above amounts include only USD amounts held by the Bank, and exclude contingent

assets and contingent liabilities.



Note 3: Interest-rate sensitive gap = Interest-rate sensitive assets - Interest-rate sensitive liabilities.


sensitive liabilities (U.S. dollars).

Interest Rate Sensitivity (U.S. Dollars)

December 31, 2012

(In Thousands of U.S. Dollars, %)



Interest rate-sensitive assets $ 5,613,964 $ 462,836 $ 368,224 $ 285,534 $ 6,730,558

Interest rate-sensitive liabilities 7,575,522 400,245 598,548 120,119 8,694,434

Interest rate sensitivity gap (1,961,558 ) 62,591 (230,324 ) 165,415 (1,963,876 )

Net worth 200,575


Ratio of the interest rate sensitivity gap to net worth (979.12% )

Note 1: The above amounts include only USD amounts held by the onshore branches, OBU and

offshore branches of the Bank, and exclude contingent assets and contingent liabilities. In

compliance with Central Bank‟s supervision policies, the above data is prepared for off-site

monitoring by 15th of next month.



Note 3: Interest-rate sensitive gap = Interest-rate sensitive assets - Interest-rate sensitive liabilities.


sensitive liabilities (U.S. dollars).

d. Profitability

(%)

Item

For the Year Ended

December 31

2013 2012

Return on total assets Before income tax 0.84 0.97

After income tax 0.72 0.83

Return on net worth Before income tax 11.84 15.10

After income tax 10.10 13.03

Profit margin 35.99 44.37

- 132 -

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 represents income for the years ended December 31, 2013

and 2012.

e. Maturity analysis of assets and liabilities

Maturity Analysis of Assets and Liabilities (New Taiwan Dollars)

December 31, 2013


Total The Amount for the Remaining Period to Maturity

1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year

Main capital inflow

on maturity $ 1,756,568,229 $ 484,047,077 $ 235,454,991 $ 160,154,723 $ 205,437,129 $ 671,474,309

Main capital outflow

on maturity 2,040,466,311 334,849,391 338,544,195 266,976,904 371,081,907 729,013,914

Gap (283,898,082 ) 149,197,686 (103,089,204 ) (106,822,181 ) (165,644,778 ) (57,539,605 )

Maturity Analysis of Assets and Liabilities (New Taiwan Dollars)

December 31, 2012




Main capital inflow

on maturity $ 1,611,809,768 $ 471,011,544 $ 179,256,536 $ 159,655,075 $ 158,864,445 $ 643,022,168

Main capital outflow

on maturity 1,835,187,420 276,934,997 304,449,853 220,725,760 363,639,327 669,437,483

Gap (223,377,652 ) 194,076,547 (125,193,317 ) (61,070,685 ) (204,774,882 ) (26,415,315 )

Note: The above amounts included only New Taiwan dollar amounts held in the onshore branches of

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

Maturity Analysis of Assets and Liabilities (U.S. Dollars)

December 31, 2013

(In Thousands of U.S. Dollars)



Capital inflow on

maturity $ 50,312,522 $ 20,025,772 $ 11,828,654 $ 7,496,475 $ 5,538,826 $ 5,422,795

Capital outflow on

maturity 52,668,781 21,072,255 11,822,837 7,505,376 6,478,050 5,790,263

Gap (2,356,259 ) (1,046,483 ) 5,817 (8,901 ) (939,224 ) (367,468 )

Note 1: The above amounts are book value held by the Bank in U.S. dollars.

Note 2: If the overseas assets are at least 10% of the total assets, there should be additional

disclosures.

- 133 -

Maturity Analysis of Assets and Liabilities (U.S. Dollars)

December 31, 2012

(In Thousands of U.S. Dollars)



Capital inflow on

maturity $ 21,755,389 $ 6,892,800 $ 6,097,215 $ 3,177,972 $ 2,224,960 $ 3,362,442

Capital outflow on

maturity 22,120,635 7,836,811 4,995,649 3,083,640 2,488,032 3,716,503

Gap (365,246 ) (944,011 ) 1,101,566 94,332 (263,072 ) (354,061 )

Note 1: The above amounts are book value held by the onshore branches and offshore banking unit of

the Bank in U.S. dollars, without off-balance amounts (for example, the issuance of negotiable

certificate of deposits, bonds or stocks).

Note 2: If the overseas assets are at least 10% of the total assets, there should be additional

disclosures.

52. STATEMENT OF CAPITAL ADEQUACY

Statement of Capital Adequacy


Year (Note 2)

Analysis

December 31, 2013

Consolidation Standalone

Eligible capital

Common equity $ 121,454,300 $ 121,424,790

Other Tier 1 capital - -

Tier 2 capital 35,956,655 35,927,146

Eligible capital 157,410,955 157,351,936

Risk-weighted assets

Credit risk

Standardized approach 1,055,186,491 1,055,183,284

Internal rating - based approach - -

Securitization 3,067,937 3,067,937

Operational risk

Basic indicator approach - -

Standardized approach/alternative standardized

approach 51,694,800 51,688,963

Advanced measurement approach - -

Market risk Standardized approach 60,012,813 60,012,813

Internal models approach - -

Total risk-weighted assets 1,169,962,041 1,169,952,997

Capital adequacy rate 13.45% 13.45%

Common equity - based capital ratio 10.38% 10.38%

Tier 1 risk - based capital ratio 10.38% 10.38%

Leverage ratio 5.11% 5.11%

Note 1: The above table was prepared in accordance with the “Regulations Governing the Capital

Adequacy Ratio of Banks” and related calculation tables.

Note 2: The formula:

1) Eligible capital = Common equity + Other Tier 1 capital + Tier 2 capital.

2) Total risk-weighted asset = Risk-weighted assets for credit risk + (Capital requirements for

operational risk + Capital requirement for market risk) × 12.5.

3) Ratio of capital adequacy = Eligible capital/Total risk-weighted assets.

4) Common equity-based capital ratio = Common equity/Total risk-weighted assets.

5) Tier 1 risk-based capital ratio = (Common equity + Other Tier 1 capital)/Total risk-weighted

assets.

- 134 -

6) Leverage ratio = Tier 1 capital/Total exposure.

Statement of Capital Adequacy


Year (Note 2)

Analysis

December 31, 2012

Consolidation Standalone

Eligible capital

Tier 1 capital $ 99,531,072 $ 99,498,204

Tier 2 capital 40,309,498 40,276,630

Tier 3 capital - -

Eligible capital 139,840,570 139,774,834

Risk-weighted assets

Credit risk

Standardized approach 892,026,552 892,021,138

Internal rating - based approach - -

Securitization 3,121,321 3,121,321

Operational risk

Basic indicator approach - -

Standardized approach/alternative standardized

approach 46,832,138 46,836,188

Advanced measurement approach - -

Market risk Standardized approach 63,593,913 63,593,913

Internal models approach - -

Total risk-weighted assets 1,005,573,924 1,005,572,560

Capital adequacy rate 13.91% 13.90%



Tier 3 risk - based capital ratio - -

Ratios of common stockholders‟ equity to total assets 3.58% 3.58%

Leverage ratio 6.41% 6.41%

Note 1: The above table was prepared in accordance with the “Regulations Governing the Capital

Adequacy Ratio of Banks” and related calculation tables.

Note 2: The formula:

1) Eligible capital = Tier 1 capital + Tier 2 capital + Tier 3 capital.

2) Total risk-weighted asset = Risk-weighted assets for credit risk + (Capital requirements for

operational risk + Capital requirement for market risk) × 12.5.

3) Ratio of capital adequacy = Eligible capital/Total risk-weighted assets.

4) Tier 1 risk-based capital ratio = Tier 1 capital/Total risk-weighted assets.



7) Ratios of common stockholder‟s equity to total assets = Common stock/Total assets.

8) Leverage ratio = Tier 1 capital/Adjusted average assets (Average assets minus goodwill,

unamortized losses on sale of nonperforming loans and the amount deducted from Tier 1

capital according to “Regulations Governing the Capital Adequacy Ratio of Banks”)

53. SEGMENT INFORMATION

The segment information reported to chief operating decision maker for assessment of segment

performance focuses on the nature of business operations and pretax profit or loss.

- 135 -

The accounting standards and policies aforementioned in Note 4 to the consolidated financial statements

apply to all the business segments. Under IFRS 8 “Operating Segments,” the Bank and its subsidiary

report the following:

a. Personal finance group: Responsible for wealth management and trust business, consumer finance and

lottery operations, etc.

b. Corporate banking group: Responsible for corporate and investment banking, financial markets, loan

management and public treasury, etc.

The reportable segments have changed in November 2013 due to internal reorganization; consequently, the

Bank and its subsidiary have restated prior period segment data to reflect the newly reportable segment.

Information on segment revenue and operating results is as follows:

a. Segment revenue and operating result

Year ended December 31, 2013


Segment

Item

Retail

Banking

Institutional

Banking Others Total

Net interest $ 6,684,944 $ 9,269,542 $ (179,352) $ 15,775,134

External net interest 3,815,411 11,993,601 (33,878) 15,775,134

Internal net interest 2,869,533 (2,724,059) (145,474) -

Other noninterest net revenues 9,225,268 7,516,243 1,112,526 17,854,037

Net revenues 15,910,212 16,785,785 933,174 33,629,171

Reversal of allowance

(allowance) for bad debts 333,159 (490,264) (3,700,000) (3,857,105)

Operating expense (8,520,665) (4,728,058) (2,333,351) (15,582,074)

Income before income tax 7,722,706 11,567,463 (5,100,177) 14,189,992

Year ended December 31, 2012


Segment

Item

Retail

Banking

Institutional

Banking Others Total

Net interest $ 6,637,865 $ 7,845,487 $ 146,882 $ 14,630,234

External net interest 3,605,926 10,603,953 420,355 14,630,234

Internal net interest 3,031,939 (2,758,466) (273,473) -

Other noninterest net revenues 7,817,891 5,274,804 1,518,590 14,611,285

Net revenues 14,455,756 13,120,291 1,665,472 29,241,519

Reversal of allowance

(allowance) for bad debts 567,475 (25,158) - 542,317

Operating expense (8,264,506) (4,361,201) (2,117,704) (14,743,411)

Income before income tax 6,758,725 8,733,932 (452,232) 15,040,425

- 136 -

b. Geographical information

The Bank and its subsidiary‟s net revenue from external customers by location of operations are as

below:


2013 2012

Taiwan $ 30,671,382 $ 26,910,083

Asia 2,618,953 2,006,774

Others 338,836 324,662

$ 33,629,171 $ 29,241,519

54. FIRST-TIME ADOPTION OF IFRSs

a. Basis of the preparation for financial information under IFRSs

The Bank and its subsidiary‟s consolidated financial statements for the year ended December 31, 2013

were the first IFRS interim financial statements. The Bank and its subsidiary not only follow the

significant accounting policies stated in Note 4 but also apply the requirements under IFRS 1

“First-time Adoption of IFRS” approved by the FSC as the basis for the preparation.

b. Effects on transition to IFRSs

After transition to IFRSs, the effect on the Bank and its subsidiary‟s consolidated balance sheets and

consolidated statements of comprehensive income is stated as follows:

1) Reconciliation of the consolidated balance sheet as of January 1, 2012

R.O.C. GAAP

Presentation

Differences

Recognition and

Measurement

Difference IFRSs

Item Amount Amount Amount Amount Item Note

Assets Assets

Cash and cash equivalents $ 27,224,781 $ - $ - $ 27,224,781 Cash and cash equivalents

Due from the Central Bank of

China and other banks 73,099,143 - - 73,099,143 Due from the Central Bank of

China and other banks


through profit or loss 59,148,103 - 493,716 59,641,819 Financial assets at fair value


5) b)


agreements to resell 200,000 - - 200,000 Securities purchased under

agreements to resell

Receivables, net 66,839,403 (1,161,175 ) 458,811 66,137,039 Receivables, net 5) b), 5) d), 5) k)

- 1,258,173 - 1,258,173 Current tax assets 5) k)

Discounts and loans, net 952,718,962 - - 952,718,962 Discounts and loans, net


assets

49,387,099 - 959,837 50,346,936 Available-for-sale financial

assets

5) a)

Held-to-maturity financial

assets

256,826,642 - - 256,826,642 Held-to-maturity financial

assets

Investments accounted for by

the equity method

96,239 - - 96,239 Investments accounted for by

the equity method

Other financial assets 5,107,109 (1,962,739 ) (357,346 ) 2,787,024 Other financial assets 5) a), 5) k)

- 693,488 - 693,488 Hedging derivative financial

assets

5) k)

Properties, net 11,222,754 - 55,401 11,278,155 Property and equipment, net; 5) i)

Intangible assets 1,753,629 - - 1,753,629 Intangible assets

Other assets, net 2,356,598 (708,091 ) (47,261 ) 1,601,246 Other assets, net 5) d), 5) k)

- 1,734,175 - 1,734,175 Investment properties, net 5) c)

-

193,640

141,677

335,317

Deferred income tax assets 5) d), 5) e), 5) f),

5) g), 5) i), 5) k)

Total $ 1,505,980,462 $ 47,471 $ 1,704,835 $ 1,507,732,768 Total

Liabilities Liabilities

Due to the Central Bank of


$ 56,759,776 $ - $ - $ 56,759,776 Due to the Central Bank of




22,747,531 - - 22,747,531 Financial liabilities at fair value


(Continued)

- 137 -

R.O.C. GAAP Presentation

Differences

Recognition and

Measurement

Difference IFRSs


Securities sold under

agreements to repurchase $ 28,503,088 $ - $ - $ 28,503,088 Securities sold under

agreements to repurchase

Payables 28,935,835 (1,005,497 ) 573,385 28,503,723 Payables 5) b), 5) f), 5) h),

5) k)

- 993,236 - 993,236 Current tax liabilities 5) k)

Deposits and remittances 1,183,392,509 - - 1,183,392,509 Deposits and remittances

Bank debentures 62,143,488 - - 62,143,488 Bank debentures

Other financial liabilities 26,702,456 (1,200,393 ) - 25,502,063 Other financial liabilities 5) k)


liabilities

5) k)

Other liabilities 3,842,637 (106,312 ) 512,608 4,248,933 Other liabilities 5) h), 5) k)

- 524,632 754,407 1,279,039 Provisions 5) d), 5) e), 5) g),

5) i), 5) k)

- 413,653 87,369 501,022 Deferred income tax liabilities 5) a), 5) k)

Total liabilities 1,413,027,320 47,471 1,927,769 1,415,002,560 Total liabilities

Stockholder‟s equity Equity

Capital stock 51,092,871 - - 51,092,871 Capital stock

Capital surplus 13,613,508 - - 13,613,508 Capital surplus

Retained earnings 24,796,778 - 126,525 24,923,303 Retained earnings 5) j)

Other items on stockholder‟s

equity

3,449,985

-

(349,459 )

3,100,526

Other items on equity 5) a), 5) j)

Total stockholder‟s equity 92,953,142 - (222,934 ) 92,730,208 Total equity

Total $ 1,505,980,462 $ 47,471 $ 1,704,835 $ 1,507,732,768 Total

(Concluded)

2) Reconciliation of the consolidated balance sheet as of December 31, 2012


Differences

Recognition and

Measurement

Difference IFRSs


Assets Assets

Cash and cash equivalents $ 31,820,002 $ - $ - $ 31,820,002 Cash and cash equivalents

Due from the Central Bank of

China and other banks 70,851,850 - - 70,851,850 Due from the Central Bank of



through profit or loss 84,436,201 - 257,291 84,693,492 Financial assets at fair value


5) b)



16,343,491 - - 16,343,491 Securities purchased under


Receivables, net 60,074,694 (527,711 ) 100,304 59,647,287 Receivables, net 5) b), 5) d), 5) k)

- 532,680 - 532,680 Current tax assets 5) k)

Discounts and loans, net 1,026,535,634 - - 1,026,535,634 Discounts and loans, net


assets 66,010,253 - 1,261,683 67,271,936 Available-for-sale financial

assets

5) a), 5) b)

Held-to-maturity financial

assets 227,013,136 - - 227,013,136 Held-to-maturity financial

assets

Investments accounted for by

the equity method

118,951 - - 118,951 Investments accounted for by

the equity method

Other financial assets 5,124,432 (2,562,238 ) (357,346 ) 2,204,848 Other financial assets 5) a), 5) k)


assets

5) k)

Properties, net 11,213,627 - 49,019 11,262,646 Property and equipment, net; 5) i)

Intangible assets 1,585,803 - - 1,585,803 Intangible assets

Other assets, net 2,257,199 204,126 - 2,461,325 Other assets, net 5) k)

- 1,775,982 - 1,775,982 Investment properties, net 5) c)

-

144,373

200,915

345,288

Deferred income tax assets 5) d), 5) e), 5) f),

5) g), 5) i), 5) k)

Total $ 1,603,385,273 $ 45,956 $ 1,511,866 $ 1,604,943,095 Total

Liabilities Liabilities

Due to the Central Bank of

China and other banks $ 69,753,342 $ - $ - $ 69,753,342 Due to the Central Bank of



through profit or loss 19,612,456 - - 19,612,456 Financial liabilities at fair value


Securities sold under

agreements to repurchase 26,360,932 - - 26,360,932 Securities sold under

agreements to repurchase

Payables 34,401,302 (1,518,608 ) 124,426 33,007,120 Payables 5) b), 5) f), 5) h),

5) k)

- 1,508,732 - 1,508,732 Current tax liabilities 5) k)

Deposits and remittances 1,247,741,397 - - 1,247,741,397 Deposits and remittances

Bank debentures 66,929,382 - - 66,929,382 Bank debentures

Other financial liabilities 28,695,549 (1,050,965 ) - 27,644,584 Other financial liabilities 5) k)


liabilities

5) k)

Other liabilities 3,152,685 (116,030 ) 456,367 3,493,022 Other liabilities 5) h), 5) k)

- 407,094 1,106,700 1,513,794 Provisions 5) d), 5) e), 5) g),

5) i), 5) k)

- 462,813 129,678 592,491 Deferred income tax liabilities 5) a), 5) k)

Total liabilities 1,496,647,045 45,956 1,817,171 1,498,510,172 Total liabilities

(Continued)

- 138 -


Differences

Recognition and

Measurement

Difference IFRSs


Stockholder‟s equity Equity

Capital stock $ 57,430,769 $ - $ - $ 57,430,769 Capital stock

Capital surplus 13,613,508 - - 13,613,508 Capital surplus

Retained earnings 31,453,084 - (162,919 ) 31,290,165 Retained earnings 5) j)

Other items on stockholder‟s

equity

4,240,867

-

(142,386 )

4,098,481

Other items on equity 5) a), 5) j)

Total stockholder‟s equity 106,738,228 - (305,305 ) 106,432,923 Total equity

Total $ 1,603,385,273 $ 45,956 $ 1,511,866 $ 1,604,943,095 Total

(Concluded)

3) Reconciliation of the consolidated statement of comprehensive income for the year ended

December 31, 2012

R.O.C. GAAP

Presentation

Differences

Recognition and

Measurement

Difference IFRSs


Interest revenues $ 26,888,311 ($ 589,099 ) $ - $ 26,299,212 Interest revenues 5) k)

Interest expenses (11,762,352 ) - 93,374 (11,668,978 ) Interest expenses 5) e), 5) i)

Net interest 15,125,959 (589,099 ) 93,374 14,630,234 Net interest

Commission and fee revenues,

net

8,274,956 - - 8,274,956 Commission and fee revenues,

net

Gains on financial assets and

liabilities at fair value


3,439,061 589,099 - 4,028,160 Gains on financial assets and

liabilities at fair value


5) k)

Realized gains on

available-for-sale financial

assets

744,332 - - 744,332 Realized gains on


assets

Investment income recognized

under the equity method, net

7,157 - - 7,157 Share of the profit of the

associate

Foreign exchange gains, net 1,139,902 - - 1,139,902 Foreign exchange gains, net

Reversal of impairment loss on

assets

49,055 - - 49,055 Reversal of impairment loss on

assets

Losses due to shortfall of

guaranteed sports lottery

earnings

(395,589 ) - - (395,589 ) Losses due to shortfall of

guaranteed sports lottery

earnings

Other noninterest net revenues 772,628 (9,091 ) (225 ) 763,312 Other noninterest net revenues 5) c), 5) k)


interest

14,031,502

580,008

(225 )

14,611,285


interest

Total net revenues 29,157,461 (9,091 ) 93,149 29,241,519 Total net revenues

Reversal of allowance for bad

debts

542,317 - - 542,317 Reversal of allowance for bad

debts and reserve for losses

on guarantees

Operating expenses (14,634,206 )

9,091

(118,296 )

(14,743,411 )

Operating expenses 5) d), 5) e), 5) f),

5) g), 5) i), 5) k)

Income before tax from

continuing operations

15,065,572 - (25,147 ) 15,040,425 Income before tax from

continuing operations

Income tax expense (2,071,368 )

-

4,237

(2,067,131 )

Income tax expense 5) d), 5) e), 5) f),

5) g), 5) i)

Consolidated net income $ 12,994,204 $ - $ (20,910 ) 12,973,294 Consolidated net income

Other comprehensive income

(223,631 ) Exchange differences on

translating foreign operations

1,281,665 Unrealized gain on


assets

15,555 Share of the other

comprehensive income of the

associate

(323,535 ) Actuarial loss on defined

benefit plans

5) d), 5) e)

(20,633 )

Income tax relating to the

components of other

comprehensive income

729,421

Other comprehensive income

(net of tax)

$ 13,702,715 Total comprehensive income

- 139 -

4) Exemptions under IFRS 1

IFRS 1 “First-time Adoption of International Financial Reporting Standards” states the procedures

that an entity must follow when it adopts IFRSs for the first time. Under IFRS 1, the Bank and its

subsidiary should establish the accounting policies under IFRSs, which should be applied

retrospectively to the opening balance sheet at the date of transition to IFRSs (i.e., January 1, 2012).

The IFRS 1 grants several exemptions for the adoption. The main exemptions and retrospective

applications the Bank and its subsidiary applied are summarized as follows:

Business combinations

The Bank and its subsidiary had elected not to apply IFRS 3 “Business Combination”

retrospectively for business combinations that occurred before the date of transition to IFRSs.

Thus, in the opening balance sheet on January 1, 2012, the amounts of goodwill generated from past

business combinations and the related assets and liabilities and non controlling interest in the

balance sheet remain the same as those as of December 31, 2011 under ROC GAAP.

The above exemptions also applied to the Bank and its subsidiary‟s investment in their associates

before the IFRS transition date.

Decommissioning liabilities included in the cost of property and equipment

The Bank and its subsidiary elected to measure decommissioning liabilities as at the date of

transition IFRSs in accordance with International Accounting Standards (IAS) 37 “Provisions,

Contingent Liabilities and Contingent Assets”, estimated the amount that would have been included

in the cost of the related asset when the liability first arose by discounting the liability to the date,

and calculated the accumulated depreciation on that amount, as at the date of transition to IFRSs.

Employee benefits

On the IFRS transition date, the Bank and its subsidiary recognized in retained earnings all

unrecognized cumulative actuarial gain and loss related to employee benefit plans.

Designation of the recognized financial assets and liabilities

The Bank and its subsidiary designated some of equity investments carried at cost as

available-for-sale financial assets on the IFRS transition date.

Designated as

Available-for-

sale Financial

Assets

Fair value (deemed cost under IFRSs) $ 959,837

Carrying amount (in accordance with ROC GAAP) 357,346

Adjusted amount to assets $ 602,491

With adjustments to:

Deferred tax liabilities $ 87,369

Other equity: Investments revaluation reserve 515,122

$ 602,491

- 140 -

Deemed cost

The Bank and its subsidiary elected to use ROC GAAP revaluations of the certain landholdings as

deemed cost on the transition date of IFRSs. For other property and equipment, investment

property, and intangible assets, the cost model was applied retrospectively.

Cumulative translation differences

The Bank and its subsidiary‟s translation differences of foreign operations were applied

retrospectively according to the related regulations at the date of transition to IFRSs.

5) Reconciliations on transition to IFRSs

The Bank and its subsidiary identified significant differences between the accounting policy under

ROC GAAP and IFRS, which are summarized as follows:

a) Financial assets carried at cost under IFRSs

Under the amended Regulations Governing the Preparation of Financial Reports by Public

Banks, a financial asset is considered as measured at cost if it meets the following two

conditions: (i) It is an investment in an equity instrument with no quoted price in an active

market or in a derivative instrument that is linked to this equity instrument, and the investment

transaction is settled by the delivery of the financial instrument. (ii) It is a financial asset with

a fair value that cannot be reliably measured.

As of December 31, 2012 and January 1, 2012, the financial assets originally carried at cost

(included in other financial assets) but not meeting the above conditions in the amount of

$357,346 thousand and were reclassified to available-for-sale financial assets at the fair values

of $1,209,219 thousand and $959,837 thousand, respectively. In connection with this

reclassification, deferred income tax liabilities of $129,678 thousand and $87,369 thousand,

respectively, and unrealized gains of $722,195 thousand and $515,122 thousand were

recognized as of December 31, 2012 and January 1, 2012, respectively (net of tax, included in

other items under stockholder‟s equity) on financial instruments.

b) Regular way transactions

Under ROC GAAP, the Bank and its subsidiary uses settlement date accounting for bond

transactions. Under IFRSs, bond transactions should be recorded using trade date accounting.

Under IAS 39 “Financial Instruments: Recognition and Measurement,” as of December 31,

2012, financial assets at fair value through profit or loss and available-for-sale financial assets

increased by $257,291 thousand and $52,464 thousand, respectively, and receivables, and

payables increased by $99,610 thousand and $409,365 thousand, respectively. Under IAS No.

39, as of January 1, 2012, financial assets at fair value through profit or loss, receivables, and

payables increased by $493,716 thousand, $457,891 thousand, and $951,607 thousand,

respectively.

c) Investment properties

Under ROC GAAP, rental assets are recognized as other assets. Under IFRSs, assets held for

earning rental income, or for capital appreciation, or for both purposes, are reclassified to

investment properties. Thus, assets with the above purposes will be reclassified to investment

properties.

Under IAS 40 “Investment Property,” the Bank and its subsidiary reclassified the assets as of

December 31, 2012 and January 1, 2012, which amounted to $1,775,982 thousand and

$1,734,175 thousand, respectively, from other assets to investment properties.

- 141 -

d) Employment benefit - actuarial gain and loss of defined benefit plan

Under ROC GAAP, actuarial gains and losses are recognized under the corridor approach.

These actuarial gains and losses are amortized on a straight line basis over average service years

of the participating employees. However, under IAS No. 19 “Employee Benefits,” the Bank

and its subsidiary elected to recognize actuarial gains and losses on defined benefit obligations

immediately as other comprehensive income. The subsequent reclassification to earnings is

not permitted.

The Bank and its subsidiary applied IAS 19 to reevaluate its defined benefit plan. The Bank

and its subsidiary also adjusted the related accounts as of December 31, 2012 and January 1,

2012 in accordance with IFRS 1, which resulted in increases of $421,359 thousand and

$213,680 thousand, respectively, in employee benefit liabilities, increases of $694 thousand and

$919 thousand, respectively, in account receivables, increases of $63,597 thousand and $36,326

thousand, respectively, in deferred tax assets, and decreases of $0 thousand and $47,261

thousand, respectively, in other assets. In addition, for the year ended December 31, 2012,

employee benefit expense decreased $2,104 thousand; income tax expense increased $358

thousand, and for the year ended December 31, 2012, other income decreased $225 thousand.

In addition, other comprehensive income for 2012 decreased $134,894 thousand due to actuarial

valuation loss.

e) Employment benefit - preferential interest on employees‟ deposits

Based on Article 28 of the amended Regulations Governing the Preparation of Financial

Reports by Public Banks (the “Regulations”), if the preferential deposit interest rate that the

Bank has offered to employees as stated in the employment contract exceeds the market interest

rate, the excess will be subject to IAS 19 “Employee Benefits” upon the employees‟ retirement.

As of December 31, 2012 and January 1, 2012, the Bank and its subsidiary applied actuarial

valuation to preferential interest on retired employees‟ deposits in conformity with IAS 19 and

the Regulations, and the employee benefits liability was thus adjusted for increases of $548,328

thousand and $396,377 thousand, respectively. Deferred tax assets was adjusted for increases

of $93,216 thousand and $67,384 thousand, respectively. For the year ended December 31,

2012, employment benefit expense was adjusted for decreases of $9,061 thousand, and income

tax expense was adjusted for increases of $1,540 thousand. In addition, interest expense of

$94,527 thousand for employees‟ deposits (including active and retired employees) was

reclassified to employment benefit expense. Also, comprehensive income for 2012 decreased

by $133,640 thousand because of actuarial valuation loss.

f) Employee benefits - short-term cumulative compensated absences

There is no clear accounting treatment under ROC GAAP for short-term cumulative

compensated absences. The obligations on these absences are usually recognized when

employees actually take their leaves. Under IFRSs, the Bank and its subsidiary should

recognize the expected cost of compensated absences as the employees render services that

increase their entitlement to these compensated absences.

As of December 31, 2012 and January 1, 2012, payables due to short-term cumulative

compensated absences was adjusted for increases of $171,428 thousand and $134,386 thousand,

respectively, and deferred tax assets was adjusted for increases of $29,143 thousand and

$22,846 thousand, respectively. For the year ended December 31, 2012, the employee benefit

expense increased by $37,042 thousand, and income tax expense decreased by $6,297 thousand.

- 142 -

g) Employee benefits - consolation payment

There are no provisions for consolation payment under ROC GAAP. Under IAS 19, the Bank

should use actuarial reports to recognize employee benefits expense and liability.

As of December 31, 2012 and January 1, 2012, the liability due to consolation payment was

adjusted for increases of $60,345 thousand and $69,398 thousand, respectively, and deferred tax

assets was adjusted for increases of $10,259 thousand and $11,798 thousand, respectively. For

the year ended December 31, 2012, the employee benefits expense decreased by $9,053

thousand, and income tax expense increased by $1,539 thousand.

h) Customer loyalty programs

The Bank and its subsidiary have a reward points program for credit card users. Under ROC

GAAP, the liability from the bonus points earned by customers on the use of credit cards is

estimated and then recorded as selling expenses as bonus points are granted. Under IFRIC

(International Financial Reporting Interpretations Committee) 13 “Customer Loyalty

Programmes,” the commission and fee revenues on the reward points in transaction should be

deferred, and the deferred amounts should recognized as income when the reward points are

actually exchanged or expire.

As of December 31, 2012 and January 1, 2012, the liabilities arising from the reward points

(included in payables), which amounted to $456,367 thousand and $512,608 thousand,

respectively, were reclassified to deferred income (included in other liabilities).

i) Decommissioning costs and liabilities

The Bank and its subsidiary recognized decommissioning costs and liabilities according to

IFRSs endorsed by the FSC.

As of December 31, 2012 and January 1, 2012, due to the recognition of decommissioning costs

and liabilities, properties and equipment were adjusted for increases of $49,019 thousand and

$55,401 thousand, respectively; provisions were adjusted for increases of $76,668 thousand and

$74,952 thousand respectively; and deferred tax asset were adjusted for increases of $4,700

thousand and $3,323 thousand, respectively. In addition, for the year ended December 31,

2012, depreciation were adjusted for increases of $6,945 thousand; interest expense were

adjusted for increases of $1,153 thousand and income tax expense was adjusted for decreases of

$1,377 thousand.

j) Reconciliation of retained earnings

The differences as of January 1, 2012 between the retained earnings under ROC GAAP and

those under IFRSs are mostly due to the adoption of IFRS 1, which requires the making of

certain adjustments on the IFRS transition date. Thus, retained earnings were adjusted for (a)

an increase of $864,581 thousand due to unrealized revaluation increment of land, (b) a decrease

of $610,288 thousand due to the effects of preferential interest on retired employees‟ deposits,

defined benefit plan, and consolation payment, (c) a decrease of $111,540 thousand due to the

effect of accrued compensated absence expenses based on the Labor Standards Law, and (d) an

decrease of $16,228 thousand due to the effect of decommissioning costs and liabilities.

k) Presentation differences

Other presentation differences on consolidated balance sheet and consolidated statement of

comprehensive income were adjusted in line with items under IFRSs.

- 143 -

6) Reconciliation on equity

December 31,

2012 January 1, 2012

Equity under ROC GAAP $ 106,738,228 $ 92,953,142

Adjustments:

Defined benefit plan (357,069) (223,695)

Preferential interest on employees‟ deposits (455,112) (328,993)

Short-term cumulative compensated absences (142,285) (111,540)

Consolation payment (50,086) (57,600)

Decommissioning liabilities (22,948) (16,228)

Financial assets carried at cost designated as

available-for-sale financial assets 722,195 515,122

Equity under IFRSs approved by the FSC $ 106,432,923 $ 92,730,208

7) Explanations of significant adjustments in the statement of cash flows

According to ROC GAAP, interest and tax paid and received and dividends received are classified

as operating activities while dividends paid are classified as financing activities. Additional

disclosure is required for interest and tax paid when reporting cash flow using indirect method.

However, under IAS 7” Statement of Cash Flow”, cash flows from interest, tax and dividends

received and paid shall each be disclosed separately. Each shall be classified in a consistent

manner from period to period as operating, investing or financing activities. Therefore, for the

year ended December 31, 2012, interest received of $25,558,104 thousand, interest paid of

$11,407,597 thousand, income tax paid of $765,277 thousand and dividends received of $660,008

thousand were presented separately.

55. ADDITIONAL DISCLOSURES

a. Significant transactions information

1) Acquired and disposed of investee investment at costs or prices of at least NT$300 million or 10%

of the issued capital: Table 2

2) Acquisition of individual real estates at costs of at least NT$300 million or 10% of the issued

capital: None

3) Disposal of individual real estates at prices of at least NT$300 million or 10% of the issued capital:

None

4) Allowance for service fee to related parties amounting to at least NT$5 million: None

5) Receivables from related parties amounting to at least NT$300 million or 10% of the issued capital:

Table 3 (attached)

6) Sale of non-performing loans: None

7) Financial asset securitization: None

8) Inter-company transactions: Table 4 (attached)

9) Other significant transactions which may affect the decisions of users of financial reports: None

- 144 -

b. Financing provided, endorsements/guarantees provided, marketable securities held, acquisition and

disposal of marketable securities at costs or prices of at least NT$300 million or 10% of the issued

capital, and derivative transactions of the Subsidiary: None

c. The related information and proportionate share in investees: Table 5

d. Information on investment in Mainland China: Table 6

- 145 -

TABLE 1

TAIPEI FUBON COMMERCIAL BANK CO., LTD.

OVERDUE LOANS AND RECEIVABLE

DECEMBER 31, 2013 AND 2012


Item

December 31, 2013 December 31, 2012

Nonperforming

Loan (NPL)

(Note 1)

Total Loans NPL Ratio

(Note 2)

Loan Loss

Reserves

(LLR)

Coverage Ratio

(Note 3)

Nonperforming

Loan (NPL)

(Note 1)


(Note 2)

Loan Loss

Reserves

(LLR)

Coverage Ratio

(Note 3)

Corporate loan Secured $ 595,273 $ 220,200,500 0.27% $ 4,517,499 758.90% $ 721,657 $ 210,663,361 0.34% $ 3,537,604 490.21%

Unsecured 537,352 489,908,394 0.11% 4,544,309 845.69% 387,306 442,514,363 0.09% 2,834,859 731.94%

Consumer finance

Mortgage (Note 4) 80,559 357,855,828 0.02% 3,633,549 4,510.42% 106,568 336,467,164 0.03% 2,243,673 2,105.39%

Cash card 124 17,205 0.72% 344 277.42% 13 25,571 0.05% 482 3,707.69%

Micro credit (Note 5) 61,134 19,632,879 0.31% 220,689 360.99% 23,353 18,614,445 0.13% 124,127 531.52%

Other (Note 6) Secure - 310,816 - 3,124 0.00% 93 270,837 0.03% 1,452 1,561.29%

Unsecured 82,658 28,481,369 0.29% 298,074 360.61% 43,270 27,304,763 0.16% 182,078 420.80%

Total 1,357,100 1,116,406,991 0.12% 13,217,588 973.96% 1,282,260 1,035,860,504 0.12% 8,924,275 695.98%

December 31, 2013 December 31, 2012

Nonperforming

Loan (NPL)

(Note 1)


(Note 2)

Loan Loss

Reserves

(LLR)

Coverage Ratio

(Note 3)

Nonperforming

Loan (NPL)

(Note 1)


(Note 2)

Loan Loss

Reserves

(LLR)

Coverage Ratio

(Note 3)

Credit card 55,114 24,490,650 0.23% 349,265 633.71% 21,284 21,835,640 0.10% 459,978 2,161.14%

Accounts receivable - factoring with no recourse

(Note 7) - 19,777,437 - 204,016 - - 20,970,301 - 107,687 -

Excluded NPL as a result of debt consultation and

loan agreements (Note 8) 412,440 591,963

Excluded overdue receivables as a result of debt

consultation and loan agreements (Note 8) 485,131 663,038

Excluded NPL as a result of consumer debt clearance

(Note 9) 274,694 204,624

Excluded overdue receivables as a result of consumer

debt clearance (Note 9) 616,057 643,085

Note 1: For loans, overdue loans represent the amounts of reported overdue loans as defined in the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/Nonaccrual Loans”

issued by the Ministry of Finance.

For credit cards, overdue receivables are under the Banking Bureau‟s regulations dated July 6, 2005 (Ref. No. 0944000378).

Note 2: For loan, NPL ratio = NPL/Total loans.

For credit cards, delinquency ratio = Overdue receivable/Account receivable.

Note 3: For loans, coverage ratio = LLR/NPL

For credit cards, coverage ratio = Allowance for credit losses/Overdue receivables.

Note 4: Household mortgage refers to loans granted for the purchase, construction or repair of the residence owned by the borrower or the borrower‟s spouse or children and the residence is used to secure the loan fully.

Note 5: Micro credits are under the Banking Bureau‟s regulations dated December 19, 2005 (Ref. No. 09440010950).

(Continued)

- 146 -

Note 6: Other consumer loans refer to secured or unsecured loans excluding mortgages, cash cards, micro credits, and credit cards.

Note 7: Under the Banking Bureau‟s requirements in its letter dated July 19, 2005 (Ref. No. 094000494), an allowance for bad debts should be recognized once no compensation is obtained from a factoring or insurance company for

accounts receivable-factoring with no recourse.

Note 8: The disclosure of excluded NPLs and excluded overdue receivables resulting from debt consultation and loan agreement is based on the Banking Bureau‟s requirement dated April 25, 2006 (Ref. No. 09510001270).

Note 9: The disclosure of excluded NPLs and excluded overdue receivables resulting from consumer debt clearance is based on the Banking Bureau‟s requirement dated September 15, 2008 (Ref. No. 09700318940).

(Concluded)

- 147 -

TABLE 2


ACQUIRED AND DISPOSED OF INVESTEE INVESTMENT AT COST OR PRICE OF AT LEAST NT$300 MILLION OR 10% OF THE ISSUED CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2013


Company Name

Type and Name

of Marketable

Securities

Financial

Statement

Account

Counterparty Relationship

Beginning Balance Acquisition Disposal Ending Balance

Shares Amount Shares Amount Shares Amount Carrying

Amount

Gain (Loss)

on Disposal Shares Amount

Taipei Fubon

Commercial

Bank Co., Ltd.

First Sino Bank Financial assets

carried at cost

Shanghai Pudong

Development

Bank

- - $ - - $ 3,455,948 - $ - $ - $ - - $ 3,455,948

- 148 -

TABLE 3


RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$300 MILLION OR 10% OF THE ISSUED CAPITAL

DECEMBER 31, 2013


Company Name Related Party Relationship Receivable

Ending Balance Turnover Rate

Overdue Amounts Received

in Subsequent

Period

Allowance for

Bad Debts Amount Action Taken

Taipei Fubon Commercial Bank Co., Ltd. Fubon Financial Holdings Co., Ltd.

(FFH)

Parent company $ 385,912

(Note)

Not applicable None Not applicable None None

Taiwan Sport Lottery Co., Ltd. Subsidiary of FHH 2,570,942 Not applicable None Not applicable None None

Fubon Life Insurance Co., Ltd. Subsidiary of FHH 465,095 Not applicable None Not applicable None None

Note: The receivable resulted from linked-tax receivable (included in current tax assets).

- 149 -

TABLE 4


RELATED-PARTY TRANSACTIONS




No. Transaction Company Counter-party

Nature of

Relationship

(Note 1)

Description of Transactions

Financial Statement Account Transaction

Amount

Transaction

Item

Percentage of

Consolidated

Revenue/Assets

0 Taipei Fubon Commercial Bank Co., Ltd. Taipeifubon Bank Life Insurance Agency Co., Ltd. 1 Deposits and remittances $ 55,919 Note 2 -

Taipeifubon Bank Life Insurance Agency Co., Ltd. 1 Commission and fee revenues 14 Note 2 -

Taipeifubon Bank Life Insurance Agency Co., Ltd. 1 Interest expense 91 Note 2 -

Taipeifubon Bank Life Insurance Agency Co., Ltd. 1 Net revenues other than interest 1,338 Note 2 -

Taipeifubon Bank Life Insurance Agency Co., Ltd. 1 Other liabilities 52 Note 2 -

Taipeifubon Bank Life Insurance Agency Co., Ltd. 1 Receivables 338 Note 2 -

Taipeifubon Bank Life Insurance Agency Co., Ltd. 1 Payables 3 Note 2 -

1 Taipeifubon Bank Life Insurance Agency Co., Ltd. Taipei Fubon Commercial Bank Co., Ltd. 2 Cash and cash equivalents 55,919 Note 2 -

Taipei Fubon Commercial Bank Co., Ltd. 2 Commissions and fee expenses 14 Note 2 -

Taipei Fubon Commercial Bank Co., Ltd. 2 Interest revenue 91 Note 2 -

Taipei Fubon Commercial Bank Co., Ltd. 2 Other operating expenses 1,338 Note 2 -

Taipei Fubon Commercial Bank Co., Ltd. 2 Other assets 52 Note 2 -

Taipei Fubon Commercial Bank Co., Ltd. 2 Receivables 3 Note 2 -

Taipei Fubon Commercial Bank Co., Ltd. 2 Payables 338 Note 2 -

Note 1: Types of transactions with related parties were classified as follows:

1. Parent company to subsidiaries.

2. Subsidiaries to parent company.

3. Subsidiaries to subsidiaries.

Note 2: For the transactions between the Company and related parties, the terms are similar to those transacted with unrelated parties.

Note 3: The transactions and balance above had been eliminated when preparing consolidated financial statement.

- 150 -

TABLE 5

TAIPEI FUBON COMMERCIAL BANK CO., LTD.

INFORMATION ON INVESTEES

DECEMBER 31, 2013


Investor Company Investee Company Location Main Businesses and Products

Investment as of December 31, 2013 Investment Gain

(Loss)

Consolidated Investment

Note Shares

(Thousand)

Imitated

Shares

Total

Shares

(Thousand)

Percentage of

Ownership

Carrying

Amount

Shares

(Thousand)

Percentage of

Ownership

TAIPEI FUBON Financial-related

COMMERCIAL

BANK Co., Ltd.

Taipei Fubon Bank Life Insurance Agent

Co., Ltd.

Taipei Life insurance agency 2,000 100.00 $ 59,020 $ 7,383 2,000 - 2,000 100.00 Note 1

Taipei Foreign Exchange Inc. Taipei Foreign exchange market maker 780 3.94 7,800 2,496 780 - 780 3.94 Note 2

Taiwan Futures Exchange Corporation Taipei Futures exchange and settlement 3,588 1.26 25,250 6,858 8,035 - 8,035 2.83 Note 2

Taiwan Asset Management Corporation Taipei Evaluating, auctioning, and managing for financial

institutions‟ loan

22,500 1.70 225,000 20,270 22,500 - 22,500 1.70 Note 2

Taiwan Financial Asset Service Co., Ltd. Taipei Auction 10,000 5.88 100,000 1,000 10,000 - 10,000 5.88 Note 2

Financial Information Service Co., Ltd. Taipei Planning and developing the information system of

across banking institution and managing the

information web system

10,238 2.28 91,000 26,618 10,238 - 10,238 2.28 Note 2

Sunny Asset Management Corporation Taipei Purchasing for financial institutions‟ loan assets 503 8.39 5,031 657 503 - 503 8.39 Note 2

First Sino Bank China Banking - 10.00 3,455,948 - - - - 13.89

Non-financial related

Fubon Real Estate Management Co., Ltd. Taipei Investigation, consultation, management and real estate

evaluation of construction plans

6,964 30.00 135,557 8,719 6,964 - 6,964 30.00 Note 1

Taipei Rapid Transit Corporation Taipei Public transportation 13 - 100 9 13 - 13 - Note 2

Taiwan Power Company Taipei Management of power facilities 374 - 1,830 (1,422) 374 - 374 - Note 3

Easy Card Investment Holding Co., Ltd. Taipei Issue and research of IC card 3,927 4.91 47,500 7,110 3,927 - 3,927 4.91 Note 2

Taiwan Aerospace Corp. Taipei Aerospace industry 1,700 1.25 17,000 1,020 3,400 - 3,400 2.50 Note 2

Ascentek Venture Capital Corp. Kaohsiung Venture capital investment 1,568 4.28 15,680 1,030 1,568 - 1,568 4.28 Note 2

P.K. Venture Capital Investment Corp. Taipei Venture capital investment 3,500 5.00 9,736 480 3,500 - 3,500 5.00 Note 2

Apex Venture Capital Co., Ltd. Taipei Venture capital investment 2,009 4.67 7,159 - 4,019 - 4,019 9.35

Pacific Venture Capital Co., Ltd. Taipei Venture capital investment 131 5.12 1,753 134 262 - 262 10.24 Note 2

Information Technology Total Service Taipei International trade and sales business 34 0.17 - 34 34 - 34 0.17 Note 2

Note 1: The investment gain (loss) was based on the investee‟s audited financial statements for the year ended December 31, 2013.

Note 2: The investment gain (loss) was the cash dividends recognized for the year ended December 31, 2013.

Note 3: The investment gain (loss) was an impairment loss recognized for the year ended December 31, 2013.

- 151 -

TABLE 6


INFORMATION ON INVESTMENTS IN MAINLAND CHINA


(In Thousands of New Taiwan Dollars, and foreign currency except for additional referring)

Investee Company Main Businesses and

Products Paid-in Capital

Method of

Investment

Accumulated

Outward

Remittance for

Investment

from Taiwan as

of

January 1, 2013

Remittance of Funds Accumulated

Outward

Remittance for

Investment

from Taiwan as

of December 31,

2013

Net Income

(Loss) of the

Investee

% Ownership of

Direct or

Indirect

Investment

Investment

Gain (Loss)

Carrying

Amount as of

December 31,

2013

Accumulated

Repatriation of

Investment

Income as of

December 31,

2013

Note Outward Inward

First Sino Bank Banking CNY 1,100,000

($ 5,437,850)

Investment in

Mainland

China directly

$ - $ 3,455,948 $ - $ 3,455,948 CNY 276,897

($ 1,368,839)

10 $ - $ 3,455,948 $ -

Accumulated Outward Remittance for

Investment in Mainland China as of

December 31, 2013

Investment Amounts Authorized by

Investment Commission, MOEA

Upper Limit on the Amount of Investment

Stipulated by Investment Commission,

MOEA

$3,455,948 CNY 4,093,113

($ 20,233,746)

$79,941,206

Note 1: According to the rule No. 10200030250 approved by Investment commission, MOEA on April 23, 2013, the authorized investment amounts is USD743,500 thousand (CNY4,093,113 thousand).

Note 2: The foreign currency is converted into New Taiwan Dollars by the exchange rate at the end of reporting period.

TAIPEI FUBON COMMERCIAL BANK€¦ · 1 -I.Message to Shareholders In 2013, despite continuing...

Documents

Transcript of TAIPEI FUBON COMMERCIAL BANK€¦ · 1 -I.Message to Shareholders In 2013, despite continuing...