TAIPEI FUBON COMMERCIAL BANK Co., Ltd. and Subsidiary

Transcription

1 TAIPEI FUBON COMMERCIAL BANK Co., Ltd. and Subsidiary Consolidated Financial Statements for the Six Months Ended June 30, 2013 and 2012 and Independent Auditors Report

2 INDEPENDENT AUDITORS REPORT The Board of Directors and Stockholder TAIPEI FUBON COMMERCIAL BANK Co., Ltd. We have audited the accompanying consolidated balance sheets of TAIPEI FUBON COMMERCIAL BANK Co., Ltd. (the Bank ) and its subsidiary as of June 30, 2013, December 31, 2012, June 30, 2012 and January 1, 2012 and the related consolidated statements of comprehensive income for the three months ended June 30, 2013 and 2012, six months ended June 30, 2013 and 2012, and changes in equity and cash flows for the six months ended June 30, 2013 and These consolidated financial statements are the responsibility of the Bank s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements of Financial Institutions by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TAIPEI FUBON COMMERCIAL BANK Co., Ltd. and its subsidiary as of June 30, 2013, December 31, 2012, June 30, 2012 and January 1, 2012, the financial performance for the three months then ended, and the financial performance and their cash flows for the six months then ended, in conformity with the Regulations Governing the Preparation of Financial Reports by Public Banks, Regulations Governing the Preparation of Financial Reports by Securities Firms, International Financial Reporting Standards 1 First-time Adoption of International Financial Reporting Standards and International Accounting Standard 34 Interim Financial Reporting endorsed by the Financial Supervisory Commission of the Republic of China and certain other guidelines issued by the authorities

3 We have also audited the parent bank only financial statements of the Bank for the six months ended June 30, 2013 and 2012, and have issued unqualified opinions thereon, in our report dated August 23, August 23, 2013 Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the independent auditors report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors report and consolidated financial statements shall prevail

4 TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In Thousands of New Taiwan Dollars) June 30, 2013 December 31, 2012 June 30, 2012 January 1, 2012 ASSETS Amount % Amount % Amount % Amount % CASH AND CASH EQUIVALENTS (Notes 4, 6 and 41) $ 29,308,549 2 $ 31,820,002 2 $ 27,455,175 2 $ 27,224,781 2 DUE FROM THE CENTRAL BANK OF CHINA AND OTHER BANKS (Notes 6, 7, 17 and 41) 124,541, ,851, ,340, ,099,143 5 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4, 8, 23, 41 and 42) 80,561, ,693, ,357, ,641,819 4 DERIVATIVE FINANCIAL ASSETS FOR HEDGING (Notes 4 and 9) 354, , , ,488 - SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL (Notes 4, 6 and 10) 17,403, ,343, ,253, ,000 - RECEIVABLES, NET (Notes 4, 11, 17 and 41) 59,839, ,647, ,998, ,137,039 5 CURRENT TAX ASSETS (Notes 4 and 41) 510, , ,468-1,258,173 - DISCOUNTS AND LOANS, NET (Notes 4, 12, 17 and 41) 1,066,643, ,026,535, ,029,540, ,718, AVAILABLE-FOR-SALE FINANCIAL ASSETS, NET (Notes 4, 9, 13, 23 and 41) 74,943, ,271, ,728, ,346,936 3 HELD-TO-MATURITY FINANCIAL ASSETS (Notes 4, 14, 23 and 42) 208,369, ,013, ,923, ,826, INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD (Notes 4 and 15) 138, , ,620-96,239 - OTHER FINANCIAL ASSETS, NET (Notes 4, 16 and 17) 921,199-2,204,848-2,203,511-2,787,024 - PROPERTY AND EQUIPMENT, NET (Notes 4 and 18) 11,260, ,262, ,230, ,278,155 1 INVESTMENT PROPERTIES, NET (Notes 4 and 19) 1,726,891-1,775,982-1,740,723-1,734,175 - INTANGIBLE ASSETS (Notes 4 and 20) 1,616,510-1,585,803-1,658,506-1,753,629 - DEFERRED TAX ASSETS (Note 4) 357, , , ,317 - OTHER ASSETS (Notes 21 and 41) 5,213,055-2,461,325-1,715,181-1,601,246 - TOTAL $ 1,683,707, $ 1,604,943, $ 1,614,745, $ 1,507,732, LIABILITIES AND EQUITY DUE TO THE CENTRAL BANK OF CHINA AND OTHER BANKS (Notes 22 and 41) $ 68,866,146 4 $ 69,753,342 4 $ 54,972,967 4 $ 56,759,776 4 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4, 8 and 41) 24,155, ,612, ,500, ,747,531 2 DERIVATIVE FINANCIAL LIABILITIES FOR HEDGING (Notes 4 and 9) 852, , , ,152 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Notes 4, 23 and 41) 30,761, ,360, ,559, ,503,088 2 PAYABLES (Notes 24 and 41) 31,986, ,007, ,119, ,503,723 2 CURRENT TAX LIABILITIES (Notes 4 and 41) 1,374,635-1,508,732-1,048, ,236 - DEPOSITS AND REMITTANCES (Notes 25 and 41) 1,305,225, ,247,741, ,266,637, ,183,392, BANK DEBENTURES (Notes 9 and 26) 66,202, ,929, ,079, ,143,488 4 OTHER FINANCIAL LIABILITIES (Notes 27 and 41) 27,007, ,644, ,852, ,502,063 2 PROVISIONS (Notes 4, 17, 28 and 29) 1,517,648-1,513,794-1,253,782-1,279,039 - DEFERRED TAX LIABILITIES (Note 4) 407, , , ,022 - OTHER LIABILITIES (Notes 30 and 41) 3,108,697-3,493,022-3,504,814-4,248,933 - Total liabilities 1,561,465, ,498,510, ,514,611, ,415,002, EQUITY (Notes 4 and 31) Attributable to owner of the Bank Capital stock Ordinary share 61,230, ,430, ,092, ,092,871 3 Reserve for raising capital 15,219, ,337, Capital surplus 10,655, ,613, ,613, ,613,508 1 Retained earnings Legal reserve 20,947, ,049, ,049, ,333,465 1 Special reserve 1,535,698-1,535,698-1,535,698-1,535,698 - Unappropriated earnings 8,293, ,704, ,146, ,054,140 1 Total retained earnings 30,777, ,290, ,731, ,923,303 2 Other equity 4,359,599-4,098,481-3,358,698-3,100,526 - Equity attributable to owner of the Bank 122,242, ,432, ,134, ,730,208 6 Total equity 122,242, ,432, ,134, ,730,208 6 TOTAL $ 1,683,707, $ 1,604,943, $ 1,614,745, $ 1,507,732, The accompanying notes are an integral part of the consolidated financial statements

5 TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Earnings Per Share) For the Three Months Ended June 30 For the Six Months Ended June Amount % Amount % Amount % Amount % NET INTEREST (Notes 4, 32 and 41) Interest revenues $ 6,742, $ 6,634, $ 13,261, $ 13,129, Interest expenses 2,927, ,990, ,754, ,860, Total net interest 3,815, ,644, ,506, ,269, NET REVENUES OTHER THAN INTEREST (Note 4) Commission and fee revenues, net (Notes 33 and 41) 2,011, ,339, ,058, ,253, Gains on financial assets and liabilities at fair value through profit or loss (Notes 8, 34 and 41) 1,667, , ,900, ,015, Realized gains on available-for-sale financial assets (Notes 31 and 35) 1,119, , ,148, ,359 1 Foreign exchange gains, net 551, , ,297, ,772 6 Reversal of impairment loss on assets (Note 16) 90, ,860-94,130-7,860 - Share of the profit of the associate (Note 15) 3,900-2,889-5,614-4,066 - Other noninterest net revenues (Note 37) 47,437-56, ,977-59,599 - Total net revenues other than interest 5,491, ,636, ,551, ,412, TOTAL NET REVENUES 9,306, ,280, ,058, ,681, ALLOWANCE (REVERSAL OF ALLOWANCE) FOR CREDIT LOSSES AND LOSSES ON GUARANTEES (Notes 4 and 17) 48,906 1 (184,377) (3) (157,431) (1) (641,333) (4) OPERATING EXPENSES (Notes 4, 29, 36, 37, 38 and 41) Employee benefits 2,296, ,095, ,546, ,131, Depreciation and amortization 184, , , ,471 3 Others 1,256, ,241, ,470, ,346, Total operating expenses 3,738, ,529, ,385, ,873, NET PROFIT BEFORE INCOME TAX FROM CONTINUING OPERATIONS 5,519, ,935, ,831, ,449, INCOME TAX EXPENSE (Notes 4 and 39) 702, , ,248, ,303,583 9 NET PROFIT FOR THE PERIOD 4,817, ,238, ,582, ,146, OTHER COMPREHENSIVE INCOME Exchange differences on translating foreign operations 42,373-51, ,859 1 (82,565) (1) Unrealized (loss) gain on available-for-sale financial assets (Note 31) (24,648) - 526,578 7 (52,035) - 371,648 3 (Continued) - 4 -

6 TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Earnings Per Share) For the Three Months Ended June 30 For the Six Months Ended June Amount % Amount % Amount % Amount % Share of the other comprehensive income of the associate (Note 31) $ 8,615 - $ 5,395 - $ 19,181 - $ 12,316 - Income tax relating to the components of other comprehensive income (Note 39) 151, , ,113 1 (43,227) - Other comprehensive income for the period, net of income tax 177, , , ,172 2 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD $ 4,994, $ 3,865, $ 8,844, $ 7,404, NET PROFIT ATTRIBUTE TO OWNER OF THE BANK $ 4,817,023 $ 3,238,122 $ 8,582,888 $ 7,146,221 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ATTRIBUTE TO OWNER OF THE BANK $ 4,994,561 $ 3,865,422 $ 8,844,006 $ 7,404,393 EARNINGS PER SHARE (Note 40) Basic $0.63 $0.45 $1.13 $0.98 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) - 5 -

7 TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In Thousands of New Taiwan Dollars) Other Equity (Notes 4 and 31) Exchange Differences on Unrealized Gains or Losses on Capital Stock (Note 31) Reserve for Retained Earnings (Notes 4 and 31) Translating Available-for- Shares Raising Capital Capital Surplus Unappropriated Foreign sale Financial (Thousands) Amount (Note 31) (Note 31) Legal Reserve Special Reserve Earnings Total Operations Assets Total Equity BALANCE, JANUARY 1, ,109,287 $ 51,092,871 $ - $ 13,613,508 $ 14,333,465 $ 1,535,698 $ 9,054,140 $ 24,923,303 $ 20,056 $ 3,080,470 $ 92,730,208 Appropriation of 2011 earnings Legal reserve ,716,242 - (2,716,242) Stock dividends - - 6,337, (6,337,898) (6,337,898) Net profit for the six months ended June 30, ,146,221 7,146, ,146,221 Other comprehensive income for the six months ended June 30, 2012, net of income tax (82,565) 340, ,172 Total comprehensive income for the six months ended June 30, ,146,221 7,146,221 (82,565) 340,737 7,404,393 BALANCE, JUNE 30, ,109,287 $ 51,092,871 $ 6,337,898 $ 13,613,508 $ 17,049,707 $ 1,535,698 $ 7,146,221 $ 25,731,626 $ (62,509) $ 3,421,207 $ 100,134,601 BALANCE, JANUARY 1, ,743,077 $ 57,430,769 $ - $ 13,613,508 $ 17,049,707 $ 1,535,698 $ 12,704,760 $ 31,290,165 $ (203,576) $ 4,302,057 $ 106,432,923 Appropriation of 2012 earnings Legal reserve ,898,261 - (3,898,261) Stock dividends - - 9,095, (9,095,943) (9,095,943) Other changes in capital surplus Issue of share dividends from capital surplus - - 6,123,077 (6,123,077) Net profit for the six months ended June 30, ,582,888 8,582, ,582,888 Other comprehensive income for the six months ended June 30, 2013, net of income tax ,859 93, ,118 Total comprehensive income for the six months ended June 30, ,582,888 8,582, ,859 93,259 8,844,006 Issue of ordinary shares for cash 380,000 3,800,000-3,165, ,965,400 BALANCE, JUNE 30, ,123,077 $ 61,230,769 $ 15,219,020 $ 10,655,831 $ 20,947,968 $ 1,535,698 $ 8,293,444 $ 30,777,110 $ (35,717) $ 4,395,316 $ 122,242,329 The accompanying notes are an integral part of the consolidated financial statements

8 TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) For the Six Months Ended June CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax from continuing operations $ 9,831,061 $ 8,449,804 Adjustments for: Depreciation expenses 223, ,505 Amortization expenses 150, ,920 Reversal of allowance for credit losses (127,745) (625,524) Interest expenses 5,754,200 5,860,363 Interest revenues (13,261,160) (13,129,516) Dividend income (65,456) (138,559) Changes in losses on guarantees (29,686) (15,809) Changes in provisions (1,947) (30,891) Share of profit of the associate (5,614) (4,066) Loss on disposal of property and equipment 4,277 13,408 Reversal of impairment loss on financial assets (94,130) (7,860) Other adjustments (637) (53,890) Subtotal (7,453,816) (7,731,919) Changes in operating assets and liabilities Increase in due from the Central Bank of China and other banks (32,241,175) (24,144,935) Decrease (increase) in financial assets at fair value through profit or loss 4,132,160 (8,715,338) Increase in securities purchased under agreements to resell (100,149) - Decrease in receivables 320, ,236 Increase in discounts and loans (40,346,770) (76,493,472) Increase in available-for-sale financial assets (7,278,058) (12,028,808) Decrease in held-to-maturity financial assets 18,643,965 7,955,666 Decrease in other financial assets 1,500, ,931 Decrease in due to the Central Bank of China and other banks (887,196) (1,786,809) Increase (decrease) in financial liabilities at fair value through profit or loss 4,543,164 (3,247,501) Increase in securities sold under agreements to repurchase 4,400,204 9,056,037 Decrease in payables (589,546) (3,420,290) Increase in deposits and remittances 57,483,893 83,245,383 (Decrease) increase in other financial liabilities (637,030) 10,350,863 Increase in provision for employee benefits 35,332 21,749 Decrease in other liabilities (552,825) (749,970) Net cash provided by (used in) operations 10,803,841 (17,530,373) Interest received 13,127,423 12,453,776 Dividends received 66, ,150 Interest paid (6,185,313) (5,824,413) Income tax paid (1,428,022) (383,388) Net cash provided by (used in) operating activities 16,384,541 (11,177,248) (Continued) - 7 -

9 TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) For the Six Months Ended June CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from capital reduction of financial assets carried at cost $ 1,280 $ - Payments for property and equipment (251,259) (232,160) Proceeds from disposal of property and equipment 541 2,271 Payments for intangible assets (91,745) (23,153) Proceeds from sale of nonperforming loans - 42,512 Increase in other assets (2,757,283) (140,720) Net cash used in investing activities (3,098,466) (351,250) CASH FLOWS FROM FINANCING ACTIVITIES Issuance of bank debentures - 6,000,000 Repayment of bank debentures (550,000) - Proceeds from issue of ordinary shares 6,965,400 - Net cash provided by financing activities 6,415,400 6,000,000 EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES 195,788 (91,967) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 19,897,263 (5,620,465) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 63,315,057 56,597,823 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 83,212,320 $ 50,977,358 Reconciliation of the amounts in the consolidated statements of cash flows with the equivalent items reported in the consolidated balance sheets at June 30, 2013 and 2012: For the Six Months Ended June Cash and cash equivalents in consolidated balance sheets $ 29,308,549 $ 27,455,175 Due from the Central Bank of China and other banks that meet the definition of cash and cash equivalents in IAS 7 36,600,516 19,269,131 Securities purchased under agreements to resell that meet the definition of cash and cash equivalents in IAS 7 17,303,255 4,253,052 Cash and cash equivalents in consolidated statements of cash flows $ 83,212,320 $ 50,977,358 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) - 8 -

10 TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2013 AND 2012 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Stated) 1. ORGANIZATION AND OPERATIONS TAIPEI FUBON COMMERCIAL BANK Co., Ltd. (the Bank ) started as a financial institution under the Taipei City Government (TCG) in On July 1, 1984, it was reorganized into a limited liability corporation and was renamed City Bank of Taipei Co., Ltd. On January 1, 1993, the Bank was renamed TAIPEIBANK Co., Ltd. ( TAIPEIBANK ). On November 30, 1999, the Bank was privatized through the sale of its shares to the public, with TCG s holdings reduced to less than 50% of the Bank s outstanding capital stock. In their special meeting on October 4, 2002, the stockholder approved a share swap, which resulted in the Bank s becoming a wholly owned subsidiary of the Fubon Financial Holdings Company (FFH). The board of directors designated December 23, 2002 as the effective date of the share swap and of the delisting of the Bank s stock from the Taiwan Stock Exchange. To fully harness the synergy of two diversified business operations and reduce operating costs, the boards of directors of the Bank and Fubon Bank Co., Ltd. ( Fubon Bank, a wholly owned subsidiary of FFH) decided on January 1, 2005 to combine these two entities. On January 1, 2005, the Bank acquired the assets and liabilities of Fubon Bank through a share swap and had its name changed to Taipei Fubon Commercial Bank Co., Ltd. On September 20, 2006, the boards of directors of the Bank and Fubon Bills Finance Co., Ltd. (FBFC) decided to merge the Bank and FBFC to strengthen their operating synergy and lower operating costs, with the Bank as the survivor entity. The Bank set December 25, 2006 as the effective merger date. Pursuant to the terms and conditions set out in the Sale and Assumption Agreement signed by the Bank, Chinfon Commercial Bank Co., Ltd. (hereinafter referred to as Chinfon Bank ), Central Deposit Insurance Corp. and the Executive Yuan s Financial Reconstruction Trust Corporation on October 30, 2009, effective midnight, March 6, 2010, the Bank assumed the assets, liabilities and businesses of the Hanoi branch and Ho Chi Minh City subbranch of Chinfon Bank under the conditions that the acquirer has obtained the competent authority s approval and completed the settlement procedure. The Bank engages in the following: (a) act for the municipal treasures of Taipei City; (b) management of municipal treasury bills of Taipei City; (c) all commercial banking operations authorized under the Banking Act; (d) securities and trust operations; (e) lottery operations; (f) futures trading (It is terminated on June 1, 2013); and (g) other authorized operations. The Bank has its head office in Taipei City, and as of June 30, 2013, had 4 major operating departments - Banking, Trust, Public Treasury and Lottery departments - with 132 branches (including one offshore banking unit (OBU), 5 overseas branches and 1 overseas subbranch), and 1 overseas representative office. The operations of the Bank s Trust Department are (1) planning, managing and operating a trust business; and (2) custodianship of nondiscretionary trust funds in domestic and overseas securities and mutual funds. These operations are regulated under the Banking Act and the Trust Law. The Bank was granted the right to run the Taiwan Sports Lottery from 2008 to 2013 by the Ministry of Finance. Taipei Fubon Bank Life Insurance Agency Co., Ltd. was incorporated in accordance with the Company Law on June 26, 2000 and mainly engages in the life insurance agency business

11 The Bank s ultimate parent is Fubon Financial Holdings Company, which holds 100% ordinary shares of the Bank. The functional currency of the Bank is New Taiwan dollars, and the consolidated financial statements are presented in New Taiwan dollars. 2. APPROVAL OF FINANCIAL STATEMENTS The consolidated financial statements were approved by the board of directors and authorized for issue on August 23, APPLICATION OF NEW AND REVISED STANDARDS, AMENDMENTS AND INTERPRETATIONS a. New, amended and revised standards and interpretations in issue but not yet effective The Bank and its subsidiaries have not applied the following International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) issued by the IASB. As of the date that the consolidated financial statements were authorized for issue, the Financial Supervisory Commission (the FSC ) has not announced the effective dates for the following new, amended and revised standards and interpretations. New, Revised Standards, Amendments and Interpretations Effective Date Announced By IASB (Note) Endorsed by the FSC but the effective date have not yet been determined by the FSC Amendments to IFRSs Improvements to IFRSs (2009) - amendments to IAS 39 January 1, 2009 or January 1, 2010 IFRS 9 (2009) Financial Instruments January 1, 2015 Amendments to IAS 39 Embedded Derivatives Effective after June 30, 2009 Not yet endorsed by the FSC Amendments to IFRSs Amendment to IAS 39 as part of Annual Improvements to IFRSs 2010 July 1, 2010 or January 1, 2011 Amendments to IFRSs Annual improvements to IFRSs ( ) January 1, 2013 Amendments to IFRS 1 Limited Exemption from Comparative IFRS 7 July 1, 2010 Disclosures for First-time Adopters Amendments to IFRS 1 Severe Hyperinflation and Removal of Fixed July 1, 2011 Dates for First-time Adopters Amendments to IFRS 1 Government Loans January 1, 2013 Amendments to IFRS 7 Disclosures - Offsetting Financial Assets and January 1, 2013 Financial Liabilities Amendments to IFRS 9 and Mandatory Effective Date and Transition January 1, Disclosures Amendments to IFRS 7 Disclosures - Transfers of Financial Assets July 1, 2011 (Continued)

12 New, Revised Standards, Amendments and Interpretations Effective Date Announced By IASB (Note) Amendments to Financial Instruments January 1, 2015 IFRS 9 (2010) Amendments to IFRS 10 Consolidated Financial Statements January 1, 2013 Amendments to IFRS 11 Joint Arrangements January 1, 2013 Amendments to IFRS 12 Disclosure of Interests in Other Entities January 1, 2013 Amendments to IFRS 10, 11 and 12 Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in January 1, 2013 Amendments to IFRS 10, 12 and Amendments to IAS 27 Other Entities: Transition Guidance Investment Entities January 1, 2014 IFRS 13 Fair Value Measurement January 1, 2013 Amendments to IAS 1 Presentation of Items of Other Comprehensive July 1, 2012 Income Amendments to IAS 12 Deferred Taxes: Recovery of Underlying January 1, 2012 Assets Amendments to IAS 19 Employee Benefits January 1, 2013 Amendments to IAS 27 Separate Financial Statements January 1, 2013 Amendments to IAS 28 Investments in Associates and Joint Ventures January 1, 2013 Amendments to IAS 32 Offsetting Financial Assets and Financial January 1, 2014 Liabilities 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 20 Stripping Costs in Production Phase of a January 1, 2013 Surface Mine IFRIC 21 Levies January 1, 2014 (Concluded) Note: Unless otherwise noted, the above new and revised Standards, Amendments and Interpretations are effective for annual periods beginning on or after the respective effective dates. The applications depend on the FSC s approval. b. Significant impending changes in accounting policy resulted from new, amended and revised standards and interpretations in issue but not yet effective Except for the following, the initial application of the above new, amended and revised standards and interpretations have not had any material impact on the Group s accounting policies: 1) IFRS 9 Financial Instruments With regards to financial assets, all recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement to be subsequently measured at amortized cost or fair value. Specifically, financial assets that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. All other financial assets are measured at their fair values at the balance sheet date. However, the Group 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

13 As for financial liabilities, the main changes in the classification and measurement relate to the subsequent measurement of financial liabilities designated as at fair value through profit or loss. The amount of change in the fair value of such financial liability attributable to changes in the credit risk of that liability, is presented in other comprehensive income and the remaining amount of change in the fair value of that liability is presented in profit or loss, unless the recognition of the effects of changes in the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability's credit risk are not subsequently reclassified to profit or loss. If the above accounting treatment would create or enlarge an accounting mismatch in profit or loss, the Group presents all gains or losses on that liability in profit or loss. 2) New and revised standards on consolidation, joint arrangement, and associates and disclosure a) IFRS 10 Consolidated Financial Statements IFRS 10 replaces IAS 27 Consolidated and Separate Financial Statements and SIC 12 Consolidation - Special Purpose Entities. The Bank and its subsidiary consider its ability of control over other entities for consolidation. The Bank and its subsidiary has control over an investee if and only if it has a) power over the investee; b) exposure, or rights, to variable returns from its involvement with the investee and c) the ability to use its power over the investee to affect the amount of its returns. Additional guidance has been included in IFRS 10 to explain when an investor has control over an investee. b) IFRS 12 Disclosure of Interests in Other Entities IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. In general, the disclosure requirements in IFRS 12 are more extensive than in the current standards. c) Revision to IAS 28 Investments in Associates and Joint Ventures Revised IAS 28 requires when a portion of an investment in associates meets the criteria to be classified as held for sale, that portion is classified as held for sale. Any retained portion that has not been classified as held for sale is accounted for using the equity method. Previously, when a portion of an investment in associates meets the criteria to be classified as held for sale, the entire investment is classified as held for sale and ceases to apply the equity method. 3) IFRS 13 Fair Value Measurement IFRS 13 establishes a single source of guidance for fair value measurements. It defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. The disclosure requirements in IFRS 13 are more extensive than those required in the current standards. For example, quantitative and qualitative disclosures based on the three-level fair value hierarchy currently required for financial instruments only will be extended by IFRS 13 to cover all assets and liabilities within its scope. 4) Amendments to IAS 1 Presentation of Items of Other Comprehensive Income The amendments to IAS 1 require items of other comprehensive income to be grouped into those that (1) will not be reclassified subsequently to profit or loss; and (2) will be reclassified subsequently to profit or loss when specific conditions are met. Income taxes on related items of other comprehensive income are grouped on the same basis. Previously, there were no such requirements

14 5) Revision to IAS 19 Employee Benefits The amendments require the recognition of changes in defined benefit obligations and in the fair value of plan assets when they occur, and hence eliminate the corridor approach permitted under the previous version of IAS 19 and accelerate the recognition of past service costs. The revision requires all actuarial gains and losses to be recognized immediately through other comprehensive income in order for the net pension asset or liability to reflect the full value of the plan deficit or surplus. Furthermore, the interest cost and expected return on plan assets used in the previous version of IAS 19 are replaced with a net interest amount, which is calculated by applying the discount rate to the net defined benefit liability or asset. 6) Amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets In issuing IFRS 13 Fair Value Measurement, the IASB made some consequential amendments to the disclosure requirements in IAS 36 Impairment of Assets, introducing a requirement to disclose in every reporting period the recoverable amount of an asset or each cash-generating unit. The amendment clarifies that the disclosure of such recoverable amount is required during the period when an impairment loss has been recognized or reversed. Furthermore, The Bank and its subsidiary are required to disclose the discount rate used in current and previous measurements of the recoverable amount based on fair value less costs of disposal measured using a present value technique. c. Material impact on consolidated financial statements resulted from new and revised Standards, Amendments and Interpretations in issue but not yet effective The application of new, revised Standards, Amendments and Interpretations will depend on the FSC s approval. The Bank and its subsidiary are in the process of estimating the impact of the initial application of the Standards, Amendments and Interpretations on its financial position and results of operations. Disclosures will be provided until a detailed review of the impact has been completed and the consolidated financial statements have been approved and authorized for issuance. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Under Rule No issued by the Financial Supervisory Commission (FSC) on April 7, 2011, the Bank and its subsidiary should prepare consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks and the International Financial Reporting Standards, International Accounting Standards, and the Interpretations approved by the FSC. The date of transition to IFRSs was January 1, Refer to Note 53 for the impact of IFRS conversion on the consolidated financial statements. Statement of Compliance The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks, IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS 34 Interim Financial Reporting as endorsed by the FSC and certain other guidelines issued by the authority. Disclosure information included in interim financial reports is less than disclosures required in a full set of annual financial reports. Basis of Preparation The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values. Historical cost is generally based on the fair value of the consideration given in exchange for assets

15 The opening consolidated balance sheets as of the date of transition to IFRSs was prepared in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards. The applicable IFRSs have been applied retrospectively by the Bank and its subsidiary except for some aspects where other IFRSs prohibit retrospective application and specified areas where IFRS 1 grants limited exemptions from the requirements of other IFRSs. For the exemptions that the Bank and its subsidiary elected, refer to Note 53. The accounting policies are summarized as follows. Classification of Current and Noncurrent Assets and Liabilities Since the Bank accounts for major parts of the consolidated accounts, and the operating cycle in the banking industry cannot be clearly identified, accounts included in the consolidation financial statements of the Bank and its subsidiary were not classified as current or noncurrent. Nevertheless, accounts were properly categorized according to the nature of each account and sequenced by their liquidity. Please refer to Note 47 for the maturity analysis of assets and liabilities. Basis of Consolidation The consolidated financial statements incorporate the financial statements of the Bank and the entity controlled by the Bank (i.e. its subsidiary). Control is achieved when the Bank has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The consolidated entities as of June 30, 2013, December 31, 2012, June 30, 2012 and January 1, 2012, were as follows: Investor Investee Main Business June 30, 2013 % of Ownership December 31, 2012 June 30, 2012 January 1, 2012 The Bank Taipei Fubon Bank Life Insurance Agency Co., Ltd. Life insurance agent 100% 100% 100% 100% When necessary, adjustments are made to the financial statements of its subsidiary to bring its accounting policies into line with those used by the Bank. All significant intragroup transactions, balances, income and expenses are eliminated upon consolidation (refer to Table 3). Foreign Currencies At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. 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 in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising from settlement are recognized in profit or loss in the period in which they arise. Exchange differences on monetary items arising from translation at period end are recognized in profit or loss except for cash flow hedges or effective portions of hedge of net investments in foreign operations are recognized in other comprehensive income. Exchange differences arising on the retranslation of non-monetary 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 non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income. For the purposes of presenting consolidated financial statements, the assets and liabilities of the Bank s foreign operations are translated into New Taiwan dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising are recognized in other comprehensive income and accumulated in equity

16 Cash and Cash Equivalents Cash and Cash equivalents include cash on hand, demand deposits, time deposits that can be readily terminated without deduction of principal, and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For consolidated statement of cash flows, cash and cash equivalents include cash and cash equivalents in consolidated balance sheets, and those amounts of due from the Central Bank of China and other banks and securities purchased under agreements to resell that meet the definition of cash and cash equivalents in IAS 7. Investment in Associates An associate is an entity over which the Bank and its subsidiary have significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee without having control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in an associate is initially recognized at cost and adjusted thereafter to recognize the Bank and its subsidiary s share of the profit or loss and other comprehensive income of the associate. The Bank and its subsidiary also recognize the changes in the Bank and its subsidiary s share of equity of associates. Financial Instruments Financial assets and financial liabilities are recognized when the Bank or its subsidiary becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss. a. Financial assets All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. 1) Measurement category Financial assets are classified into the following specified categories: Financial assets at fair value through profit or loss, held-to-maturity investments, available-for-sale financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. The categories of financial assets held by the Bank and its subsidiary are financial assets at fair value through profit or loss, held-to-maturity investments, available-for-sale financial assets and loans and receivables. a) Financial assets at fair value through profit or loss Financial assets are classified as at fair value through profit or loss when the financial asset is either held for trading or it is designated as at fair value through profit or loss

17 A financial asset is classified as held for trading if: i. It has been acquired principally for the purpose of selling it in the near term; or ii. On initial recognition it is part of a portfolio of identified financial instruments that the Bank manages together and has a recent actual pattern of short-term profit-taking; or iii. It is a derivative that is not designated and effective as a hedging instrument. A financial asset other than a financial asset held for trading may be designated as at fair value through profit or loss upon initial recognition when doing so results in more relevant information and if: i. Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or ii. The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Bank and its subsidiary s documented risk management or investment strategy, and information about the grouping is provided internally on that basis. In addition, if a contract contains one or more embedded derivatives, the entire hybrid (combined) contract can be designated as at fair value through profit or loss. Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the other gains and losses line item. Fair value is determined in the manner described in Note 46. Investments in equity instruments under financial assets at fair value through profit or loss that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are subsequently measured at cost less any identified impairment loss at the end of each reporting period and are recognized in a separate line item as financial assets carried at cost. If, in a subsequent period, the fair value of the financial assets cannot be reliably measured, the financial assets are remeasured at fair value. The difference between the carrying amount and the fair value is recognized in profit or loss. b) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Bank and its subsidiary have the positive intent and ability to hold to maturity other than those that the Bank and its subsidiary upon initial recognition designate as at fair value through profit or loss, or designate as available for sale, or meet the definition of loans and receivables. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method less any impairment. The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition

18 c) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. Listed stocks, commercial papers, financial debentures, government bonds, corporate bonds, and treasury bills held by the Bank and its subsidiary that are traded in an active market are classified as available-for-sale financial assets and are stated at fair value at the end of each reporting period. The Bank and its subsidiary also have investments in unlisted shares that are not traded in an active market but that are also classified as available-for-sale financial assets and stated at fair value at the end of each reporting period (because the management considers that fair value can be reliably measured). Fair value is determined in the manner described in Note 46. Changes in the carrying amount of available-for-sale monetary financial assets relating to changes in foreign currency exchange rates, interest income calculated using the effective interest method and dividends on available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income and accumulated under the heading of investments revaluation reserve. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss that previously accumulated in the investments revaluation reserve is reclassified to profit or loss. Dividends on available-for-sale equity instruments are recognized in profit or loss when the Bank and its subsidiary s right to receive the dividends is established. Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment loss at the end of each reporting period and are recognized in a separate line item as financial assets carried at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between carrying amount and fair value is recognized in profit or loss or other comprehensive income on financial assets. d) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including discounts and loans, receivables, cash and cash equivalent, debt investments with no active market, and other receivables) are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial. 2) Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected

19 The objective evidence of impairment could include significant financial difficulty of the issuer or counterparty, breach of contract (such as a default or delinquency in interest or principal payments), it becoming probable that the borrower will enter bankruptcy or financial re-organization, or the disappearance of an active market for that financial asset because of financial difficulties. a) Financial assets carried at amortized cost For certain categories of financial assets, such as discounts and loans, and receivables are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of discounts and loans and receivables could include the Bank and its subsidiary s past experience of collecting payments, an increase in the number of delayed payments in the portfolio, as well as observable changes in national or local economic conditions that correlate with default on discounts and loans and receivables. For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate. For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. Pursuant to Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Nonaccrual Loans (the Regulations ) issued by the authority, the Bank and its subsidiary assess the recoverability of credit assets on the basis of a customer s financial position, delinquency in interest or principal payments, and the Bank and its subsidiary s internal valuation of collaterals. Under the regulations, the Bank categorize the credit assets into Normal, Special Mention, Substandard, Doubtful, and Loss, and then make minimum provisions at 0.5% of the normal credits (other than those loans to ROC government), 2% of special mention, 10% of substandard, 50% of doubtful, and 100% of loss. In addition, in accordance with Rule No subsequently issued by the FSC, the coverage ratio of loans should be more than 1%. Credits deemed uncollectible may be written off if the write-off is approved by the board of directors. Recoveries of amounts previously written off are credited to the allowance account. b) Available-for-sale financial assets For available-for-sale equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period