Taishin International Bank Co., Ltd. Financial Statements for the Years Ended December 31, 2016 and 2015 and Independent Auditors Report

Transcription

1 Taishin International Bank Co., Ltd. Financial Statements for the Years Ended December 31, 2016 and 2015 and Independent Auditors Report

2 INDEPENDENT AUDITORS REPORT The Board of Directors and Shareholders Taishin International Bank Co., Ltd. Opinion We have audited the financial statements of Taishin International Bank Co., Ltd. (the Company), which comprise the balance sheets as of December 31, 2016 and 2015, and the statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2016 and 2015, and the notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2016 and 2015, and its financial performance and its cash flows for the years ended December 31, 2016 and 2015, in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks and the Regulations Governing the Preparation of Financial Reports by Securities Firms, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. Basis for Opinion We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements of Financial Institutions by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters

3 The following were the description of key audit matters in the audit of the financial statements of the Company for the year ended December 31, 2016: Impairment of Loans and Receivables from Defaulted Financial Instruments The core businesses of the Company are commercial loans and issuing of various financial instruments. Loans are a significant account because it accounted for 58% of total assets at December 31, Financial instruments are also significant because they are susceptible to market exchange rate or interest rate volatility and exposed to counterparty default credit risk. The Company assesses loans, and receivables from defaulted financial instruments for impairment in accordance with IAS 39 Financial Instruments: Recognition and Measurement. Please refer to Notes 5, 10 and 11 to the consolidated financial statements for relevant information. The above mentioned impairment assessment is made by management using judgments and assumptions. Please refer to Note 6 to the consolidated financial statements for additional information. Therefore, we consider impairment of loans, and receivables from defaulted financial instruments as a key audit matter. We tested the design and operating effectiveness of controls and procedures for identifying loans and advances exposed to impairment and for ensuring that provisions against those assets are made. We identified loans and checked from public information whether the borrowers were possibly problematic companies, or already included in the companies under evaluation for credit limits. We assessed the reasonableness of the effective interest rate used in estimating future cash flows and the value of collaterals to confirm whether the Company has properly evaluated the provision for bad debts of problematic credit loans. We also evaluated whether the assumptions used in the impairment assessment model of the Company were reasonable in view of the current economic condition and actual situation of the loans and based on the occurrence rate and recovery rate of impairment in the past. Simultaneously, we checked the Company s compliance with regulations on assessment of impairment and we verified consistency of impairment calculation models. We tested the design and operating effectiveness of the related controls in the Company s valuation of receivables from defaulted financial instruments. We also reviewed sample data on impairment assessment of receivables from defaulted financial instruments. Moreover, we verified whether impairment loss was recognized in accordance with IAS 39 and related regulations and whether payments were received after the date of financial statements. Accuracy of Loans Interest Revenue Recognition For the year ended December 31, 2016, loans interest revenues were $21,728,946 thousand, accounting for 68% of net revenue and gains; thus, a very significant account in the financial statements and a key audit matter. Please refer to Notes 5 and 28 to the consolidated financial statements for related information. Loans interest revenue is mainly calculated by the information system which uses data inputs and system parameters and arithmetic logic. We tested the design and operating effectiveness of the related controls over the system. The audit procedures included tests of accuracy of loans interest revenue recognized, and tests whether controls over the authorities of responsible personnel who operate the system are effective. We selected and recalculated one month data from the annual interest revenue recognized using the information system and confirmed the amount to the carrying amount in the books. Others On April 24, 2016, the Company merged with Taishin Holdings Insurance Brokers Co., Ltd. which was held by Taishin Financial Holding, please refer to Notes 1 and 44. This consolidation is reorganization under common control. According to IFRS Q&A and interpretation issued by ARDF, when the Company prepared comparative financial statements, the financial statements were retroactively restated to reflect the merger assuming both entities had merged

4 Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks, the Regulations Governing the Preparation of Financial Reports by Securities Firms, International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including the supervisors, are responsible for overseeing the Company s financial reporting process. Auditors Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Company to cease to continue as a going concern

5 5. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements for the year ended December 31, 2016 and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partners on the audit resulting in this independent auditors report are Tza Li Gung and Ching Cheng Yang. Deloitte & Touche Taipei, Taiwan Republic of China February 16, 2017 Notice to Readers The accompanying financial statements are intended only to present the 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 financial statements are those generally applied in the Republic of China. For the convenience of readers, the independent auditors report and the accompanying 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 financial statements shall prevail

6 TAISHIN INTERNATIONAL BANK CO., LTD. BALANCE SHEETS DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Par Value) (Restated - Note 44) ASSETS Amount % Amount % Cash and cash equivalents (Notes 5, 7 and 40) $ 18,576,538 1 $ 20,626,538 2 Due from the Central Bank and call loans to banks (Note 8) 76,897, ,840,901 3 Financial assets at fair value through profit or loss (Notes 5, 9 and 40) 84,377, ,151,300 8 Securities purchased under resell agreements (Notes 5 and 40) 5,286,859-2,951,852 - Receivables, net (Notes 5, 10 and 11) 99,160, ,856,182 6 Current tax assets (Notes 5 and 34) 528, ,698 - Loans, net (Notes 5, 6, 11, 39 and 40) 877,369, ,625, Available-for-sale financial assets, net (Notes 5 and 12) 301,621, ,112, Investments accounted for using the equity method, net (Notes 5 and 13) 2,083,553-2,085,112 - OTHER FINANCIAL ASSETS, NET Financial assets carried at cost, net (Notes 5 and 14) 1,305,133-1,314,619 - Other miscellaneous financial assets, net (Notes 5, 11 and 15) 9,822, ,155,502 1 Other financial assets, net 11,127, ,470,121 1 Property and equipment, net (Notes 5 and 16) 18,144, ,861,834 1 Intangible assets, net (Notes 5 and 17) 1,726,210-1,529,378 - Deferred tax assets (Notes 5 and 34) 2,730,930-3,250,685 - Other assets, net (Note 18) 14,540, ,335,185 2 TOTAL $ 1,514,170, $ 1,464,342, LIABILITIES AND EQUITY Due to the Central Bank and banks (Note 19) $ 46,966,461 3 $ 64,689,878 5 Financial liabilities at fair value through profit or loss (Notes 5, 9 and 40) 35,424, ,883,193 3 Securities sold under repurchase agreements (Notes 5 and 40) 68,974, ,484,280 6 Payables (Notes 3 and 20) 28,187, ,741,461 2 Current tax liabilities (Notes 5 and 34) 636, ,486 - Deposits and remittances (Notes 21 and 40) 1,113,184, ,042,220, Bank debentures (Note 22) 53,000, ,000,000 4 Other financial liabilities (Note 24) 44,114, ,180,126 3 Reserve for liabilities (Notes 5 and 23) 1,119, ,150 - Deferred tax liabilities (Notes 5 and 34) 125,121-53,552 - Other liabilities (Notes 5 and 25) 2,400,744-2,048,640 - Total liabilities 1,394,134, ,374,606, EQUITY (Note 27) Capital stock Common stock 68,845, ,118,710 4 Capital surplus 23,974, ,698,829 - Retained earnings Legal reserve 18,046, ,085,066 1 Special reserve 503, ,698 - Unappropriated earnings 8,943, ,871,058 1 Other equity (276,922) - (313,843) - Total equity 120,036, ,736,518 6 TOTAL $ 1,514,170, $ 1,464,342, The accompanying notes are an integral part of the financial statements

7 TAISHIN INTERNATIONAL BANK CO., LTD. STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) Percentage (Restated - Note 44) Increase (Decrease) Amount % Amount % % INTEREST INCOME (Notes 5, 28 and 40) Interest revenues $ 27,401, $ 28,211, (3) Interest expenses (10,197,247) (33) (11,070,553) (33) (8) Net interest income 17,203, ,140, NET INCOME OTHER THAN NET INTEREST INCOME Net service fee income (Notes 5, 29 and 40) 10,349, ,616, (3) Gain on financial assets and liabilities at fair value through profit or loss (Notes 5, 30 and 40) 2,846, ,449, (36) Realized gain on available-for-sale financial assets (Notes 5 and 31) 287, ,711 1 (27) Share of profit of subsidiaries, associates and joint ventures accounted for using the equity method (Note 5) 35,898-75,600 - (53) Foreign exchange gains (losses) (Note 5) 343,610 1 (159,826) Impairment loss on assets (Note 14) (1,571) - (9,457) - (83) Net other non-interest income 543, ,876 2 (3) Net income other than net interest income 14,404, ,928, (10) NET REVENUE AND GAINS 31,608, ,069, (4) (PROVISIONS FOR) REVERSED OF BAD DEBTS EXPENSES AND GUARANTEE LIABILITY (Notes 5 and 11) (3,036,866) (10) (2,500,896) (8) 21 OPERATING EXPENSES Employee benefits expenses (Notes 5, 26, 32 and 40) (9,837,896) (31) (9,756,769) (30) 1 Depreciation and amortization expenses (Note 33) (908,739) (3) (808,936) (2) 12 Other general and administrative expenses (Note 40) (6,782,143) (21) (6,921,671) (21) (2) Total operating expenses (17,528,778) (55) (17,487,376) (53) - (Continued) - 6 -

8 TAISHIN INTERNATIONAL BANK CO., LTD. STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) Percentage (Restated - Note 44) Increase (Decrease) Amount % Amount % % INCOME BEFORE INCOME TAX $ 11,042, $ 13,080, (16) INCOME TAX EXPENSE (Notes 5 and 34) (1,507,302) (5) (1,774,323) (5) (15) NET INCOME 9,535, ,306, (16) OTHER COMPREHENSIVE INCOME Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans (253,108) (1) (293,306) (1) (14) Share of the other comprehensive income of associates and joint ventures accounted for using the equity method 8,468-4, Income tax relating to items that will not be reclassified subsequently to profit or loss 43,028-49,862 - (14) Items that may be reclassified subsequently to profit or loss: Unrealized gain (loss) on available-for-sale financial assets 24,348 - (519,218) (2) 105 Share of the other comprehensive income (loss) of associates and joint ventures accounted for using the equity method (1,312) - 1,438 - (191) Income tax relating to items that may be reclassified subsequently to profit or loss 13,885-7, Other comprehensive loss for the year, net of income tax (164,691) (1) (749,173) (3) (78) TOTAL COMPREHENSIVE INCOME $ 9,370, $ 10,557, (11) NET PROFIT ATTRIBUTABLE TO: Owner of parent $ 9,144, $ 10,106, (10) Equity attributable to former owner of business combination under common control 390, ,200,104 4 (67) $ 9,535, $ 11,306, (16) (Continued) - 7 -

9 TAISHIN INTERNATIONAL BANK CO., LTD. STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) Percentage (Restated - Note 44) Increase (Decrease) Amount % Amount % % TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owner of parent $ 8,980, $ 9,360, (4) Equity attributable to former owner of business combination under common control 390, ,196,365 4 (67) $ 9,370, $ 10,557, (11) EARNINGS PER SHARE (Note 35) Basic $1.64 $2.06 Diluted $1.64 $2.06 The accompanying notes are an integral part of the financial statements. (Concluded) - 8 -

10 TAISHIN INTERNATIONAL BANK CO., LTD. STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars) Other Equity Equity Attributable to Capital Surplus Unrealized Gains Former owner of Additional Paid-in Retained Earnings Exchange Differences (Losses) on Available- Business Combination Capital Stock Capital in Excess of Stock-based Unappropriated on Translating for-sale Financial under Common Common Stock Par Compensation Legal Reserve Special Reserve Earnings Foreign Operations Assets Control (Note 44) Total Equity BALANCE AT JANUARY 1, 2015 $ 52,025,626 $ 5,202,662 $ 209,735 $ 11,190,540 $ 276,698 $ 12,981,755 $ 801 $ 195,490 $ - $ 82,083,307 Retrospective adjustment of equity attributable to former owner due to reorganization of entities under common control ,097,852 1,097,852 BALANCE AT JANUARY 1, 2015 AS RESTATED 52,025,626 5,202, ,735 11,190, ,698 12,981, ,490 1,097,852 83,181,159 Appropriation of 2014 earnings Legal reserve ,894,526 - (3,894,526) Cash dividends on common stock (7,724,145) - - (971,715) (8,695,860) Stock dividends on common stock 1,363, (1,363,084) Net income for the year ended December 31, ,106, ,200,104 11,306,462 Other comprehensive income for the year ended December 31, 2015, net of tax (235,300) (45) (510,089) (3,739) (749,173) Total comprehensive income for the year ended December 31, ,871,058 (45 ) (510,089 ) 1,196,365 10,557,289 Issue of common shares for cash 2,730,000 3,275, ,005,118 Share-based payments - 17,752 (6,438 ) ,330 Corporate restructuring (Note 44) (1,322,518 ) (1,322,518 ) BALANCE AT DECEMBER 31, ,118,710 8,495, ,297 15,085, ,698 9,871, (314,599 ) - 89,736,518 Retrospective adjustment of equity attributable to former owner due to reorganization of entities under common control - (48) ,322,518 1,322,518 BALANCE AT JANUARY 1, 2016 AS RESTATED 56,118,710 8,495, ,345 15,085, ,698 9,871, (314,599 ) 1,322,518 91,059,036 Appropriation of 2015 earnings Legal reserve ,961,317 - (2,961,317) Special reserve ,126 (227,126) Cash dividends on common stock (6,682,615) - - (1,196,365) (7,878,980) Net income for the year ended December 31, ,144, ,920 9,535,626 Other comprehensive income for the year ended December 31, 2016, net of tax (201,612) (2,383) 39,304 - (164,691) Total comprehensive income for the year ended December 31, ,943,094 (2,383 ) 39, ,920 9,370,935 Issue of common shares for cash 12,727,273 15,271, ,998,655 Share-based payments - 21,451 (17,377 ) ,088 Corporate restructuring (Note 44) (517,087 ) (517,087 ) BALANCE AT DECEMBER 31, 2016 $ 68,845,983 $ 23,788,317 $ 185,968 $ 18,046,383 $ 503,824 $ 8,943,094 $ (1,627 ) $ (275,295 ) $ - $ 120,036,647 The accompanying notes are an integral part of the financial statements

11 TAISHIN INTERNATIONAL BANK CO., LTD. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars) (Restated - Note 44) CASH FLOWS FROM OPERATING ACTIVITIES Net income before income tax $ 11,042,928 $ 13,080,785 Adjustments: Adjustment to reconcile profit or loss Depreciation expenses 734, ,386 Amortization expenses 173, ,550 Provision for bad debts expenses 2,998,258 2,558,491 Provision for (reverse of) guarantee liability 38,608 (57,595) Net gain on financial assets and liabilities at fair value through profit or loss (2,846,762) (4,449,061) Interest expenses 10,197,247 11,070,553 Interest income (27,401,213) (28,211,330) Dividend income (186,029) (221,170) Share-based (reversed) payments 24,981 (22) Share of loss of subsidiaries, associates and joint ventures accounted for using the equity method (35,898) (75,600) Gain on disposal of investments (187,899) (267,370) Impairment loss on financial assets 1,571 9,457 Other adjustments 3,530, ,980 Total adjustment (12,957,535) (18,071,731) Changes in operating assets and liabilities Due from the Central Bank and call loans to banks (16,449,556) 412,984 Financial assets at fair value through profit or loss 58,598,415 (5,014,087) Securities purchased under resell agreements (1,023,568) (24,939) Receivables (10,308,485) (1,948,608) Loans (44,231,716) (29,350,363) Available-for-sale financial assets (15,009,742) (46,911,244) Other financial assets (1,527,516) 790,409 Other assets 11,794,904 (6,431,695) Due to the Central Bank and banks (1,604,742) (1,042,240) Financial liabilities at fair value through profit or loss (37,873,702) (12,418,352) Securities sold under repurchase agreements (24,510,103) 18,443,398 Payables 8,843,199 (1,469,689) Deposits and remittances 70,964,336 68,300,423 Other financial liabilities (3,065,388) (5,564,143) Other liabilities 307,644 (86,659) Cash flows used in operations (7,010,627) (27,305,751) Interest received 28,225,803 28,307,586 Dividend received 242, ,783 Interest paid (10,292,391) (11,053,737) (Continued)

12 TAISHIN INTERNATIONAL BANK CO., LTD. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars) (Restated - Note 44) Income taxes refund $ 187,249 $ 273,219 Income taxes paid (606,693) (2,273,334) Net cash flows generated from (used in) operating activities 10,745,466 (11,774,234) CASH FLOWS FROM INVESTING ACTIVITIES Decrease in debt investments without active market - 300,000 Capital reduction of financial assets at cost 18,850 15,550 Acquisition of property and equipment (1,048,118) (920,186) Proceeds from disposal of property and equipment 39, Acquisition of intangible assets (370,791) (182,318) Net cash outflow on acquisition of corporation (517,087) - Net cash flows used in investing activities (1,877,791) (786,111) CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in due to the Central Bank and call loans from banks (16,118,675) 9,728,270 Issuance of bank debentures - 20,000,000 Cash dividends distributed (7,878,980) (8,695,860) Issuance of common stock for cash 27,998,655 6,005,118 Net cash flows generated from financing activities 4,001,000 27,037,528 NET INCREASE IN CASH AND CASH EQUIVALENTS 12,868,675 14,477,183 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 37,706,072 23,228,889 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 50,574,747 $ 37,706,072 RECONCILIATION OF CASH AND CASH EQUIVALENTS Cash and cash equivalents in balance sheet $ 18,576,538 $ 20,626,538 Due from central bank and call loans to banks qualifying as cash and cash equivalents 27,759,857 14,152,621 Securities purchased under resell agreements qualifying as cash and cash equivalents 4,238,352 2,926,913 Cash and cash equivalents at end of the year $ 50,574,747 $ 37,706,072 The accompanying notes are an integral part of the financial statements. (Concluded)

13 TAISHIN INTERNATIONAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. ORGANIZATION AND OPERATIONS Taishin International Bank Co., Ltd. ( the Company ) incorporated in the Republic of China ( ROC ) is a public bank, began preparations for its establishment as a commercial bank on October 4, 1990 and started its business operations on March 23, Taishin Bank provides customers with (a) general commercial banking services - commercial lending, foreign exchange transactions, installments and term loans, wire transfers, marketable security investments, receivable factoring, offshore banking business, etc. as well as (b) various financial instruments - letters of credit, bankers acceptances, checking and savings accounts, credit cards, derivative instruments, etc. The Company was set up at B1 and 1F., No. 44, Zhongshan N. Rd., Sec. 2, Zhongshan Dist., Taipei City 104, Taiwan (R.O.C.). The main operation office of the Company is at No. 118, Ren Ai Rd., Sec. 4, Da An Dist., Taipei City 106, Taiwan (R.O.C.). Taishin Bank and Dah An Commercial Bank Co., Ltd. ( Dah An Bank ) decided to establish Taishin Financial Holding Co., Ltd. ( Taishin Financial Holding ) through a share swap, effective on February 18, 2002, with Taishin Bank as the survivor company. In order to integrating group resources and effectively utilizing operational capital to advance operational performance, Taishin Financial Holding conducted group internal restructure. Taishin Financial Holding had the Company merge Taishin Holdings Insurance Brokers Co., Ltd. ( Taishin Holdings Insurance Brokers ). On October 29, 2015, the board of the Company (acting as shareholders of the Company) resolved that the surviving company is the Company and the dissolved company is Taishin Holdings Insurance Brokers. The merging base date is April 24, Please refer to Note 44. The parent company and the final parent company of Taishin Bank is Taishin Financial Holding, which had a 100% equity interest in Taishin Bank as of December 31, 2016 and STATEMENT OF COMPLIANCE The financial statements were prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks, the Regulations Governing the Preparation of Financial Reports by Securities Firm, International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretation of IAS (SIC) permitted by the Financial Supervisory Commission ( FSC-recognized IFRSs ). 3. APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved by the Board of Directors and authorized for issue on February 16,

14 4. APPLICATION OF NEW, AMENDMENTS AND REVISED AND STANDARDS INTERPRETATIONS a. Amendments to the Regulations Governing the Preparation of Financial Reports by Public Banks, 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 from The company has not applied the following new IFRSs issued by the IASB. 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 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 Note 1: Unless stated otherwise, the above New 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, According to Rule No draft issued by the FSC, the Company will adopt the Regulations Governing the Preparation of Financial Reports by Public Banks after the Rule was announced. Based on the Company s assessment, as of the date the financial statements were authorized for issue, the Company continues assessing other possible impacts that application of the aforementioned amendments and the related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers will have on the Company s financial position and financial performance, and will disclose these other impacts when the assessment is completed

15 b. New IFRSs in issue but not yet endorsed by the FSC The Company has not applied the following IFRSs issued by the IASB but not yet endorsed by the FSC. The FSC announced that amendments to IFRS 15 will take effect starting January 1, As of the date the 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 1) Annual Improvements to IFRSs Cycle Note 2 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 Amendments to IFRS 15 Clarifications to IFRS 15 Revenue from January 1, 2018 Contracts with Customers 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 Amendments to IAS 40 Transfers of investment property January 1, 2018 IFRIC 22 Foreign Currency Transactions and Advance January 1, 2018 Consideration Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates. Note 2: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after January 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods beginning on or after January 1, The initial application of the above New IFRSs, whenever applied, would not have any material impact on the Company s accounting policies, except for the following: 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 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 s 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:

16 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 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. 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 takes 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. Financial instruments that have been derecognized prior to the effective date of IFRS 9 cannot be reversed to apply IFRS 9 when it becomes effective. Under IFRS 9, the requirements for classification, measurement and impairment of financial assets are applied retrospectively with the difference between the previous carrying amount and the carrying amount at the date of initial application recognized in the current period and restatement of prior periods is not required. 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 is a lessee, it shall recognize right-of-use assets and lease liabilities for all leases on the balance sheets except for low-value and short-term leases. The Company 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 statements of comprehensive income, the Company 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

17 The application of IFRS 16 is not expected to have a material impact on the accounting of the Company as lessor. When IFRS 16 becomes effective, the Company 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. As of the date the independent financial statements were authorized for issue, the Company is continuingly assessing the possible impact that the application of the above New IFRSs will have on the Company's financial position and operating result, and will disclose the relevant impact when the assessment is complete. 5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES According to Rule No and No issued by the FSC, the Company would apply IFRSs 2013 edition and related modified Regulations Governing the Preparation to Financial Reports by Securities Issuers approved by the FSC since Basis of Preparation The financial statements have been prepared on the historical cost basis except for certain properties and financial instruments that are measured at revalued amounts or fair values (refer to the summary of accounting policies below). Historical cost is generally based on the fair value of the consideration given in exchange for assets. The functional currency of the Company is New Taiwan dollars. Thus, the financial statements are presented in New Taiwan dollars. When preparing its parent company only financial statements, the Company used equity method to account for its investment in subsidiaries, associates and jointly controlled entities. In order for the amounts of the net profit for the year, other comprehensive income for the year and total equity in the parent company only financial statements to be the same with the amounts attributable to the owner of the Company in its consolidated financial statements, adjustments arising from the differences in accounting treatment between parent company only basis and consolidated basis were made to investments accounted for using equity method, share of profit or loss of subsidiaries, associates and joint ventures, share of other comprehensive income of subsidiaries, associates and joint ventures and related equity items, as appropriate, in the parent company only financial statements. The Company categorized economic activities into operating, investing, and financing activities. The statements of cash flows reported the change of cash and cash equivalents in the current period based on operating, investing, and financing activities. Please refer to Note 7 for the components of cash and cash equivalents. The cash flow of operating activities was reported by using indirect method. Under the indirect method, profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows. Interest paid and interest and dividends received are classified as operating cash flows. Dividends paid are classified as financing cash flow because they are cost of obtaining financial resources. When preparing the financial report in accordance with the IFRSs, the Company has to make certain significant accounting assumptions and estimates based on professional judgements to determine its accounting policies. Change in assumptions may result in significant effects on financial report. The Company believes that the financial report are reported based on appropriate assumptions. For items that required management s most difficult or complex judgements, or assumptions and estimates that significantly affect the financial report, please refer to Note

18 Classification of Current/Noncurrent Assets and Liabilities Because of banking business characteristics, classification of assets and liabilities according to the nature and the sequence of liquidity can provide more reliable and relevant information. Therefore, those assets and liabilities are not classified as current or noncurrent, but classified according to the nature and sequence of liquidity. Foreign Currencies In preparing the financial statements of the Company, the currency of the primary economic environment in which the Company operates (the functional currency ) is used. Transactions in currencies other than the Company s functional currency 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. When several exchange rates are available, the rate used is that at which the future cash flows, represented by the transaction amount or balance, could have been settled if those cash flows had occurred at the measurement 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 are recognized in profit or loss in the period in which they arise except items that qualify as hedging instruments in a cash flow hedge are recognized initially in other comprehensive income to the extent that the hedge is effective. Exchange differences arising on the retranslation of non-monetary assets (such as equity investment) 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. Cash and Cash Equivalents Cash and cash equivalents are cash in vault, cash in banks, short-term time deposits and short-term financial instruments that must be readily convertible to a known amount of cash or time deposits subject to an insignificant risk of changes in value. For the statement of cash flows, cash and cash equivalents are cash and cash equivalents on the balance sheet, due from the Central Bank and call loans to financial institution and securities purchased under resell agreements that are in conformity with the definition of cash and cash equivalents in the FSC-recognized IAS 7. Investment Accounted for Using Equity Method Investments in subsidiaries and associates are accounted for using equity method. a. Investment in subsidiaries Subsidiaries (including structured entities) are the entities controlled by the Company. Under the equity method, the investment is initially recognized at cost and the carrying amount is increased or decreased to recognize the Company's share of the profit or loss and other comprehensive income of the subsidiary after the date of acquisition. Besides, the Company also recognizes the Company s share of the change in other equity of the subsidiary. Changes in the Company s ownership interests in subsidiaries that do not result in the Company s loss of control over the subsidiaries are accounted for as equity transactions. Any difference between the carrying amounts of the investment and the fair value of the consideration paid or received is recognized directly in equity

19 When the Company s share of losses of a subsidiary equals or exceeds its interest in that subsidiary (which includes any carrying amount of the investment in subsidiary accounted for by the equity method and long-term interests that, in substance, form part of the Company s net investment in the subsidiary), the Company continues recognizing its share of further losses. The acquisition cost in excess of the acquisition-date fair value of the identifiable net assets acquired is recognized as goodwill. Goodwill is not amortized. The acquisition-date fair value of the net identifiable assets acquired in excess of the acquisition cost is recognized immediately in profit or loss. When the Company ceases to have control over a subsidiary, any retained investment is measured at fair value at that date and the difference between the previous carrying amount of the subsidiary attributable to the retained interest and its fair value is included in the determination of the gain or loss. Furthermore, the Company accounts for all amounts previously recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required if the Company had directly disposed of the related assets or liabilities. When the Company transacts with its subsidiaries, profits and losses resulting from the transactions with the subsidiaries are recognized in the Company financial statements only to the extent of interests in the associate that are not related to the Company. b. Investment in associates An associate is an entity over which the Company has significant influence 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 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 s share of the profit or loss and other comprehensive income of the associate. The Company also recognizes its share in the changes in the equity of associates. When the Company subscribes for additional new shares of the associate, at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Company s proportionate interest in the associate. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus. If the Company s ownership interest is reduced due to the additional subscription of the new shares of associate, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate is reclassified to profit or loss on the same basis as would be required if the investee had directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for by the equity method is insufficient, the shortage is debited to retained earnings. When the Company s share of losses of an associate equals or exceeds its interest in that associate (which includes any carrying amount of the investment accounted for by the equity method and long-term interests that, in substance, form part of the Company s net investment in the associate), the Company discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Company has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate. Any excess of the cost of acquisition over the Company s share of the net fair value of the identifiable assets and liabilities of an associate recognized at the date of acquisition is recognized as goodwill, which is included in the carrying amount of the investment and is not amortized. Any excess of the Company s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss