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1 (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) TAIWAN BUSINESS BANK, LTD. AND SUBSIDIARIES Consolidated Financial Statements With Independent Auditors Review Report for the Six Months Ended June 30, 2018 and 2017 ADDRESS: NO. 30, Ta-Cheng Street, Taipei, Taiwan, R.O.C. TELEPHONE : The independent auditors review report and the accompanying Consolidated Financial Statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language independent auditors review report and Consolidated Financial Statements, the Chinese version shall prevail.

2 Table of Contents Contents Cover Page 1 Table of Contents 2 Independent Auditors' Review Report 3 Consolidated Balance Sheets 4 Consolidated Statements of Comprehensive Income 5 Consolidated Statements of Change in Equity 6 Consolidated Statements of Cash Flows 7 Notes to the Consolidated Financial Statements 1. Company history 8 2. Approval date and procedures of the consolidated financial statements 8 Page 3. New standards, amendments and interpretations adopted 9~18 4. Summary of significant accounting policies 19~37 5. Significant accounting assumptions and judgments, and major sources of estimation uncertainty 38~39 6. Explanation of significant accounts 26~ Related party transactions 139~ Pledged assets Commitments and contingencies 143~ Losses due to major disasters Subsequent events Other 146~ Other disclosures (A) Information on significant transactions 147~148 (B) Information of investees 149~151 (C) Information on investment in mainland China Segment information 152~153 ~ 2~

3 Independent Auditors Review Report To the Board of Directors of Taiwan Business Bank, Ltd. Introduction We have reviewed the accompanying consolidated balance sheets of the Taiwan Business Bank, Ltd. and its subsidiaries of June 30, 2018 and 2017, and the related consolidated statements of comprehensive income for the three months and six months ended June 30, 2018 and 2017, as well as changes in equity and cash flows for the six months ended June 30, 2018 and 2017, and notes to the consolidated financial statements, including a summary of significant accounting policies. Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks and International Accounting Standards ( IASs ) 34, Interim Financial Reporting endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. Our responsibility is to express a conclusion on the consolidated financial statements based on our review. Scope of Review We conducted our reviews in accordance with Statement of Auditing Standards 65, Review of Financial Information Performed by the Independent Auditor of the Entity. A review of the consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with the generally accepted auditing standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying consolidated financial statements do not present fairly, in all material respects, the consolidated financial position of the Taiwan Business Bank, Ltd. and its subsidiaries as of June 30, 2018 and 2017, and of its consolidated financial performance for the three months and six months ended June 30, 2018 and 2017 and its consolidated cash flows for the six months ended June 30, 2018 and 2017 in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks and IASs 34, Interim Financial Reporting endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. ~ 3~

4 Other Matters We have also audited the financial report which was prepared separately as of and for the six months ended June 30 of 2018 and 2017 of Taiwan Business Bank, Ltd. and expressed an unqualified opinion. The engagement partners on the reviews resulting in this independent auditors review report are CHUNG, TAN TAN and LEE, FENG HUI. KPMG Taipei, Taiwan (Republic of China) August 22, 2018 Notes to Readers The accompanying Consolidated Financial Statements are intended only to present the consolidated financial position, financial performance and its cash flows in accordance with the accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to review such Consolidated Financial Statements are those generally accepted and applied in the Republic of China. The independent auditors review report and the accompanying Consolidated Financial Statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language independent auditors review report and Consolidated Financial Statements, the Chinese version shall prevail. ~ 3-1 ~

5 (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) Reviewed only, not audited in accordance with generally accepted auditing standards as of June 30, 2018 and 2017 TAIWAN BUSINESS BANK, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2018, December 31, 2017, and June 30, 2017 (Expressed In Thousands of New Taiwan Dollars) June 30, 2018 December 31, 2017 June 30, 2017 Assets Amount % Amount % Amount % Cash and cash equivalents (Notes 6(A) and 7) $ 51,115, ,292, ,290,575 2 Due from the Central Bank and call loans to banks (Notes 6(B) and 7) 89,577, ,342, ,631,506 7 Financial assets at fair value through profit or loss (Note 6(C)) 3,127,984-1,061,789-1,408,925 - Financial assets at fair value through other comprehensive income(notes 6(G) and (Q)) 76,606, Investment in debt instruments at amortized cost(note 6(I)) 226,576, Securities purchased under resell agreements (Notes 6(D) and (Q)) 14,314, ,998,104-14,729,453 1 Receivables-net (Note 6(E)) 29,310, ,951, ,078,054 2 Current Income tax assets 92, ,455-47,424 - Discounts and loans-net (Notes 6(F) and 7) 1,089,650, ,111,559, ,058,565, Available-for-sale financial assets-net (Notes 6(H) and (Q)) ,233, ,744,834 4 Held-to-maturity financial assets-net (Note 6(J)) ,967, ,661, Other financial assets-net (Note 6(K)) 108,069-2,159,191-2,132,107 - Premises and equipment-net (Note 6(L)) 14,185, ,226, ,126,820 1 Intangible assets-net 260, , ,377 - Deferred income tax assets-net (Note 6(Y)) 1,319,077-1,222,464-1,337,272 - Other assets-net (Note 6(M)) 3,629,421-3,674,849-3,443,188 - Total assets $ 1,599,875, ,584,093, ,521,394, June 30, 2018 December 31, 2017 June 30, 2017 Liabilities and equity Amount % Amount % Amount % Liabilities Deposits from the Central Bank and other banks (Notes 6(N) and 7) $ 86,070, ,529, ,903,726 6 Due to the Central Bank and other banks (Note 6(O)) 271,827-31,464-22,440 - Financial liabilities at fair value through profit or loss (Notes 6(P) and (T)) 3,818,683-3,732, ,176 - Securities sold under repurchase agreements (Note 6(Q)) 1,534,567-1,105,596-1,109,736 - Payables (Note 6(R)) 43,191, ,630, ,081,004 2 Current income tax liabilities 475,426-62, ,374 - Deposits and remittances (Notes 6(S) and 7) 1,326,839, ,316,023, ,265,956, Financial debentures (Note 6(T)) 42,000, ,000, ,000,000 3 Other financial liabilities (Note 6(U)) 8,782, ,120, ,874,672 1 Provision for liabilities (Note 6(V)) 3,306,009-3,515,351-3,646,447 - Deferred income tax liabilities (Note 6(Y)) 879, , ,052 - Other liabilities (Note 6(W)) 1,540,072-1,643,515-1,453,217 - Total liabilities 1,518,711, ,508,276, ,447,463, Equity parent company Common stock (Note 6(X)) 61,479, ,479, ,688,949 4 Reserve for capital increase (Note 6(X)) 2,459, ,790,668 - Retained earnings: Legal reserve (Note 6(X)) 10,020, ,569, ,569,864 1 Special reserve (Note 6(X)) 516,555-1,240,588-1,240,588 - Undistributed earnings (accumulated deficit) (Note 6(X)) 3,883,391-4,833,832-3,136,712 - Other items in equity 2,805,178 - (306,228) - (496,109) - Total equity 81,163, ,817, ,930,672 5 Total liabilities and equity $ 1,599,875, ,584,093, ,521,394, (The accompanying notes are an integral part of the consolidated financial reports.) ~ 4~

6 (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) Reviewed only, not audited in accordance with generally accepted auditing standards. TAIWAN BUSINESS BANK, LTD. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income For the three and six months ended June 30, 2018 and 2017 (Expressed In Thousands of New Taiwan Dollars) For the three months ended June 30, For the six months ended June 30, Amount % Amount % Amount % Amount % Interest revenue(notes 6(AC) and 7) $ 7,240, ,099, ,115, ,065, Less:Total interest expenses(notes 6(AC) and 7) (2,755,020) (46) (2,302,805) (44) (5,384,498) (46) (4,509,815) (44) Net interest income 4,485, ,797, ,731, ,555, Non-interest income Service fee and commision income(notes 6(AD) and 13) 984, , ,025, ,836, Gains on financial assets or liabilities at fair value through profit or loss - net(note 6(AE)) 98, , , ,937 4 Realized gain on available-for-sale financial assets(note 6(AG)) , ,096 - Realized gain on financial assets measured at other comprehensive income(note 6(AF)) 175, , Foreign exchange gains 222, , , ,898 2 (Impairment loss on assets) reversal of impairment loss on assets(note 6(AH)) (7,652) (11,895) Net other non-interest income(note 6(AI)) 11,479-3,627-6,981-13,273 - Net profit on financial assets measured at cost , ,240 1 Securities brokering income-net 63, , , ,303 1 Net revenue 6,034, ,264, ,806, ,275, Bad debt expenses, commitment and guarantee liability provision(note 6(AJ)) (211,015) (4) (535,657) (10) (567,623) (5) (856,714) (8) Operating expenses Employee benefits expenses(notes 6(AK) and 12) (2,085,326) (35) (1,923,504) (37) (4,129,428) (35) (3,821,055) (37) Depreciation and amortization expense(notes 6(AL) and 12) (118,956) (2) (101,212) (2) (235,509) (2) (200,796) (2) Other general and administrative expense(note 6(AM)) (991,351) (16) (970,718) (18) (2,127,395) (18) (1,913,936) (19) Total operating expenses (3,195,633) (53) (2,995,434) (57) (6,492,332) (55) (5,935,787) (58) Income from continuing operations before income tax 2,628, ,733, ,746, ,483, Income tax expenses (Note 6(Y)) (561,619) (9) (83,355) (2) (821,288) (7) (347,553) (3) Net income 2,066, ,650, ,925, ,135, Other comprehensive income: Items that will not to be reclassified into profit or loss Unrealized gain from investments in equity instruments measured at fair value through other comprehensive income 44, , Income tax related to items that will not to be reclassified into profit or loss , Total items that will not to be reclassified into profit or loss 44, , Items that are or may be reclassified subsequently to profit or loss Difference of foreign exchange in translating financial statements of foreign operating units 582, , ,247 3 (657,642) (6) Unrealized gains on available-for-sale financial assets-net , ,085, Unrealized gains from investments in debt instruments measured at fair value through other comprehensive income 106, , Income tax related to items that are or may be reclassified to profit or loss (114,604) (2) (4,589) - (38,632) - 105,133 1 Total items that are or may be reclassified subsequently to profit or loss 573, , , ,373 5 Other comprehensive income 618, , , ,373 5 Total comprehensive income $ 2,684, ,189, ,534, ,669, Earnings per share (in NT dollar)(note 6 (AA)) Basic earnings per share (in NT dollar) $ Diluted earnings per share (in NT dollar) $ (The accompanying notes are an integral part of the consolidated financial reports.) ~ 5~

7 (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) Reviewed only, not audited in accordance with generally accepted auditing standards. TAIWAN BUSINESS BANK, LTD. AND SUBSIDIARIES Consolidated Statements of Change in Equity For the six months ended June 30, 2018 and 2017 (Expressed In Thousands of New Taiwan Dollars) Equity attributed to the parent company Other item in equity Retained earnings Difference of foreign exchange in translating financial Unrealized gains from financial assets measured at fair value Unrealized gains Undistributed Undistributed statements of foreign operating through other comprehensive and losses on available for sale Common stock stock dividend Legal reserve Special reserve earnings Total units income financial assets Total Balance January 1, 2017 $ 59,688,949-7,088, ,128 4,936,973 12,210,873 (19,637) - (1,009,845) 70,870,340 Net Income for the six months ended June 30, ,135,786 3,135, ,135,786 Other comprehensive income (losses) for the six months ended June 30, (549,896) - 1,083, ,373 Total comprehensive income for the six months ended June 30, ,135,786 3,135,786 (549,896) - 1,083,269 3,669,159 Legal reserve appropriated - - 1,481,092 - (1,481,092) Special reserve appropriated ,055,460 (1,055,460) Common cash dividend (608,827) (608,827) (608,827) Common stock dividend - 1,790, (1,790,668) (1,790,668) Balance June 30, 2017 $ 59,688,949 1,790,668 8,569,864 1,240,588 3,136,712 12,947,164 (569,533) - 73,424 73,930,672 Balance January 1, 2018 $ 61,479,617-8,569,864 1,240,588 4,833,832 14,644,284 (835,340) - 529,112 75,817,673 Effects of retrospective application of new standards (98,187) (98,187) - 3,086,469 (529,112) 2,459,170 Balance at January 1, 2018 after adjustments 61,479,617-8,569,864 1,240,588 4,735,645 14,546,097 (835,340) 3,086,469-78,276,843 Net Income for the six months ended June 30, ,925,298 3,925, ,925,298 Other comprehensive income (losses) for the six months ended June 30, ,914 36, , , ,452 Total comprehensive income for the six months ended June 30, ,962,212 3,962, , ,548-4,534,750 Legal reserve appropriated - - 1,450,149 - (1,450,149) Reversaled of special reserve (724,033) 724, Common cash dividend (1,647,654) (1,647,654) (1,647,654) Common stock dividend - 2,459, (2,459,185) (2,459,185) Disposal of investments in equity instruments designated at fair value through other comprehensive income ,489 18,489 - (18,489) - - Balance June 30, 2018 $ 61,479,617 2,459,185 10,020, ,555 3,883,391 14,419,959 (523,350) 3,328,528-81,163,939 (The accompanying notes are an integral part of the consolidated financial reports.) ~ 6~

8 (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) Reviewed only, not audited in accordance with generally accepted auditing standards. TAIWAN BUSINESS BANK, LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the six months ended June 30, 2018 and 2017 (Expressed In Thousands of New Taiwan Dollars) For the six months ended June 30, Cash flows from operating activities: Net income before tax $ 4,746,586 3,483,339 Adjustments: Income and expenses items: Depreciation expenses 183, ,873 Amortization expenses 52,363 37,923 Provision of bad debt expenses 551, ,984 Net (gain) loss on financial assets and liabilities at fair value through profit or loss (21,898) 83,430 Interest expenses 5,384,498 4,509,815 Interest revenues (14,115,901) (12,065,778) Dividend revenues (98,590) (80,986) Net change of provision for guarantee liabilities ,730 Net change of other miscellaneous provision for liabilities 15,391 - Losses on disposal and retirement of premises and equipment Impairment loss on financial assets 11,895 - Other 415, ,121 Subtotal of income and expense items (7,621,121) (6,207,598) Change in Operating Assets and Liabilities: Net Changes in Operating Assets: Decrease (increase) in due from the Central Bank and call loans to banks 11,765,381 (9,012,151) Increase in financial assets at fair value through profit or loss (1,986,157) (61,489) Increase in securities purchased under resell agreements (10,316,466) (14,110,252) Increase in receivables (5,055,718) (343,042) Decrease (increase) in discounts and loans 21,466,813 (14,309,511) Increase in other financial assets (13,249) (44,003) Decrease in other assets 621, ,408 Net change in operating assets 16,482,482 (37,729,040) Net Change in Operating Liabilities: (Decrease) increase in deposits from the Central Bank and other banks (7,459,016) 13,085,869 Increase (decrease) in financial liabilities at fair value through profit or loss 28,062 (9,256) Increase (decrease) in securities sold under repurchase agreements 428,971 (1,649,169) Increase (decrease) in payables 4,453,659 (9,313,314) Increase in deposits and remittances 10,816,125 12,152,169 (Decrease) increase in other financial liabilities (1,333,728) 59,540 (Decrease) increase in provision for employee benefits (236,190) 7,500 Net Change in Operating Liabilities 6,697,883 14,333,339 Net Change in Operating Assets and Liabilities 23,180,365 (23,395,701) Sum of adjustments 15,559,244 (29,603,299) Cash provided by (used in) by operating activities 20,305,830 (26,119,960) Interest collected 13,883,518 12,412,074 Interest paid (4,923,898) (4,136,918) Income tax paid (884,808) (533,267) Net Cash Flow Provided by (Used in) Operating Activities 28,380,642 (18,378,071) Cash Flows from Investing Activities: Purchase of financial assets measured at fair value through other comprehensive income (7,725,007) - Purchase of investment in debt instruments at amortized cost (21,514,319) - Disposal of available-for-sale financial assets - 8,669,123 Purchase of hold-to-maturity financial assets - (7,138,000) Purchase of premises and equipment (137,428) (170,378) Disposal of premises and equipment Increase in guarantee deposits paid (264,452) (75,000) Purchase of intangible assets (37,615) (49,488) Net Cash Flows (Used in) Provided by Investing Activities (29,678,735) 1,236,268 Cash Flows from Financing Activities: Increase in due to the Central Bank and other banks 240,363 22,440 Issuance of financial debentures 1,000,000 5,300,000 Redemption of financial debentures - (1,050,000) Increase in guarantee deposits received 533,950 - Decrease in guarantee deposits received - (494) Decrease in lease payable (4,256) (4,013) Decrease in other liabilities (637,393) (378,343) Net Cash Provided by Financing Activities 1,132,664 3,889,590 Foreign exchange effect (11,406) (22,160) Net decrease in cash and cash equivalents (176,835) (13,274,373) Cash and cash equivalents, at the beginning of the period 51,292,359 49,564,948 Cash and cash equivalents, at the end of the period $ 51,115,524 36,290,575 (The accompanying notes are an integral part of the consolidated financial reports.) ~ 7~

9 (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) Reviewed only, not audited in accordance with the generally accepted auditing standards. TAIWAN BUSINESS BANK, LTD.AND SUBSIDIARIES Notes to the Consolidated Financial Statements June 30, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars, Except for Earning Per Share Information and Unless Otherwise Stated) 1. COMPANY HISTORY TAIWAN BUSINESS BANK, LTD. (the Bank ) was formerly a general savings union known as Taiwan Mutual Financing Bank or Tai-Shio Mutual Financing Bank when it was established in After several mergers and acquisitions, it was renamed as Taiwan Business Bank, Ltd. in order to finance and provide banking assistance to small and medium-size businesses on July 1, The Bank s major lines of business are the following: (A) (B) (C) (D) As prescribed by the Banking Law, provides professional services tailored to the needs of small and medium-size businesses; Trust and securities brokerage businesses as approved by the relevant authority; International banking business; and Other relevant businesses as authorized by the relevant authority in-charge. As of June 30, 2018, the Bank not only sets up the banking dept., international dept., securities dept. and trust dept. under head office but also has 124 domestic branches, 1 offshore banking unit, 8 overseas branches, 1 oversea representative office and 17 securities brokerage locations. The Bank became listed on the Taiwan Stock Exchange on January 3, Under the Statute for Privatization of State Enterprises and upon the approval of Taiwan Province Government, 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 run commercial banks, the Bank had completed its own privatization on January 22, APPROVAL DATE AND PROCEDURES OF THE CONSOLIDATED FINANCIAL STATEMENTS These consolidated financial statements were authorized for issuance by the board of directors on August 22, ~ 8~

10 3. NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS ADOPTED (a) The impact of the International Financial Reporting Standards ( IFRSs ) endorsed by the Financial Supervisory Commission, R.O.C. ( FSC ) which have already been adopted. The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, New, Revised or Amended Standards and Interpretations Amendment to IFRS 2 Clarifications of Classification and Measurement of Share-based Payment Transactions Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts Effective date per IASB January 1, 2018 January 1, 2018 IFRS 9 Financial Instruments January 1, 2018 IFRS 15 Revenue from Contracts with Customers January 1, 2018 Amendment to IAS 7 Statement of Cash Flows -Disclosure Initiative January 1, 2017 Amendment to IAS 12 Income Taxes- Recognition of Deferred Tax Assets for Unrealized Losses January 1, 2017 Amendments to IAS 40 Transfers of Investment Property January 1, 2018 Annual Improvements to IFRS Standards Cycle: Amendments to IFRS 12 January 1, 2017 Amendments to IFRS 1 and Amendments to IAS 28 January 1, 2018 IFRIC 22 Foreign Currency Transactions and Advance Consideration January 1, 2018 Except for the following items, the Taiwan Business Bank, Ltd. believes that the adoption of the above IFRSs would not have any material impact on its consolidated financial statements. The extent and impact of signification changes are as follows: (i) IFRS 9 Financial Instruments IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement which contains classification and measurement of financial instruments, impairment and hedge accounting. As a result of the adoption of IFRS 9, The Bank and its subsidiaries adopted the consequential amendments to IAS 1 Presentation of Financial Statements, which requires the impairment of debt investments at fair value through other comprehensive income and debt instruments measured at amortized cost to be recognized in impairment of assets, the impairment of loan commitment recognized in bad debt expenses and guarantee liability provisions. In addition, The Bank and its subsidiaries adopted the amendments to IFRS 7 Financial Instruments: Disclosures, disclosure the information in 2018, but generally it has not been applied to the comparative information. ~ 9~

11 The Bank and its subsidiaries apply to IFRS 9, resulting the significant accounting policies changes are as follows: 1) Classification of financial assets and financial liabilities IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. The standard eliminates the existing IAS 39 categories of held to maturity, available for sale financial assets, financial assets carried at cost and debt instrument with no active market. Under IFRS 9, derivatives embedded in contracts where the host is a financial assets in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. For an explanation of how the Bank and its subsidiaries classifies and measures financial assets and accounts for related gains and losses under IFRS 9, please refer to Note 4(F). The adoption of IFRS 9 didn't have any significant impact on the Bank and its subsidiaries' accounting policies on financial liabilities. 2) Impairment of financial assets IFRS 9 replaces the incurred loss model in IAS 39 with a forward-looking expected credit loss (ECL) model. The new impairment model will apply to financial assets measured at amortized cost or FVOCI, except for investments in equity instruments, lease receivables, contract assets and the financial guarantee contracts. Under IFRS 9, the credit loss are recognized earlier than they are under IAS 39. Please refer to Note 4 (F). 3) Transition The adoption of IFRS 9 has been applied retrospectively, except as described below:.differences in the carrying amounts of financial assets resulting from the adoption of IFRS 9 are recognized in retained earnings and reserves as on 1 January Accordingly, the information presented for 2017 does not generally reflect the requirements on IFRS 9 and therefore is not comparable to the information presented for 2018 under IFRS 9..The following assessments have been made on the basis of the facts and circumstances that exist at the date of initial application. - The determination of the business model within which a financial asset is held. - The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL. - The designation of certain investments in equity instruments not held for trading as at FVOCI. ~ 10~

12 .If the debt securities had low credit risk at the date of initial application of IFRS 9, The Bank and its subsidiaries may assum that the credit risk on its assets has not increased significantly since its initial recognition. 4) Classification of financial assets on the date of initial application of IFRS 9 The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Bank and its subsidiaries' financial assets as of January 1, Financial Assets IAS 39 IFRS 9 Measurement categories Carrying Amount Measurement categories Carrying Amount Cash and cash equivalents Due from the Central Bank and call loans to banks Amortized costs 51,292,359 Amortized costs 51,292,359 Amortized costs 101,342,356 Amortized costs 101,342,356 Financial assets at fair value through profit or loss Fair value through profit or loss 1,061,789 Fair value through profit or loss 1,061,789 Securities purchased under resell agreements Amortized costs 3,998,104 Amortized costs 3,998,104 Receivables net Amortized costs (Loans and Receivables) 23,951,301 Amortized costs (Loans and Receivables) 23,947,845 Discounts and loans net Amortized costs (Loans and Receivables) 1,111,559,969 Amortized costs (Loans and Receivables) 1,111,614,910 Available-for-sale financial assetsnet Fair value through other comprehensive income (Debt instrument) 63,608,278 Fair value through other comprehensive income (Note 1) 58,426,093 Amortized costs (Note 2) 5,251,768 Fair value through other comprehensive income (Equity instruments) 2,625,558 Fair value through other comprehensive income (Note 3) 2,625,558 Held-to-maturity financial assetsnet Amortized costs 202,967,083 Fair value through other comprehensive income (Note 4) 3,158,835 Amortized costs (Note 5) 199,816,594 Other financial assets -net Amortized costs (Measured at cost) 2,035,121 Fair value through other comprehensive income (Note 6) 4,416,710 Other assets-net Amortized costs (Guarantee deposits paid ) ~ 11~ 321,496 Amortized costs 321,496

13 Note1: The corporate debt securities categorized as available-for-sale under IAS 39 are held by The Bank and its subsidiaries s treasury unit in a separate portfolio to provide interest income; however they may be sold to meet liquidity requirements arising in the normal course of business. The Bank and its subsidiaries considers that these securities are held within a business model whose objective is achieved both by collecting contractual cash flows and by selling securities. The corporate debt securities and the contractual terms of these financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. These assets have therefore been classified as financial assets at FVOCI under IFRS 9. An allowance for impairment of $24,495 (effects of tax for $213) was recognized in opening retained earnings and other equity on transition to IFRS 9 on January 1, Note2: The investment in debt instruments that were previously classified to availablefor-sale under IAS 39. The Bank and its subsidiaries evaluated that in the past these securities were held within a business model whose objective is achieved by collecting the contractual cash flows, and they will be possessed in the same purpose. Therefore, The Bank and its subsidiaries has classified the assets to debt investments measured at amortized costs. An increase of $1,559 in allowance for impairment and a decrease of $71,142 in valuation losses were recognized in retained earnings and other equity on January 1, 2018 respectively upon transition to IFRS 9. Note3: These equity securities represent investments that The Bank and its subsidiaries intends to hold for the long term for strategic purposes. As permitted by IFRS 9, The Bank and its subsidiaries has designated these investments at the date of initial application as measured at FVOCI. Note4: The investment in debt instruments that were previously classified as held-tomaturity are now classified as financial assets measured at fair value through other comprehensive income under IFRS 9. The Bank and its subsidiaries assesses that these securities are held within a business model whose objective is achieved by both collecting the contractual cash flows and by selling securities, and for which the contractual cash flows are fully be paid for the principal and interests incurred. An increase of $909 in allowance for impairment and $80,344 in valuation gains were recognized under retained earnings and other equity on January 1, 2018 respectively upon transition to IFRS 9. Note5: The investment in debt instruments that were previously classified as held-tomaturity are now classified at amortized cost. The Bank and its subsidiaries assesses that these securities are held within a business model whose objective is achieved by collecting the contractual cash flows, and for which the contractual cash flows are fully be paid for the principal and interests incurred. An increase of $71,089 (effects of income tax for $144) in the allowance for impairment was recognized in opening retained earnings on January 1, 2018 upon transition to IFRS 9. ~ 12~

14 Note6: These equity securities represent investment that The Bank and its subsidiaries intends to hold for the long term for strategic purposes. As permitted by IFRS 9, The Bank and its subsidiaries has designated these investments at the date of initial application as measured at FVOCI. An increase of $2,381,589 in the valuation gains was recognized in other equity on January 1, 2018 upon transition to IFRS 9. Note7: The allowance for bad debts of the financial assets were assessed in incurred loss model under IAS 39. It will be replaced with expected credit loss model under IFRS 9. Therefore, an increase of $494 (effects of income tax for $2) in the allowance for impairment was recognized in retained earnings on January 1, 2018 upon transition to IFRS 9. ~ 13~

15 TAIWAN BUSINESS BANK, LTD.AND ITS SUBSIDIARIES Financial assets under IAS 39 have transferred to IFRS 9, the following table reconciles the carrying amounts of financial assets on January 1, 2018 Measured at fair value through profit or loss December 31, 2017 IAS39 Carrying amount Reclassifications Remeasurement January 1, 2018 IFRS 9 Carrying amount January 1, 2018 Retained earnings impacts From measured at fair value through profit or loss (IAS39) $ 1,061, ,061, Measured at fair value through other comprehensive income Additions-debt instruments: January 1, 2018 Other equity impacts From available for sale (IAS39) 63,608, (24,495) 24,495 From amortized cost (IAS39) - 3,079,400 79,435 (909) 80,344 Additions-equity instruments: From available for sale (IAS39) 2,625, From measured at cost (IAS39) - 2,035,121 2,381,589-2,381,589 Deduction-debt and equity instruments: From available for sale (IAS39) to amortized cost (IFRS9) - (5,253,327) 71,142-71,142 Total changes of fair value through other comprehensive income assets 66,233,836 (138,806) 2,532,166 68,627,196 (25,404) 2,557,570 Amortized cost Additions: From held-to-maturity (IAS 39) 202,967,083 - (71,089) (71,089) - From other financial assets-measured at cost (IAS 39) 2,035, From available for sale (IAS 39) - 5,253,327 (1,559) (1,559) - Deduction: To measured at fair value through other comprehensive income (IFRS9) - (5,114,521) Total changes of amortized cost assets 205,002, ,806 (72,648) 205,068,362 (72,648) - The balance of financial assets, the total balance of reclassification and remeasurement on January 1, 2018 $ 272,297,829-2,459, ,757,347 (98,052) 2,557,570 Note ~ 14~

16 For financial assets that have been reclassified to the investment in debt instruments that measured at amortized cost, the following table shows their fair value as of June 30, 2018 and the fair value gain or loss that would have been recognized if these financial assets had not been reclassified as part of the transition to IFRS 9. Reclassify available-for-sale financial assets as investment in debt instruments at amortized cost For the six months ended June 30, 2018 Fair value as of June 30, ,192,485 Other comprehensive income that should have been recognized if the financial assets had not been reclassified 11,622 The following table reconciles the allowance for impairments based on "incurred loss model" under IAS 39 to the allowance for impairment based on "expected loss model" (ECL) under IFRS 9 on 1 January, Loans and receivables (IAS39) / Financial assets measured at amortized cost (IFRS9) The balance of allowance of impairment loss under IAS39 and the amount of provision under IAS37 Reclassifications Remeasurements The balance of allowance of impairment loss under IFRS9 Due from Central Bank and call loans to banks $ 3, ,562 Receivables 95,043 - (27,619) 67,424 Discounts and loans 5,892,515 - (259,138) 5,633,377 Other financial assets-non-accrual loans transferred from non-loan financial assets 47,133-8,535 55,668 Other financial assets-exchange bills negotiated 1 - (1) - Additional provision of impairment loss in accordance with "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/Non-accrual Loans" 6,315, ,452 6,546,944 Subtotal 12,353,746 - (46,771) 12,306,975 ~ 15~

17 Available-for-sale financial assets (IAS39) /Financial assets measured at fair value through other comprehensive income (IFRS9) The balance of allowance of impairment loss under IAS39 and the amount of provision under IAS37 Reclassifications Remeasurements The balance of allowance of impairment loss under IFRS9 Available-for-sale financial assets $ ,495 24,495 Available-for-sale financial assets (IAS39) / Financial assets measured at amortized cost (IFRS9) Available-for-sale financial assets - - 1,559 1,559 Held-to-maturity (IAS39)/ Financial assets measured at fair value through other comprehensive income (IFRS9) Held-to-maturity financial assets Held-to-maturity (IAS39)/ Financial assets measured at amortized cost (IFRS9) Held-to-maturity financial assets ,089 71,089 Financing commitment and guarantee reserve Loans (Financing commitment) ,029 45,029 Credit cards (Financing commitment) - - 2,236 2,236 Guarantee receivables / Letter of credit receivables ,820 70,820 Additional provision of impairment loss in accordance with"regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/ Non-accrual Loans" 156,523 - (70,820) 85,703 Subtotal 156,523-47, ,788 Total $ 12,510,269-98,546 12,608,815 (b) The impact of IFRS endorsed by FSC but not yet effective The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2019 in accordance with Ruling No issued by the FSC on July 17, 2018: Effective date New, Revised or Amended Standards and Interpretations per IASB IFRS 16 Leases January 1, 2019 IFRIC 23 Uncertainty over Income Tax Treatments January 1, 2019 Amendments to IFRS 9 Prepayment features with negative compensation January 1, 2019 Amendments to IAS 19 Plan Amendment, Curtailment or Settlement January 1, 2019 Amendments to IAS 28 Long-term interests in associates and joint ventures January 1, 2019 Annual Improvements to IFRS Standards Cycle January 1, 2019 Except for the following items, the The Bank and its subsidiaries believes that the adoption of the above IFRSs would not have any material impact on its consolidated financial statements. The extent and impact of signification changes are as follows: ~ 16~

18 (i) IFRS 16 Leases IFRS 16 replaces the existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 introduces a single and an on-balance sheet lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. In addition, the nature of expenses related to those leases will now be changed since IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities. There are recognition exemptions for short-term leases and leases of lowvalue items. The lessor accounting remains similar to the current standard i.e. the lessors will continue to classify leases as finance or operating leases. The Bank and its subsidiaries has completed an initial assessment of the potential impact on its consolidated financial statements, wherein the detailed assessment has yet to be completed. The actual impact of applying IFRS 16 on its financial statements in the period of initial application will depend on future economic conditions, including The Bank and its subsidiaries s discounting rate, the composition of The Bank and its subsidiaries s lease portfolio at that date, The Bank and its subsidiaries s latest assessment of whether it will exercise any lease renewal options, and the extent to which The Bank and its subsidiaries chooses to use practical expedients and recognition exemptions. So far, the most significant impact identified is that The Bank and its subsidiaries will have to recognize the new assets and liabilities for its operating leases of offices. No significant impact is expected for The Bank and its subsidiaries s finance leases. 1) Determining whether an arrangement contains a lease On transition to IFRS 16, The Bank and its subsidiaries can choose to apply either of the following: IFRS 16 definition of a lease to all its contracts; or a practical expedient that does not need any reassessment whether a contract is, or contains, a lease. The Bank and its subsidiaries plans to apply the practical expedient to grandfather the definition of a lease upon transition. This means that it will apply IFRS 16 to all contracts entered into before January 1, 2019 and identified as leases in accordance with IAS 17 and IFRIC 4. 2) Transition As a lessee, The Bank and its subsidiaries can apply the standard using either of the following: retrospective approach; or modified retrospective approach with optional practical expedients. ~ 17~

19 The lessee applies the election consistently to all of its leases. On January 1, 2019, The Bank and its subsidiaries plans to initially apply IFRS 16 using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognized as an adjustment to the opening balance of retained earnings at January 1, 2019, with no restatement of comparative information. When applying the modified retrospective approach to leases previously classified as operating leases under IAS 17, the lessee can elect, on a lease-by-lease basis, whether to apply a number of practical expedients on transition. The Bank and its subsidiaries is assessing the potential impact of using these practical expedients. (ii) IFRIC 23 Uncertainty over Income Tax Treatments In assessing whether and how an uncertain tax treatment affects the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits, as well as tax rates, an entity shall assume that a taxation authority will examine the amounts it has the right to examine and have a full knowledge on all related information when making those examinations. If an entity concludes that it is probable that the taxation authority will accept an uncertain tax treatment, the entity shall determine the taxable profit (tax loss), tax bases, unused tax losses, unused tax credits, as well as tax rates consistently with the tax treatment used or planned to be used in its income tax filings. Otherwise, an entity shall reflect the effect of uncertainty for each uncertain tax treatment by using either the most likely amount or the expected value, depending on which method the entity expects to better predict the resolution of the uncertainty. So far, the most significant impact identified is that The Bank and its subsidiaries will have to recognize the new income tax liabilities and income tax expense for its uncertainty over income tax treatments. (c) The impact of IFRS issued by IASB but not yet endorsed by the FSC As of the date, the following IFRSs that have been issued by the IASB, but have yet to be endorsed by the FSC: New, Revised or Amended Standards and Interpretations Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets Between an Investor and Its Associate or Joint Venture Effective date per IASB Effective date to be determined by IASB IFRS 17 Insurance Contracts January 1, 2021 The Bank and its subsidiaries assessed that the above IFRSs may not be relevant. ~ 18~

20 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) Statement of compliance These consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks (hereinafter referred to as the Regulation) and the preparation and guidelines of IAS 34 Interim Financial Reporting which are endorsed by FSC and do not include all of the information required by the Regulations and International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations and SIC Interpretations endorsed by the FSC (hereinafter referred to IFRS endorsed by the FSC) for full annual consolidated financial statements. (B) Basis of preparation (a) Basis of measurement The consolidated financial statements have been prepared on a historical cost basis except for the following material items in the statement of financial position: (1) Financial instruments measured at fair value through profit or loss are measured at fair value (including derivative instruments); (2) Financial instrument measured at fair value through other comprehensive income; (3) Available-for-sale financial assets are measured at fair value (applicable before the year ended December 31, 2017 ) ; and (4) The net defined benefit liability (asset) is recognized as fair value of plan assets, less present value of defined benefit obligation and the effect of the asset ceiling in Note 4(M). (b) Consolidation of financial statement The consolidation financial statements include the headquarter and all the domestic branches, foreign branches and its subsidiaries. The internal transactions within the headquarter, the domestic branches and the foreign branches are offset when preparing the consolidated financial statement. ~ 19~

21 (c) Functional and presentation currency The functional currency of each entities is determined based on the primary economic environment in which the entities operate. The consolidated financial statements are presented in New Taiwan Dollar, which is the Bank s functional currency. All financial information presented in New Taiwan Dollar has been rounded to the nearest thousand. (C) Basis of consolidation (a) Subsidiary A subsidiary is an enterprise controlled by the Bank. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Gains or 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 deficit balance. (b) Elimination of inter-group transaction Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. The unrealized profits arising from the transactions with the investments under the equity method are eliminated to the extent of the percentage of shares possessed by the group over the investee. The unrealized losses are eliminated in the same way as the unrealized profit, but only under the circumstances that there are no evidences of impairment. List of subsidiaries in the consolidated financial statements Taiwan Business Bank Insurance Agency Co., Ltd. Taiwan Business Bank Property Insurance Agency Co., Ltd. Taiwan Business Bank International Leasing Co., Ltd. Taiwan Business Bank International Financing Leasing Co., Ltd. TBB (Cambodia) Microfinance Institution Plc Established location Taiwan Taiwan Taiwan China Cambodia Main business scope Agent of personal insurance Agent of property insurance Leasing business Leasing business Financial company Shareholding (Holding %) June 30, December 31, June 30, ~ 20~

22 (D) Foreign currency (a) Foreign currency transaction Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies on the reporting date are retranslated to the functional currency at the exchange rate of Bank of Taiwan at 10 AM. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the year adjusted for the effective interest and payments during the year, and the amortized cost in foreign currency translated at the exchange rate at the end of the year. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of translation. Foreign currency differences arising on retranslation are recognized in profit or loss, except for the equity instruments measured at fair value through other comprehensive income (Be identified as available-for-sale before the year ended December 31, 2017) which are recognized in other comprehensive income arising on the retranslation. (b) Foreign operations The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to the Bank and its subsidiaries' functional currency(not the currency under highly inflation economy) by the following procedures: (1) Assets and liabilities are translated at the date of the statement of financial position; (2) Profit and loss are translated at the average rate (unless the exchange rate of the period fluctuates intensively, then it applies the exchange 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 foreign currency translation reserve in equity. The exchange difference from translating net investments in foreign operations is recognized in other comprehensive income. When a foreign operation is wholly or partially disposed, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. ~ 21~