TAIWAN BUSINESS BANK, CO., LTD. AND SUBSIDIARIES ... · and subsidiaries consolidated financial...

TAIWAN BUSINESS BANK, CO., LTD.AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AND DECEMBER 31, 2013 AND 2012INDEPENDENT ACCOUNTANTS' AUDIT REPORT

ADDRESS: No. 30, Ta-Cheng Street, Taipei, Taiwan, R.O.C.

TELEPHONE : 886-2-2559-7171

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TABLE of CONTENTS

Contents Page

Cover Page 1

Table of Contents 2

Representation letter 3

Independent Accountants' Audit Report 4

Consolidated Balance Sheets 5

Consolidated Statements of Comprehensive Income 6

Consolidated Statements of Equity Change 7

Consolidated Statements of Cash Flows 8

Notes to consolidated financial statements

1. Company history 9

2. Financial Statements authorisation date and authorisation process 9

3. New standards and interpretations not yet adopted 10～11

4. Significant accounting policies 11～24

5. Significant accounting judgments, estimations, assumptions, and sources ofestimation uncertainty

24～25

6. Explanation of significant accounts 25～123

7. Related party transactions 124～128

8. Pledged assets 128

9. Commitments and contingencies 129～133

10. Losses due to major disasters 133

11. Subsequent events 133

12. Other 134

13. Other disclosures

(A) Information on significant transactions 135～137

(B) Information on investees 137

(C) Information on investments in mainland China 137～138

14. Segment information 138～139

15. First-time adoption of IFRS 140～149

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Representation Letter

For the year ended December 31, 2013(From January 1, 2013 to December 31, 2013), the enterpriseswhich should be included in the affiliated enterprises of the consolidated financial statements inaccordance with the regulations of the “Criteria Governing Preparation of Affiliation Reports,Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises” andthe enterprises which should be included in the consolidated financial statements in accordance withthe regulations of IAS 27 endorsed by the FSC are the same. In addition, the required information ofthe affiliated enterprises consolidated financial statements is disclosed in the aforementionedconsolidated financial statements and the Bank does not prepare additional affiliated enterprisesconsolidated financial statements.

We hereby certify that the above statement is true.

Company：

TAIWAN BUSINESS BANK, CO., LTD.

Chairman of the board：Tsan-Chang Liao

Date：March 21, 2014

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Independent Accountants’ Audit Report

The Board of Directors

Taiwan Business Bank, Co., Ltd.

We have audited the accompanying consolidated balance sheets of Taiwan Business Bank Co., Ltd. andits subsidiaries as of December 31, 2013 and 2012 and January 1 of 2012, and the related consolidatedstatements of comprehensive income as well as changes in consolidated equity and cash flows for theyear ended December 31, 2013 and 2012. These consolidated financial statements are the responsibilityof the Bank’s management. Our responsibility is to express an opinion on these financial statementsbased on our audits.

We conducted our audits in accordance with the Rules Governing Auditing and Certification ofFinancial Statements of Financial Institutions by Certified Public Accountants and generally acceptedauditing standards in the Republic of China. Those rules and standards require that we plan and performthe audit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of Taiwan Business Bank Co., Ltd. as of December 31, 2013 and 2012, and theresults of its operations and cash flows for the year then ended, in conformity with the RegulationsGoverning the Preparation of Financial Reports by Public Held Banks, International FinancialReporting Standards(IFRSs), International Accounting Standards and the explanations of the StandingInterpretations Committee and the International Financial Reporting Interpretations Committeeaccepted by the FSC.

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We have also audited the financial report which was prepared separately for the year of 2013 and 2012of Taiwan Business Bank Co., Ltd. and expressed an unqualified opinion.

KPMG

Taipei, Taiwan, R.O.C.

March 21, 2014

Notice to Readers

The accompanying consolidated financial statements are intended only to present the financial position, financial performance andcash flows in accordance with IFRSs accepted by the Financial Supervisory Commission and not those of any other jurisdictions.The standards, procedures, and practices to audit such financial statements are those generally accepted and applied in theRepublic of China.

The accountants’ audit report and the accompanying consolidated financial statements are the English translation of the Chineseversion prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, theEnglish and Chinese language accountants’ audit report and financial statements, the Chinese version shall prevail.

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TAIWAN BUSINESS BANK, CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2013 AND DECEMBER 31, AND JANUARY 1, 2012

(Expressed In Thousands of New Taiwan Dollars)

December 31, 2013 December 31, 2012 January 1, 2012Assets Amount ％ Amount ％ Amount ％Cash and cash equivalents (Notes 6(A) and 7) $ 32,244,163 3 26,149,415 2 25,579,626 2

Due from the Central Bank and call loans to banks (Notes 6(B) and

7)

68,296,127 5 67,417,255 5 56,150,500 4

Financial assets at fair value through profit or loss (Note 6(C) and

(N))

2,974,594 - 5,809,037 1 5,474,966 1

Securities purchased under resell agreements (Note 6(D)) 20,870,025 2 13,239,950 1 2,337,341 -

Receivables－net (Note 6(E)) 14,303,296 1 20,515,139 2 20,380,682 2

Current Income tax assets 546,319 - 616,708 - 666,585 -

Discounts and loans－net (Notes 6(F) and 7) 958,077,590 72 953,800,832 74 942,587,857 75

Available-for-sale financial assets－net (Notes 6(G) and (N)) 13,045,318 1 12,458,989 1 14,940,799 1

Held-to-maturity financial assets－net (Notes 6(H)) 194,434,171 15 167,514,168 13 177,696,669 14

Other financial assets－net (Note 6(I)) 3,325,207 - 3,548,009 - 3,566,190 -

Premises and equipment－net (Note 6(J)) 14,298,731 1 14,472,559 1 14,747,950 1

Intangible assets-net 180,839 - 193,700 - 200,079 -

Deferred income tax assets-net (Note 6(V)) 2,021,651 - 2,037,902 - 1,622,069 -

Other assets－net (Note 6(K)) 1,750,045 - 3,494,627 - 1,900,678 -

Total assets $ 1,326,368,076 100 1,291,268,290 100 1,267,851,991 100

December 31, 2013 December 31, 2012 January 1, 2012Liabilities and equity Amount % Amount % Amount %Liabilities

Deposits from the Central Bank and other banks (Note 6(L) and 7) $ 79,079,753 6 78,116,260 6 90,829,825 7

Due to the Central Bank and other banks 13,000 - - - - -

Financial liabilities at fair value through profit or loss (Note 6(M)) 280,882 - 230,833 - 339,942 -

Securities sold under repurchase agreements (Note 6(N)) 4,199,242 - 6,243,040 - 6,109,713 -

Payables (Note 6(O)) 19,752,202 1 38,114,806 3 31,647,575 3

Deposits and remittances (Notes 6(P) and 7) 1,095,420,273 83 1,055,241,221 82 1,033,869,151 82

Financial debentures (Note 6(Q)) 51,450,000 5 43,900,000 4 43,900,000 4

Other financial liabilities (Note 6(R)) 14,153,582 1 11,400,537 1 12,150,115 1

Provision for liabilities (Note 6(S)) 3,113,241 - 2,873,742 - 2,497,925 -

Deferred income tax liabilities 880,712 - 879,530 - 882,838 -

Other liabilities (Note 6(T)) 771,621 - 623,576 - 668,085 -

　　Total liabilities 1,269,114,508 96 1,237,623,545 96 1,222,895,169 97

Equity parent company

Common stock (Note 6(U)) 50,941,482 4 48,982,194 4 42,098,263 3

Retained earnings:

Legal reserve (Note 6(U)) 3,423,455 - 2,402,303 - 1,508,934 -

Special reserve (Note 6(U)) 956,088 - 591,203 - 360,321 -

Undistributed earnings (Note 6(U)) 2,028,781 - 1,818,987 - 1,272,952 -

Other items in equity (96,238) - (149,942) - (283,648) -

　　Total equity 57,253,568 4 53,644,745 4 44,956,822 3

Total liability and equity $ 1,326,368,076 100 1,291,268,290 100 1,267,851,991 100

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

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED DECEMBER 31, 2013 AND 2012


For the year ended December 31,

2013 2012 Percent

Amount ％ Amount ％ Change％Interest revenue (Note 6(Y) and 7) $ 23,293,357 132 22,902,560 137 2

Less: Interest expenses(Note 6(Y) and 7) (9,698,855) (55) (9,682,538) (58) -

Net interest income　 13,594,502 77 13,220,022 79 3

Non-interest income

Service fee and commission income (Note 6(Z) and 7) 2,590,002 15 2,116,573 13 22

Gains on financial assets or liabilities at fair value through profit or loss－net(Note 6(AA)) 829,423 5 428,381 2 94

Realized gains on available-for-sale financial assets－net (Note 6(AB)) 35,660 - 18,414 - 94

Foreign exchange gains 255,354 1 533,402 3 (52)

Other net non-interest income (Note 6(AC) and 7) 68,746 - 132,822 1 (48)

Gains on financial assets measured at cost 186,968 1 135,164 1 38

Securities brokering incomes－net 162,586 1 171,011 1 (5)

Net revenue 17,723,241 100 16,755,789 100 6

Provisions for bad debt expenses and quarantee reserve (miscellaneous provision)(Note

6(AD))

(3,000,139) (17) (2,112,319) (13) 42

Operating expenses：

Employee benefit expenses (Note 6(AE) and 12) (7,305,886) (42) (7,358,010) (44) (1)

Depreciation and amortization expenses (Note 6(AF) and 12) (439,203) (3) (459,929) (3) (5)

Other general and administrative expenses (Note 6(AG) and 12) (3,121,263) (18) (3,044,426) (18) 3

　 Total operating expenses (10,866,352) (63) (10,862,365) (65) -

Income from continuing operations before income tax 3,856,750 20 3,781,105 22 2

Less:Income tax (expenses)gains(Note 6 (V)) (246,548) (1) 26,915 - (1,016)

Net income 3,610,202 19 3,808,020 22 (5)

Other comprehensive income：

Difference of foreign exchange in translating financial statements of foreign operating units (57,199) - (76,819) - 26

Unrealized valuation gains on available-for-sale financial assets 101,179 1 197,466 1 (49)

Defined benefit plans actuarial gains(losses) (66,365) - (305,787) (2) 78

Plus：Income tax related to the components of other comprehensive income 21,006 - 65,043 - 68

Other comprehensive income (net amount after tax) (1,379) 1 (120,097) (1) (68)

Total comprehensive income $ 3,608,823 20 3,687,923 21 (2)

Net Income Attributable to:：

Parent company $ 3,610,202 19 3,808,020 22 (5)

Comprehensive Income Attributable to：

Parent company $ 3,608,823 20 3,687,923 22 (2)

Earnings per share (in NT dollar)(Note 6 (X))

Basic earnings per share (in NT dollar) $ 0.71 0.75

Diluted earnings per share (in NT dollar) $ 0.71 0.75


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CONSOLIDATED STATEMENTS OF EQUITY CHANGE



Equity attributed to the parent companyOther item in equity

Stock Retained earnings Difference of foreignexchange in

translating financial

Unrealized gains andloss on available

Common stock Legal reserve Special reserveUndistributed

earnings Total statements of foreign

operating units-for-sale finanical

assets TotalBalance ─ January 1, 2012 $ 42,098,263 1,508,934 360,321 1,272,952 3,142,207 - (283,648) 44,956,822Net income for the year ended December 31, 2012 - - - 3,808,020 3,808,020 - - 3,808,020Other comprehensive income (losses) for the year ended December 31,2012 - - - (253,803) (253,803) (63,760) 197,466 (120,097)Total comprehensive income for the year ended December 31,2012 - - - 3,554,217 3,554,217 (63,760) 197,466 3,687,923Earnings appropriation and distribution　Legal reserve - 893,369 - (893,369) - - - -　Special reserve - - 230,882 (230,882) - - - -　Common stock dividend 1,883,931 - - (1,883,931) (1,883,931) - - -Capital increase 5,000,000 - - - - - - 5,000,000Balance-December 31, 2012 48,982,194 2,402,303 591,203 1,818,987 4,812,493 (63,760) (86,182) 53,644,745Net Income for the year ended December 31, 2013 - - - 3,610,202 3,610,202 - - 3,610,202Other comprehensive income (losses) for the year ended December 31,2013 - - - (55,083) (55,083) (47,475) 101,179 (1,379)Total comprehensive income for the year ended December 31,2013 - - - 3,555,119 3,555,119 (47,475) 101,179 3,608,823Earnings appropriation and distribution　Legal reserve - 1,021,152 - (1,021,152) - - - -　Special reserve - - 364,885 (364,885) - - - -　Common stock dividend 1,959,288 - - (1,959,288) (1,959,288) - - -Balance ─ December 31 2013 $ 50,941,482 3,423,455 956,088 2,028,781 6,408,324 (111,235) 14,997 57,253,568

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

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CONSOLIDATED STATEMENTS OF CASH FLOWS



For the year ended December 31, 2013 2012

Cash flows from operating activities:　Net income before tax $ 3,856,750 3,781,105　Adjustments：　Accounts that do not affect cash flow　　　Depreciation expenses 363,327 392,173　　　Amortization expenses 75,876 67,756　　　Provision of bad debt expenses 2,994,205 2,095,532　　　Net gain on financial assets and liabilities at fair value through profit or loss (65,412) (261,672)　　　Interest expenses 9,698,855 9,682,538　　　Interest revenues (23,293,357) (22,902,560)　　　Net change of provision for guarantee reserve 5,934 16,787　　　Net changes in other liability reserve - 76,428　　　Losses on disposal and retirement of premises and equipment 754 1,002　　　Other 41,994 (146,890)　　　　Total (10,177,824) (10,978,906) 　Change in assets and liabilities related to operating activities：　Net change in assets related to operating activities：　　　Increase in due from the Central Bank and call loans to banks (878,872) (11,266,755)　　　Decrease (increase) in financial assets at fair value through profit or loss 2,952,825 (169,800)　　　Increase in securities purchased under resell agreements (7,630,075) (10,902,609)　　　Decrease(increase) in receivables 6,639,456 (446,101)　　　Increase in discounts and loans (7,304,050) (13,218,720)　　　(Increase) decrease in other financial assets (236,229) 83,356　　　　Total (6,456,945) (35,920,629) 　Net change in liabilities related to operating activities：　　　Increase(decrease) in deposits from the Central Bank and other banks 963,493 (12,713,565)　　　Decrease in financial liabilities at fair value through profit or loss (2,921) (11,708)　　　(Decrease)increase in bills and bonds sold under repurchase agreements (2,043,798) 133,327　　　(Decrease) increase in payables (18,200,309) 6,474,249　　　Increase in deposits and remittances 40,179,052 21,372,070　　　Increase(decrease) in other financial liabilities 2,720,141 (750,134)　　　Increase in provision for employee benefits 157,478 28,896　　　　Total 23,773,136 14,533,135　　　　　Total Change in assets and liabilities related to operating activities 17,316,191 (21,387,494)　　　Total adjustments 7,138,367 (32,366,400) 　Cash provided by (used in) operating activitie 10,995,117 (28,585,295) 　Interest collected 23,090,841 23,109,028 　Interest paid (9,861,150) (9,689,556) 　Income tax paid (177,937) (172,676)　　　Net cash provided by (used in) operating activities 24,046,871 (15,338,499)Cash flows from investing activities：　(Purchase) disposition of available-for-sale financial assets (485,150) 2,679,276　(Purchase) disposition of hold-to-maturity financial assets (26,920,003) 10,182,501　Proceeds from capital dedudtion of financial assests carried at cost 253,070 -　Purchase of premises and equipment (205,273) (132,316)　Proceeds from disposition of premises and equipments 321 200　(Increase)decrease in guarantee deposits paid (30,133) 23,769　Purchase of intangible assets (49,434) (47,308)　Decrease(increase) in other assets 1,727,013 (1,681,736)　　Net cash (used in) provided by investing activities (25,709,589) 11,024,386Cash flows from financing activities：　Increase in due to the Central Bank and other banks 13,000 -　Issuance of financial debentures 11,000,000 -　Redemption of financial debentures (3,450,000) -　Decrease in guarantee deposits received (28,491) (52,173)　Increase in lease payable 32,904 556　Increase(decrease) in other liabilities 153,753 (15,119)　Capital increase - 5,000,000　　Net cash provided by financing activities 7,721,166 4,933,264Foreign exchange effect 36,300 (49,362)Net increase (decrease) in cash and cash equivalents 6,094,748 569,789Cash and cash equivalents, at the beginning of the period 26,149,415 25,579,626Cash and cash equivalents, at the end of the period $ 32,244,163 26,149,415


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TAIWAN BUSINESS BANK, CO., LTD.AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2013 and 2012(Expressed in Thousands of New Taiwan Dollars, Uless Otherwise Stated)

1. COMPANY HISTORY

TAIWAN BUSINESS BANK, CO., LTD. (the “Bank”) was formerly a general savings unionknown as “Taiwan Mutual Financing Bank” or “Tai-Shio Mutual Financing Bank” when it wasestablished in 1915. After several mergers and acquisitions, it was renamed Taiwan Business Bank,Ltd. to serve as a financier and provider of banking assistance to small and medium-size businesseson July 1, 1976. The Bank’s major lines of business are the following:

(A) As prescribed by the Banking Law, provides professional services tailored to the needs ofsmall and medium-size businesses;

(B) Trust and securities brokerage businesses as approved by the relevant authority;

(C) International banking business; and

(D) Other relevant businesses as authorized by the relevant authority in-charge.

As of December 31, 2013, the Bank not only set up the banking dept., international dept., securitiesdept. and trust dept. under head office but also has 124 domestic branches, 1 offshore banking unit,4 overseas branches, and 18 securities brokerage locations.

The Bank became listed on the Taiwan Stock Exchange on January 3, 1998.

Under the”Statute for Privatization of State Enterprises” and upon the approval of Taiwan ProvinceGovernment, the shares of the Bank owned by the provincial government were sold to the public.In line with privatization of the three other major Taiwan province government owned runcommercial banks, the Bank had completed its own privatization on January 22, 1998.

2. FINANCIAL STATEMENTS AUTHORISATION DATE AND AUTHORISATIONPROCESS

These consolidated financial statements were reported to the board of directors on March 21 ,2014.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONT'D)

3. NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

(A) New standards and interpretations endorsed by the Financial Supervisory CommissionsR.O.C. (“FSC”) but not yet in effect

The International Accounting Standards Board (“IASB”) issued International FinancialReporting Standard 9 Financial Instruments (“IFRS 9”) in November 2009, which is effectiveon January 1, 2013 (IASB has poseponed the effective date to January 1, 2015 in December,2011 and later it declared on November 2013 to abandon the decision of making January 1,2015 the compulsory effective date in order to allow financial statement preparers to havesufficient time for the transition to new regulations, and thus the effective date is notdetermined yet). This standard has been endorsed by the FSC. In accordance with FSC rules,early adoption is not permitted, and companies shall follow the guidance in the 2009 versionof International Accounting Standard 39 Financial Instruments (“IAS 39”). Upon theadoption of this new standard, it is expected there will be significant impacts on theclassification and measurement of financial instruments in the consolidated financialstatements.

(B) New standards and interpretations not yet endorsed by the FSC

A summary of the new standards and amendments issued by the IASB that may have animpact on the consolidated financial statements not yet endorsed by the FSC:

Issue dateNew standards and

amendments DescriptionEffective date

per IASBMay 12, 2011 IFRS 13 Fair Value

Measurement Replaces fair value measurementguidance in other standards, andconsolidates as one singleguidance.

January 1, 2013

December 16, 2011 ● Modificaton of IAS 32Financial Instruments:

● Presentation Modification ofIFRS 7 Financial Instruments:Disclosures

Modify the offsetting regulations(more judgment and guidance)and relavent disclosure

January 1, 2013 (Presentationrules)January 1, 2014(Disclosure rules)

December 16, 2011 ● Presentation Modification ofIFRS 7 Financial Instruments:Disclosures

● The modification of IFRS 9Financial Instruments

Modify the compulsory adoptiondate (Postpone the effective datefrom January 1, 2013 to January1, 2015) and interim disclosurerequirements. Yet the Committeeannounced that the regulationthat the effective date on January1, 2015 has been abandoned soas to allow financial statementspreparer to have more time forthe transition.

Undetermined,apply in advance

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Issue dateNew standards and

amendments DescriptionEffective date

per IASBDecember 12, 2013 ● The modification of IFRS 1-

First-time adoption ofInternational FinancialReporting Standards.

● The modification of IFRS 8-Operating Segment.

● IFRS 13-Faire valuemeasurement.

● The modification of IAS 16-Property, Plant andEquipment.

● The modification of IAS 38-Intangible Assets.

● The modification of IAS 24-Related Party Disclosures

The major modifications of2010-2012 and 2011-2013annual improvement are listed asfollows:

● Specify that the judgmentmanagement makes whenaggregating segments shall bedisclosed.

● Clarify the scope ofmeasuring fair value financialinstruments on a net amountbasis.

● Clarify the related parties,including management entitieswhich provide KMP serviceto the entity and the group.

July 1, 2014apply in advance

4. SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies presented in the consolidated financial statements aresummarized as follows:

The significant accounting policies have been applied consistently to all periods presented in theseconsolidated financial statements, except when otherwise indicated. These consolidated financialstatements include the statement of financial position as at Junuary 1, 2012, prepared for thepurpose of the first-year adoption of IFRSs approved by the FSC.

(A) Statement of compliance

These consolidated interim financial statements have been prepared in accordance with theRegulations Governing the Preparation of Financial Report by Public Banks (hereinafterreferred to as the Regulations), Regulations Governing the Preparation of Financial Reportsby Securities Issuers and the IFRSs endorsed by the FSC.

These are the Bank and its subsidiaries's first IFRS consolidated annual financial statementsprepared under rules of IFRS (endorsed by the FSC), and IFRS 1 First time Adoption ofInternational Financial Reporting Standards has been applied. An explanation of how thetransition to IFRS has affected the reported financial position, financial performance, andcash flows of the Group is provided in note (O).

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(B) Basis of preparation

(a) Basis of measurement

The consolidated financial statements have been prepared on a historical cost basisexcept for the following material items in the statement of financial position:

(1) Financial instruments measured at fair value through profit or loss are measured atfair value (including derivative instruments);

(2) Available-for-sale financial assets are measured at fair value; and

(3) The defined benefit asset is recognized as plan assets, plus unrecognized past servicecost, less the present value of the defined benefit obligation.

(b) Consolidation of financial statement

The consolidate financial statements include the headquarter and all the domesticbranches, foreign branches and its subsidiaries. The internal transactions within theheadquarter, the domestic branches and the foreign branches are offset when preparingthe consolidated financial statement.

(c) Functional and presentation currency

The functional currency of each Group entities is determined based on the primaryeconomic environment in which the entities operate. The Group consolidated financialstatements are presented in New Taiwan Dollar, which is the Company’s functionalcurrency. All financial information presented in New Taiwan Dollar has been rounded tothe nearest thousand.

(C) Business combination

(a) Subsidiary

A subsidiary is an enterprise controlled by the Bank. The financial statements ofsubsidiaries are included in the consolidated financial statements from the date thatcontrol commences until the date that control ceases.

Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficitbalance.

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(b) Elimination of inter-group transaction

Intra-group balances and transactions, and any unrealized income and expenses arisingfrom intra-group transactions are eliminated in preparing the consolidated financialstatements. The unrealized profits arising from the transactions with the investmentsunder the equity method are eliminated to the extent of the percentage of sharespossessed by the group over the investee. The unrealized losses are eliminated in thesame way as the unrealized profit, but only under the circumstances that there are noevidences of impairment.

List of subsidiaries in the consolidated financial statements

Stockholder's equity (Holding %)Established

locationDecember31, 2013

December 31,2012

January 1,2012

Taiwan Business Bank Insurance Agency Co.,Ltd.

Taiwan 100 100 100

Taiwan Business Bank Property InsuranceAgency Co., Ltd.

Taiwan 100 100 100

Taiwan Business Bank International LeasingCo., Ltd.

Taiwan 100 - -

(D) Foreign currency

(a) Foreign currency transaction

Transactions in foreign currencies are translated to the respective functional currenciesof Group entities at exchange rates at the dates of the transactions. Monetary assets andliabilities denominated in foreign currencies at the reporting date are retranslated to thefunctional currency at the exchange rate at that date. The exchange rate applied is thetrade rate of Bank of Taiwan at ten o’clock in the morning on the report date. Theforeign currency gain or loss on monetary items is the difference between amortised costin the functional currency at the beginning of the year adjusted for the effective interestand payments during the year, and the amortised cost in foreign currency translated at theexchange rate at the end of the year.

Transactions in foreign currencies are translated to the respective functional currenciesof Group entities at exchange rates at the dates of the transactions. Monetary assets andliabilities denominated in foreign currencies at the reporting date are retranslated to thefunctional currency at the exchange rate at that date. The exchange rate applied is thetrade rate of Bank of Taiwan at ten o’clock in the morning on the report date. Theforeign currency gain or loss on monetary items is the difference between amortised costin the functional currency at the beginning of the year adjusted for the effective interestand payments during the year, and the amortised cost in foreign currency translated at theexchange rate at the end of the year.

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(b) Foreign operations

The income and expenses of foreign operations, excluding foreign operations inhyperinflationary economies, are translated to the Group’s functional currency by thefollowing procedures:

(1) Assets and liabilities are translated to the Group’s functional currency at exchangerates at the reporting date;

(2) Profit and loss are translated to the Group’s functional currency by the average rate(unless the exchange rate of the period fluctuates intensively, then it applies theexchange rate on the trade date);

(3) Foreign currency differences are recognized in other comprehensive income.

All the translation differences arising from above procedures are presented in the foreigncurrency translation reserve in equity. When a foreign operation is wholly or partiallydisposed, the cumulative amount in the translation reserve related to that foreignoperation is reclassified to profit or loss as part of the gain or loss on disposal.

(E) Cash and cash equivalent

Cash and cash equivalent comprise of cash on hand, petty cash, foreign currency on hand andcash in banks, but excludes those items which are designated for specific purposes orrestricted by contracts and law.

(F) Financial Instruments

(a) Financial assets and liabilities at fair value through profit or loss

Financial instruments in this category includes financial assets and liabilities classifiedas held-for-trading and financial assets and liabilities designated as at fair value throughprofit or loss on initial recognition. Financial instrument is classified in this category ifacquired principally for the purpose of selling or repurchasing in the short term. Thistype of financial asset is measured at fair value at the time of initial recognition, andattributable transaction costs are recognised in profit or loss as incurred. A regular waypurchase or sale of financial assets shall be recognised and derecognised, as applicable,using trade-date accounting. The derivative financial instruments held by the Bank,except for those designated as hedging instruments, are classified under this account. Inaddition, the Group designates financial assets, other than ones classified as held-for-trading, as at fair value through profit or loss at initial recognition under one of thefollowing situations:

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(1) A hybrid instrument contains one or more embedded derivatives;

(2) Designation eliminates or significantly reduces a measurement or recognitioninconsistency that would otherwise arise; and

(3) In accordance with the Bank and its subsidiaries’ risk control policy or investmentstrategy, a set of financial assets or liabilities and its components managed are alsodesignated at fair value.

(b) Available for sale financial assets

Financial assets are measured at fair value and unrealized gains and losses thereon arerecognized as an adjustment item of equity. Financial instruments held by the Bank andits subsidiary are recorded on the trade dates. Financial instruments are initiallyrecognized at fair value plus transaction costs. The impairment loss is recognized if thereis evidence indicating that a decline in the value of an investment is other thantemporary. If the impairment loss in the following period is reduced, reversal of loss forequity investments is adjusted to equity, and reversal of loss for debt instrument iscredited to current income if the reduction of impairment loss resulted from a subsequentevent.

(c) Held-to-maturity financial assets

Financial assets are measured at amortized cost and its interest income via effective rate.Financial assets held by the Bank and its subsidiary are recorded on the trade dates andare initially recognized at fair value plus transaction costs. The impairment loss isrecognized if there is evidence indicating that a decline in the value of an investment isother than temporary. If in a subsequent period, the amount of the impairment lossdecreases and the decrease can be related objectively to an event occurring after theimpairment was recognized, the previous recognized impairment loss is reversed throughthe profit or loss. The carrying value after the reversal should not exceed the amortizedbalance of the assets assuming no impairment loss was recognized.

(d) Financial assets measured at cost

Equity instruments with no quoted market price and whose fair value cannot be reliablymeasured are stated at cost. The impairment loss is recognized if there is evidenceindicating that a decline in the value of an investment is other than temporary, and theimpairment loss is irreversible.

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(e) Debt instrument with no active market

These are debt instruments with no active market quote and measured at amortized cost.The impairment loss is recognized if there is evidence indicating that a decline in thevalue of an investment is other than temporary. If in a subsequent period, the amount ofthe impairment loss decreases and the decrease can be related objectively to an eventoccurring after the impairment was recognized, the previous recognized impairment lossis reversed through the profit or loss .The carrying value after the reverse should notexceed the amortized balance of the assets assuming no impairment loss was recognized.

(f) Loans and advances

Loans and advances are recorded as initial fair value (including direct transaction cost),and the subsequent measurement recognizes interest income via effective interest ratemethod (if there is not much difference then it can adopt straight line method) and isbooked as per amortized cost deducted by impairment loss.

Interest accrual on loans and advances is suspended if either of the following occurs:

(1) Payment of principal or interest is very likely not to be redeemed as per contracts.

(2) Non-performing loans are categorized as overdue loans in six months after thesettlement period ends.

(g) Allowance for bad debts and reserve for guarantee

Adequate allowance for bad debts is provided for loans and receivables by assessingwhether there is evidence indicating that a single financial asset or a group of financialassets are impaired per the “Regulations Governing the Procedures for BankingInstitutions to Evaluate Assets and Deal with Non-Performing and Non-Accrual Loans,”and the “Regulations Governing Institutions Engaging in Credit Card Business”.

For loans and receivables , the objective evidence should be identified first to reveal anyimpairment existing for financial assets that are individually significant, and individualor collective impairment for financial assets that are not individually significant. If noobjective evidence of impairment exists in an individually assessed financial asset, itshould be included in a group of financial assets with similar credit risk characteristicsand collectively assessed for impairment. For assets which have recognized impairmentlossess or continue to recognize impairment losses, the aforementioned assessmentmethod is not required.

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If there is an objective evidence that an impairment loss on a financial asset hasoccurred, the amount of the loss is recognized and measured via the difference betweenthe asset’s carrying amount and the present value of the estimated future cash flowsdiscounted at the financial asset’s original effective interest rate; the amount of the lossshould be recognized as bad debt expenses in profit or loss of the current period. Theestimate of future cash flows includes the recoverable amount of collaterals and relatedinsurances when determining the amount of the loss.

Above evidences of impairment loss usually include the following:

(1) Significant financial difficulty occurs to the issuer or the debtor.

(2) There are already default circumstances occur to the issuer or debtor, for example:default or overdue payment of interest or principal.

(3) The creditor give in to the debtor due to commercial or legal concern.

(4) The debtor is likely to bankrupt or execute certain financial reorganization.

(5) The issuer has financial difficulty and the financial assets can not be traded in theactive market.

(6) The payment status of the debtor worsens.

(7) The national and regional situation related to the default of the asset changes.

The Bank and its subsidiaries should recognize bad debt expenses when there is animpairment loss on the financial assets measured at amortized cost.

The impaired amount is the difference between the book value of the financial asset andthe sum of estimated future cash flows discounted by the original effective rate. Thebook value of the financial assets is reduced by the allowance account and the amount ofimpairment losses shall be recognized as current gains and losses. When deciding theamount of the impairment loss, the estimate of future cash flows should include thecollaterals and the recoverable amount of relevant insurances.

According to “Regulations Governing the Procedures for Banking Institutions toEvaluate Assets and Deal with Non-Performing and Non-Accrual Loans ”, the Bankshall provide the sum of the following to be the allowance for bad debts:

(1) 0.5% of the first class credit assets deducted by the amount of credit assets from thegovernment.

(2) 2% of the second class credit assets.

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(3) 10% of the third class credit assets.

(4) 50% of the fourth class credit assets.

(5) 100% of the fifth class credit assets.

The allowance for bad debts assessed by the previously stated method shall not be lessthan the amount regulated by “Regulations Governing the Procedures for BankingInstitutions to Evaluate Assets and Deal with Non-Performing and Non-Accrual Loans ”.

The Bank provides reserve for guarantee liabilities for off-balance-sheet non-creditassets taking into account the regulation of “Regulations Governing the Procedures forBanking Institutions to Evaluate Assets and Deal with Non-Performing and Non-AccrualLoans”.

Unrecoverable overdue loans and bad debts, which are not able to be recovered after theoverdue collection process, are written-off after deducting the recoverable portion. Uponapproval by the board of directors and notification to supervisors, the excess amount ofwritten off loans over such allowance or reserve is reflected as a current loss.

Above amounts provided are booked under the account of bad debt expenses.

(G) Impairment loss on non-financial assets

The recoverable amount for an individual asset or a cash-generating unit is the higher of itsfair value less costs to sell or its value in use. If, and only if, the recoverable amount of anasset is less than its carrying amount, the carrying amount of the asset shall be reduced to itsrecoverable amount. That reduction is an impairment loss. An impairment loss shall berecognized immediately in profit or loss.

An impairment loss recognized in prior periods for an asset other than goodwill shall bereversed if, and only if, there has been a change in the estimates used to determine the asset’srecoverable amount since the last impairment loss was recognized. If this is the case, thecarrying amount of the asset shall be increased to its recoverable amount, as a reversal of apreviously recognised impairment loss.

An impairment loss in respect of goodwill is not reversed. For other assets, an impairmentloss is reversed only to the extent that the asset’s carrying amount does not exceed thecarrying amount that would have been determined, net of depreciation or amortization, if noimpairment loss had been recognized.

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(H) Property and Equipment

Items of property, plant and equipment are measured at cost less accumulated depreciationand accumulated impairment losses. Cost includes expenditure that is directly attributed tothe acquisition of the asset.

Subsequent expenditure is capitalized only when it is probable that the future economicbenefits associated with the expenditure will flow to the Group. The carrying amount of thoseparts that are replaced is derecognized. Ongoing repairs and maintenance is expensed asincurred.

Land has an unlimited useful life and therefore is not depreciated.

The estimated useful lives for the current and comparative years of significant items ofproperty, plant and equipment are as follows:

(a) buildings 35-50 years

(b) Equipment and machine 3-8 years

(c) Lease asset 5 years

The Bank and its subsidiaries reviews and adjusts the residual value and the useful lives ofassets at the end of each fiscal year. Whenever there is evidence indicating that the carryingamount is unable to be recovered due to environmental activities or changes, the Bank and itssubsidiaries evaluate the impairment loss of assets.

If the carrying amount is higher than the recoverable amount, the carrying amount is adjustedto the recoverable amount. The recoverable amount is the fair value or the use value deductedby the disposition expense.

The gain or loss arising from the derecognition of an item of property, plant and equipmentshall be determined as the difference between the net disposal proceeds, if any, and thecarrying amount of the item, and it shall be recognized as other gains and losses.

When purchasing machinery equipment and computer software, the education fee implied inthe contract is not recognized as the cost of machinery equipment and is recognized asexpense.

For the lease contracts which regulate the Bank and its subsidiaries to restore the property tothe original status, the Bank and its subsidiaries reviews the terms of each contract andcalculated the prsesnt value of the restoration expenses when signing the contracts. Thedecommissioning liability reserve is provided based on the calculation and the discount rateis determined based on the Bank’s policy.

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(I ) Leasehold

Leases contract can be divided into operating lease contracts and financing (capital) leasecontracts. If a lease contract transfers almost all the risk and reward comes with theleasehold, the leasehold is considered financing (capital) lease. If a lease contract does nottransfers almost all the risk and reward comes with the leasehold, the leasehold is consideredoperating lease.

Depreciation is calculated per the regulation of IAS 16 “Property, Plant and Equipment” andIAS 38 “Intangible Assets”. If there is no reason to be sure that the lessee will obtain theownership of the assets at the end of the lease period for financing leasehold, the assets shallbe depreciated within the lease period or the durable service time, whichever is shorter. Thelease contracts of the Bank and its subsidiaries include operating lease and financing lease.

(J ) Deferred charges

The costs of installation for utilities, including electricity and water, as well as securityfacilities, are capitalized and amortized equally over 5 years.

(K) Collateral assumed

Collaterals assumed are stated at the lower of net book value or net realizable value; i.e., theamount the Bank receives when creditors cannot meet obligations and the collaterals andsalvages are auctioned off. Under FSC Letter Ruling (2)0948010856 on July 11, 2005,collateral assumed must be disposed before December 31, 2005. If the Bank is unable todispose the collateral assumed before December 31, 2005, it reserves a provision for lossequal to the carrying value of the collateral assumed. On disposition of collateral, the relatedprovision is reversed. The selling price deducts the original book value of collateral assumedis recognized as gain on sale of collateral assumed.

(L) Provisions

A provision is recognised if, as a result of a past event, the Bank and its subsidiaries has apresent legal or constructive obligation that can be estimated reliably, and it is probably thatan outflow of economic benefits will be required to settle the obligation. Provisions aredetermined by discounting the expected future cash flows at a pre-tax rate that reflects thecurrent market assessments of the time value of money and the risks specific to the liability.Amortization of the discount is recognized as interest expense. Future operating loss can notbe recognized as liability reserve.

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Contingent liability refers to the possible obligation results from past events. The existence ofcontingent liability can only be proved by whether one or more uncertain events which cannot be controlled by the Bank and its subsidiaries occurs or not. Contingent liability alsorefers to the current obligation results from a past event, but not likely to cause outflow ofeconomic resource to redeem the obligation or the amount of the obligation can not bemeasured reliably. The Bank and its subsidiaries do not recognized contingent liability anddisclose it per related regulations.

(M) Employee benefit

(a) Short term employee benefit

Short-term employee benefit obligations are measured on an undiscounted basis and areexpensed as the related service is provided.

(b) Retirement benefit

The pension provision of the Bank and its subsidiaries includes defined contributionplan and defined benefit plan. For the personnel of foreign offices, the Bank providespension fund per the regulations of the local authorities.

Defined contribution plan refers to the plan that the Bank and its subsidiaries annuallyprovide certain amount of money to funds to fulfill the obligation. The Bank and itssubsidiaries provide pension based on compulsory obligation, contracts or voluntary willto public or private managed pension funds. If certain pension fund fail to pay theemployees the benefit which they deserve for the service they provided, the Bank and itssubsidiary do not hold legal or constructive obligation to pay additional provision. TheBank and its subsidiaries recognize the pension fund provided as current pension cost onaccrual basis. Prepaid pension asset can only be recognized under the circumstance thatthere is cash refund or the future pension payable can be deducted.

Defined benefit plan refers to the plan that is established according to the amount ofpension an employee shall receive on the retirement date. The amount is based on age,year of service and salary compensation.

The Bank recognize pension asset or liability on the consolidated balance sheet base onthe actuarial present value of defined benefit obligation deducted by the fair value ofpension fund and adjust the amount with the net value of unrecognized pension profit orloss and prior service cost recognized as liability. The defined benefit obligation iscalculated annually by a qualified actuary using the projected unit credit method. Theactuarial present value is calculated by taking the market yield rates of high qualitycorporate bond or government bond which have the same maturity date and currency asthe retirement benefit obligation into consideration to discount and estimate future cashflows.

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Actuarial profit or loss results from experiences or changes in actuarial assumption isrecognized under the account of other comprehensive income. Prior service cost, exceptfor the part that the Bank and its subsidiaries shall amortize it via straight line methodwithin the vesting period in which the employees provide their service due to themodification of the retirement plan, are all recognized as current profit or loss.

(c) Deposits with favorable rate

The Bank and its subsidiaries provides deposits with favorable rate to employees, whichinclude current employee fix amount deposits with favorable rate and retired employeefix amount deposits with favorable rate. The rate difference between the favorable rateand the market rate belongs to the category of employee benefit.

According to article 28 of “Regulations Governing the Preparation of Financial Reportby Public Banks”, the additional interests result from the difference between deposit withfavorable rate and the desposits with market interest rate shall be calculated by actuaryper the regulations related to defined benefit plan in IAS 19 . The parameters of actuarialassumptions shall follow the regulations of the competent authority.

In accordance with the regulation of “Discussion of the employee benefit actuarialassumption related matter for adopting IAS 19 with respect to the additional interest ofemployee deposits with favorable rate” issued by the Banking Bureau, the differencebetween the actual payment and the estimated retirement benefit obligation is deemed aschanges in accounting estimate and is recognized in profit or loss.

(d) Termination benefits

Termination benefits are recognised as an obligation when the Bank and its subsidiariesis demonstrably committed, without realistic possibility of withdrawal, to a formaldetailed plan to either terminate employment before the normal retirement date, or toprovide termination benefits as a result of an offer made to encourage voluntaryredundancy. The Bank and its subsidiaries recognize liabilities when an formalunrevokable termination project is undertaken or when benefit is provided forencouraging voluntary resignation. If benefits are payable more than 12 months after thereporting period, then they are discounted to their present value.

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(N) Income tax

Income tax expenses refer to current and deferred income taxes. Current and deferred incometaxes shall be recognized as profit or loss except for the items related to corporate merger orrecognized under the equity and other comprehensive income. Current income tax includesexpected tax payable or tax refundable calculated based on the taxable income (loss)multipled by the tax rates (and tax laws) that have been enacted or substantively enacted bythe end of the reporting period and the adjustments of tax payables from prior years.

Deferred income tax is measured and recognized based on the temporary difference betweenthe carrying amount of the assets and liabilities for financial reporting purpose and theamount served as the taxable basis. It is measured by the tax rate which the assets expected tobe realized or liabilities to be settled and is based on tax rates that have been enacted orsubstantively enacted on the balance sheet date.

The land incremental tax results from the revaluation per relavent regulations is categorizedas taxable temporary difference and is recognized as deferred tax liabilities.

Deferred tax assets are recognized for loss carried forward, unused tax credit and deductibletemporary differences to the extent that the future taxable income is likely to be available toapply against the deferred tax assets. The carrying amount of deferred tax assets should bereviewed at the end of each reporting period and the amount is reduced to the extent that it isno longer probable that sufficient taxable profit will be available to allow the benefit ofpartial or entire deferred tax asset to be utilized.

The 10% surtax on undistributed earnings is recognized as current expense on the date whenthe stockholders decide not to distribute the earnings in the annual meeting.

(O) Revenue recognition

Interest is recognized according to interest method. Interest accrual is suspended from thedate when the loan is reclassified to non-performing loan and only when the Bank and itssubsidiaries receive cash, the revenue is recognized.

The revenue of handling fee is recognized when cash collected or when the process of theprofit are mostly completed. In addition, for the individual loan which does not belong tolabor service and the handling fee is over 1% of the principal, the interest rate shall beadjusted from the original agreed interest rate to the effective interest rate. For the individualloan which does not belong to the service and the handling fee is less that 1% of theprincipal, the recognition of the revenue should be deferred and be recognized as revenueduring the loan period.

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(P) Operating segments

Operating segment is the component of the Bank and its subsidiaries that engages in businessactivities from which it may earn revenues and incur expenses (including revenues andexpenses relating to transactions with other components of the Bank and its subsidiaries).The segament’s operating results are reviewed regularly by the Bank’s chief operatingdecision maker to make decisions pertaining to the allocation of resources to the segment andto assess the performance for which discrete financial information is available.

(Q) Earnings per share (EPS)

EPS is based on the weighted-average number of shares outstanding. In the event of capitalincrease through capitalization of retained earnings, capital surplus, or employee bonuses,EPS is retroactively adjusted based on the percentage of capital increase, regardless of theperiod when the incremental shares are outstanding.

The employee bonuses of the Bank and its subsidiaries issued by stocks were dilutivepotential common shares. If the potential common shares have a non-dilutive effect, the Bankand its subsidiaries should only disclose the basic earnings per share. On the contrary, if thepotential common shares have a dilutive effect, the Bank and its subsidiaries should discloseboth the basic and diluted earnings per share. In calculating the diluted earnings per share, itis based on the assumption that all dilutive potential common shares are outstanding, andtherefore the net income and the shares outstanding shall be adjusted in accordance with thecalculation.

5. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATIONS, ASSUMPTIONS, ANDSOURCES OF ESTIMATION UNCERTAINTY

The preparation of the consolidated financial statements in conformity with IFRSs requiresmanagement to make judgments, estimates and assumptions that affect the application of theaccounting policies and the reported amount of assets, liabilities, income and expenses. Actualresults may differ from these estimates.

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Information about critical judgments in applying accounting policies that have the most significanteffect on the amounts recognized in the consolidated financial statements is included in thefollowing notes:

(A) Impairment losses on loans

The Bank and its subsidiaries review loan portfolios quarterly to evaluate impairment losses.When deciding whether to recognize impairment or not, the Bank and its subsidiaries observeevidences indicating the possibilities of impairment. The observable evidence may includethe unfavorable changes of payment status or the economic conditions of the countries orareas related to the default loan. The management applies past loss experience of assets withsimilar credit risk characteristic to analyze the expected cash flows. The Bank and itssubsidiary regularly review the methods and assumptions applied for calculating the amountand timing of the expected cash flows in order to diminish the difference between theestimated amount and the actual amount.

(B) Retirement benefit

The present value of the retirement benefit obligation is the actuarial result based on severalassumptions. Any change of the assumptions may influence the carrying amount of theretirement benefit obligation.

The assumptions applied to determine net pension cost (revenue) include the discount rate.The Bank determine the appropriate discount rate at the end of each year and apply it tocalculate the present value of the future cash outflows which are to be paid to the retirementbenefit obligation. To determine the appropriate discount rate, the Bank should consider theinterest rate of high quality corporate bonds and government bonds. The currency of theretirement benefit shall be the same as that of the high quality corporate bond or governmentbonds and the duration till maturity date shall comply with the duration of the related pensionobligation. Other significant assumptions of retirement benefit obligation are based on thecurrent market situation.

6. EXPLANATION OF SIGNIFICANT ACCOUNTS

(A) Cash and cash equivalents

December 31,2013

December 31,2012

January 1,2012

Petty cash and revolving fund $ 8,710,699 8,321,157 7,932,570Foreign currencies on hand 932,269 808,615 1,002,099Checks for clearing 3,750,838 15,296,621 14,660,710Due from other banks 18,850,357 1,723,022 1,984,247Total $ 32,244,163 26,149,415 25,579,626

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

December 31,2013

December 31,2012

January 1,2012

Due from the Central Bank $ 47,442,644 42,403,407 47,997,565Deposits transferred to the

Central Bank137,212 73,171 243,934

Call loans to banks 20,716,271 24,918,003 7,909,001Bank overdraft - 22,674 -Trust fund indemnity reserve deposited 70,000 70,000 70,000Securities served as trust fund

indemnity reserve deposited(70,000) (70,000) (70,000)

Total $ 68,296,127 67,417,255 56,150,500

As of, December 31, 2013 and December 31, January 1,2012, in accordance with theBanking Law and the Central Bank Law, the required reserve deposited by the Bank with theCentral Bank amounted to $47,422,260, $42,306,937, and $47,906,138, of which$29,940,478, $28,355,880, and $28,957,008 respectively, were restricted and such restrictionmay only be lifted when the required reserve is adjusted to a lower amount.

Effective December 2000, in accordance with the amended “Rules Governing Adjustments toand Review of Deposits in Financial Institutions and Reserve for Other Liabilities”, the Bankprovides the required additional reserve on foreign currency deposits. As of December 31,2013 and December 31, and January 1, 2012, the required reserve with the Central Bankamounted to $20,384, $96,470, and $91,427 respectively, and its use is unrestricted.

As of December 31, 2013, December 31, and January 1, 2012, deposits collected on behalf ofthe armed forces, prisons, and other national deposits are restricted.

Effective January 20, 2001, in accordance with the requirement of the Central Bank of China,the Bank complies with Clause 34 of the Trust Law to treat the discretionary trust ofinvestments in overseas marketable securities as a default loss reserve. As of December 31,2013, December 31, and January 1, 2012, the Bank deposited marketable securities of all$70,000 as trust fund reserves.

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(C) Financial assets at fair value through profit or loss

December 31,2013

December 31,2012

January 1,2012

Financial assets held for trading:Commercial paper $ - 1,994,690 1,495,805Commom Stock - 131,141 -Beneficiary certificates - 199,190 -Foreign exchange forward contracts 40,584 63,047 9,401Currency swap contracts 357,671 207,324 164,213Interest swap contracts 6,768 21,394 41,402Foreign currency options-call 62,640 44,858 49,455Structured product options-call 88 1,164 569Stock index futures 27,243 27,203 27,163Sub-total 494,994 2,690,011 1,788,008

Financial assets designated at fair value throughprofit or loss:Overseas bonds 2,479,600 3,119,026 3,686,958

Total $ 2,974,594 5,809,037 5,474,966

Please refer to Note 6(N) for information with regard to repurchase conditions for financialassets held for trading shown above.

As of December 31, 2013, December 31, and January 1, 2012, the nominal amounts ofunsettled financial derivative instrument contracts were as follows:

December 31,2013

December 31,2012

January 1,2012

Foreign exchange forward contracts $ 6,604,125 3,993,028 1,813,540Currency swap contracts 57,031,954 47,525,981 47,773,206Interest swap contracts 7,457,320 11,713,304 14,091,075Option contracts-call 2,253,187 2,047,740 1,245,494Option contracts-put 2,253,187 2,047,740 1,245,494

(D) Securities purchased under resell agreements

December 31,2013

December 31,2012

January 1,2012

Securities under resell agreements $ 20,870,025 13,239,950 2,337,341

Face amount $ 20,904,900 13,254,400 2,349,000

Resell period 2014.1.3~2014.1.29

2013.1.2~2013.2.22 2012.1.2

Range of resell interest rate 0.6%~0.62% 0.77%~0.79% 0.84%~0.85%

Resell priceSecurities purchased under

resell agreement$ 20,878,977 13,246,315 2,337,879

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(E) Receivables–net

December 31,2013

December 31,2012

January 1,2012

Interest receivable $ 1,897,207 1,657,017 1,861,149Acceptances receivable 1,550,304 1,671,142 2,182,647Accrued incomes 62,593 43,955 35,510Accounts receivable 25,442 271,702 1,163,845Accounts receivable factoring without recourse - 132,331 5,942,385Spot exchange receivable-foreign currencies 7,430,615 14,394,515 6,138,754Refinancing guaranty deposits 403 - -Guaranteed proceeds receivable from refinancing 448 - -Receivable from credit card 1,464,990 1,440,720 1,484,463Receivable from security brokerage 93,826 140,185 52,347Settlement fund 1,098,212 758,606 739,998Installment Receivables and leases 415,958 322,215 989,321Other receivables 396,624 - -Sub-total 14,436,622 20,832,388 20,590,419Less: Allowance for bad debts (133,326) (317,249) (209,737)Net $ 14,303,296 20,515,139 20,380,682

The change in allowance for bad debts is as follows:

For the year ended December 31, Receivables 2013 2012

Beginning balance $ 317,249 209,737Reversal (130,269) (45,403)Transfer out (53,719) 152,973Foreign exchange 65 (58)Ending balance $ 133,326 317,249

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(F) Discounts and loans–net

December 31,2013

December 31,2012

January 1,2012

Import/export bills negotiated $ 340,780 371,004 727,971Bills and notes discounted 1,499,993 1,409,265 1,248,742Overdrafts 12,444 12,825 6,433Secured overdrafts 1,316,563 883,029 834,170Short-term loans 203,693,834 186,922,110 147,113,085Short-term secured loans 135,567,135 130,019,163 115,789,707Margin loans receivable 1,793,827 1,506,400 1,819,376Medium-term loans 143,962,695 168,190,322 198,840,461Medium-term secured loans 123,077,337 121,932,690 125,805,213Long-term loans 18,449,510 20,247,124 19,995,977Long-term secured loans 331,727,694 322,603,620 333,102,519Account receivable financing 475,282 17,068 294,170Overdue loans 6,829,899 8,157,280 5,676,843Sub-total 968,746,993 962,271,900 951,254,667Less: Adjustment of discount and premium (207,282) (169,608) (167,272)Less: Allowance for bad debts (10,462,121) (8,301,460) (8,499,538)Net $ 958,077,590 953,800,832 942,587,857

The change in allowance for bad debts is as follows:

For the year ended December 31, Loan 2013 2012

Beginning balance $ 8,301,460 8,499,538Provision 3,001,387 2,246,196Transfer out (29,155) (193,059)Write-off (1,988,187) (3,304,505)Foreign exchange 17,386 (49,728)Written-off recovered 1,159,230 1,103,018Ending balance $ 10,462,121 8,301,460

(G) Available-for-sale financial assets–net

December 31,2013

December 31,2012

January 1,2012

Government bonds $ 5,031,655 4,931,944 5,718,332Corporate bonds 5,207,083 4,522,797 2,261,229Overseas bonds 1,999,785 2,358,418 6,197,775Listed and OTC stocks 806,795 645,830 763,463Total $ 13,045,318 12,458,989 14,940,799

Please refer to Note 6(N) for the information with regard to repurchase conditions foravailable-for-sale financial assets shown above.

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(H) Held-to-maturity financial assets–net

December 31,2013

December 31,2012

January 1,2012

Certificates of deposit with the Central Bank $ 177,800,000 160,700,000 172,200,000Government bonds 3,467,755 1,947,792 1,756,370Corporate bonds 5,503,197 1,799,010 2,658,570Overseas bonds 7,415,760 2,558,522 562,878Banker's acceptance 184,921 447,871 455,273Negotiable certificates of deposit 62,538 60,973 63,578Total $ 194,434,171 167,514,168 177,696,669

As of December 31, 2013, December 31, and January 1, 2012, held-to-maturity financialassets provided and deposited as reserve for provisional seizure by the court, internationalcard payment reserve, trust claim reserve and operating guaranty funds amounted to$799,200, $802,700, and $775,800, respectively. As of December 31, 2013, December 31,and January 1, 2012, the three overseas branches have provided $247,459, $508,844, and$557,737, respectively, for the reserve of overdraft guarantee.

In order to comply with the immediate tax settlements mechanism of Central Bank and theinterbank funds transfer system, the Bank provided time deposits with the Central Bankamounting to $2,000,000, $3,600,000, and $6,000,000 as overdraft guarantee as ofDecember 31, 2013, December 31, and January 1, 2012, respectively. The amount of theguarantee can be modified anytime and the remaining amount could be served as liquidreserves.

As of December 31, 2013, December 31, and January 1, 2012, in compliance with the item16 of “Guidelines Governing Financial Institution in Conducting Treasury Affairs Authorizedby Central Bank”, the Bank provided secured central bank certificates of deposit with facevalue of $15,900,000, $15,900,000, and $15,100,000, respectively to the Central Bank.When certain conditions are satisfied, the Bank will be returned the certificates withoutinterest from Central Bank.

As of December 31, 2013, December 31, and January 1, 2012, the Bank provided Centralbank certificates of deposit with face value of $17,000,000 to serve as a guarantee forborrowing US dollars from Central bank.

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(I ) Other financial assets–net

December 31,2013

December 31,2012

January 1,2012

Non-accrual loans transferred from non-loanfinancial assets

$ 376,894 129,971 200,709

Less: Allowance for bad debts－ non-accrual loanstransferred from non-loan financial assets

(268,283) (49,667) (104,379)

Non-accrual loans transferred from non-loanfinancial assets－net

108,611 80,304 96,330

Exchange bills negotiated 2,250 284 2,438Less: Allowance for bad debt－exchange bills

negotiated(11) (6) (5)

Exchange bills negotiated－net 2,239 278 2,433Financial assets carried at cost 1,714,357 1,967,427 1,972,385Less: Accumulated impairment－financial assets

carried at cost- - (4,958)

Financial assets carried at cost －net 1,714,357 1,967,427 1,967,427Debts investment without active market 1,500,000 1,500,000 1,500,000Total $ 3,325,207 3,548,009 3,566,190

(a) Financial assets carried at cost are as follows:

December 31, 2013Investee Amount %

Taiwan Power Company $ 11,427 -Taiwan Sugar Corporation 58,294 0.30Sunysino Development Associated Inc. 17,440 3.00Taiwan Small & Medium Enterprises Devel.

Co., Ltd.29,000 4.84

Taipei Forex Incorporation 7,000 3.53Financial Information Service Co., Ltd. 45,500 1.14Evernight Investment Co., Ltd. 500,000 4.95Taiwan Stock Exchange Corp. 198,012 0.95Taiwan Futures Exchange Co., Ltd. 20,000 1.00Taiwan Asset Management Corp. 750,000 5.68Taiwan Finance Asset Service Corp. 50,000 2.94Financial E-Solution Co., Ltd. 19,285 5.13Taiwan Depository and Clearing Corp. 4,639 0.08Taiwan Integrated Shareholder's

Service Company3,300 1.10

Yand Guang Asset Management Corp. 460 0.77Total $ 1,714,357

- 31 -



December 31, 2012Investee Amount %

Taiwan Power Company $ 11,427 -Taiwan Sugar Corporation 61,364 0.30Sunysino Development Associated Inc. 17,440 3.12Taiwan Small & Medium Enterprises Devel.

Co., Ltd.29,000 4.84

Taipei Forex Incorporation 7,000 3.53Financial Information Service Co., Ltd. 45,500 1.14Evernight Investment Co., Ltd. 500,000 4.95Taiwan Stock Exchange Corp. 198,012 0.95Taiwan Futures Exchange Co., Ltd. 20,000 1.00Taiwan Asset Management Corp. 1,000,000 5.68Taiwan Finance Asset Service Corp. 50,000 2.94Financial E-Solution Co., Ltd. 19,285 5.13Taiwan Depository and Clearing Corp. 4,639 0.08Taiwan Integrated Shareholder's

Service Company3,300 1.10

Yand Guang Asset Management Corp. 460 0.77Total $ 1,967,427

January 1, 2012Investee Amount %

Taiwan Power Company $ 11,427 -Taiwan Sugar Corporation 61,364 0.30Sunysino Development Associated Inc. 17,440 3.12Taiwan Small & Medium Enterprises Devel. Co.,

Ltd.29,000 4.84

Taipei Forex Incorporation 7,000 3.53Financial Information Service Co., Ltd. 45,500 1.14Evernight Investment Co., Ltd. 500,000 4.95Taiwan Stock Exchange Corp. 198,012 0.95Taiwan Futures Exchange Co., Ltd. 20,000 1.00Koyon Capital Corporation 4,958 5.00Taiwan Asset Management Corp. 1,000,000 5.68Taiwan Finance Asset Service Corp. 50,000 2.94Financial E-Solution Co., Ltd. 19,285 5.13Taiwan Depository and Clearing Corp. 4,639 0.08Taiwan Integrated Shareholder's Service Company 3,300 1.10Yand Guang Asset Management Corp. 460 0.77Subtotal 1,972,385Less: Accumulated impairment - Koyon Capital

Corporation(4,958)

Total $ 1,967,427

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The investee of the Bank Koyon Capital Corporation has completed the liquidationprocess per the approval of Ministry of Economic Affairs R.O.C. The liquidationprocedure was completed on September 11, 2012 per North Court Mu Min An (97) No45 order.

The investees of the Bank, Taiwan Sugar Corporation and Taiwan Asset ManagementCorp., refunded proceeds which amounted to a total of $315,456 from capital deductionof 2013 .The investment profit recognized amounted to $62,386.

(b) Debt instrument with no active market are as follows:

InvesteeDecember 31,

2013December 31,

2012January 1,

2012Taiwan High Speed Rail Corp. preferred Stock $ 1,500,000 1,500,000 1,500,000

(c) The change in allowance for bad debts is as follows:

For the year ended December 31, Other financial assets 2013 2012

Beginning balance $ 49,673 104,384

Provision(Reversal) 123,087 (105,261)

Transfer in 82,874 40,086

Write-off (31,300) (40,084)

Written-off recovered 43,960 50,548

Ending balance $ 268,294 49,673

(J ) Premises and equipment–net

December 31, 2013 CostRevaluationappreciation

Accumulateddepreciation

Accumulatedimpairment Total

Land $ 6,678,952 2,986,161 - 14,156 9,650,957Buildings 7,407,745 31,184 3,193,055 21,411 4,224,463Machinery 1,920,537 - 1,703,670 - 216,867Transportation

equipment296,526 - 262,116 - 34,410

Miscellaneousequipment

579,970 - 522,361 - 57,609

Leaseholdimprovement

91,087 - 54,399 - 36,688

Construction inprogress

51 - - - 51

Prepayment forequipment

42,455 - - - 42,455

Leased assets 37,933 - 2,702 - 35,231Total $ 17,055,256 3,017,345 5,738,303 35,567 14,298,731

- 33 -



December 31, 2012 CostRevaluationappreciation




equipment316,643 - 283,772 - 32,871


579,981 - 529,022 - 50,959


96,577 - 46,854 - 49,723


61,518 - - - 61,518

Leased assets 3,282 - 969 - 2,313Total $ 16,995,438 3,017,345 5,504,657 35,567 14,472,559

January 1, 2012 CostRevaluationappreciation




equipment319,066 - 281,259 - 37,807


582,838 - 526,430 - 56,408


100,544 - 38,586 - 61,958

Construction inprogress

5,728 - - - 5,728


48,312 - - - 48,312

Leased assets 2,232 - 481 - 1,751Total $ 17,022,807 3,017,345 5,256,635 35,567 14,747,950

Change of cost

January 1, 2013 Increase DecreaseForeign

ExchangeDecember 31,

2013Land $ 9,611,988 53,125 - - 9,665,113Buildings 7,421,892 17,037 - - 7,438,929Machinery 1,920,902 50,134 49,304 (1,195) 1,920,537Transportation equipment 316,643 12,253 33,583 1,213 296,526Miscellaneous equipment 579,981 23,777 24,076 288 579,970Leasehold improvement 96,577 19,980 25,852 382 91,087Construction in progress - 51 - - 51Prepayment for

equipment61,518 - 19,063 - 42,455

Leased assets 3,282 34,651 - - 37,933Total $ 20,012,783 211,008 151,878 688 20,072,601

- 34 -





2012Land $ 9,611,988 - - - 9,611,988Buildings 7,403,258 18,634 - - 7,421,892Machinery 1,966,186 59,967 104,299 (952) 1,920,902Transportation equipment 319,066 9,751 11,949 (225) 316,643Miscellaneous equipment 582,838 13,189 15,688 (358) 579,981Leasehold improvement 100,544 8,050 11,780 (237) 96,577Construction in progress 5,728 3,257 8,985 - -Prepayment for

equipment48,312 27,403 14,197 - 61,518

Leased assets 2,232 1,050 - - 3,282Total $ 20,040,152 141,301 166,898 (1,772) 20,012,783

Change of depreciation



2013Buildings $ 3,022,204 170,851 - - 3,193,055Machinery 1,621,836 132,021 48,801 (1,386) 1,703,670Transportation equipment 283,772 11,952 33,394 (214) 262,116Miscellaneous equipment 529,022 17,319 23,740 (240) 522,361Leasehold improvement 46,854 29,441 22,304 408 54,399Leased assets 969 1,744 - (11) 2,702Total $ 5,504,657 363,328 128,239 (1,443) 5,738,303



2012Buildings $ 2,848,541 173,663 - - 3,022,204Machinery 1,561,338 164,974 103,621 (855) 1,621,836Transportation equipment 281,259 14,308 11,573 (222) 283,772Miscellaneous equipment 526,430 18,459 15,540 (327) 529,022Leasehold improvement 38,586 20,281 11,780 (233) 46,854Leased assets 481 488 - - 969Total $ 5,256,635 392,173 142,514 (1,637) 5,504,657

Accumulated impairment



2013Land $ 14,156 - - - 14,156Buildings 21,411 - - - 21,411Total $ 35,567 - - - 35,567



2012Land $ 14,156 - - - 14,156Buildings 21,411 - - - 21,411Total $ 35,567 - - - 35,567

When the Bank first adopted IFRSs, it elected to apply the revaluation amount calculated perthe regulation of GAAP of R.O.C as the original cost on the transition date.

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As of December 31, 2013, December 31, and January 1, 2012, the appreciation fromrevaluation of properties all amounted to $3,017,345. Reserve for land incremental tax allamounted to $879,056 (Recognized under deferred tax liabilities). The difference ofrevaluation is recognized as retained earnings.

As of December 31, 2013, December 31, and January 1, 2012, land amounting to $69,321,$69,925, and $69,205 was illegally occupied. Part of the illegally occupied land would bedisposed after the Bank received the certificate of legal costs and the rest would be auctionedat appropriate time.

(K) Other assets

December 31,2013

December 31,2012

January 1,2012

Office supplies $ 29,721 27,559 26,723Prepayments 1,431,578 3,253,053 1,425,397Operating guaranty deposits and settlement fund 32,678 32,620 77,467Guarantee deposits paid 220,086 189,953 185,012Less: Accumulated impairment (28,710) (28,710) (28,710)Guarantee deposits paid－net 191,376 161,243 156,302Collateral assumed 3,150 3,150 3,150Less: Accumulated impairment (3,150) (3,150) (3,150)Collateral assumed－net - - -Deferred charges 631 506 764Temporary payments and suspense accounts - 11,049 213,772Proceeds of settlement and credit transaction 64,061 8,597 253

Total $ 1,750,045 3,494,627 1,900,678

(L) Deposits from the Central Bank and other banks

December 31,2013

December 31,2012

January 1,2012

Deposits from the Central Bank $ 261,413 284,358 276,409Call loans from the Central Bank 5,658,200 3,774,550 6,357,750Deposits from banks 148,543 126,311 119,482Call loans from banks 22,533,465 19,960,949 24,047,753Overdrafts on banks 1,217,031 1,400,895 1,066,360Deposits transferred from Chunghwa Post Co., Ltd. 49,261,101 52,569,197 58,962,071Total $ 79,079,753 78,116,260 90,829,825

- 36 -



(M) Financial liabilities at fair value through profit or loss

December 31,2013

December 31,2012

January 1,2012

Foreign exchange forward contracts $ 25,483 10,870 18,865Currency swap contracts 144,430 57,236 71,938Interest swap contracts 48,241 116,705 199,115Foreign currency option-put 62,640 44,858 49,455Structured product option-put 88 1,164 569Total $ 280,882 230,833 339,942

Please refer to 6(C) for the nominal amount of unsettled financial derivatives instrumentcontracts of December 31, 2013, December 31, and January 1, 2012.

(N) Securities sold under repurchase agreements

December 31, 2013

Assets Par value

Selling Price(Recognzied insecurities sold

under repurchaseagreements)

Designatedrepurchase

amountDesignated

repurchase dateSecurities purchased

under resellagreements

20,000 20,000 20,002 Prior to January 6,2014

Available-for-salefinancial assets

4,051,500 4,179,242 4,183,219 Prior to June 20,2014

Total $ 4,071,500 4,199,242 4,203,221

December 31, 2012

Assets Par value




amountDesignated

repurchase dateFinancial assets

measured at fair valuethrough profit or loss

$ 370,000 369,657 369,731 Prior to January 22,2013

Securities purchasedunder resellagreements

300,000 299,841 299,931 Prior to February 5,2013


5,437,600 5,573,542 5,576,296 Prior to June 28,2013

Total $ 6,107,600 6,243,040 6,245,958

- 37 -



January 1, 2012

Assets Par value




amountDesignated

repurchase dateFinancial assets

measured at fair valuethrough profit or loss

$ 350,000 349,789 349,868 Prior to February6, 2012

Securities purchasedunder resellagreements

380,000 379,505 379,550 Prior to January 2,2012


5,264,700 5,380,419 5,382,787 Prior to June 29,2012

Total $ 5,994,700 6,109,713 6,112,205

(O) Payables

December 31,2013

December 31,2012

January 1,2012

Interest payable $ 1,856,924 2,019,219 2,026,237Accounts payable 3,751,039 15,297,893 14,661,170Acceptances 1,590,039 1,805,314 2,379,772Accrued expenses 2,046,733 2,155,891 2,082,589Collection payable 790,147 658,750 547,833Deposits received from securities borrowers 77,136 84,023 87,849Guaranteed price deposits received from securities

borrowers93,746 94,041 124,887

Accounts payable factoring - 3,416 2,108,981Spot exchange payable－ foreign currencies 7,430,012 14,393,127 6,138,061Other payables 916,695 696,805 690,282Trusted security payable 244,400 144,661 243,457Settlement 941,768 750,128 545,241Others 13,563 11,538 11,216Total $ 19,752,202 38,114,806 31,647,575

(P) Deposits and remittances

December 31,2013

December 31,2012

January 1,2012

Savings deposits $ 537,895,214 527,036,965 521,211,312Time deposits 277,350,286 266,661,944 265,075,247Demand deposits 254,030,378 234,603,467 221,099,722Checking deposits 25,739,079 26,444,788 26,068,177Remittances 405,316 494,057 414,693Total $ 1,095,420,273 1,055,241,221 1,033,869,151

- 38 -



(Q) Financial debentures

Terms of Transactions Bond Issued

Bonds Issue dateMaturity

date Interest Rate & repayment Type AmountDecember 31,

2013December 31,

2012January 1,

20122007-1 08/23/2007 08/23/2014 The debentures bear annual interest

rate, which is the index rate plus0.49%. The index rate is the averageoffer of 90-days CP which is indicatedin Reuters page 6165 at 11 A.M Taipeitime, 2 operation days prior to theinterest commencement date. Simpleinterest is accrued quarterly and paidannually. The principal will be repaidin full at maturity.

Unsecuredsubordinatedlong-termfinancialdebentures

$ 5,000,000 5,000,000 5,000,000

2008-1 A 03/13/2008 09/13/2013 The debentures bear annual interestrate, which is the index rate plus0.75%. The index rate is the averageoffer of 90-days CP which is indicatedin Reuters page 6165 at 11 A.M Taipeitime, 2 operation days prior to theinterest commencement date. Simpleinterest is accrued quarterly and paidtwice a year. The principal will berepaid in full at maturity.

〞 - 3,000,000 3,000,000

2008-1 B 03/13/2008 09/13/2013 The debentures bear annual interestrate of 3.1%. Simple interest is accruedand paid twice a year. The principalwill be repaid in full at maturity.

〞 - 450,000 450,000

2008-1 C 03/13/2008 03/13/2014 The debentures bear annual interestrate of 3.15%. Simple interest isaccrued and paid twice a year. Theprincipal will be repaid in full atmaturity.

〞 1,100,000 1,100,000 1,100,000

2008-2 04/30/2008 04/30/2015 The debentures bear annual interestrate, which is the index rate plus1.02%. The index rate is the averageoffer of 90-days CP which is indicatedin Reuters page 6165 at 11 A.M Taipeitime, 2 operation days prior to theinterest commencement date. Simpleinterest is accrued quarterly and paidannually. The principal will be repaidin full at maturity.

〞 5,200,000 5,200,000 5,200,000

2008-3 12/30/2008 06/30/2014 The debentures bear annual interestrate of 3.2%. Simple interest is accruedand paid twice a year. The principalwill be repaid in full at maturity.

〞 2,150,000 2,150,000 2,150,000

2009-1 06/10/2009 12/10/2014 The debentures bear annual interestrate of 2.45%. Simple interest isaccrued and paid twice a year. Theprincipal will be repaid in full atmaturity.

〞 1,400,000 1,400,000 1,400,000

2009-2 08/27/2009 08/27/2015 The debentures bear annual interestrate of 2.35%. Simple interest isaccrued and paid annually. Theprincipal will be repaid in full atmaturity

〞 1,000,000 1,000,000 1,000,000

- 39 -






2013December 31,

2012January 1,

20122009-1P 10/23/2009 None The debentures bear annual interest

rate which is the seven Banks' boardfloating average interest rate for 1-yeartime deposit plus 1.29% for the sevenyears after the issue date. The interestrate will be the seven Banks' boardfloating average interest rate for 1-yeartime deposit plus 2.29% from theeighth year. The bond is redeemableper face at the interest payment dateafter seven years from the issue dateunder the consent of the competentauthority.

Perpetualaccumulatedsubordinatedfinancialdebentures

$ 12,000,000 12,000,000 12,000,000

2009-3 12/18/2009 12/18/2016 The debentures bear an annual interestrate of 2.5%. Simple interest rate isaccrued and paid annually. Theprincipal will be repaid in full atmaturity.


1,550,000 1,550,000 1,550,000

2010-1 03/05/2010 03/05/2017 The debentures bear an annual interestrate of 2.32%. Simple interest isaccrued and paid annually. Theprincipal will be repaid in full atmaturity.

〞 1,050,000 1,050,000 1,050,000


〞 6,000,000 6,000,000 6,000,000

2010-1P A 09/23/2010 None The debentures bear annual interestrate which is the Chunghwa post'sboard average interest rate for 1-yeartime deposit plus 1.34% for the tenyears after the issue date. The interestrate will be the Chunghwa post's boardinterest rate for 1-year time depositplus 2.34% from the eleventh year. Thedebentures is redeemable per facevalue plus accrued interest at theinterest payment date after ten yearsfrom the issue date under the consentof the competent authority.

Perpetual non-accumulatedsubordinatedfinancialdebentures

3,200,000 3,200,000 3,200,000

2010-1P B 9/23/2010 None The debentures bear an interest rate of3.05% for the first ten years. Theinterest rate will be 4.05% from theeleventh year. The debentures isredeemable per face value plus accruedinterest at the interest payment dateafter ten years from the issue dateunder the consent of the competentauthority.

〞 800,000 800,000 800,000



5,000,000 - -

2013-2A 11/25/2013 11/25/2020 The debentures bear annual interestrate, which is the index rate plus0.52%. The index rate is the averageoffer of 90-days CP which is indicatedin Reuters page 6165 at 11 A.M.Taipei time, 2 operation days prior tothe interest commencement date.Simple interest is accrued quarterly andpaid once a year. The principal will bepaid in full at maturity.


3,100,000 - -

- 40 -






2013December 31,

2012January 1,

20122013-2B 11/25/2013 11/25/2020 The debentures bear an annual interest

rate of 1.92%. Simple interest isaccrued and paid annually. Theprincipal will be paid in full atmaturity.


$ 2,900,000 - -

$ 51,450,000 43,900,000 43,900,000

(R) Other financial liabilities

December 31,2013

December 31,2012

January 1,2012

Appropriated loans funds $ 14,027,323 11,287,868 12,099,668Lease payable 35,197 2,293 1,737Other 91,062 110,376 48,710Total $ 14,153,582 11,400,537 12,150,115

Cumulative earnings on appropriated loan fund is the project contract signed by Council forEconomic Planning and Development, Small and Medium Enterprise Administration,Ministry of Economic Affairs, and the Bank. The Bank appropriates the fund to thecompanies which meet the conditions for loans. The fund is classified as principal account,interest yielding account, loaned account and un-loaned account. The interests paid to thegovernment are calculated respectively.

(S) Liability reserve

December 31,2013

December 31,2012

January 1,2012

Reserve for guarantee liabilities $ 47,344 41,379 24,689Claim reserve 541,203 520,230 443,802Other-Employee benefit 2,524,694 2,312,133 2,029,434Total $ 3,113,241 2,873,742 2,497,925

Change of reserves

January 1,2013 Increase Decrease Use Reversal

Foreignexchange

December31, 2013

Reserve for guaranteeliabilities

$ 41,379 20,001 - - 14,067 31 47,344

Claim reserve 520,230 - - - - 20,973 541,203Reserve for emplolyee

benefit obligation2,312,133 516,855 242,027 62,267 - - 2,524,694

Total $ 2,873,742 536,856 242,027 62,267 14,067 21,004 3,113,241

- 41 -



January 1,2012 Increase Decrease Use Reversal

Foreignexchange

December31, 2012

Reserve for guaranteeliabilities

$ 24,689 32,221 - - 15,434 (97) 41,379

Claim reserve 443,802 76,428 - - - - 520,230Reserve for emplolyee

benefit obligation2,029,434 914,737 469,222 162,816 - - 2,312,133

Total $ 2,497,925 1,023,386 469,222 162,816 15,434 (97) 2,873,742

(T) Other liabilities

December 31,2013

December 31,2012

January 1,2012

Advance interest receipts $ 5,031 4,665 5,901Unearned revenue 102,732 88,074 87,756Other advances receipts 34,099 38,528 30,359Guarantee deposits received 463,252 491,743 543,916Temporary receipts and suspense accounts 165,745 - -Other 762 566 153Total $ 771,621 623,576 668,085

(U) Equity

(a) Common stock

As of December 31, 2013, December 31and January 1, 2012, the Bank’s authorizedcapital were all $60,000,000 and the paid-in capital for common shares of the Bank were$50,941,482, $48,982,194, and $42,098,263 and the face value of each share is NTD$10. The outstanding shares were 5,094,148 thousand shares, 4,898,219 thousand shares,and 4,209,826 thousand shares, respectively.

Pursuant to the resolution approved by the stockholders’ meeting of the Bank on June21, 2013, the Bank increased its capital from retained earnings by $1,959,288 and issued195,929 thousands shares. The capital increase has been approved by FinancialSupervisory Commission and came into effect on July 15, 2013. The base date of thecapital increase is set on August 19, 2013 and the legal registration procedures wascompleted on August 28, 2013.

Pursuant to the resolution approved by the stockholders’ meeting of the Bank on May25, 2012, the Bank increased its capital from retained earnings by $1,883,931 and issued188,393 thousands shares. The capital increase has been reported by FinancialSupervisory Commission and came into effect on June 19, 2012. The base date of thecapital increase is set on July 16, 2012 and the legal registration procedures werecompleted on July 27, 2012.

- 42 -



The Bank executed a capital increase through issuing 500,000 thousand shares followingthe decision of the board of directors on July 13, 2011. The face value of each share isNTD$10 dollars and the proceeds of the capital increase amounted to $5,000,000. Thecapital increase has been reported to Financial Supervisory Commission and came intoeffect on September 23, 2011. The base date of the capital increase is set on January 10,2012 and the legal registration procedures was completed on January 20, 2012.

(b) Capital surplus

Pursuant to the amendment of the Company Act which was published in January 2012,the Company can only transfer realized capital surplus into capital or distribute cashdividends after the capital surplus be used to offset a deficient. In compliance with theresolution, realized capital surplus includes the income derived from the issuance of newshares at a premium and the income from endowments received by the company.According to the Regulations Governing the Offering and Issuance of Securities bySecurities Issuers, the total amount of capital surplus to be used to increase capital shallnot exceed 10% of total paid-in capital.

(c) Earnings distribution and dividend policy

Under the Bank’s Articles of Incorporation, earnings are used initially to pay for incometaxes and restore cumulative losses, and 30% of the remaining earnings is set aside aslegal reserve. Special reserve is appropriated from or reversed to earnings per otherregulations.

The remaining balance of these earnings, if any, is distributed as follows:

(1) Add accumulated retained earnings from previous years as distributable dividendsand the amount of dividends is resolved by the annual stockholders’ meetingaccording to the proposal submitted by the Board of Directors.

(2) Employees bonus: 1% to 8% (recognized as expense).

(3) Remuneration to directors : 1% (recognized as expense).

- 43 -



In order to continuously expand scale and increase profitability, the Bank, based on thefuture capital budget plan, adopts residual dividend policy and primarily distributes stockdividend to eusure the capital is sufficient. When there is surplus of capital, theremaining capital can be distributed by cash dividend. Cash dividend shall not be lowerthan 10% of the total dividend distributed. If the cash dividend distributed per share islower than NTD$ 0.1, except for otherwise resolved by the shareholder’s meeting, it isnot distributed. If there is any situation conforms to that is regulated in article 44 item 1of the Banking Act of The Republic of China, the Bank is not allowed to distributeearnings by cash or purchase shares outstanding. Employee bonus can be issued by newshares or by cash per the resolution of the shareholder’s meeting. The maximum cashearning distribution is not allowed to be over 15% of the total paid in capital unless thelegal reserve reaches the total paid-in capital. Employee bonuses and directors andsupervisors remuneration are calculated based on the amount of income after taxdeducted by legal reserve and special reserve, and multiplied by the estimatedpercentage, which is 8% for employee bonuses and 1% for directors and supervisorsremuneration. The estimated employee bonuses are $167,590, $161,424, and and thedirectors and supervisors remuneration are , $20,949, and $20,178 for the year endedDecember 31, 2012 and 2013, respectively. The shares of stock dividends werecalculated based on the closing price of the date before the stockholder’s meeting and italso took into consideration the effect of stock dividends exclusion. Difference betweenthe amount approved at the shareholders’meeting and the amount recognized in thefinancial statement is accounted for as changes in accounting estimates and is recognizedin the profit or loss of the next year.

The resolved amounts of $161,424 and $20,178 of the employee bonuses and directorsand supervisors remuneration which were determined by the shareholder’s meeting onJune 21, 2013 were the same as the estimated amount of the 2012 annual financialstatement.

The resolved amounts of $148,292 and $18,536 of the employee bonuses and directorsand supervisors remuneration approved by the shareholders on May 25, 2012 weredifferent from the amounts, which were $166,672 and $20,845, of the financialstatements of the year 2011. The difference of employee bonuses and directors andsupervisors remuneration which amounted to $18,470 and $2,309 were deemed aschange in accounting estimates and recognized in profit or loss for the year endedDecember 31, 2012.

The information about the appropriations of employee bonuses and directors andsupervisors remuneration is available at the Market Observation Post System or othersites.

- 44 -



In compliance with the amendment of the Company Act which was published in January2012, while a company incurs no loss, pursuant to a resolution to be adopted by ashareholders' meeting, legal reserve is distributed by issuing new shares or by cash, onlythe portion of legal reserve which exceeds 25 percent of the paid-in capital may bedistributed.

In accordance with the regulation of Gin Guan Chen Fa Zhi No. 1010012865 orderreleased on April 6, 2012.Special reserve is appropriated from retained earnings basedon the equivalent amounts of the contra accounts in equity. This special reserve may notbe distributed as dividends to stockholders until the balances of these contra accounts inequity are reversed.

The Bank resolved the earning distribution for the earnings of 2012 and 2011 in theshareholder’s meeting on June 21, 2013 and May 25, 2012. The dividends distributed areas follows:

2012 2011Distribution rate (NT

dollar) Amount

Distribution rate (NT

dollar) Amount Dividends to common share

holders　Share $ 0.40 1,959,288 0.40 1,883,931

The related information regarding the earnings distribution decision of the shareholders’meeting can be acquired on Market Observation Post System or other sites.

(d) Other equity items

Unrealized gainsand losses of

avaliable-for-salefinancial assets

Difference of foreignexchange in

translating financialstatements of foreign

operating unit

Actuarial profitand loss of

defined benefitplan Total

January 1, 2013 $ (86,182) (63,760) - (149,942)Available-for-sale financial assets

-Valuation adjustment 85,317 - - 85,317-Realized amount 15,862 - - 15,862

Currency translation difference-Current exchange difference - (47,475) - (47,475)

December 31, 2013 $ 14,997 (111,235) - (96,238)

- 45 -



Unrealized gainsand losses of

avaliable-for-salefinancial assets

Difference of foreignexchange in

translating financialstatements of foreign

operating unit

Actuarial profitand loss of

defined benefitplan Total

January 1, 2012 $ (283,648) - - (283,648)Available-for-sale financial assets

-Valuation adjustment 193,296 - - 193,296-Realized amount 4,170 - - 4,170

Currency translation difference-Current exchange difference - (63,760) - (63,760)

December 31, 2012 $ (86,182) (63,760) - (149,942)

(V) Income taxes

(a) The amount of income tax for the year ended December 31, 2013 and 2012 were asfollows:

December 31, 2013 2012

Current tax expenseCurrent period $ 79,632 237,975Adjustment for prior periods 30,082 (7,708)Basic tax 98,395 93,134

208,109 323,401Deferred tax expense

Origination and reversal of temporarydifferent

38,439 (350,316)

Income tax expense(benefit) $ 246,548 (26,915)

The amount of income tax recognised in other comprehensive income for 2013 and 2012was as follows:

December 31, 2013 2012

Difference of foreign exchange in translatingfinancial statements of foreign operatingunits

$ 9,724 13,059

Defined benefit plan actuarial gains(loss) 11,282 51,984Total $ 21,006 65,043

- 46 -



The statutory tax rate, based on Profit-Seeking Enterprise Income Tax of the Bank andits subsidiaries is 17%. The Bank calculates base tax based on Income Basic Tax Act.The income tax of the Bank for the year 2013 and 2012 is as follows:

December 31, 2013 2012

Income tax computed on net income before tax $ 655,648 642,788Permanent differences:

- Tax-exempt securities transaction (income)loss

(6,692) (2,688)

- Net (income) loss from offshore bankingunit

(139,477) (158,668)

- Recognized (gain) loss from financialassets and liabilities measured at fair valuethrough profit or loss

(11,907) (32,624)

- Cash Dividend (25,382) (25,840)- Other - (7,085)

Temporary differences:- Reversal of impairment loss of otherfinancial assets

- (843)

-Difference between the actual pension andthe statutory pension amount regulated inthe Tax Law.

(28,963) -

-Difference between the actual allowance forbad debts and the statutory allowance forbad debts amount regulated in the Tax Law

332,354 -

- Provisions of reserve for contingencies oflawsuit

- 12,993

Taxable income 775,581 428,033Duduct: Loss carryforward (768,467) (416,398)Income tax payable (current) 7,114 11,635Decrease(increase) in deferred income tax

assets38,439 (350,316)

Additional tax resulted from AlternativeMinimum Tax

98,395 93,134

Overseas branch income tax expenses 72,518 226,340Underestimate(overestimate) prior income tax

expense30,082 (7,708)

Income tax expense (gains) $ 246,548 (26,915)

- 47 -



(b) Changes in deferred tax assets and liabilities of the Bank and its subsidiaries are asfollows：

2013

Beginning

balance

Recognized in

profit or loss

Recognized in

other

comprehensive

income

Ending

balance

Temporary difference

　Deferred tax assets resultedfrom allowance for baddebts exceeding the limitregulated in Tax Law

$ - 332,354 - 332,354

Reserve for employee benefitliabilities

439,980 (28,963) - 411,017

Actuarial loss 51,984 - 11,282 63,266

　Exchange differences of thefinancial statements offoreign operations

13,059 - 9,724 22,783

Indemnity reserve 88,439 - - 88,439

　Loss on assets impairment 46,627 - - 46,627

　Land value increment tax (879,056) - - (879,056)

　Other (474) (1,182) - (1,656)

　Subtotal (239,441) 302,209 21,006 83,774

Losses carried forward 1,387,749 (330,584) - 1,057,165

Investment tax credits 10,064 (10,064) - -

Net deferred tax assets(liabilities)

$ 1,158,372 (38,439) 21,006 1,140,939

The information stated on the balance sheet is as follows:

　Deferred tax assets $ 2,037,902 2,021,651

　Deferred tax liabilities $ 879,530 880,712

- 48 -



2012

Beginning

balance

Recognized in

profit or loss

Recognized in

other

comprehensive

income

Ending

balance

Temporary difference

Reserve for employee benefitliabilities

$ 77,352 362,628 - 439,980

Actuarial loss - - 51,984 51,984

　Exchange differences of thefinancial statements offoreign operations

(3,782) 3,782 13,059 13,059

　Indemnity reserve 75,446 12,993 - 88,439

　Loss on assets impairment 47,470 (843) - 46,627

　Land value increment tax　 (879,056) - - (879,056)

　Other 31,247 (31,721) - (474)

　Subtotal (651,323) 346,839 65,043 (239,441)

Losses carried forward 1,375,206 12,543 - 1,387,749

Investment tax credits 15,348 (5,284) - 10,064

Net deferred tax assets(liabilities)

$ 739,231 354,098 65,043 1,158,372

The information stated on the balance sheet is as follows:

　Deferred tax assets $ 1,622,069 2,037,902

　Deferred tax liabilities $ 882,838 879,530

As of December 31, 2013, the tax losses which are to be carried forward for deductingfuture income and which are not yet recognized as deferred tax assets are as follows:

Loss for the year

No loss

carryforwards

Loss on not

recognized as

deferred

income tax assets

Available for

carryforward

year

2005 $ 10,542,413 6,910,767 2006～2015

2006 1,021,326 - 2007～2016

2009 1,565,648 - 2010～2019

$ 13,129,387

- 49 -



Tax losses are the losses incurred within the first 10 years from the start-up which isapproved by the tax authority and can be applied to reduce net income of the year, andthe net amount is used to calculate the amount of income tax. The amount which is notrecognized as deferred income tax assets is $1,174,830, and this is because the Bank andits subsidiaries are not likely to have such amount of taxable income for the temporarydifference to apply.

(c) The filing of profit-seeking income tax return of the Bank was approved until 2011 byNational Taxation Bureau of Taipei, Ministry of Finance, but the filing of the year 2008and 2010 was not approved yet.

The filing of profit-seeking income tax return of the subsidiaries Taiwan Business BankInsurance Agency Co., Ltd and Taiwan Business Bank Property Insurance Agency Co.,Ltd. was approved until 2011 and 2012, respectively.

(d) Imputation Credit Account and Tax Deductible Ratio:

December 31,2013

December 31,2012

January 1,2012

Stockholders' imputation credit account $ 260 4,947 10,681

2013(expected) 2012(actual)Tax deduction ratio for earnings distribution toROC residents

%3.78 %3.35

As of December 31, 2013 and 2012, all of the ending blance of undistributed letainedcarrings arose from earnings in 1988 and thereafter.The estimated tax deduction ratio fordistribution of earnings for the year 2012 shown in the table above has been prepared inaccordance with the Decree No.10204562810 issued by the Ministry of Finance, R.O.Con October 17, 2013.

(W) Employee benefit liability reserve

As of December 31, 2013, December 31, and January 1, 2012, the balance of reserve foremployee benefit obligation of the Bank and its subsidiaries were as follows:

December 31,2013

December 31,2012

January 1,2012

Recognized in consolidated financial statementDefined benefit plan $ 1,798,431 1,774,652 1,475,025Employee deposit with favorable rate 726,263 537,481 554,409

Total $ 2,524,694 2,312,133 2,029,434

- 50 -



(a) Defined benefit plan

Composition of plan assets:

December 31,2013

December 31,2012

January 1,2012

Present value of defined benefit obligation $ 6,808,683 7,262,790 6,551,442Less: Fair value of defined benefit plan assets (5,010,252) (5,488,138) (5,066,674)Subtotal 1,798,431 1,774,652 1,484,768Unamortized balance of actuarial profit or loss - - (9,743)Liabilities recognized in consolidated financial

statement$ 1,798,431 1,774,652 1,475,025

The Bank makes defined benefit plan contributions to the pension fund account at Bankof Taiwan that provides pensions for employees upon retirement. The plans (covered bythe Labour Standards Law) entitle a retired employee to receive an annual paymentbased on years of service and average salary for the six months prior to retirement.

(1) Composition of plan assets

The Bank and its subsidiaries allocates pension funds in accordance with theRegulations for Revenues, Expenditures, Safeguard and Utilization of the LaborRetirement Fund. With regard to the utilization of the funds, minimum earnings inthe annual distributions on the final financial statements shall be no less than theearnings attainable from the amounts accrued from two-year time deposits withinterest rates offered by local banks.

The Bank of Taiwan labour pension reserve account balance amounted to$5,010,252 on the December 31,2013. For information on the utilisation of thelabour pension fund assets including the asset allocation and yield of the fund,please refer to the website of the Labour Pension Fund Supervisory Committee.

(2) Movements in present value of the defined benefit obligations

2013 2012Defined benefit obligation at 1 January $ 7,262,790 6,551,442

Benefits paid by the plan (847,299) (115,224)

Current service costs and interest 346,859 563,866

Actuarial (loss)gains 46,537 263,113

Defined benefit obligation at 31 December $ 6,808,887 7,263,197

- 51 -



(3) Movements fair value of defined benefit plan assets

The movements fair value of the defined benefit plan assets for the Bank were asfollows：

2013 2012Fair value of plan assets at 1 Junuary $ 5,488,138 5,066,674

Contributions made 304,294 485,780


Expected return on plan assets 84,947 93,582

Actuarial loss (19,828) (42,674)

Fair value of plan assets at 31 December $ 5,010,252 5,488,138

(4) Expenses recognised in profit or loss

The expenses recognised in profit or loss for the Bank at 2012 and 2013 were asfollowes ：

2013 2012Current service costs $ 238,517 450,089

Interest on obligation 108,342 113,777

Past service costs - 9,743

Expected return on plan assets (84,947) (93,582)

$ 261,912 480,027

Actual return on plan assets $ 65,119 50,908

(5) Actuarial gains and losses recognized in other comprehensive income

Actuarial gains and losses recognised in other comprehensive income as at 2012 and2013 were as follows：

2013 2012Amount at 1 January $ 305,787 -

Recognised during the period 66,365 305,787

Amount at 31 December $ 372,152 305,787

- 52 -



(6) Actuarial assumption

2013 2012

Defined benefit plans discount rate %1.75 %1.50

Expected return on plan assets %1.75 %1.50

Future salary increasa rate %1.50 %1.50

(7) Historical information

December 31,2013

December 31,2012

January 1,2012

Present value of defined benefit obligation $ 6,808,683 7,262,790 6,551,442

Fair value of plan assets (5,010,252) (5,488,138) (5,066,674)

Net liabilities(assets) of defined benefit

obligations

$ 1,798,431 1,774,652 1,484,768

Experience adjustments arising on the

present value of defined benefit plans

$ 46,537 263,113 -

Experience adjustments arising on the fair

value of the plan assests

$ 19,828 42,674 -

The expected allocation payment made by the Bank to the defined benefit plans forthe one year period after the reporting dates is $260,000. The expected rate of returnof long-term assets is based on the overall portfolio performance instead of the sumof respective assets’ performance. The rate of return is purely based on historicalrate of return and is not adjusted.

(8) Sensitivity analysis

December 31, 2013Discount rate %1.50 %1.75 %2.00Defined benefit plan obligation $ 6,987,797 6,808,683 6,636,385

(b) Defined contribution plan

The Bank and its subsidiaries allocates 6% of each employee’s monthly wages to thelabour pension personal account at the Bureau of the Labour Insurance in accordancewith the provisions of the Labour Pension Act. Under this defined contribution plan, theBank and its subsidaries allocates a fixed amount to the Bureau of the Labour Insurancewithout additional legal or constructive obligations.

- 53 -



The Bank and its subsidaries’s pension costs under the defined contribution method were$72,013 and $69,701 for the year ended December 31 of 2013 and 2012, respectively.Payment was made to the Bureau of Labour Insurance.

(c) Employee deposit with favorable rate

The components of defined benefit plan assets are as follows:

December 31,2013

December 31,2012

January 1,2012

Present value of defined benefit obligation(Liabilities recognized in individual financialstatement)

$ 726,263 537,481 554,409

The Bank conducted the obligation of time deposit with favorable rate for retired andcurrent employees based on the internal regulation “Saving Deposits for Employees”.

(1) Movements in present value of the defined benefit obligations

The movements inpresent value of defined benefit obligations for the Bank were asfollows：

2013 2012Defined benefit obligation at 1 January $ 537,481 554,409


Interest on obligation 348,185 129,331

Defined benefit obligation at 31 December $ 726,263 537,481

(2) Movements of defined benefit plan assets

The movements in the present value of the defined plan assets for the Bank were asfollows：

2013 2012Fair value of plan assets at 1 January $ - -

Contributions made 159,403 146,259


Fair value of plan assets at 31 December $ - -

- 54 -



(3) Expenses recognised in profit or loss

The expenses recognised in profit or loss for the Bank were as follows：

2013 2012Interest on obligation $ 19,842 20,712

Actuarial loss 328,343 108,619

$ 348,185 129,331

(4) Actuarial assumption

2013 2012Discount rate of employee deposit with

favorable rate%4.0 %4.0

Rate of return for capital deposited %2.0 %2.0Annual Diminishing rate of account

balance%1.0 %1.0

Possibility that employee deposit withfavorable rate be modified

%50.0 %50.0

(5) Historical information

December 31,2013

December 31,2012

January 1,2012

Present value of defined benefit plan $ 726,263 537,481 554,409

Experience adjustments arising in thepresent value of defined benefit plans

$ 328,343 108,619 -

The expected allocation payment made by the Bank to the defined benefit plans forthe on year period after the reporting dates is $27,439.

(6) Sensitivity analysis

December 31, 2013Discount rate %3.75 %4.00 %4.25Defined benefit plan obligation $ 740,684 726,263 712,364

- 55 -



(X) Earnings per share

December 31, 2013 2012

Net income $ 3,610,202 3,808,020Weighted average number of common stock shares outstanding (in

thousands) (Note 1)5,094,148 5,080,849

Basic earnings per shares (in dollars) $ 0.71 0.75Dilutive potential common shares (in thousands) (Note 2) 18,477 18,470Weighted average number of shares outstanding for diluted EPS (in

thousands)5,112,625 5,100,058

Diluted earnings per shares (in dollars) $ 0.71 0.75

Note 1: The basic earnings per share from January 1, 2012 to December 31, 2012 has beenretrospectively adjusted.

Note 2: The shares were calculated based on the stock price on the balance sheet date.

(Y) Net interest income

December 31, 2013 2012

Interest revenue:Loan $ 6,235,271 6,273,910Secured loans 13,790,831 13,647,247Bills negotiated 7,376 10,878Bank overdraft 14,450 18,100Discount 26,716 31,087Time deposit from Central Bank 1,505,047 1,609,779Due from the Central Bank 177,848 178,571Call loans to banks 306,489 178,048Bond 422,954 447,536International credit card 82,571 87,463Overdue loans 353,333 239,024Bills 77,150 87,362Other 293,321 93,555Subtotal 23,293,357 22,902,560Interest expense:Deposits 8,273,493 8,240,178Deposits from banks 216 182Call loans from banks 265,357 330,392Fund 32,317 40,143Financial debentures 1,056,949 1,001,462Bond sold under repurchase agreement 69,780 68,913Other 743 1,268Subtotal 9,698,855 9,682,538Total $ 13,594,502 13,220,022

- 56 -



(Z) Net service charge income

December 31, 2013 2012

Service charge income:Remittance service fee $ 95,906 96,973Import bills negotiated service fee 69,600 68,590Export bills negotiated service fee 29,366 33,584Letter of credit service fee 14,587 29,862Certification service fee 1,058 2,046Acceptance service fee 1,720 1,986Trust service fee 447,974 304,431Guarantee service fee 78,306 94,669Agency service fee 39,894 43,138Interbank service fee 68,398 75,876Card service fee 173,454 160,242Commission revenue of insurance premium 1,076,914 752,805Custodian service fee 116,150 119,244Foreign currency service fee 125,150 124,653Commission of futures 8,914 9,853Loan service fee 160,267 169,105Other 349,027 283,830Subtotal 2,856,685 2,370,887Service fee expense:Foreign currency service fee 21,486 20,710Interbank service fee 122,079 121,061Trust service fee 7,752 5,631Agency service fee 2,975 3,179IC card service fee 50,992 45,926Check clearing service fee 14,784 15,213Remittance service fee 1,322 1,490Custodian service fee 24,132 19,988Call loans service fee 1,773 1,372Other 19,388 19,744Subtotal 266,683 254,314Total $ 2,590,002 2,116,573

- 57 -



(AA) Profit or loss of financial assets and liabilities at fair value through profit or loss

December 31, 2013 2012

Valuation profit and loss:Government bonds $ (1,789) 1,608Corporate bonds 4,268 3,956Financial debentures (11,305) 63,530Stock of listed company (2,069) 2,536Beneficiary certificates (4,668) 4,200Commercial paper 155 (255)Option contracts 491 (200)Interest swap contracts 54,391 66,807Foreign exchange forward contracts (37,217) 61,677Currency swap contracts 63,154 57,813Subtotal 65,411 261,672Disposition profit and loss:Government bond 591 966Corporate bonds - 697Financial debentures - (9,019)Stock of listed company 2,298 2,637Beneficiary certificates 2,815 4,074Commercial paper - (11)Option contracts 33,417 40,093Interest swap contracts (54,721) (67,431)Foreign exchange forward contracts 197,311 (192,232)Currency swap contracts 498,808 352,426Non-delivery forward contracts (3,566) 690Subtotal 676,953 132,890Dividend revenue 4,922 2,590Interest income 82,137 31,229Total $ 829,423 428,381

(AB) Realized gains (losses) on available-for-sale financial assets

December 31, 2013 2012

Gain on disposition of government bond $ 6,412 595Gains (losses) on disposition of corporate bonds 7,070 (4,544)Gains from disposition of financial debentures (56) 1,436Gains from disposition of listed and OTC stocks 2,436 6,683Dividend revenue 19,798 14,244Total $ 35,660 18,414

- 58 -



(AC) Other non-interest income

December 31, 2013 2012

Rental revenue of operating assets $ 8,076 7,905Loss from disposition of premises and equipments (754) (1,002)Loss of account error (111) (131)Gold deposit book 13,553 11,247Other oprating expense (44,986) (99,685)Other revenue 92,968 214,488Total $ 68,746 132,822

(AD) Bad debt expenses and provision for guarantee reserve

December 31, 2013 2012

Discounts, loans and overdue loans $ 3,001,387 2,246,196Receivables and other financial assets (7,182) (150,664)Subtotal 2,994,205 2,095,532Guarantee reserve 5,934 16,787Total $ 3,000,139 2,112,319

(AE) Employee benefit expense

December 31, 2013 2012

Salary expense $ 5,587,989 5,875,412Labor and health insurance 389,939 375,907Pension expense 333,925 549,728Other employee benefit 994,033 556,963Total $ 7,305,886 7,358,010

(AF) Depreciation and amortization

December 31, 2013 2012

Property and equipment $ 363,327 392,173Amortization

Computer software 75,649 67,498Other deferred charges 227 258

Total $ 439,203 459,929

- 59 -



(AG) Other operation and management expense

December 31, 2013 2012

Compensation loss $ 176 495Water and electricity fee 104,424 105,740Postage and telecommunication 150,145 150,593Transportation fee 30,176 22,615Printing and advertisement fee 203,271 179,816Maintainence fee 36,892 35,786Insurance fee 410,341 398,554Professional service fee 161,036 149,801Materials and supplies 94,617 95,292Rental expenses 548,877 571,392Duties and levies 672,701 642,656Membership, donation and partaking 494,347 471,143Storage, packing and processing 40,607 46,086Cash transit 110,090 113,971Other 63,563 60,486Total $ 3,121,263 3,044,426

(AH) Financial Instruments

(a) Fair value information

(1) Fair value of financial instruments measured at amortized cost

A. Other than those listed below, the management considers the carrying amountsof its financial assets and financial liabilities measured at amortised cost to be areasonable approximation of fair value in the consolidated financial quarterlyreport:

As of December 30 2013, December 31 and January 1, 2012, the fair valueinformation of financial assets and liabilities were as follows:

December 31, 2013Book value Fair value

Hold-to-maturity financial assets-net $ 194,434,171 194,458,002

December 31, 2012Book value Fair value


January 1, 2012Book value Fair value


- 60 -



(2) The Tier information of the fair value of financial instruments

December 31, 2013Financial products measured atfair value through profit or loss Total 1st Tier 2nd Tier 3rd TierNon-derivative financial assetsAssets:

Financial assets at fair valuethrough profit or lossFinancial Assets Held for

TradingFinancial assets measured

at fair value on initialrecognition

$ 2,479,600 - 2,479,600 -

Available-for-Sale FinancialAssetsSecurity Investment 806,795 806,795 - -Bond Investment 12,238,523 - 12,238,523 -

Derivative financial assetsAssets:

Financial assets at fair valuethrough profit or loss

$ 494,994 27,243 467,751 -

Liabilities: Financial liabilities at fair

value through profit or loss280,882 - 280,882 -

December 31, 2012Financial products measured atfair value through profit or loss Total 1st Tier 2nd Tier 3rd TierNon-derivative financial assetsAssets:

Financial assets at fair valuethrough profit or lossFinancial Assets Held for

TradingSecurity Investment $ 131,141 131,141 - -Other 2,193,880 199,190 1,994,690 -

Financial assets measured atfair value on initialrecognition

3,119,026 - 1,561,146 1,557,880

Available-for-Sale FinancialAssetsSecurity Investment 645,830 555,830 90,000 -Bond Investment 11,813,159 - 11,075,176 737,983

Derivative financial assetsAssets:

Financial assets at fair valuethrough profit or loss

$ 364,990 27,203 337,787 -

Liabilities:Financial liabilities at fair value

through profit or loss230,833 - 230,833 -

- 61 -



January 1, 2012Financial products measured atfair value through profit or loss Total 1st Tier 2nd Tier 3rd TierNon-derivative financial assets

Assets:Financial assets at fair value

through profit or lossFinancial Assets Held for

TradingOther $ 1,495,805 - 1,495,805 -

Financial assets measured atfair value on initialrecognition

3,686,958 - 2,219,627 1,467,331

Available-for-Sale FinancialAssetsSecurity Investment 763,463 673,463 90,000 -Bond Investment 14,177,336 - 12,152,919 2,024,417

Derivative financial assets

Assets:Financial assets at fair value

through profit or loss$ 292,203 27,163 265,040 -

Liabilities:

Financial liabilities at fair valuethrough profit or loss

339,942 - 339,942 -

For the year ended December 31,2013 , the stocks possessed by the Bankwhichamounted to $231,750 are transferred from tier 2 to tier 1 because Asia PacificTelecom Co., Ltd. went public on August 5, 2013.

(3) Changes of financial assets measured at fair value through profit or loss and areclassified as the 3rd tier financial instrument

For the year ended December 31, 2013

Increase Decrease

Name

Balance at thebeginning of the

year

Net income orstockholder's

equityPurchase or

issue

Transfer tothe 3rd tierfrom other

tiers

From the 3rdtier financialliabilities tothe 3rd tier

financial assetSale, disposalor settlement

Transferringto other tiersfrom the 3rd

tier

From the 3rdtier financialassets to the

3rd tierfinancialliabilities

Balance at theend of the

year

Financial asset at fair valuethrough profit or loss

Financial asset measuredat fair value on initialrecognition

$ 1,557,880 41,376 887,100 - - 1,598,916 887,440 - -

Available-for-sale financialassets

737,983 24,869 445,165 - - 317,889 890,128 - -

Total $ 2,295,863 66,245 1,332,265 - - 1,916,805 1,777,568 - -

For the year ended December 31, 2012

Increase Decrease

Name

Balance at thebeginning of the

year

Net income orstockholder's

equityPurchase or

issue

Transfer tothe 3rd tierfrom other

tiers

From the 3rdtier financialliabilities tothe 3rd tier

financial assetSale, disposalor settlement

Transferringto other tiersfrom the 3rd

tier

From the 3rdtier financialassets to the

3rd tierfinancialliabilities

Balance at theend of the

year

Financial asset at fair valuethrough profit or loss

Financial asset measuredat fair value on initialrecognition

$ 1,467,331 (55,551) 146,625 - - 525 - - 1,557,880

Available-for-sale financialassets

2,024,417 (564,001) - - - 722,433 - - 737,983

Total $ 3,491,748 (619,552) 146,625 - - 722,958 - - 2,295,863

The Bank applied the method used for the fair value of financial instruments andrearranged the tier of bond investments in 2013. The amount transferred from thethird tier to the second tier was $1,777,568.

- 62 -



(b) Methods and assumptions used in estimating the fair values of financial instruments arespecified below:

(1) If there is a quoted price in an active market for the financial asset, includingfinancial instruments measured at fair value through profit or loss, and available-for-sale and held-to-maturity, the quoted price is regarded as its fair value. If there is noquoted price in an active market for the financial asset, its fair value is estimated onthe basis of the result of a valuation technique that refers to quoted prices providedby financial institutions. Ask (bid) is used to evaluate the selling (buying) positionby the Bank if the quoted price include ask and bid price. If there is not a quotedprice for the financial asset, transaction price close to the balance sheet date is thefair value.

(2) Fair value of financial derivatives (including foreign exchange forwards, non-delivery forwards, interest swaps, currency swaps, cross currency swaps, stock indexfutures and foreign exchange option) are the amount of cash to be paid or to bereceived by the Bank, assuming that the contract will be terminated on the balancesheet date. The Bank adopts mark-to-model prices which are usually adopted amongthe banking industry, such as Discounted-Cash-Flow model and Black-Scholesmodel. The Bank adopts the price data from Reuters and Bloomberg to calculate thefair value of the holding position. The aforesaid price data is based upon the middleprice and used consistently by the Bank. Furthermore, the fair value of theembedded financial derivatives are calculated based upon the quote from thecounterparty, and separately calculated in accordance with the contracts.

(AI) Financial Risk Information

(a) General description

The goal of the financial risk management of the Bank and its subsidiaries are toeffectively diversify, transfer and avoid risks by taking customer service, financialbusiness operating target, overall risk tolerance and external limitation of laws intoconsideration and provide benefit to customers, shareholders and employees.

The Bank established risk management policy, in order to assess the risk management ofthe Bank, based on the risk management concepts stated in all business regulations. Thescope includes credit risk, market risk, operation risk, banking book interest rate risk andcapital liquidity risk and regulates all scope which shall be covered, items which shall beevaluated and content of public information disclosed. In addition, in order to carry outrisk management policy and control overall risk assets, the Bank and its subsidiariesestablished code of conduct for credit risk management, market risk management andoperation risk management to serve as the guidelines for all risk management,

- 63 -

- 64 -

(b) Risk management organization structure

Board of directors

President

General manager

Vice president

Risk management center

Risk Management Committee

Assets and liabilities Management

Committee

Credit Examination Committee

Overdue Loans Clearing Committee



(1) Risk Management Committee

The chairperson of the Risk Management Committee is appointed by the president,and the vice chairperson and other members are appointed by the chairperson. Inprinciple, the committee convenes a meeing quarterly. The duties are as follows:

A. Conduct Analysis and response project when significant domestic and foreigneconomic, financial and industrial changes which related to risk managementoccur.

B. Approval of the measurement and analyzing methods of various risk exposure.

C. Examination of the risk management policy of the Bank and relavent limitationsand management indices.

D. Monitoring the risk exposure and approval of the response project when the riskexceeds the limitations of the management indices.

E. Ratio management of proprietary capital to risk assets.

Risk Management Department is the assistant unit of the Risk ManagementCommittee. The responsibility of the Risk Management Department is to preparemeeting agenda, meeting minutes filing and subsequent tracking of resolved matters.Furthermore, it regularly reports the important resolution and various risk exposureto the board of (executive) directors and conduct the identification, analysis andmeasurement of various risk exposure. The establishment of the Risk ManagementCommittee is to manage and monitor the risk of the Bank in pursuit of steadygrowth of the Bank’s earnings and value.

(2) Assets and Liabilities Management Committee

The chairperson of the Assets and Liabilities Management Committee is the generalmanager, and the members are formed by the vice assistant general manager and thedepartment heads of deposit, loan, financial transaction, capital deployment and riskmanagement units. The responsibility of the Assets and Liabilities ManagementCommittee is to monitor and manage the banking book interest rate risk and capitalliquidity risk and convenes meetings regularly, to approve the analyzing andmeasurement methods of the capital liquidity risk and banking book interest rate riskexposure, to examine the capital liquidity risk and banking book interest rate riskmanagement policy as well as the relavent limitations and management indices, toreceive interest rate risk and capital liquidity risk exposure reports and adjust theassets and liabilities interest rate duration structure and capital maturity structure.

- 65 -



(3) Credit Examination Committee

The convener of the Credit Examination Committee is the assistant general managersupervising Risk Management Center who appointed several executive assistant toconduct agenda arrangement, motion documentary and other relavent events. TheCommittee in principle convenes weekly to examine the modification andestablishment of the regulation (including main points, measures and procedures).

(4) Overdue Loans Clearing Committee

The convener of the Overdue Loans Clearing Committee is the supervising vicepresident and the executive secretary is the manager of the Creditor’s RightManagement Department. The convener holds meetings based on the necessacity toclear the non-performing loans and non-accrual loans and bad debts in order toimprove the quality of the credit assets.

(c) Credit risk

(1) Source and definition of credit risk

Credit risk refers to the default risk resulted from the inability to fulfill the contractobligations due to deteriating financial status of trade counterparties, pessimisticexternal economic situation or other factors. The primary source of the credit risk ofthe Bank is the loan business, such as loans of various terms, guarantees and lettersof credit, loan commitments, etc., in addition, other sources of credit risk includecall loans from banks, securities investments, derivative financial instrumenttransactions, etc.

(2) Credit risk management policy

In order to control the credit risk to a tolerable scope, the Bank continuously conductbelow operations:

A. Fully understand the credit status and ratings of loan customers and tradecounterparties as well as the purposes and payments of loans.

B. Prudently evaluates the credit risk status of loan customers and tradecounterparties and consider the adequacy of collaterals and guarantees to assessrisk and profit.

C. Establish credit rating mechanism for loan customers or apply the ratings fromoutside credit rating institutions as the reference for undertaking credit cases orinterest rate determination.

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D. Modify relavent regulations to control the credit risk to a tolerable extent for theBank.

The credit risk management procedure and measurement methods of the majorbusiness are as follows:

A. Credit Business (Including loan commitments and guarantees)

The categorization and credit quality rating of credit assets are as follows:

a. Categorization of credit assets

The credit assets are classified into 5 categories. Except for normal creditassets which are classified as the first category, others are classified, basedon the assurance status and the time overdued, as second category (needattention), third category (possible to recover), fourth category (difficult toretrieve) and the fifth category (unable to retrieve). In order to managecreditor's rights, established “Regulations Governing the Procedures toEvaluate Assets and Deal with Non-performing/Non-accrual Loans”,“Regulations Governing the Reconciliation of Non-performing/Non-accrualLoans” and its operating procedure “Operating procedure Governing theCollection of Non-performing/Non-accrual Loans” and “Code of Conductto Deal With Non-Performing Loans” to serve as the guidelines for dealingwith non-performing credit and overdue loans collection.

b. Based on historical default data, the Bank established internal credit ratingmodel and completed internal rating system to serve as a reference to creditrisk control.

In order to develop an appropriate credit rating model for the Bank toevaluate the credit risk for corporate banking customers and privatebanking customers, it applied statistical methods, professional expertjudgements and relavent customer information to fulfill the requirements.The Bank examined whether the internal credit rating model is inconformity with the actual scenario based on practical default data quarterlyand adjusted all parameters to optimize the estimated results.

B. Due from other banks and call loans to banks

The Bank evaluates the credit status of counterparties before transaction andtakes the rating information from domestic and foreign credit rating institutionsinto consideration to determine various credit risk facilities for thecounterparties.

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C. Debt instrument investments and derivative financial instruments

The Bank manages credit risk of debt instruments through credit rating data ofexternal institutions, credit quality of bonds, geographic situations andcounterparties’ risk so as to identify credit risk.

The financial institutions which the Bank conducts derivative instruments aremostly investment quality and are controlled based on the trade amount(including loans at call). Counterparties which do not have credit rating orwhich are of low quality shall be examined individually. For counterpartieswhich are general customers, the Bank controls the credit risk exposure basedon the derivative instrument risk facilities and conditions approved by generalcredit procedures.

(3) Credit risk hedging or diminishing.

A. Collaterals

The Bank and its subsidiaries adopt a series of policies and procedures tomitigate credit risk and enhance credit risk tolerance. The method applied mostis to request customers to provide collaterals. The Bank and its subsidiariesestablished collateral accreditation code of conduct in term of collateralmanagement and total loan amount to regulate the scope of collaterals and theaccreditation method and regularly inspects and reaccreditates the collaterals.When the collaterals devaluate or the concern of devaluation occurs, the Bankand its subsidiaries shall increase collaterals or retrieve part of the loans toensure the creditor’s right is intact.

B. Limit of credit risk and the control of credit risk concentration

a. In order to avoid the situation that the credit risk of single customer beingtoo high, the credit limit of an individual, a related party or a relatedenterprise shall be in conformity with “Authorization method forsubsection 3 of Atricle 33 of the Banking Act of the Republic of China”and the credit limit authorization steps are regulated in the Key Points ofCredit Engagement Authorization and the Key Points of CreditEngagement Authorization for Overseas Branches of the Bank.

b. To enhance the risk concentration management, the Bank establishedregulations in terms of countries, financial institutions, industries and groupenterprises. The relavent limits are reviewed and approved annually and theusage of the credit is monitored on a daily basis. In addition, the results arereported regularly.

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C. General agreement of net amount settlement

The transactions of the Bank are mostly settled with gross amount. Part of thetransactions agreed on net amount settlement. When a default occurs, the Bankterminates all the transactions with the counterparty and settles by net amount tofurther lower credit risk.

(4) Maximum credit risk exposure of the Bank.

The maximum credit exposure of the assets in the consolidated financial statementis approximately the book value when not considering collaterals or other creditenhancement instruments. The maximum credit exposure off the consolidatedbalance sheet (when not considering collaterals or other credit enhancementinstruments and not revokable) is as follows:

Maximum credit risk exposure

Off balance sheet itemsDecember 31,

2013December 31,

2012 January 1, 2012Loan commitment signed and irrevokable $ 2,602,110 3,011,762 1,484,307Irrevokable credit card commitment of the

customers23,836,887 23,237,386 19,463,776

Signed but not used L/C credit amount 10,054,495 11,149,648 11,483,042Various guarantee proceeds 9,000,830 10,288,515 14,488,808Total $ 45,494,322 47,687,311 46,919,933

The Management of the Bank evalueated the credit risk exposure and believed thatthe Bank is able to continuously control and minimize the off-balance-sheet creditrisk exposure due to its strict appraisal process and regular subsequent examination.

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(5) Credit risk concentration of the Bank

The Bank and its subsidiaries do not conduct significant transaction with singlecustomer or single trade counterparty. The total amount of discounts and loans,overdue loans in terms of individual customer or individual trade counterparty is notsignificant. The information of credit risk concentration of discounts and loans andoverdue loans are divided by industries, geographic areas and collaterals and listedas follows:

A. Industry

Distribution of discounts and loans, overdue loans based on industries.

(In NT thousand)December 31, 2013 December 31, 2012 January 1, 2012

Industry Amount % Amount % Amount %Private business $ 493,809,358 %50.97 488,317,765 %50.75 495,090,848 %52.05Public business 14,520,607 %1.50 31,673,004 %3.29 37,838,037 %3.98Government institution 165,932,856 %17.13 160,601,850 %16.69 130,556,592 %13.72Non profit organization 3,962,679 %0.41 3,872,351 %0.40 4,102,234 %0.43Individual 249,766,234 %25.78 241,995,326 %25.15 247,374,881 %26.01Foreign financial institution 4,957,757 %0.51 6,212,496 %0.65 6,162,957 %0.64Foreign non-financial institution 35,797,502 %3.70 29,599,108 %3.07 30,129,118 %3.17Total $ 968,746,993 %100.00 962,271,900 %100.00 951,254,667 %100.00

B. Geographic area

Distribution of discounts and loans, overdue loans based on geographic area.


Area Amount % Amount % Amount %Domestic $ 928,742,281 %95.87 926,848,471 %96.32 914,962,592 %96.18Foreign non-financial institutions 40,004,712 %4.13 35,423,429 %3.68 36,292,075 %3.82Total $ 968,746,993 %100.00 962,271,900 %100.00 951,254,667 %100.00

C. Collateral

Distribution of discounts and loans, overdue loans based on collateral.


Collateral Amount % Amount % Amount %Non-secured Secured $ 333,810,922 %34.46 347,750,522 %36.14 346,094,139 %36.38Stock 11,635,953 %1.20 12,713,282 %1.32 12,658,055 %1.33Bond 3,928,423 %0.41 2,785,575 %0.29 2,815,887 %0.30Real estate 482,031,623 %49.76 469,992,810 %48.84 470,452,578 %49.45Chattel 21,023,946 %2.17 26,504,562 %2.76 27,353,007 %2.88Notes receivable 1,169,884 %0.12 765,678 %0.08 834,255 %0.09Guarantee 112,420,927 %11.60 99,806,771 %10.37 88,726,090 %9.33Other 2,725,315 %0.28 1,952,700 %0.20 2,320,656 %0.24Total $ 968,746,993 %100.00 962,271,900 %100.00 951,254,667 %100.00

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Note: Secured credit are categorized in its respective item per the type of thecollaterals. Non-secured credit (no collateral provided) is classified infiduciary credit. If the credit amount is higher than the accreditationvalue, the credit amount within the accreditation is classified in therespective item, the credit amount exceeds the accreditation value isclassified in fiduciary credit. The accreditation value is the valuecalculated per the accreditation regulations of the Bank and itssubsidiaries, not the discounted value of the signed contract.

(6) Credit quality and overdue impairment loss of financial assets

Part of the financial assets, such as cash and cash equivalent, due from the CentralBank and call loans to banks, financial assets at fair value through profit or loss,bills and bonds purchased under resell agreement, guarantee deposits paid andoperation guarantee deposits and settlement funds are considered of minimum creditrisk due to the good credit ratings of the trade counterparties.

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Except for the abovementioed items, the credit quality analyses of the rest of the financial assets are as follows:

A. Credit quality analysis of discounts and loans as well as receivables

Not overdue and not impairment amount Loss provided (D)

December 31,2013 Excellent Good Midium Acceptable

Understandard No rating Subtotal (A)

Overdue but notimpaired (B)

Impaired amount(C) Total (A)+(B)+ (C)

With objectiveevidence ofimpairment

Without objectiveevidence ofimpairment

Net Amount(A)+(B)+(C)-(D)

Receivable

-Credit $ 473,973 208,246 279,972 195,345 17,163 281,351 1,456,050 8,940 - 1,464,990 - 1,163 1,463,827

-Other 174,420 1,313,219 361,469 51,768 - 2,158,577 4,059,453 86,641 139,441 4,285,535 73,602 58,561 4,153,372

Discounts andloans

108,793,276 347,695,457 243,543,650 34,835,863 4,545,772 201,850,045 941,264,063 3,596,935 23,885,995 968,746,993 5,124,124 5,337,997 958,284,872

Other financialassets

164 43 1,581 - - - 1,788 462 376,894 379,144 268,283 11 110,850

Total $ 109,441,833 349,216,965 244,186,672 35,082,976 4,562,935 204,289,973 946,781,354 3,692,978 24,402,330 974,876,662 5,466,009 5,397,732 964,012,921


December 31,2012 Excellent Good Midium Acceptable

Understandard No rating Subtotal (A)

Overdue but notimpaired (B)

Impaired amount(C) Total (A)+(B)+ (C)




Receivable

-Credit $ 467,293 169,655 278,908 233,302 17,532 263,770 1,430,460 10,260 - 1,440,720 - 2,325 1,438,395

-Other 293,901 977,889 130,533 540 - 2,376,666 3,779,529 43,108 231,770 4,054,407 219,980 94,944 3,739,483

Discounts andloans

119,507,466 379,367,123 188,587,654 31,717,865 4,034,121 207,697,387 930,911,616 4,857,766 26,502,518 962,271,900 6,069,730 2,231,730 953,970,440


- 2 - - - - 2 282 129,971 130,255 49,667 6 80,582

Total $ 120,268,660 380,514,669 188,997,095 31,951,707 4,051,653 210,337,823 936,121,607 4,911,416 26,864,259 967,897,282 6,339,377 2,329,005 959,228,900

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January 1, 2012 Excellent Good Midium AcceptableUnder

standard No rating Subtotal (A)Overdue but not

impaired (B)Impaired amount

(C) Total (A)+(B)+ (C)




Receivable

-Credit $ 482,981 115,823 273,912 296,426 24,156 276,004 1,469,302 15,161 - 1,484,463 - 1,733 1,482,730

-Other 28,250 1,593,714 259,635 79,961 - 10,065,827 12,027,387 111,960 - 12,139,347 - 208,004 11,931,343

Discounts andloans

90,748,323 320,867,751 266,934,095 37,026,585 7,297,574 202,189,853 925,064,181 5,310,198 20,880,288 951,254,667 6,948,482 1,551,056 942,755,129


36 1,878 221 - - 303 2,438 - 200,709 203,147 104,379 5 98,763

Total $ 91,259,590 322,579,166 267,467,863 37,402,972 7,321,730 212,531,987 938,563,308 5,437,319 21,080,997 965,081,624 7,052,861 1,760,798 956,267,965

The abovementioned “Excellent” refers to the position which belongs to level 1 to level 4 of the internal credit rating system,“Good” refers to the position belongs to level 5 to level 9, “Medium” refers to the position belongs to level 10 to level 17,“Acceptable” refers to the position belongs to level 18 to level 23, “under standard” refers to the position belongs to level 24 tolevel 26 and“No rating” refers to the lending position of government institutions and other positions which do not apply to internalcredit rating model.

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B. Credit quality analysis based on intermal credit rating criteria of the not overdue and not impaired discounts and loans andexpressed by customer types

December 31, 2013 Excellent Good Midium Acceptable Under standard No rating TotalPrivate banking

Secured $ 64,415,861 80,139,739 71,603,398 5,692,039 2,251,649 2,054,120 226,156,806Non-secured 869,856 3,851,946 12,495,524 696,703 197,526 671,463 18,783,018

Corporate bankingGovernment and public institution - - 8,500,020 6,020,587 - 165,906,335 180,426,942Financial institution 2,054,820 2,706,904 50,617 - 148,875 - 4,961,216Margin loans receivable - - - - - 1,793,827 1,793,827Large Enterprise- credit and

guarantee fund- 123,544 90,530 - - - 214,074

Large Enterprise-secured 1,180,523 52,784,765 2,672,209 1,351,789 216,998 - 58,206,284Large Enterprise-nonsecured 4,975,745 47,690,333 10,233,392 1,643,240 886,695 2,556,193 67,985,598Medium and small enterprises-

credit and guarantee fund3,766,287 27,886,013 47,070,864 3,841,116 151,902 198,480 82,914,662

Medium and small enterprises-secured

24,938,906 105,548,044 70,141,567 11,201,538 399,016 12,727,144 224,956,215

Medium and small enterprises-nonsecured

6,591,278 26,964,169 20,685,529 4,388,851 293,111 15,942,483 74,865,421

Total $ 108,793,276 347,695,457 243,543,650 34,835,863 4,545,772 201,850,045 941,264,063

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December 31, 2012 Excellent Good Midium Acceptable Under standard No rating TotalPrivate banking

Secured $ 60,865,185 76,356,631 64,823,091 3,940,342 2,142,725 8,530,506 216,658,480Non-secured 1,371,534 6,240,705 11,170,236 443,850 54,057 567,299 19,847,681

Corporate bankingGovernment and public institution - 25,416,788 - 6,256,216 - 160,574,217 192,247,221Financial institution 3,207,127 9,220,782 1,284,177 - - 3,141,645 16,853,731Margin loans receivable - - - - - 1,506,400 1,506,400Large Enterprise- credit and

guarantee fund16,534 110,109 50,300 4,655 - - 181,598

Large Enterprise-secured 2,570,905 50,786,734 2,953,508 3,199,572 256,680 126,295 59,893,694Large Enterprise-nonsecured 7,381,721 34,244,206 6,102,614 4,443,892 1,052,115 1,171,403 54,395,951Medium and small enterprises-

credit and guarantee fund2,963,574 23,570,250 26,804,469 2,361,992 98,266 552,922 56,351,473


30,713,675 112,947,533 54,091,224 6,143,420 320,821 16,619,858 220,836,531


10,417,211 40,473,385 21,308,035 4,923,926 109,457 14,906,842 92,138,856

Total $ 119,507,466 379,367,123 188,587,654 31,717,865 4,034,121 207,697,387 930,911,616

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January 1, 2012 Excellent Good Midium Acceptable Under standard No rating TotalPrivate banking

Secured $ 73,201,193 68,824,968 60,494,699 4,274,665 3,434,976 10,426,659 220,657,160Non-secured 947,455 7,462,390 3,358,047 67,795 38,785 8,281,558 20,156,030

Corporate bankingGovernment and public

institution- 6,300,000 23,904,019 7,634,018 - 130,478,350 168,316,387

Financial institution 3,175,723 10,694,365 1,903,007 - - 5,576,368 21,349,463Margin loans receivable - - - - - 1,819,376 1,819,376Large Enterprise- credit and

guarantee fund- 83,558 64,320 20,438 - 907 169,223

Large Enterprise-secured 579,225 19,993,512 43,013,696 4,158,878 579,807 273,171 68,598,289Large Enterprise-nonsecured 2,975,937 48,126,411 9,274,030 6,494,114 2,555,767 2,651,840 72,078,099Medium and small enterprises-

credit and guarantee fund520,732 18,430,008 24,869,507 2,237,262 38,887 1,768,717 47,865,113


8,268,703 107,051,281 69,846,351 8,136,966 409,358 22,859,235 216,571,894


1,079,355 33,901,258 30,206,419 4,002,449 239,994 18,053,672 87,483,147

Total $ 90,748,323 320,867,751 266,934,095 37,026,585 7,297,574 202,189,853 925,064,181

C. Credit quality analysis of security investments

Not overdue and impaired position Overdue but not Impairment Total Loss Net amountDecember 31, 2013 Investment Subinvestment High risk No rating Subtotal (A) impaired position (B) position (C) (A)+(B)+(C) provided (D) (A)+(B)+(C)-(D)

Financial assets designated as at fairvalue through profit or loss-Overseas bonds $ 2,179,340 - - 300,260 2,479,600 - - 2,479,600 - 2,479,600

Available-for-sale financial assets-net-Overseas bonds 1,712,577 - - 287,208 1,999,785 - - 1,999,785 - 1,999,785-'NT bonds 10,238,738 - - - 10,238,738 - - 10,238,738 - 10,238,738

Hold-to-maturity financial assets-net-Overseas bonds 7,663,219 - - - 7,663,219 - - 7,663,219 - 7,663,219-'NT bonds 8,970,952 - - - 8,970,952 - - 8,970,952 - 8,970,952

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Not overdue and impaired position Overdue but not Impairment Total Loss Net amountDecember 31, 2012 Investment Subinvestment High risk No rating Subtotal (A) impaired position (B) position (C) (A)+(B)+(C) provided (D) (A)+(B)+(C)-(D)

Financial assets designated as at fairvalue through profit or loss-Overseas bonds $ 2,692,901 145,175 - 280,950 3,119,026 - - 3,119,026 - 3,119,026

Available-for-sale financial assets-net

-Overseas bonds 2,358,418 - - - 2,358,418 - - 2,358,418 - 2,358,418

-'NT bonds 9,454,741 - - - 9,454,741 - - 9,454,741 - 9,454,741

Hold-to-maturity financial assets-net

-Overseas bonds 3,067,366 - - - 3,067,366 - - 3,067,366 - 3,067,366

-'NT bonds 3,716,802 - - 30,000 3,746,802 - - 3,746,802 - 3,746,802

Not overdue and impaired position Overdue but not Impairment Total Loss Net amountJanuary 1, 2012 Investment Subinvestment High risk No rating Subtotal (A) impaired position (B) position (C) (A)+(B)+(C) provided (D) (A)+(B)+(C)-(D)

Financial assets designated as at fairvalue through profit or loss-Overseas bonds $ 3,388,103 - - 298,855 3,686,958 - - 3,686,958 - 3,686,958

Available-for-sale financial assets-net-Overseas bonds 5,423,494 774,281 - - 6,197,775 - - 6,197,775 - 6,197,775-'NT bonds 7,979,561 - - - 7,979,561 - - 7,979,561 - 7,979,561

Hold-to-maturity financial assets-net-Overseas bonds 1,081,729 - - - 1,081,729 - - 1,081,729 - 1,081,729-'NT bonds 4,224,940 - - 190,000 4,414,940 - - 4,414,940 - 4,414,940

For the iinvestment ratings of above tables, investment grade refers to AAA to BBB-, Subinvestment grade refers to BB+ ~B-,high risk refers to CCC+ and below (including no rating). No rating refers to the bonds not graded by credit rating institution.

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(7) Aging analysis of financial assets which are overdue but not impaired

Operation process delay of loan borrowers and other administrative factors maycause financial assets to be overdue but not impaired. According to the internal riskmanagement regulations of the Bank and its subsidiaries, financial assets overduewithin 90 days are not considered impaired unless there are other evidence indicatesotherwise.

December 31, 2013 over within 1

month over 1~3months over 3 months Total

Account receivables-Credit card $ 5,924 3,016 - 8,940-Other receivables 86,641 - - 86,641

Discounts and loansPrivate banking

-Secured 2,022,633 533,043 - 2,555,676-Nonsecured 139,830 11,706 - 151,536

Corporatre banking-Government and public

institution- - - -

-Large enterprise nonsecured 16,753 - - 16,753-Medium and small

enterprises- credit andguarantee fund

209,443 36,380 - 245,823

-Medium and smallenterprises- secured

240,289 202,632 - 442,921

-Medium and smallenterprises-nonsecured

184,226 - - 184,226

Other financial assets-Exchange billnegotiated

402 60 - 462

Total $ 2,906,141 786,837 - 3,692,978

December 31, 2012 over within 1


Account receivables-Credit card $ 7,064 3,196 - 10,260-Other receivables 69 43,039 - 43,108



Corporatre banking-Financial institution 290,350 - - 290,350-Large enterprise nonsecured 178,405 - - 178,405-Medium and small

enterprises- credit andguarantee fund

170,070 63,462 - 233,532


297,447 44,139 - 341,586


898,825 25,796 - 924,621

Other financial assets-Exchange billnegotiated

282 - - 282

Total $ 4,010,124 901,292 - 4,911,416

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January 1, 2012 over within 1


Account receivables-Credit card $ 8,845 6,316 - 15,161-Other receivables 27 109,982 1,951 111,960



Corporatre banking-Government and public

institution50,000 - - 50,000

-Medium and smallenterprises- credit andguarantee fund

168,398 38,514 - 206,912


718,146 37,513 - 755,659


83,658 21,612 - 105,270

Total $ 4,319,996 1,115,372 1,951 5,437,319

(8) Impairment loss analysis of the financial assets of the Bank

A. Discounts and loans

December 31, 2013

Item Discounts and loans

Allowance forbad debts

With objective evidence ofimpairment Individual assessment $ 18,738,249 4,085,781Collective assessment

Medium and small enterprises-credit and guarantee fund

1,833,189 545,249


674,250 94,432


199,743 81,984

Private banking-secured 2,224,993 195,347Private banking-nonsecured 214,304 120,736Preliminary negotiation projects 1,267 595Subtotal 23,885,995 5,124,124

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December 31, 2013


Allowance forbad debts

Without objective evidence ofimpairmentCollective assessment

Government and publicinstitution

$ 180,426,942 80,822

Financial institution 4,961,216 2,222Margin loans receivables 1,793,827 803Large Enterprise- credit and

guarantee fund214,074 96

Large enterprise secured 58,206,284 932,685Large enterprise-nonsecured 68,002,351 900,898Medium and small enterprises-

credit guarantee fund83,160,486 1,224,876


225,399,136 595,289


75,049,646 1,072,863

Private banking-secured 228,712,187 459,577Private banking-nonsecured 18,934,849 67,866Subtotal 944,860,998 5,337,997

Total $ 968,746,993 10,462,121

December 31, 2012


Allowance for bad debts



925,681 293,031


544,522 125,449


800,145 484,162

Private banking-secured 2,157,721 381,031Private banking-nonsecured 222,441 149,653Preliminary negotiation projects 4,368 1,932Subtotal 26,502,518 6,069,730

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December 31, 2012





$ 192,247,221 61,180




credit guarantee fund56,585,005 238,252


221,178,117 430,967


93,063,477 594,168


Total $ 962,271,900 8,301,460

January 1, 2012





970,616 256,565


747,817 189,500


916,551 523,167

Private banking-secured 2,456,330 422,990Private banking-nonsecured 197,266 103,113Preliminary negotiation projects 4,135 1,559Subtotal 20,880,288 6,948,482

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January 1, 2012





$ 168,366,387 50,629




credit guarantee fund48,072,025 332,535


217,327,553 244,443


87,588,417 190,507


Total $ 951,254,667 8,499,538

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B. Receivables

December 31, 2013

Item Receivables Allowance for

bad debts With objective evidence of

impairment Individual assessment $ 100,205 24,396Collective assessment 39,236 49,206Subtotal 139,441 73,602


Credit card proceeds receivable 1,474,882 1,163Installment account receivables

and lease receivable379,462 38,849

Other receivable 309,229 11,424Acceptances receivable 1,550,304 -Interest receivable 1,897,207 8,288Subtotal 5,611,084 59,724

Total $ 5,750,525 133,326

December 31, 2012


bad debts With objective evidence of

impairment Individual assessment $ 231,770 219,980


Accounts receivable 51,722 4Credit card proceeds receivable 1,440,720 2,325Other receivables 310,425 81,845Acceptances receivable 1,671,142 5,653Accounts receivable factoring 132,331 789Interest receivable 1,657,017 6,653Subtotal 5,263,357 97,269

Total $ 5,495,127 317,249

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January 1, 2012


bad debts Without objective evidence of

impairmentCollective assessment $

Accounts receivable 1,163,845 1,849Credit card proceeds receivable 1,484,463 1,733Other receivables 989,321 178,090Acceptances receivable 2,182,647 4,410Accounts receivable factoring 5,942,385 17,097Interest receivable 1,861,149 6,558

Total $ 13,623,810 209,737

C. Other financial assets

December 31, 2013

Item Other financial

assets Allowance

for bad debts With objective evidence of

impairmentIndividual assessment $ 269,989 222,322Collective assessment

Guarantee, acceptance and otheradvances

8,317 4,949

Credit card 98,588 41,012Subtotal 376,894 268,283Without objective evidence of

impairmentCollective assessment

Bills negotiated 2,250 11Total $ 379,144 268,294

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December 31, 2012


assets Allowance




$ 17,712 12,922



Bills negotiated 284 6Total $ 130,255 49,673

January 1, 2012


assets Allowance


impairment Individual assessment $ 44,087 39,526Collective assessment


23,593 24,823



Bills negotiated 2,438 5Total $ 203,147 104,384

(9) Collateral management policy

A. Collaterals are recognized under the account of other assets per the rules of“Regulations Governing the Preparation of Financial Reports by Public Banks”.

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B. Details are as follows:

Other assetsDecember 31,

2013December 31,

2012January 1,

2012Collaterals (stocks) $ 3,150 3,150 3,150

Collaterals refer to the collaterals provided by clients as guarantee which areundertaken through public auction when the debtor is not able to fulfill itsobligation. The collaterals assumed are recognized using the prices undertakenper the rules of “Regulations Governing the Preparation of Financial Reports byPublic Banks” and measured by the book value or the fair value deducted bycost of sale, whichever is lower, at the end of the period. Collaterals will be soldwhen they are available to be sold and the proceeds received will be used toreduce the book amount of collaterals.

(10)Disclosures required under the Statement of Financial Accounting Standards No. 28

A. Loan quality:

Unit：In Thousands of New Taiwan Dollars, %Momth/Year December 31, 2013

ItemsNon-performing

loans Total loansNon-performing

loan ratioAllowance forcredit losses Coverage ratio

Corporatefinance

SecuredUnsecured

5,224,8371,428,432

372,569,121353,090,999

1.40 %0.40 %

6,316,4013,266,949

120.89 %228.71 %

Residence mortgages(Note 4) 484,786 134,137,327 0.36 % 560,608 115.64 % Consumer Cash cards 67 423 15.84 % 67 100.00 %

Small sum credit loans(Note 5) 1,334 199,198 0.67 % 1,334 100.00 %finance Others Secured 186,412 89,313,011 0.21 % 239,648 128.56 %

(Note 6) Unsecured 62,360 19,436,914 0.32 % 77,114 123.66 %total loan business 7,388,228 968,746,993 0.76 % 10,462,121 141.61 %

Overdue loans Total receivables Overdue ratioAllowance for

doubtful accountsRatio of allowanceto overdue loans

Credit cards business 3,605 1,563,577 0.23 % 42,176 1,169.93 %Without－revourse factoring (Note 7) - - - % - - %

Unit：In Thousands of New Taiwan Dollars, %Momth/Year December 31, 2012

ItemsNon-performing



Corporatefinance

SecuredUnsecured

5,281,5441,944,249

361,114,304365,862,917

1.46 %0.53 %

4,707,4081,944,249

89.13 %100.00 %

Residence mortgages(Note 4) 622,584 129,799,538 0.48 % 622,584 100.00 %Consumer Cash cards 175 824 21.24 % 175 100.00 %





Credit cards business 4,028 1,552,979 0.26 % 39,070 969.96 %Without－revourse factoring (Note 7) - 132,331 - % 789 - %

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Unit：In Thousands of New Taiwan Dollars, %Momth/Year January 1, 2012

ItemsNon-performing



Corporatefinance

SecuredUnsecured

2,305,9432,452,360

362,440,096347,691,271

0.64 %0.71 %

2,502,4214,261,443

108.52 %173.77 %

Residence mortgages(Note 4) 807,483 132,086,309 0.61 % 931,448 115.35 %Consumer Cash cards 154 1,126 13.68 % 154 100.00 %





Credit cards business 6,613 1,617,491 0.41 % 41,763 631.53 %Without－revourse factoring (Note 7) - 5,942,385 - % 17,097 - %

Note 1 Non-performing loans represent the amount of overdue loans asreported in accordance with the "Regulations on the Procedures forBanking Institutions to Evaluate Assets and Deal with Past Due/Non-performing Loans". The credit card overdue loans represent the amountof overdue loans as reported in accordance with Jin-Kuan-Yin-(4)-ZiNo. 0944000378, dated July 6, 2005.

Note 2 Non-performing loan ratio = Non-performing loans÷ total loans; Creditcard delinquency ratio = Overdue receivables÷ balance of receivables

Note 3 Coverage ratio for loans = allowance for credit losses ÷ non-performing loans; Coverage ratio for credit card business = allowancefor credit losses ÷ overdue receivables.

Note 4 For residential mortgage loans, a borrower provides his/her (orspouse’s or minor child’s) house as collateral in full and pledges it tothe financial institution for the purpose of obtaining funds to purchaseproperty and to construct or repair a house.

Note 5 Microcredit loans are defined by Jin-Kuan-Yin-(4)-Zi No.09440010950, dated December 19, 2005, and do not include creditcards or cash cards.

Note 6 Others in consumer finance are secured and unsecured consumer loansother than residential mortgage loans, cash card loans, and microcreditloans, and do not include credit cards.

Note 7 In accordance with Jin-Kuan-Yin-(5)-Zi No. 0944000494, dated July19, 2005, the amounts of without-recourse factoring will be classifiedas overdue receivables within three months from the date that suppliersor insurance companies resolve not to compensate the loss.

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B. Overdue loans and receivables exempted from reporting

(In NTD thousands)

December 31, 2013Loans may be

exempted fromreporting as a non-

performing loan

Receivables may beexempted from

reporting as overduereceivables

Pursuant to a contract under a debt negotiation plan $ 10,594 21,396Pursuant to a contract under a debt liquidation plan

and a debt relief plan 96,729 71,047

Total $ 107,323 92,443

December 31, 2012Loans may be


performing loan





Total $ 110,683 106,546

January 1, 2012Loans may be


performing loan





Total $ 120,109 126,569

Note A: In accordance with Jin-Kuan-Yin-(1)-Zi No. 09510001270, dated April25, 2006, a bank is required to make supplemental disclosure of creditinformation which was approved under the debt coordinationmechanism of unsecured consumer debts by the Bankers Associationof the R.O.C.

Note B: In accordance with Jin-Kuan-Yin-(1)-Zi No. 09700318940, datedSeptember 15, 2008, a bank is required to make supplementaldisclosure of credit information once debtors apply for pre-negotiation,relief and liquidation under the “Consumer Debt Clearance Act.”

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C. Concentration of credit extensions

Unit：In Thousands of New Taiwan dollars, %December 31, 2013

Ranking Group enterprise Credit amount

Credit amount tostockholders'

equity ratio (%)1 A company. (Railway transportation) 35,699,216 %62.352 B group. (Petroleum and chemical materail

manufacturing)8,596,313 %15.01

3 C group. (Steel rolling and extruding) 6,674,272 %11.664 D group. (Liquid crystal panel and components


5 E company. (Real estate development) 5,865,072 %10.246 F group. (Computer manufacturing) 4,977,674 %8.697 G group. (Investment and consulting) 4,586,890 %8.018 H group. (Petroleum and chemical materail


9 I group. (Liquid crystal panel and componentsmanufacturing)

4,129,254 %7.21

10 J group. (Steel smelting) 3,726,359 %6.51

December 31, 2012





3 D group. (Liquid crystal panel and componentsmanufacturing)

7,273,393 %13.56

4 C group. (Steel rolling and extruding) 7,073,613 %13.195 E company. (Real estate development) 5,865,072 %10.936 G group. (Investment and consulting) 4,739,350 %8.837 H group. (Petroleum and chemical materail

manufacturing) 4,318,558 %8.05

8 J group. (Steel smelting) 4,236,677 %7.909 I group. (Liquid crystal panel and components


10 F group. (Computer manufacturing) 4,028,578 %7.51

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January 1, 2012





3 D group. (Liquid crystal panel and componentsmanufacturing)

10,100,945 %22.47

4 C group. (Steel rolling and extruding) 7,274,926 %16.185 E company. (Real estate development) 5,480,000 %12.196 I group. (Liquid crystal panel and components


7 G group. (Investment and consulting) 5,082,000 %11.308 K group. (Integrated circuits manufacturing) 5,023,535 %11.179 F group (Computer manufacturing) 4,561,024 %10.15

10 L group. (Other financial agency) 4,305,870 %9.58

Note 1 The top ten enterprise groups other than government or stated-ownedenterprises are ranked according to their total outstanding creditamount. If the borrowers belong to an enterprise group, the aggregatecredit balance of the enterprise should be calculated and disclosed as acode number for each such borrower together with an indication of theborrowers’ line of business. In addition, if the borrowers are enterprisegroups, the enterprise group’s industry sector with the maximumexposure to credit risk in its main industry sector should be disclosed,along with the “class” of the industry, in compliance with the StandardIndustrial Classification System of the R.O.C. posted by theDirectorate-General of Budget, Accounting and Statistics, ExecutiveYuan, R.O.C.

Note 2 Enterprise group is as defined in Article 6 of the “SupplementaryProvisions to the Taiwan Stock Exchange Corporation Rules forReview of Securities Listings”.

Note 3 Consists of loans (foreign currency imports financing, foreign currencyexport financing, notes discounted, customer overdrafts, short-termunsecured loans, short-term secured loans, receivables from securitieslending, medium-term unsecured loans, medium-term secured loans,long-term unsecured loans loan-term secured loans, non-performingloans), foreign currency long positions, accounts receivable-factoringdiscount, bankers’ acceptance receivable, guarantees receivable.

Note 4 In the calculation of Credit amount to equity ratio, the domestic bankshould be calculated in the net value of head office. The Foreign bankshould be calculated in the net value of Taiwan branch.

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(d) Liquidity risk

(1) The origin and definition of liquidity risk

Liquidity risk refers to the potential financial loss results from the inability toliquidate assets or obtain finance to fulfill the financial obligation which is going tomature with sufficient fund, such as early rescind of time deposits, the channels andterms to call loan from other bank are deteriorated due to the influence of specificmarkets and the default of loan customers worsen and it is harder for the Bank toreceive payments and liquidate financial instruments. The abovementionedsituations may diminish the source of cash for the Bank and its subsidiaries toundertake loan business, trades and investment activities. Under some extremecircumstances, the lack of liquidity may increase the potential possibility ofreduction of the overall position of consolidated financial statement, sale of assetsand inability to fulfill loan obligation. Liquidity risk is an inherent risk of bankoperations and is influenced by specific or overall events in various markets. Thoseevents include but not limited to : Credit event, merger or buyout, systematic strikeand natural disaster.

(2) The management policy, process and measurement of liquidity risk

A. Policy

a. In accordance with the target and limit for liquidity risk managementapproved by the board of directors and monitor all liquidity risk positions.

b. Established “Directions Governing the Capital Liquidity Risk Managementof Taiwan Business Bank” and “Remarks Governing the Capital LiquidityRisk Management of Taiwan Business Bank” to serve as guidance toeffectively control capital liquidity risk.

c. Overseas branches and subsidiaries shall regulate the code of conduct forliquidity risk management based on business characteristics and theregulations of local authorities. After being approved by the generalmanager, the Risk Management Department will be in charge of monitoringliquidity risk.

B. Process

a. Finance Department is in charge of daily capital deployment to ensure thatthe capital is sufficient to cope with various demands for capital.

b. Risk Management Department is in charge of the identification,measurement, supervision and control of capital liquidity risk to establish afirm operation process and structure.

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c. Risk Management Department reports the result of capital liquidity riskmeasurement to the Assets and Liabilities Management Committee on amonthly basis and reports the results of capital liquidity risk and pressuretest to Risk Mangement Committee and the board of directors quarterly.

C. Measurement

a. Maturity gap: To place the inflows and outflows of capital into various timezones accordingly based on the remaining days to maturity and calculatethe gap of capital of each time zone in order to measure the capitaldeficiency of each time zone.

b. Lona-deposit ratio: To calculate the deposits the Bank received which areused to conduct loan business. In other words, the percentage of the totalloan amount accounts for the total deposit amount.

c. Capital concentration and stability: In order to prevent over-relying onsingle trade counterparty, product or market, the Bank observes severalaspects such as the changes in large time deposit customers, the percentageof demand deposits and the continuity of deposits.

d. Pressure test: Except for monitoring the capital demand under normalcircumstances, the Bank conducts pressure test regularly in order toevaluate the capital liquidity under abnormal circumstances and ensure thatthe Bank is equipped with sufficient capital.

(3) Financial assets possessed for managing liquidity risk and maturity analysis for non-derivative financial liability

A. Financial assets possessed for managing liquidity risk

The Bank and its subsidiaries possesses cash and other high liquidity interestyielding assets to cope with payment obligations and potential emergent capitaldemands in the market. The assets possessed for managing liquidity riskinclude cash and cash equivalent, due from the Central Bank and call loans tobanks, financial assets at fair value through profit or loss, discounts and loans,available-for-sale financial assets, held-to-maturity financial assets, debtsinvestment without active market.

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B. Maturity analysis for non-derivative financial liabilities

The table below shows the cash outflows from the non-derivative financialliabilities which are possessed by the Bank and its subsidiaries based on theremaining days from the consolidated financial statement date to the contractmaturity date. The amount disclosed is based on the discounted cash flows ofthe contracts.

December 31, 20130-30 days 31-90 days 91 days-1 year 1-5 years Over 5 years Total

Major matured cash outflow $ 698,623,857 138,154,643 329,133,771 56,906,299 23,214,945 1,246,033,515Deposits from the Central Bank

and banks409,956 - - - - 409,956

Overdrafts on banks 1,217,031 - - - - 1,217,031Call loans from banks 23,034,668 4,859,522 297,475 - - 28,191,665Bills and bond sold under

repurchase agreement2,420,469 1,305,817 472,956 - - 4,199,242

Interest payable 458,532 474,155 876,688 47,549 - 1,856,924Deposits transferred from

Chunghwa Post Co., Ltd.1,319,651 19,738,374 28,203,076 - - 49,261,101

Demand deposits 564,513,138 - - - - 564,513,138Time deposits 104,839,346 110,676,775 290,627,086 24,356,000 2,612 530,501,819Remittance 405,316 - - - - 405,316Financial debentures - 1,100,000 8,550,000 26,800,000 15,000,000 51,450,000Appropriated loan fund 5,750 - 106,490 5,702,750 8,212,333 14,027,323

December 31, 20120-30 days 31-90 days 91 days-1 year 1-5 years Over 5 years Total


and banks410,669 - - - - 410,669

Overdrafts on banks 1,400,895 - - - - 1,400,895Call loans from banks 15,843,774 6,497,959 1,393,766 - - 23,735,499Bills and bond sold under

repurchase agreement5,989,160 109,633 144,247 - - 6,243,040

Interest payable 513,053 540,411 908,844 56,911 - 2,019,219Deposits transferred from


Demand deposits 534,882,389 - - - - 534,882,389Time deposits 110,942,118 134,428,318 252,438,047 22,053,046 3,246 519,864,775Remittance 494,057 - - - - 494,057Financial debentures - - 3,450,000 36,450,000 4,000,000 43,900,000Appropriated loan fund 3,000 500 99,080 3,000,250 8,185,038 11,287,868

January 1, 20120-30 days 31-90 days 91 days-1 year 1-5 years Over 5 years Total


and banks395,891 - - - - 395,891

Overdrafts on banks 1,066,360 - - - - 1,066,360Call loans from banks 16,619,770 13,480,735 304,998 - - 30,405,503Bills and bond sold under

repurchase greement5,772,205 161,778 175,730 - - 6,109,713

Interest payable 466,245 541,716 946,774 66,347 5,155 2,026,237Deposits transferred from


Demand deposits 510,263,727 - - - - 510,263,727Time deposits 108,682,851 128,097,928 264,651,011 21,755,101 3,840 523,190,731Remittance 414,693 - - - - 414,693Financial debentures - - - 32,850,000 11,050,000 43,900,000Appropriated loan fund 13,250 2,500 71,080 3,044,580 8,968,258 12,099,668

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(4) Derivative financial liability maturity analysis

A. Derivative financial instruments settled by net amount

The derivative instruments of the Bank’s possession which are settled by netamount include foreign derivative instruments, such as non-delivery forwardcontracts, foreign exchange options settled by net amount. After evaluation theBank concluded that the maturity date is the basic element to comprehend allthe derivative financial instruments listed in the consolidated financialstatement. The amount disclosed is based on the cash flows of the contracts andthus part of the amount disclosed may not correspond to the amount disclosedin the consolidated financial statement.

The maturity analysis of derivative financial liabilities settled by net amount isas follows:

December 31, 2012

0-30 days 31-90 days 91-180 days181 days to 1 year

Over1 year Total

Derivative financialliabilities at fair valuethrough profit or lossForeign exchange

derivative instrument$ - - - 330 - 330

B. Derivative financial instruments settled by gross amount

The derivative instruments of the Bank’s possession settled by gross amountinclude the following :

a. Foreign exchange derivative financial instrument: Foreign exchangeoptions settled by gross amount, foreign exchange forward contracts andcurrency swap contracts.

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b. Interest rate derivative financial instruments: interest rate swap contracts.

The table below shows the derivative financial instruments of the Bank’spossession which are settled by gross amount based on the remaining daysfrom the consolidated financial statement date to the contract maturity date.The amount disclosed is based on the cash flow of the contracts and thuspart of the amount disclosed may not correspond to the amount disclosed inthe consolidated financial statement. The maturity analysis for derivativefinancial liabilities settled by gross amount is as follows:

December 31, 2013 0-30 days 31-90 days 91-180 days181 days to 1 year Over 1 year Total

Derivative financialinstruments at fair valuethrough profit or lossForeign exchange

derivative instrumentCash outflow $ 29,348,773 15,447,508 2,003,167 803,635 - 47,603,083Cash inflow 30,440,923 15,448,564 1,970,244 824,528 - 48,684,259

Interest rate derivativeinstrument Cash outflow 3,638 17,948 21,628 33,082 21,792 98,088Cash inflow 1,172 18,043 20,017 30,367 20,109 89,708

Total cash outflow 29,352,411 15,465,456 2,024,795 836,717 21,792 47,701,171Total cash inflow 30,442,095 15,466,607 1,990,261 854,895 20,109 48,773,967Net cash flow $ (1,089,684) (1,151) 34,534 (18,178) 1,683 (1,072,796)



derivative instrumentCash outflow $ 18,276,869 14,395,710 408,034 52,045 - 33,132,658Cash inflow 18,445,976 14,171,063 391,021 49,954 - 33,058,014

Interest rate derivativeinstrument Cash outflow 3,599 30,326 31,116 53,285 98,087 216,413Cash inflow 1,532 27,155 24,143 43,838 89,708 186,376

Total cash outflow 18,280,468 14,426,036 439,150 105,330 98,087 33,349,071Total cash inflow 18,447,508 14,198,218 415,164 93,792 89,708 33,244,390Net cash flow $ (167,040) 227,818 23,986 11,538 8,379 104,681

January 1, 2012 0-30 days 31-90 days 91-180 days181 days to 1 year Over 1 year Total


derivative instrumentCash outflow $ 27,554,352 13,354,022 488,353 15,138 116,910 41,528,775Cash inflow 27,458,566 13,393,210 465,107 15,084 106,470 41,438,437

Interest rate derivativeinstrumentCash outflow 5,842 31,644 35,239 69,833 216,414 358,972Cash inflow 1,593 13,785 26,826 54,823 186,145 283,172

Total cash outflow 27,560,194 13,385,666 523,592 84,971 333,324 41,887,747Total cash inflow 27,460,159 13,406,995 491,933 69,907 292,615 41,721,609Net cash flow $ 100,035 (21,329) 31,659 15,064 40,709 166,138

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(5) Maturity analysis of off balance sheet items

The table below shows the maturity analysis of the off-balance-sheet items of theBank based on the remaining days from the consolidated financial statement date tothe contract maturity date. For the financial guarantee contracts issued, themaximum amount of the guarantee is listed in the earliest time zone that theguarantee may be executed. The amount disclosed is based on the cash flows of thecontracts and thus part of the amount disclosed may not correspond to the amountdisclosed in the consolidated financial statement.


Issued and irrevokable loancommitment

$ - - 893,400 34,145 1,674,565 2,602,110

Irrevokable credit card loancommitment

1,005 941,574 1,904,320 3,050,133 17,939,855 23,836,887

Issued but not yet executedletter of credit

2,882,954 5,996,412 523,519 622,405 29,205 10,054,495

Miscellaneous guarantee 9,000,830 - - - - 9,000,830Total $ 11,884,789 6,937,986 3,321,239 3,706,683 19,643,625 45,494,322



$ - 56,968 3,851 181,676 2,769,267 3,011,762


408 138,336 309,694 2,530,754 20,258,194 23,237,386


4,176,784 5,226,328 891,917 701,360 153,259 11,149,648


January 1, 2012 0-30 days 31-90 days 91-180 days181 days to 1 year Over 1 year Total


$ - 3,761 - 917,777 562,769 1,484,307


740 749,880 1,564,773 1,070,507 16,077,876 19,463,776


2,003,955 6,127,524 2,881,862 469,701 - 11,483,042


(6) Maturity analysis of lease contract commitments

Operating lease commitment refers to, when the Bank is the lessor or lessee andunder the irrevocable operating lease conditions, the minimum total future rentpayment. Below tables show the maturity analysis of the Bank’s operating leasecontract commitments:

December 31, 2013 Below 1 year 1-5 years Over 5 years TotalOperating lease expense

(lessee)$ 63,634 133,231 15,437 212,302

Operating lease income(lessor)

434 182 - 616

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December 31, 2012 Below 1 year 1-5 years Over 5 years TotalOperating lease expense

(lessee)$ 57,490 114,477 21,639 193,606


1,557 - - 1,557

January 1, 2012 Below 1 year 1-5 years Over 5 years TotalOperating lease expense

(lessee)$ 60,806 156,611 41,604 259,021


3,470 695 - 4,165

The capital expenditure commitment of the Bank refers to the contract signed toobtain buildings and equipments. The maturity analysis of the capital expenditurecommitment of the Bank is as follows:

December 31, 2013 Below 1 year 1-5 years Over 5 years TotalMachinery and equipments 278,292 - - 278,292Lease property 10,494 35,758 17,464 63,716Total $ 288,786 35,758 17,464 342,008

December 31, 2012 Below 1 year 1-5 years Over 5 years TotalBuildings and

constructions$ 3,105 - - 3,105

Lease improvement 12,329 - - 12,329Machinery and equipments 212,519 4,290 - 216,809Communication and

transportationequipments

811 - - 811

Lease property 7,040 28,161 14,081 49,282Miscellaneous equipments 2,624 - - 2,624Total $ 238,428 32,451 14,081 284,960

January 1, 2012 Below 1 year 1-5 years Over 5 years TotalBuildings and

constructions$ 19,591 - - 19,591

Lease improvement 9,860 - - 9,860Machinery and equipments 168,957 36,718 - 205,675Total $ 198,408 36,718 - 235,126

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(7) Disclosures required by “Regulations Governing the Preparation of FinancialReports by Public Banks”

A. Maturity analysis in New Taiwan dollars

In NTD thousands, %December 31, 2013

Amount during the maturity period from the balance sheet date to due date

Total 0-10days 11-30days 31-90days 91-180days 181days-1year Over 1 year

Major maturitycapital inflow

$ 1,216,383,434 112,668,003 176,627,289 97,182,075 161,973,521 169,580,116 498,352,430

Major maturitycapital outflow

1,635,501,222 47,735,953 108,766,710 179,575,123 226,930,704 335,438,022 737,054,710

Gap (419,117,788) 64,932,050 67,860,579 (82,393,048) (64,957,183) (165,857,906) (238,702,280)

Note: Listed amounts are denominated in New Taiwan dollars (i.e.,excluding foreign – currency amounts) of the head office and domesticbranches, including commitment of credit agreement and estimates tooutflow $424,955,300.

In NTD thousands, %December 31, 2012




$ 1,186,874,547 90,114,676 169,041,783 114,232,157 130,731,004 170,353,722 512,401,205


1,515,792,533 58,241,122 121,021,940 198,044,093 175,691,051 286,009,765 676,784,562

Gap (328,917,986) 31,873,554 48,019,843 (83,811,936) (44,960,047) (115,656,043) (164,383,357)


In NTD thousands, %January 1, 2012




$ 1,170,635,360 53,389,022 120,073,360 168,193,652 191,507,064 108,607,504 528,864,758


1,528,113,200 61,439,584 109,714,057 195,595,719 176,869,728 305,359,872 679,134,240

Gap (357,477,840) (8,050,562) 10,359,303 (27,402,067) 14,637,336 (196,752,368) (150,269,482)


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B. Maturity analysis in U.S. dollars

US dollars in thousands, %December 31, 2013


Total 0-30days 31-90days 91-180days 181days-1year Over 1 year


$ 6,091,724 2,179,267 1,346,856 733,738 462,210 1,369,653


7,661,973 2,444,640 1,387,194 686,965 675,799 2,467,375

Gap (1,570,249) (265,373) (40,338) 46,773 (213,589) (1,097,722)

Note: Including commitment of credit agreement and estimates to outflowUS$1,604,340.

US dollars in thousands, %December 31, 2012




$ 5,540,914 2,051,717 1,416,912 630,495 352,002 1,089,788


6,849,934 1,798,511 1,418,386 598,378 646,575 2,388,084

Gap (1,309,020) 253,206 (1,474) 32,117 (294,573) (1,298,296)


US dollars in thousands, %January 1, 2012




$ 5,144,384 2,136,104 1,044,619 612,194 195,289 1,156,178


6,993,110 2,042,176 1,409,742 546,473 628,829 2,365,890

Gap (1,848,726) 93,928 (365,123) 65,721 (433,540) (1,209,712)


(e) Market risk

(1) Definition of market risk

Market risk refers to the possible loss of the Bank’s business in or off the balancesheet results from the disadvantageous fluctuation in market price in terms ofinterest rates, stock prices, foreign exchange rates and commodity prices.

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(2) Policies and procedures of market risk management

A. Strategy

a. To carry out market risk management, achieve operation target andmaintain healthy capital adequacy by following “Directions Governing theMarket Risk Management of Taiwan Business Bank” and other relaventregulations.

b. Under the risk tolerance approved by the board of directors, the Bankapplies various risk control mechanism to effectively deploy and managecapital in order to maintain the market risk exposure within the tolerableextent and achieve earning target.

B. Policies and procedures

In order to establish the market risk management mechanism and ensure that themarket risk is within the tolerable extent, the Bank set up directions governingthe market risk management, remarks governing the limit of market risk andfinancial product valuation procedures as the primary management guidance.Other than what is stated above, the Bank also establish limit controlmechanism in terms of trade positions, stop-limit, suspensions and lines of alertbased on the operation notices and procedures of different financial products(including fix income products, equity securities, foreign exchange transactionand derivative financial products).

(3) Process for market risk management

A. Risk identification

In accordance with the rules of “Directions Governing the Market RiskManagement of Taiwan Business Bank”, the Bank shall conduct appropriatemarket risk evaluation and document the process for later review beforefinancial products are promoted. The content of evaluation includes risk factorsidentification, evaluation methods, cost-benefit analysis, market liquidity, riskstrategy, adequacy of risk management mechanism and the influence on theBank for undertaking market risk.

B. Risk measurement

a. Annually based on the business development of transaction units and submitto the board of directors for approval. For the units which the positions andlimits remain unchanged after evaluation, they can put the positions andlimits into practice after receiving the approval from the general manager.

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b. The risk measurements (or evaluations) of the financial products of theBank are conducted through different information systems. For the marketdata and parameters of the models applied for evaluation, they shall beinspected regularly to determine the rationality.

C. Risk monitoring

a. Valuation reports of various financial products are prepared regularly forhigh rank supervisors to review and serve as the guidance for daily riskmanagement operation.

b. All financial transactions are equipped with different regulations in termsof limit of loss and stop-limit. Prvided that the valuation loss amount isover the limit, a stop-limit, suspension and subsequent risk control will beexecuted.

D. Risk report

Risk management units report current market risk management status of theBank to directors (executive directors) and high rank management to facilitatethe directors and management to control the risk exposure status and adjustmanagement procedures properly.

(4) Scope and method of market risk management

A. Foreign exchange risk management

a. Definition of foreign exchange risk management

Foreign exchange risk refers to the potential profit or loss of the foreigncurrency financial instruments which results from the transition amongfluctuating currencies.

b. Applicable scope

All the financial instruments which apply to trading book position andbanking book position and involve in foreign currencies.

c. Purpose for foreign exchange risk management

To avoid loss of earnings or deterioration of financial status due tointensive fluctuation of foreign exchange and to increase capitaldeployment efficiency and business operation integrity.

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d. Procedures of foreign exchange risk management

1) In order to control foreign exchange transaction risk, the Bankestablished trade position authorization standard for financialtransaction operations, trade units and traders in current regulations. Inaddition, for non-commercial business foreign exchange operation, alltrade units submit the required amounts of position annually based onoperation status. Risk management units will evaluated therequirement and submit to the board of directors’ (executive directors)for approval. The demand will be executed after the board of directorsapproved. For the units which the positions remain unchanged afterevaluation, they can put the positions into practice after receiving theapproval from the general manager.

2) The trade units conduct various foreign financial product business, theyshall fully understand the content of commodities, the risk toleranceand trade purpose. Trade units shall establish financial products tradingstrategies based on market status in the meeting every morning andsubmit the risk-benefit evaluation in the meeting minutes for thedepartment heads to review. The trading shall follow the relaventauthorization rules of the Bank and the stop-limit of all trade positionsshall be executed reliably.

e. Process of foreign exchange risk management

1) Identification and measurement

A) Risk Management unit established risk factor chart based ondifferent financial transactions to effectively identify risk factorsand market risk resources. In addition, the financial transactionswhich the Bank and its subsidiaries conducts deal with simple typefinancial products. For complex financial products, the Bankconducts back-to-back hedge covering to effectively avoid marketrisk.

B) Positions of the trading book shall be evaluated daily where thepositions of the banking book shall be evaluated monthly. Whenthere are public quotes for financial instruments, the quotes shallbe the prior evaluation prices. If the financial instruments areevaluated by models, then they shall be evaluated by mathematicmodels prudently and the assumptions and parameters of themodels shall be reviewed regularly.

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2) Monitoring and report

A) When the evaluation loss of non-commercial foreign exchangetransactions is over the limit, the trade units shall execute a stop-limit per the regulations. If the loss amount reaches the suspensionwarning line or suspension limit of the financial transaction, riskmanagement units shall report to the general manager. Providedthat the loss amount reaches the annual suspension line, riskmamagement units shall report to the board of directors (executivedirectors).

B) Reports of operation results shall be prepared and submitted to thedepartment heads for approval on a daily basis.

B. Equity security risk management

a. Definition of equity security risk

The market risks of the equity securities possessed by the Bank include theindividual risk results from the market price fluctuation of individual equitysecurity and the general market risk results from overall market pricefluctuation.

b. Applicable scope

Financial instruments similar to equity security in all trading books.

c. Purpose of equity security risk management

To avoid loss of earnings or deterioration of financial status due tointensive fluctuation of equity securites and to increase capital deploymentefficiency and business operation integrity.

d. Procedures of equity security risk management

1) All trade units submit the required amounts of position annually baseon operation status. Risk management units will evaluate therequirement and submit to the board of directors’ (executive directors)for approval. The demand will be executed after the board of directorsapproved. For the units which the positions remain unchanged afterevaluation, they can put the positions into practice after receiving theapproval from the general manager.

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2) The trade units shall predict the possible trend of domestic stockmarket based on the information of foreign and domestic securitymarkets so as to set up the operation strategies and directions. Thetraders shall pay close attention to the market trend when the marketopens so as to conduct security transactions and the operations as wellas the meeting minutes shall be submitted to the department heads toreview.

e. Process of equity security risk management


A) The risk management units apply Value at Risk models to measurethe market risk of equity security investment. Furthermore, base onthe trade units operation demand and the risk limit established bythe Bank’s risk tolerance, the risk management units effectivelycontrol the variation of risk factors under an acceptable extent.

B) Trading book position shall be evaluated daily. When there is apublic quote in the market, the quote shall be adopted as the priorevaluation price (If the transaction is in secondary market and theliquidity is high, the closing price can be adopted as theevaluation price) ; If the financial instruments are evaluated bymodels, then they shall be evaluated by mathematic modelsprudently and the assumptions and parameters of the models shallbe reviewed regularly.


A) When the evaluation loss of equity security investment is over thelimit, the trade units shall execute a stop-limit per regulations. Ifthe loss amount reaches the suspension warning line or suspensionlimit of the financial transaction, risk management units shallreport to the general manager. Provided that the loss amountreaches the annual suspension line, risk mamagement units shallreport to the board of directors (executive directors).

B) Transaction reports shall be prepared and submitted to thedepartment heads for approval on a daily basis.

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C. Interest rate risk management

a. Definition of interest rate risk

Interest rate risk refers to the price decline of the Bank’s financial productswhich contain interest risk factors due to the disadvantageous changes ininterest rate.

b. Applicable scope

Financial instruments which contain interest rate factors in all tradingbooks.

c. Purpose of interest rate risk management

To avoid loss of earnings or deterioration of financial status due tointensive fluctuation of interest rate and to increase capital deploymentefficiency and business operation integrity.

d. Procedures of interest rate risk management

1) In order to control intersest rate risk, the Bank established tradeposition authorization standard for financial transaction operations,trade units and trade counterparties in current regulations. In addition,for the positions held for trading, all trade units submit the requiredamounts of position annually based on operation status. Riskmanagement units will evaluated the requirement and submit to theboard of directors’ (executive directors) for approval. The demand willbe executed after the board of directors approved. For the units whichthe positions remain unchanged after evaluation, they can put thepositions into practice after receiving the approval from the generalmanager.

2) The trade units shall consider safety, liquidity and profitability andgather market information to assess the potential risk and benefit. Inadditional, the trade units shall choose investment target prudentlythrough analyzing the issuers’ credit, financial status, country risks andinterest rate trends.

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e. Process of interest rate risk management


A) The risk management units establish risk factor charts base ondifferent financial transaction to effectively identify risk factorsand market risk resources. In addition, the financial transactionswhich the Bank and its subsidiaries conducts deal with simple typefinancial products. For complex financial products, the Bankconducts back-to-back hedge covering to effectively avoid marketrisk.

B). Position of the trading book shall be evaluated daily. When thereare public quotes for financial instruments, the quotes shall be theprior evaluation prices. If the financial instruments are evaluatedby models, then they shall be evaluated by mathematic modelsprudently and the assumptions and parameters of the models shallbe reviewed regularly.


A) The risk management units apply DV01 to measure to what extentthe trading book bond positions are influenced by the interest raterisk and set up interest rate sensitivity limit base on therequirements of the trade units and the risk tolerance of the Bankannually.

B) The trade units shall prepare the income assessment tables of tradepositions and traders for the department heads to review. Inaddition, When the evaluation loss of the position is over the limit,the trade units shall execute a stop-limit per the regulations. If theloss amount reaches the suspension warning line or suspensionlimit of the financial transaction, risk management units shallreport to the general manager. Provided that the loss amountreaches the annual suspension line, risk mamagement units shallreport to the board of directors (executive directors).

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D. Concentration management

a. The trade counterparties of the Bank and its subsidiaries are mostlyfinancial institutions. To avoid the risk being over concentrated andenhance credit risk management, the Bank established financial institutioncredit risk limit based on the world ranking of tier 1 capital and creditratings from The Banker. The trade units shall also pay attention to thechanges of the credit status of individual financial institution as well as thechanges of the national credit rating to conduct the transaction prudently.

b. Except for the limit of credit risk for individual country and individualfinancial institution, the Bank set up limits for the corporate bonds andcommercial papers purchased without the guarantee from financialinstitutions.

c. For equity security investments, the Bank set up limits for single institutionand single related party.

(5) Interest rate risk management of the banking book

A. The definition and management purpose for the interest rate risk of the bankingbook

a. The interest rate risk of the banking book refers to the negative effecttowards the the future net interest income or economic value of equityresults from the fluctuation of interest rate. Net Interest Income (hereafterNII) is the toal amount of interest revenue deducted by the total amount ofinterest expense; Economic Value of Equity (hereafter EVE) is the totaldiscounted future cash inflow from assets deducted by the total discountedfuture cash outflow from liabilities.

b. The management purpose of the interest rate risk management of thebanking book is to control the negative effect from the interest rate riskfluctuation towards NII or EVE within the approved limit extent.

B. The process for the interest rate risk management of the banking book

a. Identification and measurement

When the Bank conducts interest rate related products, it identifies therepricing risk, yield curve risk, basis risk and option characteristic risk andmeasures the possible influence on the earnings and economic value resultsfrom interest rate fluctuation.

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b. Monitoring and report

The Bank established limits of the ratio between interest-rate-sensitivityassets and interest-rate-sensitivity liabilities, the effect to NII in 1 yearwhen the market interest rate parallel changes 1 BP and the effect to EVEwhen the market interest rate parallel changes 200 BP to control thebanking book interest rate risk. The results of interest rate riskmeasurement are reported to the Assets and Liabilities ManagementCommittee monthly and to the board of directors (executive directors)quarterly. When the measurement result is over the limit, relavent unitsshall be convened to establish responding plan and the plan shall besubmitted to the Assets and Liabilities Management Committee fordiscussion. After the plan is approved by the general manager, it shall beexecuted by the relavent business units and report to the the board ofdirectors (executive directors).

(6) Value at Risk

A. Description of Value at Risk

Value at Risk (VaR) is a statistical amount used to evaluate the maximumpossible loss of portfolio results from the changes of market risk factors withina certain period of time and a fixed confidence interval.

B. Value at Risk models and assumptions

In order to enhance the market risk control operation, the Bank establishedquantified indices of market risk for the equity security position of the tradingbook. Based on the historical information of the last 1 year and applys HistocalSimulation Method (with the confidence interval being 99% and the duration ofpossession being 1 day), the Bank calculates and monitors the trend of Value atRisk.

C. The limit of Value at Risk model

Value at Risk is a tool to measure market risk under normal circumstance. Thelimits of the model are listed below:

a. Value at Risk can not reflect the losses result from other type of risks, suchas credit risk and liquidity risk.

b. Value at Risk measures the possible loss of the position on hand at the endof the transaction day, but it can not reflect the distribution of the partwhich actual loss exceeds Value at Risk.

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c. Value at Risk model is based on historical data to evaluate the amount, andtherefore it may not be able to predict the future changes of risk factors,especially for those exceptions result from significant market fluctuation.

(7) Foreign exchange risk disclosure and sensitivity analysis

A. Foreign exchange risk exposure

a. Significant net positions of foreign currencies (Market risk)

December 31, 2013

CurrencyForeign currency

amount NT$ amountUSD $ 110,685 3,296,199CNY 49,952 245,414HKD 21,866 83,965AUD 2,267 60,268EUR 994 40,873

December 31, 2012


amount NT$ amountUSD $ 37,771 1,096,681CNY 19,209 89,476EUR 2,235 85,936AUD 2,010 60,551JPY 129,828 43,622

January 1, 2012


amount NT$ amountUSD $ 34,223 1,036,100CNY 23,257 111,566HKD 22,194 86,491JPY 175,966 68,574AUD 1,131 34,777

Note 1 Main foreign currencies are the top five foreign currencies rankedin NTD value.

Note 2 Net foreign currency is the absolute value of the net value of eachforeign currency.

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b. Financial assets and liabilities of foreign currency

December 31, 2013Monetary Financial assets Monetary Financial Liabilities

Currency

Forreigncurrency

amount (inthousand) Spot rate

NTDamount

Forreigncurrency


NTDamount

USD $ 5,492,938 29.7800 163,579,694 5,325,502 29.7800 158,593,450

AUD 1,372,042 26.5850 36,475,737 1,356,350 26.5850 36,058,565

HKD 6,977,261 3.8400 26,792,682 6,966,240 3.8400 26,750,362

CNY 4,278,186 4.9130 21,018,728 4,277,750 4.9130 21,016,586

ZAR 5,379,424 2.8600 15,385,153 5,380,848 2.8600 15,389,225

EUR 253,891 41.1200 10,439,998 245,988 41.1200 10,115,027

JPY 11,543,839 0.2840 3,278,450 11,553,664 0.2840 3,281,241

NZD 42,815 24.5000 1,048,968 42,670 24.5000 1,045,415

GBP 17,516 49.1400 860,736 17,496 49.1400 859,753

CAD 23,529 27.9800 658,341 23,638 27.9800 661,391

SGD 4,594 23.5200 108,051 4,710 23.5200 110,779

CHF 2,413 33.5650 80,992 2,483 33.5650 83,342

Other(Note) - - 7,704 - - 17,404

December 31, 2012Monetary Financial assets Monetary Financial Liabilities

Currency

Forreigncurrency


NTDamount

Forreigncurrency


NTDamount

USD $ 5,068,532 29.0350 147,164,827 4,990,139 29.0350 144,888,686

AUD 951,956 30.1250 28,677,675 941,076 30.1250 28,349,915

HKD 5,939,560 3.7460 22,249,592 5,937,883 3.7460 22,243,310

ZAR 5,038,103 3.4300 17,280,693 5,039,358 3.4300 17,284,998

EUR 391,034 38.4500 15,035,257 391,055 38.4500 15,036,065

JPY 10,246,137 0.3360 3,442,702 10,204,235 0.3360 3,428,623

NZD 32,144 23.8100 765,349 31,843 23.8100 758,182

CNY 161,994 4.6580 754,568 147,451 4.6580 686,827

GBP 14,354 46.7800 671,480 14,510 46.7800 678,778

CAD 19,796 29.1900 577,845 20,019 29.1900 584,355

SGD 5,338 23.7400 126,724 5,161 23.7400 122,522

CHF 2,421 31.8050 77,000 2,541 31.8050 80,817

Other(Note) - - 14,994 - - 13,863

Non-monetary Financial assets Non-monetary Financial liabilities

USD 2,064 29.0350 59,928 - 29.0350 -

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January 1, 2012Monetary Financial assets Monetary Financial Liabilities

Currency

Forreigncurrency


NTDamount

Forreigncurrency


NTDamount

USD $ 4,771,129 30.2750 144,445,920 4,715,094 30.2750 142,749,482

AUD 814,902 30.7450 25,054,169 804,885 30.7450 24,746,201

HKD 6,419,644 3.8970 25,017,353 6,460,639 3.8970 25,177,109

ZAR 4,009,184 3.7100 14,874,071 4,010,466 3.7100 14,878,827

EUR 356,629 39.2200 13,986,988 356,389 39.2200 13,977,585

JPY 18,086,378 0.3897 7,048,261 18,105,631 0.3897 7,055,765

NZD 76,366 23.4100 1,787,724 76,092 23.4100 1,781,315

GBP 30,818 46.6800 1,438,571 30,846 46.6800 1,439,881

CAD 33,526 29.6700 994,708 33,639 29.6700 998,080

CNY 42,384 4.7970 203,314 15,329 4.7970 73,532

CHF 4,231 32.1850 136,162 4,354 32.1850 140,118

SGD 4,769 23.3000 111,107 4,759 23.3000 110,875

Other(Note) - - 5,234 - - 9,436

Note: Consolidated disclosure is applied for other currencies not overNT$ 100,000,000.

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B. Foreign exchange sensitivity analysis (1% change)

Foreign exchange sensitivity analysis shows the change of the profit or loss ofthe Bank, under the circumstance that other conditions remain the same, whenall trasanction currencies appreciate or depreciate by 1%.

December 31, 2013

Depreciate by 1% Appreciate by 1%

Currency Income Retainedearnings Income

Retainedearnings

USD $ 21,226 (37,535) (21,226) 37,535

AUD 5,344 (9,541) (5,344) 9,541

CAD 19 - (19) -

HKD 2,887 (2,194) (2,887) 2,194

GBP (11) - 11 -

SGD 27 - (27) -

ZAR 40 - (40) -

SEK 36 - (36) -

CHF 23 - (23) -

JPY 45 - (45) -

THB 61 - (61) -

EUR 4 - (4) -

NZD (46) - 46 -

CNY (506) - 506 -

Total $ 29,149 (49,270) (29,149) 49,270

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December 31, 2012


Currency Income Retainedearnings Income

Retainedearnings

USD $ (11,746) (11,785) 11,746 11,785

AUD 6,069 (9,361) (6,069) 9,361

CAD 65 - (65) -

HKD 2,941 (2,446) (2,941) 2,446

GBP 69 - (69) -

SGD (42) - 42 -

ZAR 42 - (42) -

SEK 7 - (7) -

CHF 38 - (38) -

JPY (141) - 141 -

THB (19) - 19 -

EUR (7) - 7 -

NZD (83) - 83 -

CNY (1,053) - 1,053 -

Total $ (3,860) (23,592) 3,860 23,592

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January 1, 2012


Currency IncomeRetainedearnings Income

Retainedearnings

USD $ (6,839) (10,923) 6,839 10,923

AUD 6,110 (9,669) (6,110) 9,669

CAD 34 - (34) -

HKD 3,066 (1,277) (3,066) 1,277

GBP 11 - (11) -

SGD (2) - 2 -

ZAR 47 - (47) -

SEK 36 - (36) -

CHF 40 - (40) -

JPY 63 - (63) -

THB 6 - (6) -

EUR (97) - 97 -

NZD (74) - 74 -

CNY (1,402) - 1,402 -

Total $ 999 (21,869) (999) 21,869

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(8) Interest rate risk disclosure and sensitivity analysis

A. Interest rate sensitivity analysis

The assumption of interest rate sensitivity analysis is, under the circumstancethat other conditions remain the same, the yield of the market increase ordecrease by 1 basis point (1 bp).

December 31, 2013

Interst rate increas by 1bp Interst rate decrease by 1bp


Retainedearnings

trading book

TWD $ (9) (4,106) 9 4,106

banking book

TWD - (3,320) - 3,320

USD (28) (77) 28 77

AUD - (39) - 39

HKD (5) (1) 5 1

CNY - (119) - 119

Total $ (42) (7,662) 42 7,662

December 31, 2012



Retainedearnings

trading book

TWD $ 10 (3,026) (13) 3,026

banking book

TWD - (1,222) - 1,222

USD (96) (166) 96 166

EUR - (51) - 51

AUD - (226) - 226

NZD - (6) - 6

HKD (48) - 48 -

CNY - (53) - 53

Total $ (134) (4,750) 131 4,750

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January 1, 2012



Retainedearnings

trading book

TWD $ 11 (2,427) (13) 2,427

banking book

TWD - (1,094) - 1,094

USD (15) (105) 15 105

JPY (11) (3) 11 3

EUR - (9) - 9

AUD - (41) - 41

NZD (1) - 1 -

HKD (11) (1) 11 1

Total $ (27) (3,680) 25 3,680

B. Sensitivity analysis of expected net revenue/Sensitivity of equity in terms ofinterest rate fluctuation

December 31, 2013

Item Effect on NII in 1 year Effect on EVE

Currency TWD USD TWD USD

ScenarioInterst rate increases by

100 bp2,861,728 (9,266) 2,482,283 (3,880)

Interst rate decreases by100 bp

(4,980,631) (29) (2,506,060) 2,087

December 31, 2012




100 bp2,214,487 (11,144) 1,902,266 (5,634)


(4,230,611) (1,859) (1,922,172) 3,255

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January 1, 2012




100 bp2,294,349 (7,101) 1,868,969 (4,739)


(4,208,740) (2,197) (1,900,699) 3,490

(9) Equity security risk disclosure and sensitivity analysis

A. Equity security sensitivity analysis (Changes by 1%)

The assumption of equity security sensitivity analysis is, under the circumstancethat other conditions remain the same, the price of equity security increased ordecreased by 1%.

December 31, 2013

Change Currency Income Income Equity security priceincreases by 1 %

TWD - 5,750

Equity security pricedecreases by 1 %

TWD - (5,750)

December 31, 2012

Change Currency Income Income Equity security price TWD 2,704 5,558increases by 1 % USD 21 -Equity security price TWD (2,704) (5,558)decreases by 1 % USD (21) -

January 1, 2012

Change Currency Income Income Equity security price TWD - 6,735increases by 1 % USD - -Equity security price TWD - (6,735)decreases by 1 % USD - -

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B. Value at Risk of equity security

Form January1, 2013 to December 31, 2013

Value at Risk Average Maximum Minimum

Equity security risk 20,864 27,994 11,528

Form January 1, 2012 to December 31, 2012



Form January 1, 2011 to December 31 ,2011



(10)Disclosures required by “Regulations Governing the Preparation of FinancialReports by Public Banks”

A. analysis of interest rate-sensitive assets and liabilities (New Taiwan dollars)

In NTD thousand, %December 31, 2013

Item 1~90 days 91~180 days 181days~1year over 1 year total

Interest rate-sensitive assets $ 1,070,152,461 5,517,310 12,898,323 29,123,224 1,117,691,318

Interest rate-sensitive liabilities 872,672,546 96,325,484 60,275,767 28,234,077 1,057,507,874

Interest rate sensitivity gap 197,479,915 (90,808,174) (47,377,444) 889,147 60,183,444

Net amount 57,253,568

Ratio of interest rate-sensitive assets to debt (%) 105.69

Ratio of interest rate-sensitive gap to net worth (%) 105.12

In NTD thousand, %December 31, 2012


Interest rate-sensitive assets $ 988,610,297 29,821,829 41,633,449 27,473,780 1,087,539,355


Interest rate sensitivity gap 540,729,076 (472,556,323) (9,022,210) (90,510) 59,060,033




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In NTD thousand, %January 1, 2012


Interest rate-sensitive assets $ 960,315,242 81,163,524 5,078,774 23,040,520 1,069,598,060


Interest rate sensitivity gap 494,104,142 (399,805,022) (43,746,361) (5,454,031) 45,098,728




Note 1 Listed amounts are denominated in N.T. dollars of the head office anddomestic branches, offshore banking unit, overseas branches. (i.e.,excluding foreign currency amounts).

Note 2 Interest rate-sensitive assets and liabilities refer to revenue or cost ofinterest–yielding assets and interest–bearing liabilities, which areaffected by interest rate fluctuations.

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 dollarsinterest-rate-sensitive assets and New Taiwan dollars interest-rate-sensitive liabilities).

B. Analysis of the interest-sensitive assets and liabilities (U.S. dollars)

US dollars in thousand, %December 31, 2013


Interest rate-sensitive assets $ 2,787,114 468,353 24,221 99,143 3,378,831

Interest rate-sensitive liabilities 3,509,512 160,932 137,788 - 3,808,232

Interest rate sensitivity gap (722,398) 307,421 (113,567) 99,143 (429,401)



Ratio of interest rate-sensitive gap to net worth (%) (22.33)

US dollars in thousand, %December 31, 2012



Interest rate-sensitive liabilities 1,495,453 2,165,314 131,552 - 3,792,319

Interest rate sensitivity gap 919,784 (1,662,863) (76,006) 218,422 (600,663)




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US dollars in thousand, %January 1, 2012



Interest rate-sensitive liabilities 1,500,072 1,832,102 110,249 2,000 3,444,423

Interest rate sensitivity gap 970,092 (1,337,407) (79,766) 92,449 (354,632)




Note 1 Listed amounts are in U.S. dollars (i.e., excluding contingent assets andcontingent liabilities) of the head office and domestic branches,offshore banking unit, overseas branches.

Note 2 Interest rate-sensitive assets and interest rate-sensitive liabilities referto the interest yielding assets and interest paying liabilities which therevenue and cost are affected by interest rate fluctuation.

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 (U.S. dollars interest-rate-sensitive assets and U.S. dollars interest-rate-sensitive liabilities).

(AJ) Capital Management

(a) The Bank takes business development and risk control into consideration and calculatescapital adequacy base on the modified “Regulations Governing the Capital AdequacyRatio and Capital Category of Banks” issued on January 4, 1997 and “CalculationMethods and Forms of Proprietary Capital and Risk Capital of Banks”. The ratiobetween proprietary capital and risk capital shall remain above which is regulated by thelaw.

(b) In oder to maintain adequate capital and reach a balance between risk control andbusiness development, the Bank established “Directions Governing Capital Adequacy”as the guidance for controlling capital adequacy. The scope of the directions include,except for the least capital requirements for credit risk, market risk and operation risk,significant risk such as banking book interest rate risk, liquidity risk and concentrationrisk. In addition, in order to link business strategies, capital and risk management, theBank sets up capital management plan annually for the president’s approval and reportsto Risk Management Committee and the board of directors quarterly about relavent risksand capital control status.

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(c) The Bank identifies, measures, monitors and reports various risks based on thedirections, notices and relavent rules of competent authority regarding credit risk, marketrisk, operation risk, legal and compliance risk, interest rate risk of the banking book,liquidity risk and concentration risk so as to be familiar with current businessenvironment and monitors and adjusts capital adequacy effectively.

(d) To cope with the implementation of new Basel Accord, the Bank set up complete riskmanagement system, risk management operation tracking procedures to provide themanagement with appropriate risk management information for making decisions.Therefore, the Bank is able to maintain adequate capital within the tolerable extent andto ensure the provision of proprietary capital of the Bank corresponds with the overalloperating risk characteristics of the Bank.

(e) The proprietary capital is categorized as tier 1 capital and tier 2 capital

(1) Tier 1 capital

A. Common stock equity: The item includes common stock deducted by treasurystock, goodwill and other intangible assets, deferred tax assets based on futureprofit status of the Bank, unrealized gain on available-for-sale financial assets,operating reserve and deficiency of allowance for bad debts, real estate retainedearning increment arising from applying the fair value or the revaluation reserveas the deemed cost when first adopting IFRSs, and 25% of the investment onfinancial related business which is classified in banking book.

B. Other tier 1 capital: Twenty-five percent of the perpetual non-accumulatedsubordinated financial debentures deducted by 25% of the investment onfinancial related business which is classified in banking book.

(2) Tier 2 capital

The item includes perpetual accumulated subordinated financial debentures, longterm subordinated debenture, real estate retained earning increment arising fromapplying the fair value or the revaluation reserve as the deemed cost when firstadopting IFRSs, 45% of unrealized gain on available-for-sale financial assets, and50% of the investment on financial related business which is classified in bankingbook.

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Item December 31, 2013Common stock equity 55,567,008

Eligible Other tier 1 capital 3,209,313capital Tier 2 captial 21,602,216

Eligible Capital 80,378,537Credit Standardized approach 674,231,863

risk Internal ratings-based approach -Securitisation -

Risk- Operational Basic indicator approach 30,731,800weighted risk Standardized approach/selective standardized approach -

assets Advanced measurement approach -Market Standardized approach 9,169,125

risk Internal model approach -Total risk-weighted assets 714,132,788

Capital adequacy ratio %11.26Common stock equity/ Risk-weighted assets ratio %7.78Tier 1 capital / Risk-weighted assets ratio %8.23Leverage ratio %3.19

The formulas of the table are listed as follows:

A. The eligible capital, risk-weighted assets and exposure are calculated per“Regulations Governing the Capital Adequacy and Capital Category of Banks”and “The Calculation and Forms of Eligible Capital and Risk Assets of Banks”.

B. The Bank shall shall fill out the capital adequacy of this period and last periodfor this period and last period, For the semi-annual report, the Bank shalldisclose the capital adequacy of the previous period ended December 31 exceptthe capital adequacy of this period and last period.

C. Note 1. Eligible Capital = Common stock equity ＋ Other Tier 1 Capital ＋Tier 2 Capital

Note 2. Total risk-weighted assets = Credit risk weighted asset＋(operationalrisk charge＋market risk charge) × 12.5

Note 3. Capital adequacy ratio= Eligible Capital ÷ Risk weighted asset.

Note 4. Common stock equity / Risk-weighted assets ratio= Common stockequity / total risk weighted assets

Note 5. Tier 1 capital / Risk-weighted assets ratio = (Common stockequity＋other tier 1 capital)/ Risk-weighted assets

Note 6. Leverage ratio = Average net Tier 1 capital for the last three months /Average value of risk exposure for the last three months.

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D. Above table is not required to be disclosed when preparing the financial reportsof the first quarter and third quarter.

Item December 31, 2012 January 1, 2012Tier 1 capital 54,671,872 46,757,196

Eligible Tier 2 captial 17,650,238 25,556,939capital Tier 3 captial - -

Eligible Capital 72,322,110 72,314,135Credit Standardized approach 657,262,590 672,274,361 risk Internal ratings-based approach - -

Risk- Securitisation - -weighted Operational Basic indicator approach 26,997,650 26,585,388

assets risk Standardized/selective approach - -Advanced measurement approach - -

Market Standardized approach 8,025,900 5,783,563risk Internal model approach - -

Total risk-weighted assets 692,286,140 704,643,312Capital adequacy ratio %10.45 %10.26Tier 1 capital / Risk-weighted assets ratio %7.90 %6.64Tier 2 capital / Risk-weighted assets ratio %2.55 %3.62Common stock equity / Total assets ratio %3.80 %3.32Leverage ratio %4.29 %3.77

The formulas of the table are as follows:

Note 1. Eligible Capital = Tier 1 Capital ＋ Tier 2 Capital ＋ Tier 3 Capital

Note 2. Total Risk-Weighted assets = Credit risk weighted asset＋(operationalrisk charge＋market risk charge) × 12.5

Note 3. Capital adequacy ratio= Eligible Capital ÷ risk weighted asset.

Note 4. Tier 1 capital / Risk-weighted assets ratio= Tier 1 capital ÷ Risk-weighted assets

Note 5. Tier 2 capital / Risk-weighted assets ratio = Tier 2 capital ÷ Risk-weighted assets

Note 6. Tier 3 capital / Risk-weighted assets ratio = Tier 3 capital ÷ Risk-weighted assets

Note 7. Common stock equity / Total assets ratio = Common stock equity ÷Total assets

Note 8. Leverage ratio = Tier 1 capital / Adjusted average assets. (averageasstes are deducted goodwill, unamortized loss on sale of non-performing loan and the “Explanation of methods for calculating theeligible capital and risk-weighted assets of Banks’, which are excludedfrom Tier 1.)

- 123 -



7. RELATED PARTY TRANSACTIONS

(A) Names of related parties and relationship with the bank

Name of related party Relationship with the Bank and its subsidiaries

Bank of Taiwan Corporate director of the Bank

Ministry of Finance, R.O.C Corporate director of the Bank

Land Bank of Taiwan Corporate director of the Bank

Mega Financial Holding Co., Ltd. Corporate supervisor of the Bank (Relieved on May25, 2012) (Note)

Mega International CommercialBank

Related party in substance

Mega Insurance Company., Ltd. Related party in substance

Mega Bills Finance Co., Ltd. Related party in substance

Other Major shareholders, directors(includes independentdirectors), supervisors, president, executive vicepresident, managers and their second tier ofkinship.

Note: Mega Financial Holding Co., Ltd was originally the corporate supervisor of the Bank.After discharged on May 25, 2012, it became the shareholder which possessed over10% of total shares.

(B) Significant related party transactions

(a) Due from other Banks

December 31, 2013Amount %

Bank of Taiwan $ 159,498 0.85Land Bank of Taiwan 18 -Total $ 159,516 0.85


Bank of Taiwan $ 122,030 7.08Land Bank of Taiwan 102 0.01Mega International Commercial Bank 23,461 1.36Total $ 145,593 8.45

- 124 -



January 1, 2012Amount %

Bank of Taiwan $ 207,002 10.43Land Bank of Taiwan 519 0.03Mega International Commercial Bank 134,275 6.77Total $ 341,796 17.23

Interest rates are the same as those with regular clients.

(b) Deposits from other banks


Land Bank of Taiwan $ 865 0.58


Land Bank of Taiwan $ 123 0.10Mega International Commercial Bank 21 0.02Total $ 144 0.12


Land Bank of Taiwan $ 331 0.28Mega International Commercial Bank 116 0.10Total $ 447 0.38


(c) Call loans to banks

2013Maximum

balance (Note)Endingbalance

InterestIncome

Annualinterest rate

Bank of Taiwan $ 679,805 - 1,532 0.39%~2.90%

Land Bank of Taiwan 2,779,920 - 4,520 0.15%~3.00%

Total $ 3,459,725 - 6,052

- 125 -



2012Maximum


InterestIncome

Annualinterest rate

Bank of Taiwan $ 3,786,746 - 630 0.07%~0.60%

Land Bank of Taiwan 4,726,108 1,396,584 8,962 0.12%~0.99%

Mega InternationalCommercial Bank

5,891,315 868,408 4,866 0.18%~3.80%

Mega bills Finance Co.,

Ltd.

600,000 - 115 0.55%~0.68%

Total $ 15,004,169 2,264,992 14,573

(d) Call loans from banks

2013Maximum


Interestexpense

Annualinterest rate

Bank of Taiwan $ 10,896,440 893,400 7,830 0.21%~0.90%

Land Bank of Taiwan 8,486,630 446,700 3,369 0.10%~2.78%

Total $ 19,383,070 1,340,100 11,199

2012Maximum


Interestexpense

Annualinterest rate

Bank of Taiwan $ 11,913,288 871,050 8,821 0.15%~0.90%

Land Bank of Taiwan 12,054,216 290,350 2,275 0.12%~4.03%

Mega InternationalCommercial Bank

12,263,356 892,565 23,012 0.06%~5.60%

Total $ 36,230,860 2,053,965 34,108


(e) Banks’ overdrafts

2012Maximum

balance (Note)

Endingbalance(Note)

Interestexpense

Annualinterest rate

Mega InternationalCommercial Bank $ 615,924 110,240 - - %


Note: The differences between book balance and bank balance is due to the account intransit. The above ending balance is the book amount and maximum balance,interest expense are according to bank amount.

- 126 -



(f) Deposits


Bank Of Taiwan $ 3,257 -Others 1,369,394 0.13Total $ 1,372,651 0.13


Bank Of Taiwan $ 3,252 -Others 987,549 0.09Total $ 990,801 0.09


Bank Of Taiwan $ 3,247 -Others 993,765 0.10Total $ 997,012 0.10


(g) Credit

December 31, 2013

Number of Performing situations Transaction terms

Category clients or name ofrelated party

Maximumbalance

Ending balance Performing loan Non-performingLoans

Collaterals are the same as thosewith regular clients

Employeeconsumer loans

117 311,657 264,147 264,147 - none/real estate none

Self-use residencecollateral loans

98 359,093 308,633 308,633 - real estate none

Others Sun ○ ○ 2,500 - - - real estate noneLin ○ ○ 2,500 - - - real estate none

December 31, 2012



Maximumbalance

Ending balance Performing loan Non-performingLoans





101 362,805 343,185 343,185 - real estate none

Others Sun ○ 2,000 2,000 2,000 - real estate none

Ye ○ ○ 3,500 - - - real estate none

Lin ○ ○ 3,300 2,400 2,400 - real estate none

Yang ○ ○ 1,007 - - - real estate none

Jiang ○ ○ 150 - - - real estate none

Hou ○ ○ 7,000 200 200 - real estate none

- 127 -



January 1, 2012



Maximumbalance

Ending balance Performing loan Non-performingLoan





105 320,363 284,385 284,385 - real estate none

Others Ye ○ ○ 3,500 - - - real estate noneLi ○ ○ 1,129 - - - real estate none

Zheng ○ ○ 900 - - - real estate noneLing ○ ○ 3,300 3,300 3,300 - real estate noneLi ○ ○ 3,677 - - - real estate none

Chen ○ ○ 6,738 - - - real estate noneShi ○ ○ 9,410 - - - real estate noneLin ○ ○ 1,997 - - - real estate noneLiu ○ ○ 10,000 - - - real estate noneCai ○ ○ 2,976 - - - real estate noneHou ○ ○ 5,160 5,160 5,160 - real estate noneSyu ○ ○ 524 - - - real estate noneZhu ○ ○ 2,407 - - - real estate noneYang ○ ○ 3,628 3,628 3,628 - real estate none

Lu ○ 16 - - - real estate none

(h) Guarantees of credit: None.

(i) Commissions and handling fees:

The Bank received handling fee for the sale of beneficiary certificates of Chung KuoInsurance Company, Ltd. amounting to $715 for the year ended December 31, 2012.

(j) Rental revenue: None

(k) Derivatives financial instrument transactions: None.

(l) Sales of Non–Performing Loans Transactions: None.

(C) Major management salary information


Salary and other short-term employee benefit 72,075 62,056Retirement Benefit 1,121 1,670Total 73,196 63,726

8. PLEDGED ASSETS : Please refer to note 6(H) for more details.

- 128 -



9. COMMITMENTS AND CONTINGENCIES

(A) Significant commitments and contingencies were as follows:

December 31,2013

December 31,2012

January 1,2012

Marketable securities held for custody $ 4,638,603 4,305,070 4,398,078Bills collected for others 65,603,899 65,614,356 82,932,904Bills lent for others 24,899,190 23,647,737 19,222,413Guarantees and letters of credit 19,055,325 21,438,163 25,971,850Collaterals received 886 886 886Trust liabilities 118,080,583 122,960,282 126,445,211Travelers’ check in custody for sale 155,040 193,664 214,450Items held for custody 9,433,036 8,809,252 11,770,868Registered government bonds for sale 9,015,000 7,233,500 7,762,100Registered short-term bills for sale 7,883,200 4,235,200 5,527,146Guarantee notes payable 35,699,220 37,313,700 38,876,900

(B) As of December 31, 2013, December 31 and January 1, 2012, major constructions inprogress and purchases amounted to $197,312, $190,479and $140,380, respectively, ofwhich $126,726, $105,192, and $61,607, respectively, remained unpaid.

(C) The Bank’s trust department plans, manages, and operates trust services in accordance withthe Banking Law and Trust Law. Special purpose funds are used to invest in marketablesecurities and the Bank also manages trust funds. The trust information as of December 31,2013, December 31 and January 1, 2012 is as follows:

Trust Balance Sheet

Trust AssetsDecember 31,

2013December 31,

2012 January 1, 2012Cash in Bank $ 3,407,100 2,110,421 683,807Common stock 265,799 303,558 326,806Funds 52,272,070 53,077,038 53,593,936Receivables 63 84 110Prepayment 17 15 15Real estate 5,124,459 5,527,257 4,093,150Securities custody 57,011,075 61,941,909 67,747,387Total trust assets $ 118,080,583 122,960,282 126,445,211

- 129 -



Trust LiabilitiesDecember 31,

2013December 31,

2012 January 1, 2012Payables $ 198 126 179Securities held for custody 57,011,075 61,941,909 67,747,387Trust capital 61,052,985 61,007,281 58,866,813Reserves and accumulated earning(loss) (647,986) 249,350 (358,248)Net income 664,311 (238,384) 189,080 Total trust liabilities $ 118,080,583 122,960,282 126,445,211

Trust Property Accounts

Investment inDecember 31,

2013December 31,

2012January 1,

2012Cash in bank $ 3,407,100 2,110,421 683,807Common stock 265,799 303,558 326,806Funds 52,272,070 53,077,038 53,593,936Receivables 63 84 110Prepayment 17 15 15Real estate　Land 5,092,714 4,786,244 3,116,534　Buildings 31,745 23,546 23,008　Construction in progress - 717,467 953,608Securities in custody 57,011,075 61,941,909 67,747,387Total $ 118,080,583 122,960,282 126,445,211

Note: As of December 31, 2013, December 31 and January 1 2012, the amounts aboveincluded OBU transaction on “foreign currency designated trust funds investment inforeign negotiable securities business” amounting to $680,633, $717,444 and$931,646, respectively.

- 130 -



Trust Income Statement

For the year ended December 31, Investment in 2013 2012

Trust Revenue　Interest income $ 12,793 5,895

Realized cpaital gain-fund 3,825 1,225Realized capital gain-

stock372 7

Cash dividend income ofcommon stock

974,353 830,989

Gains on propertytransaction

1,384,882 545,078

Other revenue 1,407 596Sub-total 2,377,632 1,383,790

Trust ExpenseAdministrative expenses 69,095 38,417Storage expenses 636 937Currency service fee 2 2Duties 83,145 92,844Realized capital loss-fund 502 -Realized capital loss-

stock26 995

Realized capital loss-bonds

- 111

Losses on propertytransaction

1,551,923 1,481,190

Other expense 7,029 7,241Sub-total 1,712,358 1,621,737

Net (loss) income before tax 665,274 (237,947)Income tax expense (963) (437)Net (loss) income after tax $ 664,311 (238,384)

- 131 -



(D) (a) In 1996, the Bank’s World Trade Center Branch was sued for handling a letter of creditexport collection from Chin Seen Industrial Co., which allegedly used a forged exportdocument and failed to ship the goods to the importer, the International Comagnie deCommercialization et d’Invertissement (I.C.C.I.) of the Republic of Zaire, suffered a lossthereon. In November 1998, I.C.C.I. initiated a case with the Court of Commerce ofBrussels in Belgium, requested the L/C opening bank (Banque Bruxelles Lambert, orBBL) and the Bank to jointly pay compensation of US$7,830 thousand plus interest,losses, and expenses for the L/C. On August 31, 2005, the Court of Commerce ofBrussels rendered its judgment which the Bank has to make compensation of US$7,674thousand plus interest to I.C.C.I. The Bank has engaged a local attorney in Belgium toformally file an appeal. In Feburary 2011, Court of Appeal in Brussels had made anintermediate adjudication which I.C.C.I and the Bank are both responsible for theoffense. Furthermore, on November 16, 2011, the judgment of the court indicated thatthe Bank should be responsible for 90% of the negligence proportion. In terms of thejudgment of the court of the second instance The Bank has filed an appeal on November3, 2011. On Feburary 6, 2013, the court overruled the Bank’s appeal and the Bank lostthe case. As of December 31, 2013, the Bank has accrued the compensation of NT$135,815 thousands and EUR 8,000,000. The relavent provision please refer to Note 6(S).

(b) In December, 2007, Jin-ye Industry Corporation (JIC) was a checking account client ofthe Bank’s Tai Ping Branch. The JIC’s accountant falsified the seal to write checks andsteal the deposit from the company. JIC filed a lawsuit with Taichung District Courtaccording to the claim right of consumption deposit which required the Bank to returnthe deposit of $61,751thousand plus the interest. Taiwan High Court Taichung branchruled that the Bank lost the case in November 2011 and should return $61,751 thousandand the interest with annual rate of 5% from April 1, 2008 to the settlement date. TheBank filed an appeal. On January 16, 2013 Taiwan Supreme Court overruled the appealand the Bank lost the case. As of December 31, 2013, the Bank has accrued thecompensation of $76,428 thousands. Relavent provision please refer to Note 6 (S).

- 132 -



(c) In April 2006, Kang-Cheng Corp., which purchased secured and unsecured non-performing loans receivable of Wei Lei Food Corporation (WLF), argued that the Bankshould allocate the payment that it received from Ge Riu Wei Assets ManagementCorporation (GWAM) which resulted from the auction of the real estate mortgaged tothe Bank by Wei Lei Food Corporation on 1996. For this reason, Kang-Cheng Corp.filed a lawsuit to Shihlin District Court to oblige the Bank to pay Kang-Cheng Corp.$65,399 thousand plus the interest. Taiwan High Court ruled that the Bank won all thecases in September, 2011. Kang-Cheng Corp. was not willing to accept the ruling andappealed, Taiwan Supreme Court overruled the appeal on April 5, 2012 and the Bankconfirmed to win the case. Upon learning from the above case, Hua Nan Bank has filed alawsuit against the Bank in July 2008, stating that the Bank should return $15,594 plusthe interest to Hua Nan Bank from what they received from the GWAM. The Bank lostthe first trial and appealed. Taiwan High Court ruled that the Bank lost the lawsuit inDecember, 2010 and should pay Hua Nan Bank $10,250 thousand plus the interest withannual rate of 5% from July 18, 2008. The Bank has filed an appeal. Taiwan SupremeCourt ruled that the original verdict is abandoned and the case was sent back to remandin September, 2011. It is under the trial of Taiwan High Court. Taiwan High Court ruledthat the Bank should pay $249 thousands along with the interest incurred from July 18,2008 to October 23, 2013. The counterparty is filing an appeal now.

(d) Since November 1999, a Taiwan Power Company (TPC) employee is suspected topeculate the electricity fees handed in by customers. TPC investigated the case andclaimed that in accordance with the operating regulations which TPC authorized TaiwanBusiness Bank to act on the behalf of its receipts and disbursements business contract,the Bank’s superintendent did not handle the authorized affair personally, and this isagainst the contract. TPC indicted the Bank and filed a lawsuit to Shihlin District Court,claiming a compensation loss which amounted to $32,568 thousands in August, 2009.Shihlin District Court and Taiwan High Court ruled that the Bank won the lawsuit inJune 2010 and July 2011, respectively. However, TPC was not willing to accept thejudgment and appealed to Taiwan Supreme Court. Taiwan Suprement Court overruledthe appeal on November 1, 2012 and the Bank won the lawsuit.

10. LOSSES DUE TO MAJOR DISASTERS: None.

11. SUBSEQUENT EVENTS

The Bank signed a contract with JP Morgan Chase Bank National Association for sale of non-performing loans on Junuary 29, 2014. The book value is USD6,699 thousands and the trade valueis USD6,854 thousands. The disposition gain or loss us USD155 thousands.

The Bank approved the decision on February 5, 2014 to allow Taiwan Business Bank InternationalLeasing Co., Ltd. to increase investment within the total paid in capital. The investment amountedto NTD600,000 thousands.

- 133 -



12. OTHER

(A) Personnel, depreciation, and amortization expenses were as follows:


NatureOperating

expenseOperating

expenseEmployee benefit expenses

Salary expense $ 5,587,989 5,875,412Labor and health insurance expenses 389,939 375,907Pension expenses 333,925 549,728Other employee benefit 994,033 556,963

Total employee benefit 7,305,886 7,358,010Depreciation expenses 363,327 392,173Amortization expenses 75,876 67,756Total $ 7,745,089 7,817,939

(B) Profitability

Unit : %

Item December 31, 2013 December 31, 2012

The ratio of return on Before income tax 0.29 0.30

assets After income tax 0.28 0.30

The ratio of return on Before income tax 6.96 7.67

shareholders' equity After income tax 6.51 7.72

Net income ratio 20.37 22.73

Note 1 The ratio of return on assets = Income before (after) income tax expense÷ averageassets

Note 2 The ratio of return on equity = Income before (after) income tax expense ÷ averageequity

Note 3 Net income ratio = Gain or loss after income tax expense ÷ Net revenue

Note 4 Income before (after) income tax expense refers to income accumulated from Januaryof the current year to the current period.

- 134 -



13. OTHER DISCLOSURES

(A) Information on significant transactions:

(a) Accumulative purchases or sales of the same investee companies amounting to over$300,000 or 10% of paid-in capital: None. 　

(b) Acquisition of real estate amounting to over $300,000 or 10% of paid-in capital: None.

(c) Disposition of real estate amounting to over $300,000 or 10% of paid-in capital: None.

(d) Discount of commissions and handling fees with related parties amounting to over$5,000: None.

(e) Receivables from related parties amounting to over $300,000 or 10% of paid-in capital:None.

(f) Sale of non-performing loans information：

(1) Sale of non-performing loans：

Unit：In NTD thousands

Trade date Counterparty Debt component Book value Sale price Gains andlosses

Ondisposaladditional term

Relationship

2013.07.15 Mega AssetManagmentCorporation

Syndication 61,801 30,551 (31,250) None None

2013.09.04 Sakara resortCo.,Ltd.

Loans(Corporatefinance andpersonalrevolving fund)

- 18,189 Note None None

Note：The difference between sale price and book value is recognize as bed debt

recovered.

(g) Types of securitization goods and related information approved by financial assetssecuritization rules or real estate securitization rules: None.

- 135 -



(h) Business relationship and significant transactions with the subsidiaries：

Transaction in for the year ended December 31, 2013

No Trader Counterparty Relationship Account Amount Terms

Percentage accountedfor consolidated net

income or total assets0 TAIWAN BUSINESS

BANK CO., LTD. Taiwan Business BankInsurance Agency Co.,Ltd.

1 Account receivable 112,371 No difference withnon-related parties.

0.01 %

0 TAIWAN BUSINESSBANK CO., LTD.

Taiwan Business BankInsurance Agency Co.,Ltd.

1 Deposits andremittances

127,645 No difference withnon-related parties.

0.72 %



1 Service revenue 873,865 No difference withnon-related parties.

4.93 %



1 Other 690 No difference withnon-related parties.

- %


Taiwan Business BankProperty InsuranceAgency Co., Ltd.


- %





0.05 %




0.23 %




- %


Taiwan Business BankInternational LeasingCo., Ltd.



0.03 %


Taiwan Business BankInternational LeasingCo., Ltd.


- %

Transaction in For the year ended December 31, 2012

No Trader Counterparty Relationship Account Amount Terms Percentage accountedfor consolidated net

income or total assets




- %





0.01 %




3.59 %




- %




- %





- %




0.23 %




- %

Note: The meaning of the number is as follows.

- 136 -



1. Zero stands for the parent company

2 . Subsidiaries are coded from No 1 per respective companies.

(i) Other significant transactions that might have influence over the decision makingprocess of the financial statements users: None.

(B) Information on investees：

(In NTD thousand；thousand shares)Ownership as of December 31, 2013

Investment Total Note

Name ofinvesteecompany Address

Main businessscope

Shareholdingratio

Maximumshare holdingand funding

statusBookValue

gain or lossrecognized

by theCompany

Number ofshares

Number ofprofomashares

Number ofshares

Shareholding ratio

Taiwan BusinessBank InsuranceAgency Co., Ltd.

2F, No.158,SongjiangRd TaipeiCity 104,Taiwan(R.O.C.)

Agent ofpersonalinsurance

100.00 % - % 55,924 29,254 500 - 500 100.00 % Written offwhenpreparing theconsolidated financial statements

Taiwan BusinessBank PropertyInsuranceAgency Co., Ltd.

2F, No.158,SongjiangRd TaipeiCity 104,Taiwan(R.O.C.)

Agent ofpropertyinsurance

100.00 % - % 8,592 4,683 300 - 300 100.00 % ''

Taiwan BusinessBankInternationalLeasing Co., Ltd.

5F.,No.151,Sec. 4,Nanjing E.Rd.,SongshanDist., TaipeiCity 105,Taiwan(R.O.C.)

Leasing business 100.00 % - % 400,038 38 40,000 - 40,000 100.00 % ''

(C) Information on investments in mainland China：

(a) Name and major business item of the investee in China：

(In NTD thousand)

Name ofinvestee Major business Investment

Accumulatedamount

transferred fromTaiwan,

beginning of theInvestment transferred out or

recovered

Accumulatedamount

transferred fromTaiwan,

The currentprofit or lossof or loss of

Shares directly orindirectly Profit or loss

Ending book value of

Investmentprofit

transferred

company item Paid-in capital method period Transferred out Recovered end of the period the investe possessed by the Bank recognized investment in

Taiwan Business

Bank ,Co., Ltd.

Shanghai

Branch

Banking

business

2,371,237(CNY500,000,000)

(Operating fund)

( e ) - 2,371,237(CNY500,000,000)

- 2,371,237(CNY500,000,000)

- Shanghai branch of theBank, not an investeecompany

- 2,442,303 None

Investment method is divided into 5 categories and are listed as follows:(a) Invest in a Chinese Company through remittance from the third party.(b) Establish a company in the third party and use the company to invest in a Chinese Company.(c) Reinvest in the existing company in the third party and use the company to invest in a Chinese company.(d) Directly invest in a Chinese company.(e) Other: establish a foreign branch.

- 137 -



(b) Limit of investment in China：

(In NTD thousand)

name of company Accumulated amounttransferred from Taiwan,

end of the periodInvestment amount approved

by Ministry of Finance

Limit of investmentregulated by Investment

Audit Committee of Ministryof Finance.

Taiwan Business Bank,Co., Ltd.

2,371,237(CNY500,000,000)

2,371,237(CNY500,000,000)

34,352,141

14. SEGMENT INFORMATION

(A) General information

The chief operating decision maker is the general manager of the Bank and its subsidiarieswho is in charge of all major projects approval, budget review and performancemeasurement. In order to express operating activities legitimately, the reportable segments ofthe Bank are Bank segment and others (including securities department and trustdepartment). The major operating activities of securities department are securities brokerage,financing transaction and future auxiliary transaction. It is to provide customer a platform forsecurities investment. The trust department mainly provides customers relevant financialservices, including securities review and approval, custodian bank service, new type trustbusiness and specific trust funds investing in domestic or foreign securities. Others refer tothe subsidiaries’ insurance brokerage, property insurance brokerage and lease business. Theprofit or loss of the operating segments of the Bank and its subsidiaries is measured by netincome before tax. The reported amount is consistent with the data which was provided tothe chief operating decision maker in order to use it as the base of resource allocation andperformance measurement.

(B) Segment information

For the year ended December31, 2013

BankDepartment

Other-securities and

trust

Inter-departmentadjustment Total segment

Net interest income $ 13,424,144 170,358 - 13,594,502Other net non-interest income 3,555,693 608,573 (35,527) 4,128,739Net income 16,979,837 778,931 (35,527) 17,723,241Bad debt expenses (2,994,335) (5,804) - (3,000,139)Operating expense (10,402,754) (465,151) 1,553 (10,866,352)Net income before tax $ 3,582,748 307,976 (33,974) 3,856,750

Total assets $ 1,310,041,521 17,049,020 (722,465) 1,326,368,076

Total Liabilities $ 1,255,240,083 14,132,336 (257,911) 1,269,114,508

- 138 -



For the year ended December31, 2012

BankDepartment

Other-securities and

trust

Inter-departmentadjustment Total segment

Net interest income $ 13,062,409 157,613 - 13,220,022Other net non-interest income 3,101,280 492,567 (58,080) 3,535,767Net income 16,163,689 650,180 (58,080) 16,755,789Bad debt expenses (2,113,884) 1,565 - (2,112,319)Operating expense (10,481,933) (381,584) 1,152 (10,862,365)Net income before tax $ 3,567,872 270,161 (56,928) 3,781,105

Total assets $ 1,277,015,012 14,445,266 (191,988) 1,291,268,290

Total Liabilities $ 1,225,848,561 11,885,158 (110,174) 1,237,623,545

(C) Geographic information

The Bank and its subsidiaries, based on the geographic location of foreign operatingsegments, to disclose the information as below:

Area 2013 2012

Taiwan $ 3,503,638 3,364,689

U.S.A. 177,151 237,532

Hong Kong 19,065 124,954

Australia 137,794 53,930

China 19,102 -

Total $ 3,856,750 3,781,105

Non-current assets：

Area 2013 2012

Taiwan $ 16,164,713 18,120,791

U.S.A. 21,721 3,957

Hong Kong 10,362 12,484

Australia 20,357 23,654

Australia 12,462 -

Total $ 16,229,615 18,160,886

(D) Significant client information：

No single customer represents 10% or more of the Bank and its subsidiaries's operatingrevenue. Therefore, no disclosure of major customer information is required.

- 139 -



15. FIRST-TIME ADOPTION OF IFRS

The financial statements of the Bank and its subsidiaries on December 31, 2012 were prepared inaccordance with GAAP. As decribed in Note 4 (A), these are the Bank and its subsidiaries’s firstIFRS consolidated interim financial statements for part of the period covered by the first IFRS(endorsed by the FSC) annual financial statements, and IFRS 1 First-time Adoption of InternationalFinancial Reporting Standards has been applied. The accounting policies in Note 4 are applied tothe consolidated comparative quarterly financial statements of the twelve months ended December31, 2012., the consolidated balance sheet on December 31, 2012 and the initial consolidatedbalance sheet on January 1, 2012 (the transition date). When preparing the relavent reports of 2012,the Bank and its subsidiaries applied the reported amounts, which were prepared in accordancewith GAAP, as the start point for adjustment. The effect on the financial status, financialperformance and cash flow arising from the transition from GAAP to IFRS is elaborated below.

- 140 -



(A) Equity adjustment

The adjustment of the consolidated financial statement on January 1, 2012

In NTD thousandGenerally accepted accounting principles in the Republic

of China (R.O.C. GAAP) IFRS conversion's impact IFRSs accepted by FSC

Item Amount

Difference inrecognition andmeasurement

Difference inpresentation Amount Item Note

Cash and cash equivalents $ 25,579,626 - - 25,579,626 Cash and cash equivalentsDue from the Central Bank and call loans

to banks56,150,500 - - 56,150,500 Due from the Central Bank and call loans

to banksFinancial assets measured at fair value

through profit or loss5,474,966 - - 5,474,966 Financial assets measured at fair value

through profit or lossAvailable-for-sale financial assets－net 14,850,799 90,000 - 14,940,799 Available-for-sale financial assets－net (7)Securities purchased under resell

agreements2,337,341 - - 2,337,341 Securities purchased under resell

agreementsReceivables－net 20,254,922 - 125,760 20,380,682 Receivables－net (3),(8)

- - 666,585 666,585 Income tax asset (3)Discounts and loans－net 942,587,857 - - 942,587,857 Discounts and loans－netHeld-to-maturity financial assets－net 177,696,669 - - 177,696,669 Held-to-maturity financial assets－netOther financial assets－net 3,656,190 (90,000) - 3,566,190 Other financial assets－net (6)Premises and equipment－net 13,759,230 124,298 864,422 14,747,950 Premises and equipment－net (5),(7)Intangible assets－net 209,822 (9,743) - 200,079 Intangible assets－net (2)

- - 1,622,069 1,622,069 Deferred income tax assets－net (3)Other assets 4,383,134 - (2,482,456) 1,900,678 Other assets (3)、(7),(8)Debit items for trade brokerage 3,900 - (3,900) - (9)

Total assets $ 1,266,944,956 114,555 792,480 1,267,851,991 Total assets

Liabilities LiabilitiesDeposits from the Central Bank and other

banks$ 90,829,825 - - 90,829,825 Deposits from the Central Bank and other

banksFinancial liabilities measured at fair value

through profit or loss339,942 - - 339,942 Financial liabilities measured at fair value

through profit or lossSecurities sold under repurchase

agreements6,109,713 - - 6,109,713 Securities sold under repurchase

agreementsPayables 31,041,151 261,528 344,896 31,647,575 Payables (1)、(8),(9)Deposits and remittances 1,033,869,151 - - 1,033,869,151 Deposits and remittancesFinancial debentures 43,900,000 - - 43,900,000 Financial debenturesAccrued pension liabilities 257,985 - (257,985) - (9)Other financial liabilities 12,150,115 - - 12,150,115 Other financial liabilitiesProvision for operation and liabilities - 1,771,449 726,476 2,497,925 Provision for liabilities (1)、(2)、(9),

(10)- - 882,838 882,838 Defferred income tax liabilities (3)

Other liabilities 1,534,162 37,668 (903,745) 668,085 Other liabilities (3)、(5),(10)

Total liabilities 1,220,032,044 2,070,645 792,480 1,222,895,169 Total liabilities

Stockholders' equity－Parent Company Equity－Parent CompanyCommon stock 42,098,263 - - 42,098,263 Common stockRetained earnings: Retained earnings:　Legal reserve 1,508,934 - - 1,508,934 　Legal reserve　Special reserve 360,321 - - 360,321 　Special reserve　Undistributed earnings 3,030,658 (1,757,706) - 1,272,952 　Undistributed earnings (1),(2),(3),(4),(5)Other adjustments to stockholders'

equity：Other equity：

　Revaluation increment 320,812 (320,812) - - 　 (5)　Cumulative translation adjustments (35,991) 35,991 - - 　Exchange differences of the financial

statements of foreign operations(4)

　Unrealized losses on financialinstruments

(283,648) - - (283,648) 　Unrealized gain or loss on available-for-sale financial instruments

　Net loss not recognized as pension cost (86,437) 86,437 - - 　 (2)

Total stockholders' equity 46,912,912 (1,956,090) - 44,956,822 Total equity

Total liabilities and stockholders'equity

$ 1,266,944,956 114,555 792,480 1,267,851,991 Total liabilities and equity

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The adjustment of the consolidated financial statement on December 31, 2012

In NTD thousandGenerally accepted accounting principles in the Republic

of China (R.O.C. GAAP) IFRS conversion's impact IFRSs accepted by FSC

Item Amount



Cash and cash equivalents $ 26,149,415 - - 26,149,415 Cash and cash equivalentsDue from the Central Bank and call loans

to banks67,417,255 - - 67,417,255 Due from the Central Bank and call loans

to banksFinancial assets measured at fair value

through profit or loss5,809,037 - - 5,809,037 Financial assets measured at fair value

through profit or lossAvailable-for-sale financial assets－net 12,368,989 90,000 - 12,458,989 Available-for-sale financial assets－net (6)Securities purchased under resell

agreements13,239,950 - - 13,239,950 Securities purchased under resell

agreementsReceivables－net 20,233,056 - 282,083 20,515,139 Receivables－net (3),(8)

- - 616,708 616,708 Income tax asset (3)Discounts and loans－net 953,800,832 - - 953,800,832 Discounts and loans－netHeld-to-maturity financial assets－net 167,514,168 - - 167,514,168 Held-to-maturity financial assets－netOther financial assets－net 3,638,009 (90,000) - 3,548,009 Other financial assets－net (6)Premises and equipment－net 13,615,317 - 857,242 14,472,559 Premises and equipment－net (7)Intangible assets－net 193,700 - - 193,700 Intangible assets－net (2)

- 414,612 1,623,290 2,037,902 Deferred income tax assets－net (3)Other assets 5,966,088 - (2,471,461) 3,494,627 Other assets (3)、(7),(8)Debit items for trade brokerage 12,599 - (12,599) - (9)

Total assets $ 1,289,958,415 414,612 895,263 1,291,268,290 Total assets

Liabilities LiabilitiesDeposits from the Central Bank and other

banks$ 78,116,260 - - 78,116,260 Deposits from the Central Bank and other

banksFinancial liabilities measured at fair value

through profit or loss230,833 - - 230,833 Financial liabilities measured at fair value

through profit or lossSecurities sold under repurchase

agreements6,243,040 - - 6,243,040 Securities sold under repurchase

agreementsPayables 37,474,770 265,477 374,559 38,114,806 Payables (1)、(8),(9)Deposits and remittances 1,055,241,221 - - 1,055,241,221 Deposits and remittancesFinancial debentures 43,900,000 - - 43,900,000 Financial debenturesAccrued pension liabilities 769,248 - (769,248) - (9)Other financial liabilities 11,400,537 - - 11,400,537 Other financial liabilities

- 1,542,885 1,330,857 2,873,742 Provision for liabilities (1)、(2)、(9),(10)

- - 879,530 879,530 Defferred income tax liabilities (3)Other liabilities 1,544,011 - (920,435) 623,576 Other liabilities (3),(10)

Total liabilities 1,234,919,920 1,808,362 895,263 1,237,623,545 Total liabilities

Stockholders' equity－Parent Company Equity－Parent CompanyCommon stock 48,982,194 - - 48,982,194 Common stockRetained earnings: Retained earnings:　Legal reserve 2,402,303 - - 2,402,303 　Legal reserve　Special reserve 591,203 - - 591,203 　Special reserve　Undistributed earnings 3,426,315 (1,607,328) - 1,818,987 　Undistributed earnings (1),(2),(3),(4),(5)Other adjustments to stockholders'

equity：Other equity：

　Revaluation increment 407,442 (407,442) - - 　 (5)　Cumulative translation adjustments (99,751) 35,991 - (63,760) 　Exchange differences of the financial

statements of foreign operations(4)

　Unrealized losses on financialinstruments

(86,182) - - (86,182) 　Unrealized gain or loss on available-for-sale financial instruments

　Net loss not recognized as pension cost (585,029) 585,029 - - 　 (2)

Total stockholders' equity 55,038,495 (1,393,750) - 53,644,745 Total equity

Total liabilities and stockholders'equity

$ 1,289,958,415 414,612 895,263 1,291,268,290 Total liabilities and equity

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(B) The reconciliation report for consolidated income

The reconciliation report for consolidated income for the year ended December 31, 2012

In NTD thousandGenerally accepted accounting principles in the

Republic of China (R.O.C. GAAP) IFRS conversion's impact IFRSs accepted by FSC

Item Amount



Interest revenue $ 22,933,789 - (31,229) 22,902,560 Interest revenue (11)Less: Interest expenses 10,010,976 (146,258) (182,180) 9,682,538 Less: Interest expenses (1)Net interest income 12,922,813 146,258 150,951 13,220,022 Net interest incomeNon-interest income Non-interest income

Service fee and commissionincome

2,116,573 - - 2,116,573 Service fee and commissionincome

Gains (losses) on financialassets or liabilitiesmeasured at fair valuethrough profit or loss

397,152 - 31,229 428,381 Gains (losses) on financialassets or liabilitiesmeasured at fair valuethrough profit or loss

(11)

Realized gains of available-for-sale financial assets

18,414 - - 18,414 Realized gains of available-for-sale financial assets

Foreign exchange gains 533,402 - - 533,402 Foreign exchange gainsOther non-interest income 438,997 - - 438,997 Other non-interest incomeRecovered bad debts and

overdue accounts1,153,566 - (1,153,566) - (12)

Net revenue 17,580,917 146,258 (971,386) 16,755,789 Net revenueBad debt expenses 3,265,885 - (1,153,566) 2,112,319 Bad debt expenses and provision

for quarantee reserve(12)

Operating expenses Operating expensesPersonnel expenses 7,071,125 104,705 182,180 7,358,010 　Employee benefit expenses (1),(2)Depreciation and amortization

expenses459,929 - - 459,929 　Depreciation and

amortization expensesOther general and

administrative expenses3,044,426 - - 3,044,426 　Other general and

administrative expensesIncome from continuing

operations before income tax3,739,552 41,553 - 3,781,105 Income from continuing

operations before income taxIncome tax expenses (335,713) 362,628 - 26,915 Income tax expenses (3)Net income $ 3,403,839 404,181 - 3,808,020 Net income

Other comprehensive income(76,819) 　Exchanges differences of the

financial statements offoreign operations

197,466 　Unrealized gains on available-for-sale financial assets

(305,787) 　Actuarial profit or loss ofdefined benefit plan

(2)

65,043 　Income tax related to thecomposition of othercomprehensive income

(120,097) Other comprehensive income(after tax)\

3,687,923 Total comprehensive income

Net profit attributed to　 3,808,020 　Parent company

Total comprehensive incomeattributed to

　 3,687,923 Parent company

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(C) Significant adjustments of the consolidated statement of cash flow

The Bank and its subsidiaries prepare the consolidated statement of cash flow using indirectmethod per the regulations of GAAP of R.O.C. and interest collection, dividend collection,income tax payment and interest payment were all deemed as cash flows from operatingactivities. Furthermore, GAAP of R.O.C. did not require to disclose interest collection,dividend collection, income tax payment and interest payment separately. Yet in accordancewith the regulations of IAS 7 “Statement of Cash Flows”, for the year ended December 31,2012, interest collection of the Bank and its subsidiaries which amounted to $23,109,028,interest payment which amounted to $9,689,556 and income tax payment which amounted to$172,676 were disclosed under the account of cash flow from operating activities. On thecontrary, dividend collection which amounted to $0 is recognized under the account of cashflow from investing activities.

Except for the abovementioned, the consolidated statement of cash flow prepared underIFRSs approved by FSC has no significant difference from the consolidated statement of cashflow prepared under GAAP of R.O.C.

(D) Explanations for previous reconciliation are described below

(a) Previous reconciliation is elaborated below:

(1) Employee benefits

A. Retiree deposits with favorable rates

According to IAS 19 and the Regulations Governing the Preparation ofFinancial Reports by Publicly Held Banks effective from year 2013, whenrecognizing the retiree deposits with favorable rates which is a post-employment benefit, the Bank and its subsidiaries should consider the actuarialamount and recognize it accordingly. On January 1 and December 31, 2012, theeffects of this adjustment are as follows: for consolidated provisions, anincrease of $554,409, and $537,482, respectively; for retained earnings, adecrease of $554,409, and $537,482, respectively. Also, for the consolidatedcomprehensive income statements for the year ended December 31 of 2012, thisadjustment increases employee benefits expenses by $129,331 and decreasesthe interest expense by $146,258, respectively.

In addition, for the deposits with favorable rates of current employees, it is theadditional benefit which the Bank offers its employees. The interest rate whichexceeds the market rate shall be recognized as employee benefits expense. Forthe consolidated comprehensive income statements for the year endedDecember 31 of 2012, this adjustment increases employee benefits expenses by$182,180 and and decreases interest expenses by $182,180 , respectively.

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B. Paid leave

According to IAS 19 accepted by FSC, when employees provide service andaccumulate the future paid leave, the provision shall be recognized when theservice is provided. On January 1 and December 31, 2012, the effects of thisadjustment are as follows: for consolidated payables, an increase of$261,528,and $265,477, respectively; for retained earnings, a decrease of$261,528, and $265,477, respectively. Also, for the consolidated comprehensiveincome statements for the year ended December 31 of 2012, this adjustmentincreases employee benefit expenses by $3,949 .

(2) Adjustments to pension actuarial gains and losses and pension obligations

Following the instructions related to employee benefits in IFRS 1, the Bank and itssubsidiaries elected to apply the exemption provided therein and adjust items relatedto unrecognized transitional net benefit obligation to retained earnings. The Bankalso retrospectively applied IAS 19 items related to supplementary pension liabilityrecognition adjustments recognized under R.O.C. GAAP. On January 1 andDecember 31, 2012, the effects of this adjustment on related accounts are asfollows: for provisions, an increase of $1,217,040, and $1,005,403; for retainedearnings, a decrease of $1,313,220, and $1,590,432; for intangible assets, a decreaseof $9,743, and $0; for other adjustments to equity, an increase of $86,437 ,and$585,029. Also, for the consolidated comprehensive income statements for yearended December 31 of 2012, this adjustment decreases employee benefit expensesby $28,575 and decreases the actuarial profit or loss by $305,787(before tax) .

(3) Income tax

Following IAS 12 and SIC 21, the Bank and its subsidiaries reclassify landrevaluation increments tax payable, which is a taxable temporary difference, underdeferred tax liabilities. On January 1 and December 31, 2012, the effects of thisadjustment on related accounts are as follows: for consolidated other liabilities, adecrease of $879,056 on all dates; for deferred tax liabilities, an increase of$879,056 on all dates.

Following IFRS 1, the Bank and its subsidiaries reclassify current tax assets, currenttax liabilities, deferred tax assets, and deferred tax liabilities, respectively. OnJanuary 1 and December 31, 2012, the effect of this adjustment on related accountsare as follows: for current consolidated tax assets, an increase of $666,585, and$616,708, respectively; for receivables, a decrease of $666,585, and $616,708,respectively; for deferred tax assets, an increase of $1,622,069, and $1,623,290,respectively; for other assets, a decrease of $1,618,287 , and $1,622,816,respectively; for deferred tax liabilities, an increase of $3,782, and $474,respectively.

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The tax effect arising form the abovementioned adjustments ((1) and (2)), as ofJanuary 1 and December 31, 2012, increases deferred tax assets by $0, and$414,612 and increases retained earnings by $0, and $414,612. For the consolidatedcomprehensive income statements for the year ended December 31, 2012, decreasestax effect by $362,628.

(4) Cumulative translation adjustments

According to the instructions related to cumulative translation in IAS 1, the Bankand its subsidiaries elected to apply the exemption provided therein and reset thecumulative translation to zero by writing off retained earnings. On January 1 andDecember 31, 2012, the effects of this adjustment on related accounts are asfollows: for consolidated cumulative translation adjustments, an increase of $35,991on all dates; for retained earnings, an decrease of $35,991 on all dates The amountof equity as a whole is not affected by this adjustment.

(5) Deemed costs of premises and equipment

Following the instructions related to deemed costs of premises and equipment inIFRS 1, the Bank and its subsidiaries elected to apply the exemption providedtherein, and transferred the revaluation of land and buildings, which followedR.O.C. GAAP, to retained earnings. The remaining unrevaluated premises andequipments were measured by cost model per the regulations of IFRS and relaventrules were retrospectively applied. The aforementioned revaluation on January 1,2012 resulted in an increase of $124,298 in consolidated premises and equipments,an increase of $37,668 in other liabilities, and an increase of $86,630 in other equity.On January 1 and December 31, 2012, the effects of this adjustment on relatedaccounts are as follows: for consolidated other equity, a decrease of $407,442 on alldates; for retained earnings, an increase of $407,442 on all dates. The amount ofequity as a whole is not affected by this reclassification.

(6) Financial assets carried at cost

Following IFRS 1 endorsed by FSC and the Regulations Governing the Preparationof Financial Report by Public Banks effective from January 1, 2013, the Bank andits subsidiaries elected to apply the exemption provided therein and reclassified partof the financial assets carried at cost to available for sale financial assets. As ofJanuary 1, and December 31, 2012, the adjustment increases available-for-salefinancial assets by $90,000 on all dates and decreases other financial assets by$90,000. The amount of assets as a whole is not affected by this reclassification.

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(7) Idle and rental premises

Following IAS 16, the Bank and its subsidiaries reclassify under premises andequipment the idle premises and rental premises originally included in other assets.On January 1, and December 31, 2012, the effects of this adjustment on relatedaccounts are as follows: for other assets, a decrease of $864,422, and $857,242,respectively; for premises and equipment, an increase of $864,422, and $857,242,respectively. The amount of assets as a whole is not affected by this reclassification.

(8) Debits and credits recognized when accepting orders to trade

According to IAS 32, debits and credits recognized when accepting orders to tradedo not satisfy the conditions for offsetting a financial asset and a financial liability,and therefore the Bank and its subsidiaries represent in gross amount those debitsand credits, which were previously represented in net amount. On January 1 andDecember 31, 2012, the effects of this adjustment on related accounts are asfollows: for receivables, an increase of $792,345, and $898,791, respectively; forother asset, an increase of $253, and $8,597, respectively; for payables, an increaseof $788,698, and $894,789 respectively.

(9) Provisions

According to IAS 1, effective since year 2013, liability reserve should be listedseparately and there is no instructions related to accrued pension liabilities. OnJanuary 1,and December 31, 2012, the effects of this adjustment on related accountsare as follows: for accrued pension liabilities, a decrease of $257,985, and $769,248,respectively; for liability reserve, an increase of $257,985, and $769,248,respectively. The amount of liabilities as a whole is not affected by this adjustment.

According to IAS 37 endorsed by FSC, effective from year 2013, provision forlawsuit shall be reclassified in liability reserve. On January 1, and December 31,2012, the effects of this adjustment on related accounts are as follows: forconsolidated payables, an decrease of $443,802, and $520,230; for consolidatedliability reserve, an increase of $443,802, and $520,230. The amount of liabilities asa whole is not affected by this adjustment.

(10)Provisions for guarantee reserve

According to IAS 37 endorsed by FSC and the Regulations Governing thePreparation of Financial Reports by Publicly Held Banks effective from year 2013,the provision for guarantee reserve shall be reclassify to liability reserve. On January1, and December 31, 2012, the effects of this adjustment on related accounts are asfollows: for consolidated other liabilities, an decrease of $24,689, and $41,379; forliability reserve, an increase of $24,689, and $41,379, respectively. The amount ofliabilities as a whole is not affected by this adjustment.

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(11)Gains and losses on financial assets or liabilities at fair value through profit or loss

Following the Regulations Governing the Preparation of Financial Reports byPublicly Held Banks, effective from year 2013, the Bank and its subsidiariesreclassify under gains and losses on financial assets or liabilities at fair valuethrough profit or loss the interest income produced by such financial assets orliabilities that was originally recognized as interest income. for the consolidatedcomprehensive income statements for the year ended December 31 of 2012,, theeffects of this adjustment on related accounts are as follows: for interest income, adecrease of $31,229; for gains and losses on financial assets or liabilities at fairvalue through profit or loss, an increase of $31,229. The amount of gross income isnot affected by this reclassification.

(12)Revenue from recovered bad debts

According to section 65 of IAS 39 endorsed by FSC and subsection 10 of article 10in Regulations Governing the Preparation of Financial Reports by Publicly HeldBanks,the Bank and its subsidiaries adjusted bad debts expenses for those whichhave been written off, returned to normal, or recovered. For the consolidatedcomprehensive income statements for the year ended December 31 of 2012, theeffects of this adjustment on related accounts are as follows: for bad debts expensesand provision for guarantee reserve, a decrease of $1,153,566 for recovered baddebts and overdue accounts effect, a decrease of $1,153,566. The amount of grossincome is not affected by this reclassification.

(b) According to IFRS 1 First-time Adoption of International Financial Reporting Standards,except for the case that optional exemptions or mandatory exceptions are applied, whenan entity adopts IFRSs for the first time, the entity should prepare its financial statementsfollowing those accounting standards effective at the time of the adoption and makeretrospective adjustments. The optional exemptions applied by the Bank are as follows:

(1) The Bank and its subsidiaries elect to use a previous R.O.C. GAAP revaluation ofan item of premises and equipment before the date of transition to IFRSs as deemedcost at the date of the revaluation. The remaining unrevaluated premises andequipments were measured by cost model per the regulations of IFRS and relaventrules were retrospectively applied.

(2) The accounting procedure for the intangible assets of the Bank and its subsidiariesare similar to IAS 38 endorsed by FSC. Thus, applying IAS 38 endorsed by FSCrequires no adjustment to the book value of intangible assets.

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(3) In accordance with IFRS interpretation 1 Changes in Existing Decommissioning,Restoration and Similar Liabilities, plant, equipment and property relateddecommissioning liability and the amount changed are deemed as part of the cost ofthe assets and should be amortised within the remaining useful life. The Bank andits subsidiaries elected to apply retrospectively. There is no significant difference inthis type of liability after evaluation.

(4) The Bank and its subsidiaries elect to reclassify part of the equity investmentmeasured at cost to available-for-sale financial assets.

(5) The Bank and its subsidiaries elect to recognize all cumulative actuarial gains andlosses at the date of transition to IFRSs and transfer them to retained earnings.

(6) The Bank and its subsidiaries elect to recognize all cumulative translationadjustment generated by overseas operating units as $0 at the date of transition toIFRSs and executed the accounting procedure of foreign exchange based on IAS 21The Effects of Changes in Foreign Exchange Rates.

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BALANCE SHEET OF SECURITY DEVISION

DECEMBER 31, 2013 AND DECEMBER 31, AND JANUARY 1, 2012


December 31, 2013 December 31, 2012 January 1, 2012Assets Amount ％ Amount ％ Amount ％Current Assets：

Available-for-sale financial assets－current $ 1,642,094 12 1,668,589 13 1,114,519 10

Held-to-maturity financial assets－currnet - - 289,197 3 55,116 1

Margin loans receivable 1,784,858 13 1,498,868 12 1,810,279 16

Turn margin financing 403 - - - - -

Guaranteed proceeds receivable from refinancing 448 - - - - -

Receivables 1,322,131 10 1,015,401 8 909,447 8

Other current assets 86,039 - 31,920 - 13,293 -

　Total current assets 4,835,973 35 4,503,975 36 3,902,654 35

Non-current Asssets：

Held-to-maturity financial assets－non currnet 410,530 3 412,414 3 324,816 3

Available-for-sale financial assets－non current 8,596,644 62 7,786,153 61 6,865,042 61

Premises and equipment 20,729 - 22,230 - 23,702 -

Intangible assets 1,458 - 1,876 - 3,562 -

Clearing and settlement fund 32,678 - 32,620 - 77,467 1

Guarantee deposits paid 712 - 712 - 712 -

Deffered assets 29 - 57 - 120 -

　Total non current assets 9,062,780 65 8,256,062 64 7,295,421 65

Total assets $ 13,898,753 100 12,760,037 100 11,198,075 100

December 31, 2013 December 31, 2012 January 1, 2012Liabilities and equity Amount % Amount % Amount %Current Liabilities

Liabilities for bonds with attached repurchase agreements $ 4,179,242 30 5,573,542 44 5,380,419 48

Deposits received from securities borrowers 77,136 1 84,023 1 87,849 1

Guaranteed Price Deposits Received From Securities Borrowers 93,746 1 94,041 1 124,887 1

Account Payable 1,187,802 8 896,499 7 790,013 7

Other current liabilities 109,544 1 44,235 - 30,254 -

　Total current liabilities 5,647,470 41 6,692,340 53 6,413,422 57

Non current liabilities：

Guaranteed deposits received 62 - 62 - 20 -

Interbank transaction 5,808,090 42 3,547,097 28 2,146,751 19

　Total non current liabilities 5,808,152 42 3,547,159 28 2,146,771 19

　　Total liabilities 11,455,622 83 10,239,499 81 8,560,193 76

Equity parent company

Assigned working capital 2,200,000 16 2,200,000 17 2,200,000 20

　Special reserve 185,127 1 185,127 1 185,127 2

　Undistributed earnings 72,849 - 58,714 - 188,462 2

　Other items in equity (14,845) - 76,697 1 64,293 -

　　Total equity 2,443,131 17 2,520,538 19 2,637,882 24

Total liabilities and equity $ 13,898,753 100 12,760,037 100 11,198,075 100

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STATEMENT OF COMPREHENSIVE INCOME OF SECURITY DEVISION




Amount ％ Amount ％Revenues

Brokerage handling fee revenue $ 177,097 43 187,235 45

Handling fees from securities borrowers 2,076 1 2,967 1

Interest revenue 224,611 54 212,388 51

Gains on sale of operating securities－proprietary trading 591 - 966 -

Future commission revenues 8,914 2 9,853 3

Other operating income 363 - 502 -

413,652 100 413,911 100

Expenses

Brokerage handling fee expenses 10,979 3 11,868 3

Refinancing processing fee expenses 44 - 135 -

Financial costs 67,742 16 55,041 13

Operating expenses 250,615 61 258,799 62

Other operating expenses 927 - 770 -

ther gains and losses 10,496 3 28,584 7

　　 340,803 83 355,197 85

Net income 72,849 17 58,714 15

Other comprehensive income：

Unrealized valuation gains on available-for-sale financial assets (91,542) (22) 12,404 3

Income tax related to the components of other comprehensive income - - - -

Other comprehensive income (net amount after tax) (91,542) (22) 12,404 3

Total comprehensive income $ (18,693) (5) 71,118 18

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