Hua Nan Financial Holdings Co., Ltd. and Subsidiaries

Transcription

1 Hua Nan Financial Holdings Co., Ltd. and Subsidiaries Consolidated Financial Statements for the Nine Months Ended 2016 and and Independent Auditors Review Report

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3 HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands of New Taiwan Dollars) 2016 (Reviewed) December 31, (Audited) (Reviewed) ASSETS Amount % Amount % Amount % CASH AND CASH EQUIVALENTS (Notes 4, 6 and 43) $ 46,440,997 2 $ 39,189,783 2 $ 58,789,648 3 DUE FROM THE CENTRAL BANK AND OTHER BANKS (Notes 6, 7 and 43) 191,584, ,536, ,995,259 8 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4, 8 and 43) 71,093, ,497, ,923,826 3 AVAILABLE-FOR-SALE FINANCIAL ASSETS, NET (Notes 4, 12, 43 and 45) 108,229, ,537, ,574,510 4 DERIVATIVE FINANCIAL ASSETS FOR HEDGING (Note 4) 336-1, SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL (Notes 4, 6 and 9) 5,554, , ,990 - RECEIVABLES, NET (Notes 4, 5, 10 and 43) 54,650, ,978, ,488,979 2 CURRENT TAX ASSETS 863, , ,389 - DISCOUNTS AND LOANS, NET (Notes 4, 5, 11 and 43) 1,522,922, ,479,452, ,470,525, REINSURANCE CONTRACTS ASSETS, NET 4,353,563-3,239,368-3,472,264 - HELD-TO-MATURITY FINANCIAL ASSETS, NET (Notes 4, 5, 13 and 45) 399,302, ,363, ,963, INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD, NET (Notes 4 and 14) 60,659-63,224-67,155 - OTHER FINANCIAL ASSETS, NET (Notes 4, 15 and 45) 77,262, ,583, ,577,715 3 PROPERTY AND EQUIPMENT, NET (Notes 4, 16, 44 and 45) 32,291, ,481, ,064,906 1 INVESTMENT PROPERTIES, NET (Notes 4, 17, 44 and 45) 9,589, ,591,967-8,965,660 - INTANGIBLE ASSETS, NET (Notes 4, 18 and 44) 459, , ,233 - DEFERRED TAX ASSETS (Notes 4, 5 and 41) 2,116,795-2,270,567-2,236,831 - OTHER ASSETS, NET (Notes 4, 19, 43, 44 and 45) 2,722,827-2,668,769-4,217,264 - TOTAL $ 2,529,500, $ 2,350,288, $ 2,342,581, LIABILITIES AND EQUITY DEPOSITS FROM THE CENTRAL BANK AND BANKS (Notes 20 and 43) $ 124,156,629 5 $ 85,215,804 4 $ 85,096,978 4 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4, 8 and 43) 17,916, ,565, ,540,648 1 DERIVATIVE FINANCIAL LIABILITIES FOR HEDGING (Note 4) 20,140-35,281-48,173 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Notes 4, 8, 12, 13, 15, 22 and 43) 31,774, ,460, ,346,008 2 COMMERCIAL PAPER PAYABLE, NET (Notes 21 and 45) 16,068, ,541,697-12,159,158 1 PAYABLES (Notes 23 and 44) 58,266, ,454, ,021,879 3 CURRENT TAX LIABILITIES 1,218,253-1,968,250-1,680,714 - DEPOSITS AND REMITTANCES (Notes 24 and 43) 2,030,583, ,917,853, ,862,460, BONDS PAYABLE (Note 25) 52,346, ,845, ,844,581 2 OTHER BORROWINGS (Notes 26 and 45) 1,190, ,000-1,286,000 - PROVISIONS (Notes 4, 5, 27, 28 and 44) 17,831, ,808, ,613,695 1 OTHER FINANCIAL LIABILITIES (Notes 29 and 43) 10,573, ,310, ,390,118 1 DEFERRED TAX LIABILITIES (Notes 4 and 41) 6,120,533-6,125,912-6,131,115 - OTHER LIABILITIES (Notes 4 and 30) 4,295,653-5,059,187-5,319,784 - Total liabilities 2,372,361, ,197,219, ,192,939, EQUITY ATTRIBUTABLE TO OWNER OF THE PARENT (Notes 4 and 31) Share capital Ordinary shares 105,204, ,063, ,063,042 4 Capital surplus 17,758, ,758, ,758,986 1 Retained earnings Legal reserve 12,249,821-10,841, ,841,763 - Special reserve 6,492,093-6,492,093-6,492,093 - Unappropriated earnings 14,523, ,798, ,747,140 1 Total retained earnings 33,264, ,132, ,080,996 1 Other equity Exchange differences on translating foreign operations 600,500-2,156,632-2,234,347 - Unrealized gains (losses) on available-for-sale financial assets 218,535 - (1,149,878) - (1,616,977) - Changes in the fair value attributable to changes in the credit risk of financial liabilities designated as at fair value through profit or loss 89, , ,751 - Total other equity 908,188-1,112, ,121 - Total equity attributable to owner of the parent 157,137, ,067, ,641,145 6 NON-CONTROLLING INTERESTS 1,529-1,528-1,516 - Total equity 157,138, ,069, ,642,661 6 TOTAL $ 2,529,500, $ 2,350,288, $ 2,342,581, The accompanying notes are an integral part of the consolidated financial statements

4 HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Earnings Per Share) (Reviewed, Not Audited) For the Three Months Ended September 30 For the Nine Months Ended September Amount % Amount % Amount % Amount % INTEREST REVENUE (Notes 4, 32 and 43) $ 9,973, $ 9,887, $ 29,618, $ 30,042, INTEREST EXPENSE (Notes 4, 32 and 43) (3,147,258) (29) (3,359,081) (33) (9,581,052) (30) (10,198,321) (34) NET INTEREST 6,826, ,528, ,037, ,843, NET REVENUES OTHER THAN INTEREST Commission and fee revenues, net (Notes 4, 33 and 43) 2,105, ,691, ,839, ,328, Income from insurance premiums, net (Notes 4 and 34) 570, , ,172, ,096,722 7 (Loss) gain on financial assets and liabilities at fair value through profit or loss (Notes 4, 8, 35 and 43) (2,130,999) (19) 4,774, (2,087,977) (7) 3,389, Gain on investment properties, net (Note 17) 89, , , ,502 - Realized gain on available-for-sale financial assets (Notes 4, 36 and 43) 902, , ,305, ,799 2 Foreign exchange gain (loss), net (Notes 4 and 37) 2,286, (4,268,276) (43) 3,026, (2,185,368) (7) Impairment loss on assets (Notes 4, 15,17 and 19) - - (11,848) - (195) - (9,643) - Share of gain (loss) of associate (Notes 4 and 14) (554) - (2,565) - (3,486) - Other noninterest net revenues (Note 4) 329, , ,195, ,342 3 Total net revenues other than interest 4,153, ,517, ,751, ,232, TOTAL NET REVENUES 10,979, ,045, ,789, ,076, ALLOWANCE FOR DOUBTFUL ACCOUNTS AND GUARANTEES (Notes 4, 10 and 11) (2,356,870) (21) (1,052,899) (10) (2,714,091) (9) (940,725) (3) CHANGE IN PROVISIONS FOR INSURANCE LIABILITIES, NET (Notes 4 and 27) 31,862 - (53,004) (1) (422,751) (1) (512,464) (2) OPERATING EXPENSES (Notes 28, 38, 39, 40 and 43) Employee benefits (3,389,898) (31) (3,313,612) (33) (10,522,451) (33) (10,121,990) (34) Depreciation and amortization (267,454) (2) (237,613) (2) (785,982) (3) (671,555) (2) Others (1,927,017) (18) (1,802,472) (18) (5,454,707) (17) (5,337,929) (18) Total operating expenses (5,584,369) (51) (5,353,697) (53) (16,763,140) (53) (16,131,474) (54) (Continued) - 3 -

5 HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Earnings Per Share) (Reviewed, Not Audited) For the Three Months Ended September 30 For the Nine Months Ended September Amount % Amount % Amount % Amount % NET PROFIT BEFORE INCOME TAX $ 3,070, $ 3,586, $ 11,889, $ 12,491, INCOME TAX EXPENSE (Notes 4 and 41) (245,547) (2) (580,792) (6) (1,374,418) (4) (1,901,451) (6) NET PROFIT FOR THE PERIOD 2,825, ,005, ,515, ,590, OTHER COMPREHENSIVE (LOSS) INCOME (Notes 4, 8, 31 and 41) Items that will not be reclassified subsequently to profit or loss: Changes in the fair value attributable to changes in the credit risk of financial liabilities designated as at fair value through profit or loss (15,470) - (14,096) - (17,073) - (102,069) - Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations (978,030) (9) 1,742, (1,556,132) (5) 1,370,388 4 Unrealized (loss) gain on available-for-sale financial assets (142,823) (2) (999,618) (10) 1,379,859 4 (374,057) (1) Income tax relating to items that may be reclassified subsequently to profit or loss (839) - (822) - (11,446) - 1,366 - Other comprehensive (loss) income for the period (1,137,162) (11) 728,408 7 (204,792) (1) 895,628 3 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD $ 1,687, $ 3,733, $ 10,310, $ 11,486, NET PROFIT ATTRIBUTABLE TO: Owner of the parent $ 2,824, $ 3,005, $ 10,515, $ 10,590, Non-controlling interests $ 2,825, $ 3,005, $ 10,515, $ 10,590, COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owner of the parent $ 1,687, $ 3,733, $ 10,310, $ 11,485, Non-controlling interests $ 1,687, $ 3,733, $ 10,310, $ 11,486, (Continued) - 4 -

6 HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Earnings Per Share) (Reviewed, Not Audited) For the Three Months Ended September 30 For the Nine Months Ended September Amount % Amount % Amount % Amount % EARNINGS PER SHARE (Note 42) Basic and diluted $ 0.27 $ 0.29 $ 1.00 $ 1.01 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) - 5 -

7 HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited) Other Equity Changes in the Fair Value Attributable to Changes in the Credit Risk of Financial Exchange Liabilities Differences on Unrealized Designated as at Retained Earnings Translating (Loss) Gain on Fair Value Capital Surplus Unappropriated Foreign Available-for-sale Through Non-controlling Capital Stock Share Premium Treasury Stock Donated Assets Others Total Legal Reserve Special Reserve Earnings Total Operations Financial Assets Profit or Loss Interests Total Equity BALANCE AT JANUARY 1, $ 93,279,700 $ 17,702,376 $ 52,349 $ 2,936 $ 1,325 $ 17,758,986 $ 9,528,669 $ 6,492,093 $ 17,259,423 $ 33,280,185 $ 863,959 $ (1,244,286 ) $ - $ 1,503 $ 143,940,047 Effect of retrospective application (222,820 ) (222,820 ) , BALANCE AT JANUARY 1, AS APPLIED 93,279,700 17,702,376 52,349 2,936 1,325 17,758,986 9,528,669 6,492,093 17,036,603 33,057, ,959 (1,244,286 ) 222,820 1, ,940,047 Appropriation of 2014 earnings Legal reserve ,313,094 - (1,313,094) Cash dividends (5,783,342) (5,783,342) (53) (5,783,395) Stock dividends 5,783, (5,783,342) (5,783,342) Net profit for the nine months ended ,590,315 10,590, ,590,381 Other comprehensive (loss) income for the nine months ended ,370,388 (372,691) (102,069) - 895,628 Total comprehensive (loss) income for the nine months ended ,590,315 10,590,315 1,370,388 (372,691) (102,069) 66 11,486,009 BALANCE AT SEPTEMBER 30, $ 99,063,042 $ 17,702,376 $ 52,349 $ 2,936 $ 1,325 $ 17,758,986 $ 10,841,763 $ 6,492,093 $ 14,747,140 $ 32,080,996 $ 2,234,347 $ (1,616,977 ) $ 120,751 $ 1,516 $ 149,642,661 BALANCE AT JANUARY 1, 2016 $ 99,063,042 $ 17,702,376 $ 52,349 $ 2,936 $ 1,325 $ 17,758,986 $ 10,841,763 $ 6,492,093 $ 17,798,935 $ 35,132,791 $ 2,156,632 $ (1,149,878 ) $ 106,226 $ 1,528 $ 153,069,327 Appropriation of earnings Legal reserve ,408,058 - (1,408,058) Cash dividends (6,240,972) (6,240,972) (54) (6,241,026) Stock dividends 6,141, (6,141,909) (6,141,909) Net profit for the nine months ended ,515,012 10,515, ,515,067 Other comprehensive (loss) income for the nine months ended (1,556,132) 1,368,413 (17,073) - (204,792) Total comprehensive (loss) income for the nine months ended ,515,012 10,515,012 (1,556,132) 1,368,413 (17,073) 55 10,310,275 BALANCE AT SEPTEMBER 30, 2016 $ 105,204,951 $ 17,702,376 $ 52,349 $ 2,936 $ 1,325 $ 17,758,986 $ 12,249,821 $ 6,492,093 $ 14,523,008 $ 33,264,922 $ 600,500 $ 218,535 $ 89,153 $ 1,529 $ 157,138,576 The accompanying notes are an integral part of the consolidated financial statements

8 HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited) For the Nine Months Ended September CASH FLOWS FROM OPERATING ACTIVITIES Net profit before income tax $ 11,889,485 $ 12,491,832 Adjustments for: Depreciation expenses 668, ,636 Amortization expenses 119, ,722 Allowance for doubtful accounts and guarantees 2,714, ,725 Interest expense 11,071,797 11,615,707 Interest revenue (30,357,759) (30,953,921) Dividend income (881,193) (653,935) Change in provisions for insurance liabilities, net 422, ,464 Share of loss of associate 2,565 3,486 (Gain) loss on disposal of property and equipment (595) 489 Gain on disposal of investment properties (90,301) (29,236) Gain on disposal of other assets - (8,824) Impairment loss on financial assets 1,105 11,842 Reversal of impairment loss on financial assets - (48) Reversal of impairment loss on non-financial assets (910) (2,151) Gain on disposal of collaterals assumed (2,482) - Changes in operating assets and liabilities Decrease (increase) in due from the Central Bank and other banks 2,321,367 (20,615,323) Increase in financial assets at fair value through profit or loss (7,596,290) (14,361,803) (Increase) decrease in available-for-sale financial assets (12,220,621) 4,436,240 Decrease in derivative financial assets for hedging 1,343 4,119 (Increase) decrease in receivables (19,860,940) 5,641,480 (Increase) decrease in discounts and loans (45,783,608) 6,686,599 Increase in assets under reinsurance contracts (228,507) (21,585) Increase in held-to-maturity financial assets (129,945,608) (42,706,035) (Increase) decrease in other financial assets (18,291,550) 4,151,277 Increase (decrease) in deposits from the Central Bank and banks 38,940,825 (15,338,774) Decrease in financial liabilities at fair value through profit or loss (665,746) (1,496,119) (Decrease) increase in derivative financial liabilities for hedging (15,141) 6,205 Increase in securities sold under agreements to repurchase 4,314,022 2,697,688 Increase in payables 28,192,519 45,003,822 Increase in deposits and remittances 112,729,579 33,942,475 Decrease in provisions (1,880,189) (360,262) (Decrease) increase in other financial liabilities (13,737,620) 2,594,811 (Decrease) increase in other liabilities (842,994) 2,547,640 Cash (used in) generated from operations (69,012,322) 7,415,243 Interest received 30,067,911 31,702,380 Dividend received 868, ,478 (Continued) - 7 -

9 HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited) For the Nine Months Ended September Interest paid $ (9,975,399) $ (11,209,579) Income tax paid (2,378,865) (2,149,238) Net cash (used in) provided by operating activities (50,430,338) 26,403,284 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment (590,592) (764,555) Proceeds from disposal of property and equipment 1,122 1,839 Acquisition of intangible assets (52,312) (40,235) Proceeds from disposal of collaterals assumed 13,303 - Acquisition of collaterals assumed (508) (3,354) Acquisition of investment properties (17,359) (10,828) Proceeds from disposal of investments properties 395, ,170 (Increase) decrease in other assets (188,330) 631,562 Net cash used in investing activities (439,061) (42,401) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in short-term borrowings 215,000 (271,000) Increase in commercial paper payables 3,524,476 5,107,433 Bank debentures issued 3,500,000 3,200,000 Repayment of bank debentures on maturity - (1,700,000) Cash dividends (6,222,531) (5,766,412) Net cash provided by financing activities 1,016, ,021 EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES (1,451,099) 1,339,809 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (51,303,553) 28,270,713 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 207,524, ,662,345 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 156,220,582 $ 158,933,058 (Continued) - 8 -

10 HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited) Reconciliation of the amounts in the consolidated statements of cash flows with the equivalent items reported in the consolidated balance sheets as of 2016 and : September Cash and cash equivalents in consolidated balance sheets $ 46,440,997 $ 58,789,648 Due from the Central Bank and other banks that meet the definition of cash and cash equivalents in IAS 7 104,225,326 99,604,420 Securities purchased under agreements to resell that meet the definition of cash and cash equivalents in IAS 7 5,554, ,990 Cash and cash equivalents in consolidated statements of cash flows $ 156,220,582 $ 158,933,058 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) - 9 -

11 HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) (Reviewed, Not Audited) 1. ORGANIZATION Hua Nan Financial Holdings Co., Ltd. (HNFH or the Company) was established by Hua Nan Commercial Bank Ltd. (HNCB) and EnTrust Securities Co., Ltd. ( EnTrust ) through a share swap on December 19, HNCB and EnTrust exchanged stocks with HNFH at ratios of 1:1 and :1, respectively, with 1 representing HNFH s share. Thus, HNCB and EnTrust became HNFH s wholly owned subsidiaries. The shares of HNCB and EnTrust then ceased to be traded on the Taiwan Stock Exchange (TSE) and the over-the-counter exchange (OTC exchange), respectively, and HNFH became listed on the TSE. EnTrust was renamed Hua Nan Securities Co., Ltd. (HNSC) in June In December 2002, HNFH acquired 57.49% equity interest (230,000,000 shares) in Central Bills Finance Corporation (CBF) for $2,300,000, which was approved by the Ministry of Finance (MOF) and related authorities. Since HNCB, a wholly owned subsidiary of HNFH, also holds 42.41% shares of CBF, HNFH and HNCB therefore holds a total of 99.90% of CBF s shares. CBF was renamed Hua Nan Bills Finance Corporation (HNBF) in July On August 15, 2003, South China Insurance Co., Ltd. (SCIC) and Hua Nan Investment Trust Corporation (HNIT) became wholly owned subsidiaries of HNFH through a share swap at ratio of :1 and :1 (with 1 representing HNFH s share), respectively. HNIT was formerly the EnTrust Investment Trust Corporation before July HNFH manages and invests in financial institutions. Hua Nan Commercial Bank, Ltd. ( HNCB ) was established on March 1, 1947 through the restructuring of the Hua Nan Bank, which was founded in HNCB engages in (a) all commercial banking operations allowed by the Banking Act; (b) offshore banking business; (c) overseas branch operations authorized by the respective foreign governments; and (d) other operations as authorized by the central competent authorities. HNCB maintains its head office in Taipei. As of 2016, HNCB had Banking, Financial Trading, International Banking and Trust Departments as well as 186 domestic branches and representative offices, an offshore banking unit (OBU), 11 overseas branches (located in Los Angeles, New York, Hong Kong, Singapore, London, Ho Chi Minh City, Sydney, Shenzhen, Shanghai, Fuzhou and Macao, respectively), 1 overseas sub branch (Baoan in Shenzhen) and 1 overseas representative offices (Hanoi in Vietnam). The operations of HNCB s Trust Department are (1) trust business planning, managing and operating and (2) custody of nondiscretionary trust funds in domestic and overseas securities and mutual funds. These operations are regulated under the Banking Act and the Trust Enterprise Act. Hua Nan Securities Co., Ltd. (HNSC) was incorporated on June 17, 1988 in conformity with related regulations. HNSC s main business operations are (a) to underwrite securities; (b) to trade securities for itself at HNSC s business location; (c) to accept orders to trade securities at HNSC s business locations; (d) to engage in margin loan and securities financing for securities; (e) to accept orders to buy and sell foreign securities; (f) to engage in securities-related auxiliary futures trading services, to engage in securities-related futures services; (g) to act as a transfer agent for securities; (h) to engage in other securities-related businesses approved by the governing authorities

12 Hua Nan Bills Finance Corporation (HNBF) was established on October 11, HNBF is mainly engaged in (a) brokerage and proprietary trading of short-term notes and bills; (b) certification and underwriting of short-term notes and bills; (c) brokerage and proprietary trading of financial debentures; (d) certification and underwriting of financial debentures; (e) endorsement and guarantee of short-term notes and bills; (f) agents of call loans between financial institutions; (g) corporate financial consulting; (h) brokerage and proprietary trading of government bonds; (i) proprietary trading of corporate bonds; (j) related equity investments. To integrate resources, enhance operating effectiveness, strengthen HNCB s equity structure, and ensure its long-term development, the stockholders of HNCB and HNBF resolved on February 25, 2008 to have a merger with each other, with HNCB as the surviving company. Merger standard date was on May 23, Under the merger, HNCB acquired HNBF s assets and liabilities through purchasing the remaining outstanding shares of HNBF with the price of $10 per share. The Financial Supervisory Commission, Executive Yuan approved this merger on April 21, Under interpretations issued by the Accounting Research and Development Foundation (ARDF), the merger should be treated as a reorganization. HNCB should retroactively restate its financial statements. South China Insurance Co., Ltd. (SCIC) was incorporated on May 1, SCIC is mainly engaged in property insurance services including automobile insurance, fire insurance, casualty insurance, liability insurance, and reinsurance of the preceding insurance businesses. As of 2016, SCIC has a head office in Taipei, 7 branches and 30 areas in main cities in Taiwan, and one overseas representative office in Mainland China. Hua Nan Investment Trust Corporation (HNIT) was registered on September 29, HNIT is mainly engaged in issuing beneficiary certificates to raise investment trust funds and making securities investments using these funds. HNIT was authorized by the governing authorities to be engaged in the operation of discretionary investment services in September 2001 and engaged in the operation of Futures Trust Business in September However, HNIT considered short-term management plan and discontinued operations in September As of 2016, HNIT has two branches in Taichung and Kaohsiung. Hua Nan Venture Capital Co., Ltd. (HNVC) was registered on January 28, 2004 under the Company Act and Regulations for Scope and Guidance to Venture Capital Business. HNVC is mainly engaged in venture capital investments in domestic and overseas technology companies, other venture capital companies, domestic manufacturing companies, and other companies allowed by the related regulations. HNVC currently outsources its investment decision to Hua Nan Management & Consulting Co., Ltd. Hua Nan Management & Consulting Co., Ltd. (HNMC) was established in February 2004 and is mainly engaged in investments consulting, enterprise operation management consulting and venture capital management consulting. In order to integrate HNVC and HNMC s resources, reduce costs and bolster their competitiveness, the board of directors passed the merge in the board meeting on October 24, 2013 and in the interim board meeting (stockholder meeting) on November 5, In the marge HNVC purchase HNMC s shares according to HMMC s book value per share in cash. HNVC was the extended Company and HNMC was the annihilation company. The base date of the merge was December 25, Hua Nan Asset Management Co., Ltd. (HNAMC) was invested by HNFH and was established on May 10, HNAMC is mainly engaged in purchase, evaluation, auction and management service of monetary creditor s rights of financial institutions. HNCB Insurance Agency Co., Ltd. (HNCB Insurance Agency) was established on March 21, 2001 based on Company Act. HNCB Insurance Agency is mainly engaged in personal insurance agency business. Hua Nan International Leasing Co., Ltd. (HNILC) was established on July 13, HNILC is mainly engaged in financing and leasing

13 Hua Nan International Leasing Corporation (HNILC Shenzhen) was established on October 25, HNILC Shenzhen is mainly engaged in financing and leasing. Hua Nan Futures Co., Ltd. (HNFC) was established on April 30, 1994 based on Company Act, Futures Trading Act and other related regulations. HNFC received the authorized license from Securities and Futures Bureau of MOF and is mainly engaged in futures broker business and futures consulting business. Under Financial Supervisory Commission guidelines No , effective May 20, 2009, HNFC received the approval of operating future management and the authorized license. Hua Nan Investment Management Co., Ltd. (HNIM) was established on September 27, 1993 based on Company Act and other related regulations. HNIM is mainly engaged in security investment consulting business. Hua Nan Holdings Corp. was established in British Virgin Island on March 17, The outstanding shares are 11,150,000 and are all held by HNSC. It is mainly engaged in holding company business. Hua Nan Asset Management Corp. was established in Cayman Island on February 29, 2000 and was a wholly owned subsidiary of Hua Nan Holdings Corp. It is mainly engaged in consulting business and main risk is foreign exchange rate risk. Hua Nan Securities (HK) Limited was established in Hong Kong, and was a wholly owned subsidiary of Hua Nan Holdings Corp. It is mainly engaged in security business. The functional currency of the Company is New Taiwan dollars, and the consolidated financial statements are presented in New Taiwan dollars. As of 2016, December 31, and, the Company and its subsidiaries had 9,839, 9,735 and 9,663 employees, respectively. 2. APPROVAL OF FINANCIAL STATEMENTS The consolidated financial statements were approved by the board of directors on November 28, APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS a. International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) endorsed by the FSC for application starting from 2017 Rule No issued by the FSC endorsed the following IFRS, IAS, IFRIC and SIC (collectively, the IFRSs ) for application starting January 1, New, Amended or Revised Standards and Interpretations (the New IFRSs ) Effective Date Announced by IASB (Note 1) Annual Improvements to IFRSs Cycle July 1, 2014 (Note 2) Annual Improvements to IFRSs Cycle July 1, 2014 Annual Improvements to IFRSs Cycle January 1, 2016 (Note 3) Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: January 1, 2016 Applying the Consolidation Exception (Continued)

14 New, Amended or Revised Standards and Interpretations (the New IFRSs ) Effective Date Announced by IASB (Note 1) Amendment to IFRS 11 Accounting for Acquisitions of Interests in January 1, 2016 Joint Operations IFRS 14 Regulatory Deferral Accounts January 1, 2016 Amendment to IAS 1 Disclosure Initiative January 1, 2016 Amendments to IAS 16 and IAS 38 Clarification of Acceptable January 1, 2016 Methods of Depreciation and Amortization Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants January 1, 2016 Amendment to IAS 19 Defined Benefit Plans: Employee July 1, 2014 Contributions Amendment to IAS 36 Impairment of Assets: Recoverable Amount January 1, 2014 Disclosures for Non-financial Assets Amendment to IAS 39 Novation of Derivatives and Continuation of January 1, 2014 Hedge Accounting IFRIC 21 Levies January 1, 2014 (Concluded) Note 1: Unless stated otherwise, the above New or amended IFRSs are effective for annual periods beginning on or after their respective effective dates. Note 2: The amendment to IFRS 2 applies to share-based payment transactions with grant date on or after July 1, 2014; the amendment to IFRS 3 applies to business combinations with acquisition date on or after July 1, 2014; the amendment to IFRS 13 is effective immediately; the remaining amendments are effective for annual periods beginning on or after July 1, Note 3: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that occur in annual periods beginning on or after January 1, 2016; the remaining amendments are effective for annual periods beginning on or after January 1, Except for the following, the initial application of the above New or amended IFRSs in 2017 would not have any material impact on the Company and its subsidiaries accounting policies: 1) Amendment to IAS 36 Recoverable Amount Disclosures for Non-financial Assets The amendment clarifies that the recoverable amount of an asset or a cash-generating unit is disclosed only when an impairment loss on the asset has been recognized or reversed during the period. Furthermore, if the recoverable amount of an item of property, plant and equipment for which impairment loss has been recognized or reversed is fair value less costs of disposal, the Company and its subsidiaries are required to disclose the fair value hierarchy. If the fair value measurements are categorized within Level 2 or Level 3, the valuation technique and key assumptions used to measure the fair value are disclosed. The discount rate used is disclosed if such fair value less costs of disposal is measured by using present value technique. The amendment will be applied retrospectively. 2) Annual Improvements to IFRSs: Cycle Several standards, including IFRS 2 Share-based Payment, IFRS 3 Business Combinations and IFRS 8 Operating Segments, were amended in this annual improvement

15 The amended IFRS 2 changes the definitions of vesting condition and market condition and adds definitions for performance condition and service condition. The amendment clarifies that a performance target can be based on the operations (i.e. a non-market condition) of the Company and its subsidiaries or another entity in the same group or the market price of the equity instruments of the Company and its subsidiaries or another entity in the same group (i.e. a market condition); that a performance target can relate either to the performance of the Company and its subsidiaries as a whole or to some part of it (e.g. a division); and that the period for achieving a performance condition must not extend beyond the end of the related service period. In addition, a share market index target is not a performance condition because it not only reflects the performance of the Company and its subsidiaries, but also of other entities outside the Company and its subsidiaries. The share-based payment arrangements with market conditions, non-market conditions or non-vesting conditions will be accounted for differently, and the aforementioned amendment will be applied prospectively to those share-based payments granted on or after January 1, IFRS 3 was amended to clarify that contingent consideration should be measured at fair value, irrespective of whether the contingent consideration is a financial instrument within the scope of IFRS 9 or IAS 39. Changes in fair value should be recognized in profit or loss. The amendment will be applied prospectively to business combination with acquisition date on or after January 1, The amended IFRS 8 requires the Company and its subsidiaries to disclose the judgments made by management in applying the aggregation criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining whether the operating segments have similar economic characteristics. The amendment also clarifies that a reconciliation of the total of the reportable segments assets to the entity s assets should only be provided if the segments assets are regularly provided to the chief operating decision-maker. The judgements made in applying aggregation criteria should be disclosed retrospectively upon initial application of the amendment in When the amended IFRS 13 becomes effective in 2017, the short-term receivables and payables with no stated interest rate will be measured at their invoice amounts without discounting, if the effect of not discounting is immaterial. IAS 24 was amended to clarify that a management entity providing key management personnel services to the Company and its subsidiaries are a related party of the Company and its subsidiaries. Consequently, the Company and its subsidiaries are required to disclose as related party transactions the amounts incurred for the service paid or payable to the management entity for the provision of key management personnel services. However, disclosure of the components of such compensation is not required. 3) Annual Improvements to IFRSs: Cycle Several standards, including IFRS 3, IFRS 13 and IAS 40 Investment Property, were amended in this annual improvement. IFRS 3 was amended to clarify that IFRS 3 does not apply to the accounting for the formation of all types of joint arrangements in the financial statements of the joint arrangement itself. The amendment will be applied prospectively starting from January 1,

16 The scope in IFRS 13 of the portfolio exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis was amended to clarify that it includes all contracts that are within the scope of, and accounted for in accordance with, IAS 39 or IFRS 9, even those contracts do not meet the definitions of financial assets or financial liabilities within IAS 32. The Company and its subsidiaries entered into (crude oil) purchase contracts that could be settled net in cash. When the amended IFRS 13 becomes effective in 2017, the Company and its subsidiaries will elect to measure the fair value of those contracts on a net basis retrospectively. IAS 40 was amended to clarify that IAS 40 and IFRS 3 are not mutually exclusive and application of both standards may be required to determine whether the investment property acquired is acquisition of an asset or a business combination. Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Company and its subsidiaries are continuously assessing the possible impact that the application of amendments to IFRSs starting in 2017 will have on the Company and its subsidiaries financial position and financial performance, and will disclose the relevant impact when the assessment is completed. b. New IFRSs in issue but not yet endorsed by the FSC The Company and its subsidiaries has not applied the following IFRSs issued by the IASB but not yet endorsed by the FSC. The FSC announced that IFRS 15 will take effect starting January 1, As of the date the consolidated financial statements were authorized for issue, the FSC has not announced the effective dates of other new IFRSs. New IFRSs Effective Date Announced by IASB (Note) Amendment to IFRS 2 Classification and Measurement of January 1, 2018 Share-based Payment Transactions Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with January 1, 2018 IFRS 4 Insurance Contracts IFRS 9 Financial Instruments January 1, 2018 Amendments to IFRS 9 and IFRS 7 Mandatory Effective Date of January 1, 2018 IFRS 9 and Transition Disclosures Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets To be determined by IASB between an Investor and its Associate or Joint Venture IFRS 15 Revenue from Contracts with Customers January 1, 2018 Amendment to IFRS 15 Explanation of IFRS 15 January 1, 2018 IFRS 16 Leases January 1, 2019 Amendment to IAS 7 Disclosure Initiative January 1, 2017 Amendments to IAS 12 Recognition of Deferred Tax Assets for January 1, 2017 Unrealized Losses Note: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates

17 1) IFRS 9 Financial Instruments Recognition and measurement of financial assets With regards to financial assets, all recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement are subsequently measured at amortized cost or fair value. Under IFRS 9, the requirement for the classification of financial assets is stated below. For the Company and its subsidiaries debt instruments that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, their classification and measurement are as follows: a) For debt instruments, if they are held within a business model whose objective is to collect the contractual cash flows, the financial assets are measured at amortized cost and are assessed for impairment continuously with impairment loss recognized in profit or loss, if any. Interest revenue is recognized in profit or loss by using the effective interest method; b) For debt instruments, if they are held within a business model whose objective is achieved by both the collecting of contractual cash flows and the selling of financial assets, the financial assets are measured at fair value through other comprehensive income (FVTOCI) and are assessed for impairment. Interest revenue is recognized in profit or loss by using the effective interest method, and other gain or loss shall be recognized in other comprehensive income, except for impairment gains or losses and foreign exchange gains and losses. When the debt instruments are derecognized or reclassified, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss. Except for the above, all other financial assets are measured at fair value through profit or loss. However, the Company and its subsidiaries may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gain or loss previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss. Impairment of financial assets IFRS 9 requires impairment loss on financial assets to be recognized by using the Expected Credit Losses Model. The credit loss allowance is required for financial assets measured at amortized cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 Revenue from Contracts with Customers, certain written loan commitments and financial guarantee contracts. A loss allowance for the 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction. For purchased or originated credit-impaired financial assets, the Company and its subsidiaries take into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with a corresponding gain or loss recognized in profit or loss

18 Hedge accounting The main changes in hedge accounting amended the application requirements for hedge accounting to better reflect the entity s risk management activities. Compared with IAS 39, the main changes include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening the risks eligible for hedge accounting of non-financial items; (2) changing the way hedging derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item. 2) IFRS 16 Leases IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related interpretations. Under IFRS 16, if the Company and its subsidiaries are a lessee, it shall recognize right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for low-value and short-term leases. The Company and its subsidiaries may elect to apply the accounting method similar to the accounting for operating lease under IAS 17 to the low-value and short-term leases. On the consolidated statements of comprehensive income, the Company and its subsidiaries should present the depreciation expense charged on the right-of-use asset separately from interest expense accrued on the lease liability; interest is computed by using effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of the lease liability are classified within financing activities; cash payments for interest portion are classified within operating activities. The application of IFRS 16 is not expected to have a material impact on the accounting of the Company and its subsidiaries as lessor. When IFRS 16 becomes effective, the Company and its subsidiaries may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the initial application of this Standard recognized at the date of initial application. Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Company and its subsidiaries are continuously assessing the possible impact that the application of other standards and interpretations will have on the Company and its subsidiaries financial position and financial performance, and will disclose the relevant impact when the assessment is completed. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Statement of Compliance The consolidated financial statements have been prepared in accordance with Regulations Governing the Preparation of Financial Reports by Financial Holding Companies, Regulations Governing the Preparation of Financial Reports by Securities Issuers, Regulations Governing the Preparation of Financial Reports by Public Banks, Regulations Governing the Preparation of Financial Reports by Securities Firms, Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants, Regulations Governing the Preparation of Financial Reports by Insurance Companies, the guidelines issued by the authority and IAS 34 Interim Financial Reporting as endorsed by the FSC. Disclosure information included in the consolidated financial statements is less than those required in a complete set of annual financial statements

19 Basis of Preparation The consolidated financial statements have been prepared on the historical cost basis except for financial instruments measured at fair values. Historical cost is generally based on the fair value of the consideration given in exchange for assets. The fair value measurements are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: a. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; b. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and c. Level 3 inputs are unobservable inputs for the asset or liability. Current/Non-current Assets and Liabilities Since the length of the operating cycle in the banking industry could not be reasonably identified, accounts included in the Company and its subsidiaries financial statements were not classified as current or non-current. Nevertheless, accounts were properly categorized according to the nature of each account and sequenced by their liquidity. Except for the matter stated in the preceding paragraph, cash and cash equivalents or assets to be realized within 12 months after the reporting period are classified as current. Liabilities to be liquidated or settled within 12 months and liabilities for which the Company and its subsidiaries does not have an unconditional right to deter settlement for at least 12 months after the reporting period, are classified as current (even if an agreement to refinance; or to reschedule payments, on a long-term basis is completed after the reporting period and before the consolidated financial statements are authorized for issue). Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. All other assets and liabilities are classified as non-current. The consolidated financial statements, however, do not show the classification of current or non-current assets/liabilities because the banking industry accounts are the major parts of the consolidated accounts. Principles for Preparing Consolidated Financial Statements The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company (i.e. its subsidiaries). When necessary, adjustments are made to the financial statements of its subsidiaries to bring its accounting policies into line with those used by the Company. All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation. The consolidated entities, nature and percentage of ownership is shown in Table 6. Foreign Currencies In preparing the financial statements of each individual group entity, transactions in currencies other than the entity s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date

20 Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured at historical cost in a foreign currency are not retranslated. Exchange differences on monetary items arise from settlement or translation are recognized in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of nonmonetary assets (such as equity instruments) or liabilities measured at fair value are included in profit or loss for the period at the rates prevailing at the end of reporting period except for exchange differences arising on the retranslation of nonmonetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income. For the purposes of presenting consolidated financial statements, the assets and liabilities of the Company and its subsidiaries foreign operations are translated into New Taiwan dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising are recognized in other comprehensive income and accumulated in equity. Cash and Cash Equivalents Cash and Cash equivalents include cash on hand, demand deposits, time deposits that can be readily terminated without deduction of principal, and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For consolidated statement of cash flows, cash and cash equivalents include cash and cash equivalents in consolidated balance sheets, and those amounts of due from the Central Bank and other banks and securities purchased under agreements to resell that meet the definition of cash and cash equivalents in IAS 7, etc. Investment in Associates An associate is an entity over which the Company and its subsidiaries have significant influence and that is neither a subsidiary nor an interest in a joint venture. The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in an associate is initially recognized at cost and adjusted thereafter to recognize the Company and its subsidiaries share of the profit or loss and other comprehensive income of the associate. The Company and its subsidiaries also recognize the changes in the Company and its subsidiaries share of equity of associates. The additional impairment loss of an associate was measured and recognized by using IAS 39 Financial Investments: Recognition and Measurement. The entire carrying amount of the investment is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount (the higher of fair value less costs to sell and value in use) with its carrying amount under IAS 36 Impairment of Assets. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases under IAS 36 Impairment of Assets. The Company and its subsidiaries discontinues the use of the equity method from the date on which it ceases to have significant influence. Any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. The Company and its subsidiaries accounts for all amounts previously recognized in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities