Taichung Commercial Bank Co., Ltd. and subsidiaries. Consolidated Financial Statements and Independent Auditor s Report Second Quarter, 2018 and 2017

Transcription

1 Stock No: 2812 Taichung Commercial Bank Co., Ltd. and subsidiaries Consolidated Financial Statements and Independent Auditor s Report Second Quarter, 2018 and 2017 Address: No. 87, Min Chuan Road, West District, Taichung Tel. No.: (04)

2 Index Item Page Notes to financial statements No. 1. Cover page 1-2. Index 2-3. Auditor s Report 3~4-4. Consolidated Balance Sheet 5-5. Consolidated Income Statement 6~7-6. Consolidated Statements of Changes in 8 - Shareholders Equity 7. Consolidated Statements of Cash Flow 9~11-8. Consolidated Notes to financial statements (1) Organization and operations 12 1 (2) Financial reporting date and 12 2 procedures (3) Application of new and revised 12~18 3 standards and interpretation (4) Summary of significant accounting 18~29 4 policies (5) Main source of significant accounting 29~30 5 judgment, estimates and assumptions uncertainty (6) Summary of significant accounting 30~67 6~35 titles (7) Related party transactions 67~73 36 (8) Pledged assets (9) Significant contingent liabilities and 74~78 38 unrecognized contractual commitments (10) Others 78~118 39~44 (11) Segment information 118~ (12) Notes of disclosure 1. Information about important transactions Information regarding investees 120~ Information regarding investment in 120, the territory of mainland china 4. Business relationship and significant transactions between the parent company and subsidiaries 120,

3 Auditor s Report To: Taichung Commercial Bank Co., Ltd. Foreword We have audited the accompanying consolidated balance sheet of Taichung Commercial Bank Co., Ltd. and subsidiary as of June 30, 2018, and December 31, June 30, 2017, and the related consolidated statement of income as of April 1 to June 30, 2018 and 2017 and January 1 to June 30, 2018 and 2017, consolidated statement of changes in shareholders equity, consolidated statement of cash flows, and Note of the consolidated financial statements (including major accounting policy) as of January 1 to June 30, 2018 and 2017 of respective fiscal year. The compilation of fairly presented financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks, the Regulations Governing the Preparation of Financial Reports by Security Firms, and IAS 34, Interim Financial Reporting, enacted at the recognition of the Financial Supervisory Commission (FSC) is the responsibility of the management. Our responsibility is to present our opinions on the basis of our findings of our findings after an audit of the aforementioned consolidated financial statements. Scope We reviewed the consolidated financial statements in accordance with the Statement of Auditing Standard No. 65- The Review of Financial Statements. The procedure of reviewing the consolidated financial statements covers the query (mainly interviews with the personnel charged with management responsibilities in finance and accounting), analysis, and other reviews. The scope of this audit is obviously not as extensive as a general examination in that we cannot identity the materiality which otherwise could be detected from a general examination. Likewise, we are unable to present an opinion in this regard. Conclusion The audit findings indicated that the consolidated financial statements as presented, in all material aspects, were compiled in conformity with the Regulations Governing the Preparation of Financial Reports by Public Banks, the Regulations Governing the Preparation of Financial Reports by Security Firms, and IAS 34, Interim Financial Reporting, enacted at the recognition of the Financial Supervisory Commission (FSC) (responsibility of the management), and nothing is in defiance of the aforementioned rules and standards which otherwise distorts the fair presentation of the consolidated financial position of Taichung Commercial Bank as of June 30, 2018 and 2017, and the consolidated financial performance as of April 1 to June 30, 2018 and 2017 and the consolidated financial performance and consolidated cash flow as of January 1 to June 30, 2018 and 2017 of respective fiscal year

4 Points of attention As stated in Note 3 of the consolidated financial statements, Taichung Commercial Bank and subsidiaries adopted the amended Regulations Governing the Preparation of Financial Reports by Public Banks, the Regulations Governing the Preparation of Financial Reports by Security Firms, and the IAS, IFRS, SIC and IFRIC enacted in 2018 on the recognition of FSC in 2018 and beyond. No compilation of consolidated financial statements was chosen for the period of comparison for retrospective application with the IAS, IFRS, SIC and IFRIC. We did not revise the conclusions of our audit. Other information We have also audited the individual financial statements of the Bank for Q2, 2018 and 2017, and have expressed modified unqualified opinions on such financial statements. Deloitte & Touche Kuan-Chung Lai, CPA Wen-Ya Hsu, CPA Securities and Futures Bureau Approval Document No. Tai-Cai-Zheng (6) Zi No Securities and Futures Bureau Approval Document No. Tai-Cai-Zheng (6) Zi No Date: August 9,

5 Taichung Commercial Bank Co., Ltd. and subsidiaries Consolidated Balance Sheet June 30, 2018 and December 31, June 30, 2017 Unit: NTD thousand June 30, 2018 (Reviewed) December 31, 2017 (Audited) June 30, 2017 (Reviewed) Code Assets Amount % Amount % Amount % Cash and cash equivalents (Notes 3, 4 & 6) $ 14,381,229 2 $ 15,001,053 2 $ 10,161, Due from the Central Bank and lend to banks (Notes 3 & 7) 30,396, ,121, ,687, Financial assets at fair value through profit and loss (Notes 3,4 & 8) 35,076, ,210, ,318, Financial assets at fair value through other comprehensive income (Notes 3, 4 & 9) 32,481, Investment in debt instruments on the basis of cost after amortization (Notes 3, 4 & 10) 95,073, Bonds and securities sold under repurchase agreements (Notes 3 & 11) 5,981, ,283, ,050, Receivables - net (Notes 3, 4, 12, 13 & 37) 12,807, ,658, ,016, Current income tax asset (Note 4) 1,785-5,701-5, Discounts and loans net (Notes 3, 4, 13 & 36) 444,337, ,857, ,598, Available-for-sale financial assets, net (Notes 3, 4 & 14) ,615, ,920, Held-to-maturity financial assets - net (Notes 3, 4, 15 & 37) ,542, ,725, Investment by equity method net (Note 16) 157, , , Restricted assets - net (Notes 17 & 37) 345, , , Other financial assets, net (Notes 3, 4 & 18) 21,606-1,067,625-1,097, Property, plant, and equipment net (Note 19) 9,395, ,387, ,444, Invest in investment property net (Note 20) 81,905-45,250-78, Intangible assets net (Note 21) 162, , , Deferred income tax assets (Note 4) 778, , , Other assets (Notes 3, 22 & 37) 1,964,967-2,009,404-2,226, Total assets $ 683,444, $ 663,024, $ 639,569, Code Liabilities and equity Due to Central Bank and other banks (Note 23) $ 8,963,664 2 $ 9,518,872 1 $ 5,543, Funds borrowed from Central Bank and other banks (Notes 24 & 37) 5,193, ,120, ,075, Financial liabilities at fair value through profit and loss (Notes 4 & 8) 396, , , Bills and bonds sold under repurchase agreements (Note 25) 7,222, ,307, ,175, Payables (Note 26) 13,636, ,331, ,003, Current income tax liabilities (Note 4) 300, , , Deposits and remittances (Notes 27 & 36) 581,278, ,094, ,367, Financial bonds payable (Note 28) 18,500, ,500, ,000, Other financial liabilities (Note 29) 1,208,606-1,057,866-1,393, Liability reserve (Notes 4 & 30) 1,514,905-1,389,979-1,323, Deferred income tax liabilities (Note 4) 111, , , Other liabilities (Note 31) 858, , , Total liabilities 639,185, ,622, ,252, Equity of the parent company (Note 32) Common stock capital 32,931, ,931, ,381, Capitalization reserve 823, , Capital surplus 684, , ,156 - Retained earnings Legal reserve 6,985, ,896, ,896, Special reserve 110,159-73,833-73, Undistributed earnings 2,050,691-3,630, ,670, Other equity 673, ,977-60, Total shareholder s equity in the parent company 44,258, ,401, ,317, Total equity 44,258, ,401, ,317,265 6 Total Liabilities and Equity $ 683,444, $ 663,024, $ 639,569, The notes attached shall constitute an integral part of this Consolidated financial statement. (Refer to Auditor s Report presented by Deloitte & Touche dated August 9, 2018) Chairman: Kuei-Fong Wang Manager: Deh-Wei Chia Chief accountant: Chin-Min Liao - 5 -

6 Taichung Commercial Bank Co., Ltd. and subsidiaries Consolidated Income Statement April 1 to June 30, January 1 to June 30, 2018 and 2017 (Reviewed only, not audited in accordance with the auditing principles generally accepted in the ROC) Unit: NTD thousands, except Earnings Per Share (NTD) April 1 to June 30, 2018 April 1 to June 30, 2017 January 1 to June 30, 2018 January 1 to June 30, 2017 Code Amount % Amount % Amount % Amount % Interest revenues (Notes 33 & 36) $ 3,222, $ 3,009, $ 6,300, $ 5,967, Interest expenses (Notes 33 &36) ( 1,125,955 ) ( 38 ) ( 974,273 ) ( 36 ) ( 2,199,754 ) ( 39 ) ( 1,910,309 ) ( 36 ) Net interest income 2,097, ,035, ,100, ,057, Net income (loss) other than interest income Net income from service fees (Notes 33 & 36) 683, , ,346, ,123, Net gain (loss) on financial assets and liabilities at fair value through profit and loss (Note 33) 32, , , , Realized gain on available-for-sale financial assets (Note 33) , , Realized gain or loss on financial assets at fair value through other comprehensive profit or loss (Note 4) Exchange gain (loss) 120, , ,695 3 ( 183,647 ) ( 3 ) Asset impairment loss (Notes 4, 9, 10, 18 & 33) ( 1,302 ) - ( 31,445 ) ( 1 ) ( 6,244 ) - ( 23,021 ) Profit or loss of affiliated companies and joint ventures under the equity method (Note 16) ( 1,900 ) ( 3,394 ) - ( 1,188 ) Net income (loss) other than interest income (Notes 30 & 33) 8, ,156 1 ( 1,609 ) - 23,086-4xxxx Net revenue 2,939, ,732, ,659, ,335, Bad debt expense, commitments and guaranty reserve (Notes 4, 12, 13 & 30) ( 97,098 ) ( 3 ) ( 333,780 ) ( 12 ) ( 267,019 ) ( 5 ) ( 422,652 ) ( 8 ) Operating expenses Employee benefits expenses (Notes 4 & 33) ( 920,254 ) ( 31 ) ( 816,163 ) ( 30 ) ( 1,774,371 ) ( 31 ) ( 1,610,700 ) ( 30 ) Depreciation and amortization expenses (Note 33) ( 66,785 ) ( 2 ) ( 66,864 ) ( 3 ) ( 137,501 ) ( 2 ) ( 151,003 ) ( 3 ) Business and administrative expenses (Notes 33 & 36) ( 598,438 ) ( 21 ) ( 584,168 ) ( 21 ) ( 1,296,204 ) ( 23 ) ( 1,134,250 ) ( 21 ) Total operating expenses ( 1,585,477 ) ( 54 ) ( 1,467,195 ) ( 54 ) ( 3,208,076 ) ( 56 ) ( 2,895,953 ) ( 54 ) Income before tax from continuing operations 1,256, , ,184, ,016, Income tax expenses (Notes 4 & 34) ( 227,118 ) ( 8 ) ( 139,315 ) ( 5 ) ( 274,391 ) ( 5 ) ( 347,142 ) ( 7 ) Current year net income after tax 1,029, , ,910, ,669, (Continued on next page) - 6 -

7 (Continued from previous page) April 1 to June 30, 2018 April 1 to June 30, 2017 January 1 to June 30, 2018 January 1 to June 30, 2017 Code Amount % Amount % Amount % Amount % Other comprehensive profit or loss Titles not reclassified as profit (loss) accounts: Evaluation of the capital gain from equity instrument at fair value through comprehensive income statement as other comprehensive income (Note 4) $ 67,887 2 $ - - $ 74,319 2 $ The proportion of other comprehensive incomes from associates and equity joint-ventures accounted for under the equity method reclassified as profit and loss Incomes tax related to titles not subject to reclassification ( 5,413 ) , Net titles not reclassified as profit (loss) (after taxation) 63, , Titles that could be reclassified as profits (loss) accounts in the future Exchange differences from the translation of financial statements of foreign operations 5,464-10, ,508 - ( 23,378 ) Unrealized valuation gains of available-for-sale financial assets , , Capital gains of debts instrument at fair value through comprehensive income statement as other comprehensive income (Note 4) 28, Income tax related to titles that could be reclassified (Notes 4 & 34) - - ( 1,476 ) ( 2,819 ) The total of the titles that could be reclassified as profits (loss) accounts in the future (after taxation) 34, , ,794-46, Other comprehensive net income (after tax) 97, , , , Current period other comprehensive income (after tax) $ 1,127, $ 973, $ 2,019, $ 1,716, Consolidated EPS (Note 35) Business units in continuing operation Basic $ 0.31 $ 0.23 $ 0.57 $ Diluted $ 0.30 $ 0.23 $ 0.57 $ 0.49 The notes attached shall constitute an integral part of this Consolidated financial statement. (Refer to Auditor s Report presented by Deloitte & Touche dated August 9, 2018) Chairman: Kuei-Fong Wang Manager: Deh-Wei Chia Chief accountant: Chin-Min Liao - 7 -

8 Taichung Commercial Bank Co., Ltd. and subsidiaries Consolidated Statements of Changes in Shareholders Equity January 1 to June 30, 2018 and 2017 (Reviewed only, not audited in accordance with the auditing principles generally accepted in the ROC) Unit: NTD thousand Equity of the company Other equity Capital stock Retained earnings Exchange differences from the translation of financial statements Unrealized gain or loss on financial assets at fair value through other Unrealized gain (loss) on Code Common stock Capitalization reserve Capital surplus Legal reserve Special reserve Undistributed earnings of foreign operations comprehensive profit or loss available-for-sale financial assets Total equity A1 Balance as of January 1, 2017 $ 32,381,307 $ - $ 684,156 $ 4,881,792 $ 38,685 $ 3,382,461 ( $ 23,183 ) $ - $ 36,817 $ 41,382,035 The 2016 appropriation and distribution of earnings B1 Legal reserve ,014,738 - ( 1,014,738 ) B3 Appropriation of special reserve ,148 ( 35,148 ) B5 Cash dividends ( 1,780,972 ) ( 1,780,972 ) B9 Stock dividends - 550, ( 550,482 ) D1 Net profit in January 1 to June 30, ,669, ,669,333 D3 Other comprehensive profit or loss in January 1 to June 30, ( 23,378 ) - 70,247 46,869 D5 Total comprehensive profit or loss in January 1 to June 30, ,669,333 ( 23,378 ) - 70,247 1,716,202 Z1 Balance as of June 30, 2017 $ 32,381,307 $ 550,482 $ 684,156 $ 5,896,530 $ 73,833 $ 1,670,454 ( $ 46,561 ) $ - $ 107,064 $ 41,317,265 A1 Balance as of January 1, 2018 $ 32,931,789 $ - $ 684,156 $ 5,896,530 $ 73,833 $ 3,630,655 ( $ 38,507 ) $ - $ 223,484 $ 43,401,940 A3 Effect of retroactive applicability (Note 3) ( 80,676 ) - 623,457 ( 223,484 ) 319,297 A5 Balance as of January 1, 2018 after retrospective adoption 32,931, ,156 5,896,530 73,833 3,549,979 ( 38,507 ) 623,457-43,721,237 The 2017 appropriation and distribution of earnings B1 Legal reserve ,089,196 - ( 1,089,196 ) B3 Appropriation of special reserve ,326 ( 36,326 ) B5 Cash dividends ( 1,481,931 ) ( 1,481,931 ) B9 Stock dividends - 823, ( 823,295 ) D1 Net profit in January 1 to June 30, ,910, ,910,425 D3 Other comprehensive profit or loss in January 1 to June 30, ,345 19,508 63, ,224 D5 Total comprehensive profit or loss in January 1 to June 30, ,936,770 19,508 63,371-2,019,649 Q1 Equity instrument at fair value through other comprehensive income statement ( 5,310 ) - 5, Z1 Balance as of June 30, 2018 $ 32,931,789 $ 823,295 $ 684,156 $ 6,985,726 $ 110,159 $ 2,050,691 ( $ 18,999 ) $ 692,138 $ - $ 44,258,955 The notes attached shall constitute an integral part of this Consolidated financial statement. (Refer to Auditor s Report presented by Deloitte & Touche dated August 9, 2018) Chairman: Kuei-Fong Wang Manager: Deh-Wei Chia Chief accountant: Chin-Min Liao - 8 -

9 Taichung Commercial Bank Co., Ltd. and subsidiaries Consolidated Statements of Cash Flow January 1 to June 30, 2018 and 2017 (Reviewed only, not audited in accordance with the auditing principles generally accepted in the ROC) January 1 to June 30, 2018 Unit: NTD thousand January 1 to June 30, 2017 Code Cash flow from operating activities A10000 Current year net profit before taxation $ 2,184,816 $ 2,016,475 Profits and loss A20100 Depreciation expenses 110, ,579 A20200 Amortization expenses 26,616 41,424 A20300 A20400 A22500 Anticipated credit impairment/provision for bad debts 267, ,652 Gain (loss) on financial assets and liabilities at fair value through profit and loss ( 62,890 ) ( 315,394 ) Disposal and obsolescence loss of property and equipment A20900 Interest expenses 2,199,754 1,910,309 A21200 Interest revenue ( 6,300,229 ) ( 5,967,863 ) A21300 Dividend income ( 391 ) ( 3,377 ) A21800 Net change in other provisions for liabilities 7,500 - A22300 Loss of the affiliated company under the equity method 3,394 1,188 A23100 Gain on disposal of investments - ( 23,847 ) A23600 Financial assets impairment loss 6,244 23,021 A24100 Unrealized foreign currency exchange (gain) loss ( 381,235 ) 642,441 A20010 Total income, expense and loss ( 4,123,032 ) ( 3,159,348 ) Net change in operating assets and liabilities A41110 A41120 Due from Central Bank and lend to Banks ( 213,672 ) ( 270,882 ) Financial assets at fair value through profit and loss ( 2,314,822 ) ( 9,019,578 ) A41150 Accounts receivable 918,841 ( 1,291,193 ) A41160 Discounts and loans ( 13,696,160 ) ( 4,685,217 ) A41190 Other financial assets 4,773 ( 13,575 ) A41990 Other assets ( 141,791 ) ( 61,319 ) A42110 A42120 (Continued on next page) Due to Central Bank and other banks ( 555,208 ) ( 6,074,468 ) Financial liabilities at fair value through profit and loss ( 398,639 ) ( 453,241 ) - 9 -

10 (Continued from previous page) Code A January 1 to June 30, 2018 January 1 to June 30, 2017 Bills and bonds sold under repurchase agreements $ 2,914,213 ( $ 1,046,740 ) A42150 Payables ( 1,428,441 ) ( 3,739,560 ) A42160 Customer deposits and remittances 15,183,957 19,558,552 A42170 Other financial liabilities ( 3,510 ) ( 29,359 ) A42180 Employee benefit liabilities reserve 1,263 ( 7,944 ) A42990 Other liabilities 17,437 37,943 A40000 Total changes in operating activities related assets/liabilities 288,241 ( 7,096,581 ) A33000 Cash outflow from operating activities ( 1,649,975 ) ( 8,239,454 ) A33100 Interest received 6,333,582 6,060,885 A33200 Dividends received A33300 Interest payment ( 1,948,224 ) ( 1,753,732 ) A33500 Income tax payment ( 307,351 ) ( 107,776 ) AAAA Net cash inflow (outflow) from operating activities 2,428,423 ( 4,039,729 ) Cash flow from investing activities B00010 Acquisition of financial assets at fair value through other comprehensive profit or loss ( 177,495 ) - B00020 Disposal of financial assets at fair value through other comprehensive profit or loss 650,010 - B00040 Financial assets acquired on the basis of cost after amortization ( 406,290,072 ) - B00050 Financial assets on the basis of cost after amortization 45,650 - B00060 Held-to-maturity financial assets based on cost after amortization 396,427,480 - B00300 Acquisition of available-for-sale financial assets - ( 107,611 ) B00400 Disposition of available-for-sale financial assets - 5,684,085 B00900 Acquisition of held-to-maturity financial assets - ( 371,644,819 ) B01100 Return of capital from held-to-maturity financial assets - 309,522,266 B02700 Acquisition of Property, plant, and equipment ( 119,444 ) ( 118,625 ) B02800 Disposal of Property, plant, and equipment 1, B03700 Increase in refundable deposits ( 123,099 ) ( 60,531 ) B04500 Acquisition of Intangible assets ( 28,586 ) ( 23,404 ) B05400 Acquisition of investment property ( 36,700 ) - BBBB Net cash outflow from investing activities ( 9,650,331 ) ( 56,748,476 ) Cash flow from financing activities C00300 Increase in funds borrowed from Central Bank and other banks 72, ,229 C00700 Increase in commercial papers payable 154, ,790 (Continued on next page)

11 (Continued from previous page) Code January 1 to June 30, 2018 January 1 to June 30, 2017 C01400 Issuance of financial bonds $ 1,000,000 $ 1,500,000 C01500 Repayment of financial bonds - ( 1,500,000 ) C03000 Increase in deposits received 115,146 - CCCC Net cash inflow from financing activities 1,341,837 1,490,019 DDDD Impact of changes in exchange rate on cash and cash equivalents 19,508 ( 23,378 ) EEEE Current cash and cash equivalents decrease ( 5,860,563 ) ( 59,321,564 ) E00100 Balance of cash and cash equivalents, beginning of period 39,868,063 88,021,445 E00200 Balance of cash and cash equivalent, end of period $ 34,007,500 $ 28,699,881 Ending cash and cash equivalents adjustment Code June 30, 2018 June 30, 2017 E00210 Cash and cash equivalents on the balance sheet $ 14,381,229 $ 10,161,962 E00220 E00230 E00200 The Due from Central Bank and Banks in compliance with the definition of cash and cash equivalents under IAS 7 13,644,637 13,487,869 The bonds and securities sold under repurchase agreements that meet the definitions of cash and cash equivalents under IAS 7 5,981,634 5,050,050 Balance of cash and cash equivalent, end of period $ 34,007,500 $ 28,699,881 The notes attached shall constitute an integral part of this Consolidated financial statement. (Refer to Auditor s Report presented by Deloitte & Touche dated August 9, 2018) Chairman: Kuei-Fong Wang Manager: Deh-Wei Chia Chief accountant: Chin-Min Liao

12 Taichung Commercial Bank Co., Ltd. and subsidiaries Consolidated Notes to financial statements January 1 to June 30, 2018 and 2017 (Reviewed only, not audited in accordance with the auditing principles generally accepted in the ROC) (In Thousands of New Taiwan Dollars, unless otherwise specified) 1. Organization and operations Formerly a cooperative savings company in central Taiwan (known as Central Taiwan Cooperative Company established on September 27, 1952, Taichung Commercial Bank Co., Ltd. (hereinafter, the Bank or Taichung Bank ) was approved to establish in April 1953 as a commercial bank and started its operation since August of the same year. The amended Banking Act was promulgated in July 1975 on which Central Taiwan Cooperative Company was approved to reorganize as Taichung Small and Medium Business Bank Co., Ltd. (hereinafter, Taichung business bank ) on January 1, On May 15, 1984, the Bank was approved to list its stocks in TWSE. In order to cope with national financial policy, provide the pubic with financial services and support economic construction and develop industrial and commercial business, the Taichung Small and Medium Business Bank Company Limited was renamed Taichung Commercial Bank Co., Ltd. in December As of June 30, 2018, it had established a Business Department, Trust Department, International Banking Department and 80 local branches, and an International Banking Branch. It is engaged mainly in financial operations regulated by Banking Act, trust business, offshore banking business and others approved by the competent authority. The Taichung Bank s capital was NTD 500 thousand when the Bank was incorporated. In order to found its capital structure and comply with the Government Apparatus's order and decree, the Bank has increased/reduced its capital over the past years. As of June 30, 2018, its paid-in capital was NTD 32,931,789 thousand. This consolidated financial statement is denominated in the functional currency of Taichung Bank, which is NTD. 2. Financial reporting date and procedures The consolidated financial statements were approved for publication by the board of directors on August 9, Application of new and revised standards and interpretation (1) The first use of the Regulations Governing the Preparation of Financial Reports by Public Banks after amendment, Rules Governing the Preparation of Financial Statements of Securities Firms and the IFRS, IAS, IFRIC, and SIC (hereinafter collectively known as IFRSs ) recognized by the Financial Supervisory Commission for coming into full force. Except for the statements below, the adoption of the amended Regulations Governing the Preparation of Financial Reports by Public Banks, Rules Governing the Preparation of Financial Statements of Securities Firms and the IFRSs recognized

13 by the Financial Supervisory Commission to come into full force will not cause significant change in the accounting policies of the consolidated company: IFRS 9 Financial Instruments and related amendment IFRS 9, Financial Instruments replaced IAS 39, Financial Statements: Recognition and Measurement, and was adopted in conjunction with other standards such as the amended IFRS 7, Financial Instruments: Disclosure. The new rules in IFRS 9 covered the classification, measurement and impairment of financial assets and general hedge accounting. Refer to Note 4 for further information on accounting principles. The consolidated company retroactively applied treatment of the classification, measurement and impairment of financial assets on January 1, 2018 and postponed the adoption of general hedge accounting for one year. Items removed on or before December 31, 2017 were not covered by IFRS9. Classification, measurement and impairment of financial assets The consolidated company evaluated the classification of financial assets effective on January 1, 2018 for retroactive adjustment on the basis of the reality and circumstances of the day and elected not to recompile the statements for comparison. As of January 1, 2018, the categories and book value of financial assets to be measured under IAS 39 and IFRS 9 and the changes therein are specified below: Classification of measurement Book value Category of financial assets IAS 39 IFRS 9 IAS 39 IFRS 9 Remark Financial assets Cash and cash equivalents Loans and accounts Measured on the basis of $ 15,001,053 $ 15,001,053 receivable cost after amortization Due from Central Bank and Loans and accounts Measured on the basis of 30,121,642 30,121,642 lend to Banks receivable cost after amortization Financial assets at fair value through profit and loss Measured at fair values through profit and/or loss Measured at fair values through profit and/or loss 31,210,074 31,210,074 Bonds and securities sold under repurchase agreements Loans and accounts receivable Measured on the basis of cost after amortization Receivable- net Loans and accounts receivable Measured on the basis of cost after amortization Discounts and loans Loans and accounts Measured on the basis of receivable cost after amortization Available-for-Sale Available-for-Sale Financial assets at fair Financial Assets-net Financial Assets value through other comprehensive profit or loss Held to maturity Held-to-maturity Measured on the basis of investments, net financial assets cost after amortization Measured at fair values through other comprehensive income Other financial assets - net Financial assets at cost Measured at fair values through other comprehensive income Other assets Loans and accounts receivable Loans and accounts receivable Measured at fair values through profit and/or loss Measured on the basis of cost after amortization 11,283,082 11,283,082 13,658,151 13,657, ,857, ,857,960 31,615,817 31,615,817 (8) (2), (3), (4) 85,542,095 84,752,656 (5) - 785,439 (6) 145, ,910 (7) 900, ,335 (1) 1,910,942 1,910,

14 Changes in the categories of financial assets measured retroactively under IFRS 9 as of January 1, 2018 are specified below: Measured at fair values through profit and/or loss Add: Reclassification of other financial assets (IAS 39) Measured at fair values through other comprehensive income -Debt instruments Add: Reclassification of available-for-sale financial assets (IAS 39) Add: Reclassification of held-to-maturity financial assets (IAS 39) -Equity instruments Add: Reclassification of available-for-sale financial assets (IAS 39) Add: Reclassification on the basis of costs (IAS 39) Measured on the basis of cost after amortization Add: Reclassification of available-for-sale financial assets (IAS 39) Add: Reclassification of held-to-maturity financial assets (IAS 39) Add: Reclassification of loans and receivables (IAS 39) Book value of January 1, 2018 (IAS 39) Reclassification Reevaluation Book value of January 1, 2018 (IFRS 9) Effect on retained earnings as of January 1, 2018 Effect on other equity as of January 1, 2018 $ 31,210,074 $ - $ - $ 31,210,074 $ - $ , , (1) 31,210, ,335-32,110, ,034,046-31,034,046 ( 19,079 ) 19,079 (2) - 780,262 5, ,439 ( 256 ) 5,433 (6) - 581, ,771 5,195 ( 5,195 ) (3) - 145, , , ,226 (7) - 32,541, ,403 32,895,166 ( 14,140 ) 367, (4) - 84,761,833 ( 9,177 ) 84,752,656 ( 9,177 ) - (5) - 502,832,830 ( 586 ) 502,832,244 ( 586 ) - (8) - 587,594,663 ( 9,763 ) 587,584,900 ( 9,763 ) - Total $ 31,210,074 $ 621,036,761 $ 343,640 $ 652,590,475 ( $ 23,903 ) $ 367,543 Reconciliation sheet of adjustment of provision for loss from IAS 39 to IFRS 9 on January 1, 2018 is shown below: The balance of provision for impairment under IAS 39 and the amount appropriated under IAS37 Reclassification Reevaluation The balance of provision for impairment under IFRS 9 Reconciliation sheet of provision for impairment Loans and receivables (IAS39)/costs after amortization (IFRS9) Accounts receivable $ 344,584 $ - $ 586 $ 345,170 (8) Discounts and loans 6,344, ,344,810 Available-for-sale financial assets (IAS 39)/financial assets at fair value through comprehensive income statement (IFRS9) Held-to-maturity financial assets (IAS39)/financial assets measured on the basis of cost after amortization (IFRS9) Remark Remark ,335 19,335 (2), (6) - - 9,177 9,177 (5) Commitment of financing and guaranty liability Liability reserve 269,937-56, ,710 (8) 1. Financial instruments previously classified as loans and accounts receivable under IAS 39 amounted to NTD 900,335 thousand, but the cash flow from these is not solely for the payment of principal and the interest accrued from

15 the outstanding amount of the principal. Under IFRS 9, this sum is compulsorily classified as financial assets at fair value through income statements. 2. Financial instruments-bonds previously classified as available-for-sale financial assets under IAS 39 amounted to NTD 31,034,046 thousand, and the cash flow was wholly for the payment of principal and interest accrued from the outstanding amount of the principal at the time of initial recognition, and the mode of operation was to hold the financial assets for the collection of cash flow from contracts and the sale of the assets. Under IFRS 9, these financial assets were classified as financial assets at fair value through comprehensive income with the evaluation of anticipated credit impairment. The retrospective adoption resulted in a decrease of retained earnings amounting to NTD 19,079 thousand and an increase of other equity amounting to NTD 19,079 thousand as of January 1, 2018 through adjustment. 3. The available-for-sale financial assets stocks listed and not listed in TWSE (TPEx) and emerging stock market classified under IAS 39 amounted to NTD 581,771 thousand, and were classified as financial assets measured at fair value through comprehensive income under IFRS 9. The retrospective adoption resulted in an increase of retained earnings amounting to NTD 5,195 thousand and a decrease of other equity amounting to NTD 5,195 thousand as of January 1, 2018 through adjustment. 4. The cash flow from contracts of available-for-sale financial assets- debt instruments previously recognized under IAS 39 were wholly for the payment of principal and the interest accrued from the outstanding amount of the principal and the mode of operation is for collection of cash flow from contracts. These assets were measured on the basis of cost after amortization under the classification of IFRS The held-to-maturity financial assets and bond investment measured on the basis of cost recognized under IAS 39 amounting to NTD 84,761,833 thousand. The cash flow from contracts was wholly for the payment of principal and the interest accrued from the outstanding amount of the principal at the time of initial recognition and the mode of operation is the collection of cash flow from contracts. These assets were classified as financial assets measured on the basis of cost after amortization with evaluation of anticipated credit impairment under IFRS 9. The retrospective adoption resulted in a decrease of retained earnings by NTD 9,177 thousand as of January 1, 2018 through adjustment. 6. The held-to-maturity financial assets and bond investment on the basis of cost after amortization previously recognized under IAS 39 amounted to NTD 780,262 thousand. The cash flow from contracts was wholly for the payment of principal and the interest accrued from the outstanding amount of the principal at the time of initial recognition and the mode of operation aimed at the collection of cash flow from contracts and the sale of financial assets, and these assets were classified as financial assets at fair value through comprehensive income with evaluation of anticipated credit impairment. The retrospective adoption resulted in a decrease of retained earnings by NTD256 thousand and an increase in other equity by NTD 5,433 thousand as of January 1, 2018 through adjustment

16 7. Stocks not listed in TWSE (TPEx) measured on the basis of costs under IAS 39 amounted to NTD 145,684 thousand and were classified as financial assets at fair value through comprehensive income statement with a new round of measurement at fair value under IFRS 9. The retrospective adoption resulted in an increase in other equity by NTD 348,226 thousand as of January 1, 2018 through adjustment. 8. Receivables were previously classified as loans and receivables under IAS 39, and were classified as financial assets measured on the basis of cost after amortization and off-the-sheet financing commitment with evaluation of anticipated credit impairment under IFRS 9. The retrospective adoption resulted in a decrease retained earnings amounted to NTD 586 thousand and NTD 56,773 thousand respectively as of January 1, 2018 through adjustment. 9. Long-term equity investment accounted for under the equity method amounted to NTD 128,113 thousand. The effect of the first adoption of IFRS 9 by the investees on January 1, 2018 required the consolidated company to recognize the adjustment in proportion to investee shareholding that resulted in an increase of retained earnings of NTD 32,430 thousand. (3) Regulations Governing the Preparation of Financial Reports by Securities Issuers applicable in 2019 and the IFRSs recognized by the Financial Supervisory Commission The new / amended / revised standards or IASB publication effective interpretation date (Note 1) The annual improvement plan for the periods of January 1, Amendments to IFRS 9 Prepayment Features with January 1, 2019 (Note 2) Negative Compensation IFRS 16 Leases January 1, 2019 Amendments to IAS 19 Plan Amendment, January 1, 2019 (Note 3) Curtailment or Settlement Amendments to IAS 28 Long-term Interest in January 1, 2019 Associates and Joint Ventures IFRIC 23 Uncertainty under Income Tax January 1, 2019 Treatments Note 1: Unless otherwise stated, the aforementioned new / amended / revised standards or interpretation are effective in the years after the respective date. Note 2: FSC permitted the consolidated company adoption of this amendment before January 1, 2018 Note 3: The plan amendment, curtailment, or settlement after Jan. 1, 2019 apply to this amendment. IFRS 16 Leases IFRS 16 governs the accounting of leasing and will replace IAS 17 Leasing and related interpretations. Definition of lease At the adoption of IFRS 16 for the first time, the consolidated company only assesses the contracts signed (or changed) beyond January 1, 2019, to determine if

17 they are (or included) lease on the basis of IFRS 16, and does not reassess contracts determined as lease under IAS 17 and IFRIC 4, and treated these contracts in accordance with the transitional requirement of IFRS 16. The consolidated company is the lessee. At the adoption of IFRS 16 for the first time, all leases were recognized as tenancy right assets and leasehold liability except low value target of leases and short-term leases of which the expenses incurred were recognized under the straight-line method. The consolidated comprehensive income statement shall present the interest expenses incurred from the depreciations of the utilization of equity assets and leasehold liability under effective interest method. The principal amount of rent payment liability shall be recognized as financing activities while the interest payment shall be recognized as financing activities in the consolidated statement of cash flows. The consolidated company elected to adjust the accumulated influence under IFRS 16 in retrospect as retained earnings on January 1, 2019, and does not recompile comparative information. At present, the treatment of the agreements of operation leases under IAS 17 the leasehold liabilities will be measured on the basis of the leasehold liability as of January 1, 2019 on all tenancy right assets on the remainder of lease payment at the discount rate of the Lessee for additional loan on that day. Further to the estimation of the following expediency, the recognized tenancy right will be subject to assessment for impairment under IAS 36. The following expedient methods are expected to be applicable to the consolidated company: (1) Apply a single discount rate for the measurement of specific leasehold combinations with reasonable similarity. (2) Lease to expire on or before December 31, 2019 will be treated as short-term lease. (3) The initial cost will not be included in the measurement of tenancy right assets on January 1, (4) Measuring leasehold liability, such as the determination of the term of leases, will be treated from hindsight. The consolidated company is the lessor. In the transitional period, no adjustment of the lease of the Lessors while under IFRS 16 will be applicable from January 1, Further to the aforementioned influence, the companies in the consolidated financial statements will continue to evaluate the effect of the amendment to other IFRSs on the financial positions and performance of the companies in the consolidated financial statements to the date this parent company only financial statement approved and released, and will make appropriate disclosure after the evaluation

18 (4) The IFRSs released by the IASB but not yet approved and announcement effective by the Financial Supervisory Commission The new / amended / revised standards or IASB publication effective interpretation date (Note 1) Amendment to IFRS 10 and IAS 28, Consolidated Undefined Financial Statements and Investment in Associates. IFRS 17 Insurance Contracts January 1, 2021 Note 1: Unless otherwise stated, the aforementioned new / amended / revised standards or interpretation are effective in the years after the respective date. The assessment of consolidated company on above IFRSs as of the day this consolidated financial statement was approved for release did not cause significant influence on the financial position and financial performance. 4. Summary of significant accounting policies (1) Compliance Statement This consolidated financial statement was compiled in conformity to the Regulations Governing the Preparation of Financial Reports by Public Banks, Regulations Governing the Preparation of Financial Reports by Security Firms and IAS 34 Interim Financial Reporting recognized by the Financial Supervisory Commission. This consolidated financial statement does not cover the IFRSs disclosure as required by the whole annual financial reporting. (2) Basis of preparation Further to financial instruments measured at fair value, the content contained in this consolidated financial statement is compiled based on historical data. The evaluation of fair value could be classified into Level 1 to Level 3 by the observable intensity and importance of related input value: 1. Level 1 input value: refers to the quotation of the same asset or liability in an active market as of the evaluation (before adjustment) 2. Level 2 input value: refers to the direct (the price) or indirect (inference of price) observable input value of asset or liability further to the quotation of Level Level 3 input value: the unobservable input value of asset or liability. (3) Basis of consolidation 1. Principle of consolidated financial statements preparation This consolidated financial statement contains the information of the financial statements of the Bank and its controlled entities (subsidiaries). The subsidiaries financial statements have been properly adjusted to make the accounting policies consistent with the accounting policies of the consolidated company. In preparing these consolidated financial statements, the transactions, account balances, incomes and loss and expenses among the individual entities are written off in full amount

19 2. Subsidiaries included in the consolidated financial statements The business entities of the consolidated financial statements are as follows: Percentage of shareholdings Investor Subsidiary name Nature of the operation June 30, 2018 December 31, 2017 June 30, 2017 Taichung Commercial Taichung Commercial Insurance brokerage Bank Co. Bank Insurance Broker Co., Ltd. Taichung Commercial Taichung Commercial Leasing Bank Co. Taichung Commercial Bank Co. Taichung Commercial Bank Lease Enterprise TCCBL Co., Ltd. Bank Lease Enterprise Taichung Commercial Bank Securities Co., Ltd. TCCBL Co., Ltd. Taichung Commercial Bank Leasing (Suzhou) Ltd. Securities Brokerage Financing, leasing and investments. Financing Leasing and investments The subsidiaries not included in the consolidated financial statements: None. (4) Other major accounting policy Refer to the notes to the summary of the important accounting principles for the consolidated financial statements of 2017 except related accounting policies of financial instruments and the following. 1. Financial instruments When the consolidated company has become a party to the instrument contract, the financial assets and financial liabilities are to be recognized in the consolidated balance sheet. For the initial recognition of the financial assets and financial liabilities, if the financial assets or financial liabilities are not measured at fair value through profit or loss, it is measured at fair value plus transaction cost that is directly attributable to the acquisition or issuance of financial assets or financial liabilities. The transaction cost directly attributable to the acquisition or issuance of financial assets or financial liabilities that are measured at fair value through profit or loss is immediately recognized in the profit or loss. Financial assets The customary transaction of financial assets is recognized and de-recognized in accordance with the trade date accounting. A customary transaction refers to the purchase or sale of financial assets and the delivery period is within the period prescribed by the regulations or customary market practice: (1) Classification of measurement 2018 The financial assets held by the consolidated company are financial assets at fair value through income statements, financial assets on the basis of cost after amortization, investment of debt instruments at fair value through other comprehensive income statements, and equity instruments at fair value through other comprehensive income

20 A. Financial assets at fair value through profit and loss Financial assets at fair value through income statements included financial assets at fair value through income statements and financial assets designated at fair value through income in statements. Financial instruments designated at fair value through income statements included the investment of equity instruments not designated at fair value through other comprehensive income and those not conforming to the standard of debt instruments on the basis of cost after amortization or at fair value through other comprehensive income. Financial asset measured at fair value through profit or loss is measured at fair value and the profit or loss generated from the secondary measurement is recognized as profit or loss (not includes any dividend or interest arising from the financial asset). Please refer to Note 39 for the determination of fair value. B. Financial assets based on cost after amortization If the financial assets of the consolidated company met both of the following conditions, classify as financial assets on the basis of cost after amortization: a. Financial assets held under particular mode of operation and the purpose of holding is for the collection of cash flow from contracts; and b. Cash flow generated on particular dates deriving from the contacts and the cash flow is wholly for the payment of principal and interest accrued from the outstanding amount of the principal. Financial assets on the basis of cost after amortization (including cash and cash equivalents, discount and loans, and accounts receivable on the basis of cost after amortization) shall be determined for the total book value under the effective interest rate method after the initial recognition net of the cost of any impairment after amortization for measurement. Any exchange gains or loss will be recognized as income. Interest income will be the product of effective interest rate and total book value of financial assets except under the following two conditions: a. The interest income of financial assets procured or initiated under credit impairment will be the product of the effective interest rate after credit adjustment and the cost of financial assets after amortization. b. The interest income from credit impairment not from purchase or initiation but subsequently turned into financial assets under credit impairments will be the product of effective interest rate and the cost of financial assets after amortization

21 Cash equivalents are time deposits within 3 months from the date of acquisition, with high liquidity, can be converted into cash with marginal risk on the change in value, and are used for the fulfillment of short-term commitment in cash settlement. C. Investment of debt instruments at fair value through other comprehensive income If the investment of debt instruments by the consolidated company met both the two conditions below, classify as financial instruments at fair value through comprehensive income: a. Financial assets held under the particular mode of operation and the purpose of holding being for collection of cash flow from contracts; and b. Cash flow generated on particular dates deriving from the contacts and the cash flow is wholly for the payment of principal and interest accrued from the outstanding amount of the principal. Other investment of debt instruments at fair value through comprehensive income should be measured at fair value. Changes in the book value shall be recognized as income under the calculation of interest income under the effective interest rate method, and exchange gain and loss and impairment or reversal benefits shall be recognized as income. Other changes shall be recognized as other comprehensive income and reclassified as income at the disposition of investment. D. Investment of equity instruments at fair value through other comprehensive income 2017 The consolidated company may make an irrevocable choice at the time of initial recognition for designating the investment of equity instruments not available-for-sale and not recognized by the acquirer under corporate merger and acquisition or with consideration at fair value through other comprehensive income for measurement. The investment of equity instruments at fair value through other comprehensive income is measured at fair value. Subsequent changes in fair value will be recognized as other comprehensive income and accumulated into other equity. In the disposition of assets, accumulated gains or loss shall be directly transferred to retained earnings without classification as income. The dividend of the investment of equity instruments at fair value through other comprehensive income shall be recognized as income when the right of the consolidated company in the collection of dividends is ascertained, unless the dividend is obviously representing the recovery of the cost of investment in part. The financial assets held by the companies in the consolidated statements are financial assets at fair value through profit and loss, financial assets held to maturity, financial assets available for sale, and loans and receivables