Stock Code: 5880 TAIWAN COOPERATIVE FINANCIAL HOLDING CO.,LTD. ANNUAL REPORT. Proactive Agile Innovative

Transcription

1 Stock Code: 5880 TAIWAN COOPERATIVE FINANCIAL HOLDING CO.,LTD. ANNUAL REPORT Proactive Agile Innovative This annual report is available at our website: Printed on April 24, 2012

2 Spokesperson Mei-Tsu Chen, Executive Vice President Tel Deputy Spokesperson Chung-Dea Hsieh, Executive Vice President Tel Headquarters Taiwan Cooperative Financial Holding Co., Ltd. Address No.77, Guancian Rd., Jhongjheng Dist., Taipei City 100,Taiwan,R.O.C. Tel Website Subsidiaries Taiwan Cooperative Bank Co., Ltd. Address No.77, Guancian Rd., Jhongjheng Dist., Taipei City 100,Taiwan,R.O.C. Tel Website Taiwan Cooperative Securities Co., Ltd. Address 2, 6F., No.325, Sec. 4, Zhongxiao E. Rd., Da'an Dist., Taipei City 106, Taiwan, R.O.C. Tel Website Taiwan Cooperative Bills Finance Corporation Ltd. Address 14F., No.85,87, Sec. 2, Nanjing E. Rd., Zhongshan Dist., Taipei City 104, Taiwan,R.O.C. Tel Website Co-operative Asset Management Co., Ltd. Address 7F., No.325, Sec. 4, Zhongxiao E. Rd., Da an Dist., Taipei City 106, Taiwan, R.O.C. Tel Website BNP Paribas Assurance TCB Life Insurance Co., Ltd. Address 10F., No.325, Sec. 4, Zhongxiao E. Rd., Da an Dist., Taipei City 106, Taiwan, R.O.C. Tel Website BNP Paribas TCB Asset Management Co., Ltd. Address 13F., No.85, Sec. 2, Nanjing E. Rd., Zhongshan Dist., Taipei City 104, Taiwan, R.O.C. Tel Website Stock Transfer Agent Grand Cathay Securities Corporation Address 5F., No.2, Sec. 1, Chongqing S. Rd., Jhongjheng Dist., Taipei City 100, Taiwan,R.O.C. Tel Website Auditors Deloitte & Touche Address 12F., No.156, Sec. 3, Minsheng E. Rd., Songshan Dist., Taipei City 105, Taiwan,R.O.C. Tel Website Notice to readers This English version annual report is a summary translation of the Chinese version and is not an official document of the shareholders meeting. If there is any discrepancy between the English version and Chinese version, the Chinese version shall prevail.

3 CONTENTS Letter to Shareholders 2. Company Profile 3. Corporate Governance 4. Capital Overview 5. Operational Highlights 6. Financial Information 7. Risk Management

4 02 Letter to Shareholders 1. Letter to Shareholders Review of Bussiness Operations in 1.2 Business Plan for Credit Ratings

5 ANNUAL REPORT 1. Letter to Shareholders 1.1 Review of Business Operations in Global and Domestic Financial Environment Global economic growth experienced a substantial slowdown in, mainly due to weak demand caused by the expansion of the European debt crisis, high unemployment in the advanced countries, and fiscal tightening. Global Insight Inc. estimates that the rate of global economic growth fell to 3.0% in, down from 4.3% the year before. In Taiwan, the recovery of 2010 extended into the first half of ; in the second half, however, trade, industrial production, and other indexes began a quarter-by-quarter decline under the impact of the global economic slowdown. The Directorate General of Budget, Accounting and Statistics estimates growth for the year at a moderate 4.04%. The island s unemployment rate stood at 4.18% at the end of, with the labor market continuing to improve. In the field of finance, the Central Bank raised interest rates twice in the first half of, by 12.5 basis points each time, to keep inflationary expectations down. These interest-rate hikes by the Central Bank led to a stable rise in interest rates in the monetary market and had a favorable impact on profitability in the financial industry. Consolidated after-tax profits earned by domestic financial holding companies reached NT$138.4 billion in, up 14.3% from. Besides continued development of our core banking businesses, the Company also experienced stable operations in other areas of finance including securities, bills, and asset management. In addition, our joint establishment of life insurance and investment trust companies together with the BNP Paribas Group showed good initial results. To achieve effective cross-industry synergies and heighten shareholder value, the Company was reorganized into the Taiwan Cooperative Financial Holding Co., Ltd., with the approval of the competent authority and of our own employees and shareholders, in. 03

6 04 Letter to Shareholders In 2012 we will continue holding firmly to the operating principles of proactive, agile and innovative as we work to integrate the resources of the holding company and enhance operating synergies. Under a framework centered on the banking business we will develop a diverse range of profit sources, in the initial stage taking twin profit engines as the target of short-term planning so as to promote group growth and, in the future, gradually developing a tri-engine strategy. Our aim is to become a benchmark quality financial holding company for the Asia-Pacific region; and we hope, through our integrated marketing and resource sharing platforms, to combine the strengths of group members as we continue working to create a win-win-win situation for our shareholders, our customers, and our employees Organization Integration Taiwan Cooperative Holdings was established on Dec. 1, through share swap with Taiwan Cooperative Bank, Co., Ltd., Taiwan Cooperative Bills Finance Corporation Ltd., and Co-operative Asset Management Co., Ltd. after the approval from the Financial Supervisory Commission, Executive Yuan on Sep. 22,. With a total asset valued near 2.8 trillion as well as NT$120 billion authorized capital, Taiwan Cooperative Holdings ranks the 4 th largest financial holding company in Taiwan by asset. The subsidiaries are Taiwan Cooperative Bank, Taiwan Cooperative Securities, Taiwan Cooperative Bills Finance Corporation, Co-operative Asset Management Co., Ltd., BNP Paribas Assurance TCB Life Insurance Company Ltd. and BNP Paribas TCB Asset Management Co., Ltd Business Operations of the Subsidiaries According to the Financial Holding Company Act Article 36, the business of a Financial Holding Company shall be limited to investment in, and management of, its invested enterprise(s). Taiwan Cooperative Holdings was established on Dec. 1,. The operation results of our subsidiaries are summarized as follows: Taiwan Cooperative Bank Units: NT$ million,except foreign exchange in US$ million Item Actual Budget Achievement (%) Deposits 2,166,071 2,141, Loans 1,860,265 1,832, Foreign exchange (US$) 94,372 82, Investment 424, , Trust 128, , Wealth Management--- Net service fee income 1,781 1, Securities (Note) 293, E-banking---Online banking transactions 403, , Credit Card--- Credit card transaction Acquiring transaction 19,452 64,096 20,000 60, Note Taiwan Cooperative Bank spun off its securities department to pave the way for the establishment of Taiwan Cooperative Securities on Dec. 2,.

7 ANNUAL REPORT Taiwan Cooperative Securities Units: NT$ million Item Actual ( ) Budget (Note) Achievement (%) Securities brokerage 16, Underwriting Note: Taiwan Cooperative Securities was established on Dec. 2,. Taiwan Cooperative Bills Finance Corporation Units: NT$ million Item Actual Budget Achievement (%) Underwriting and purchase of bills 127, , Guaranteed issued of commercial paper (face value) 125, , Dealing in bills 803, , Dealing in bonds 439, , Guaranteed issues of commercial paper outstanding 10,527 8, Payments for overdue credits Percentage of payments for overdue credits (%) Co-operative Asset Management Co., Ltd. Units: NT$ million Item Actual Budget Achievement (%) Operating income 1, Provision BNP Paribas Assurance TCB Life Insurance Co., Ltd. Units: NT$ million Item Actual Budget Achievement (%) Annual total premiums 33,575 31, BNP Paribas TCB Asset Management Co., Ltd. Units: NT$ million Item Actual Budget Achievement (%) Total fund size 4,686 10, Management fee

8 06 Letter to Shareholders Budget Implementation and Financial Results The Company Item Revenues 227 Expenses and losses 36 Net income before tax from continuing operations 191 Extraordinary gain 72 Net income 263 Basic Earnings per share 0.04 Diluted Earnings per share 0.04 Note: Taiwan Cooperative Holdings was established on Dec. 1,. The Company s Subsidiary Units: NT$ million, except EPS in NT$ Units: NT$ million Name of subsidiary Net income before tax-actual Net income before tax-budget Achievement (%) Taiwan Cooperative Bank 9, , Taiwan Cooperative Securities (2) (Note) (Note) Taiwan Cooperative Bills Finance Corporation Co-operative Asset Management Co., Ltd , BNP Paribas Assurance TCB Life Insurance Co., Ltd. (622) (137) --- BNP Paribas TCB Asset Management Co., Ltd. (106.29) (111.70) --- Note: Taiwan Cooperative Securities was established on Dec. 2,. Financial Results The Company was established on Dec.1,. The consolidated net income before tax for, of the company and its subsidiaries, amounted to NT$331 million. The return on total assets is 0.11% and the return on equity is 2.54% on a consolidated basis. A breakdown of the financial results of the Company and its subsidiaries in are shown in the table below: Company Net Income Before Tax Net Income After Tax Earnings Per Share Net Income Ratio (%) Units: NT$ million, except EPS in NT$ Return on Total Assets (%) Return on Equity (%) TCFHC and Its Subsidiaries TCFHC (Unconsolidated) Taiwan Cooperative Bank 9, , Taiwan Cooperative Securities (2) (2) (0.01) (12.03) (0.88) (0.93) Taiwan Cooperative Bills Finance Corporation Co-operative Asset Management Co., Ltd BNP Paribas Assurance TCB Life Insurance Co., Ltd. (622.09) (622.09) (1.56) (2.22) (1.16) (19.37) BNP Paribas TCB Asset Management Co., Ltd. (106.29) (106.98) (3.57) (250.87) (50.89) (56.40) Note: 1. Net income ratio=income after income tax Total net revenue. 2. Return on total assets=income after income tax Average total assets. 3. Return on equity=income after income tax Average stockholders equity.

9 ANNUAL REPORT 1.2 Business Plan for Business Objectives for 2012 Taiwan Cooperative Bank Name of Subsidiary Item 2012 Budget Deposits 2,216,700 Loans 1,892,000 Foreign exchange (US$ million) 88,000 Taiwan Cooperative Securities Securities brokerage 400,000 Taiwan Cooperative Bills Finance Corporation Underwriting and purchase of bills 150,000 Guaranteed issued of commercial paper (face value) 149,000 Dealing in bills 810,000 Dealing in bonds 452,000 Guaranteed issues of commercial paper outstanding 11,000 Co-operative Asset Management Co., Ltd. Operating income 344 BNP Paribas Assurance TCB Life Insurance Co., Ltd. Annual total premiums 34,603 BNP Paribas TCB Asset Management Co., Ltd. Total fund size 12, Operating Strategies for 2012 Units: NT$ million Reinforcement of the financial holding company planning and coordination functions, integration of the existing channel advantages and product ranges of the different subsidiaries, and upgrading of overall group operating performance. Consolidation of core banking businesses, use of the brand advantage to develop local customer groups, and enhancement of earnings and market shares of different businesses. Use of strategic alliances, equity participation, and M&A to rapidly expand business territory and initiate the group s twin-engine profit strategy. Implementation of risk control, internal control, and regulatory compliance systems to enhance asset quality and ensure that company operations all comply with legal rules. Continued establishment of bases overseas and in China, an pursuit of overseas strategic alliances and cooperative opportunities, with the aim of becoming a benchmark financial institution for the Asia- Pacific region. 1.3 Credit Ratings The credit ratings of the Company schedule to be rated on the second half year of A detailed review and outlook for Taiwan Cooperative Bank and Taiwan Cooperative Bills Finance Corporation are set out in the table below: Subsidiaries Taiwan Cooperative Bank Taiwan Cooperative Bills Finance Corporation 07 Global Rating Rating Agency Long-Term Short-Term Outlook Release Date S&P A- A-2 Stable Jan.13,2012 TRC twaa twa-1+ Stable Jan.13,2012 Fitch A- F2 Stable Jan.18,2012 AA(twn) F1+(twn) Stable Jan.18,2012 Fitch A (twn) F1 (twn) Stable Sep.5.

10 08 Company Profile 2. Company Profile Date of Establishment 2.2 Company History

11 ANNUAL REPORT 2. Company Profile 2.1 Date of Establishment: Dec. 1, 2.2 Company History Taiwan Cooperative Holdings was established on Dec. 1, through share swap with Taiwan Cooperative Bank, Co-operative Asset Management Co., Ltd. and Taiwan Cooperative Bills Finance Corporation Ltd. after the approval from the Financial Supervisory Commission, Executive Yuan on Sep. 22,. Upon its establishment, Taiwan Cooperative Holdings began on Dec. 1, to be listed on the Taiwan Stock Exchange under the new TWSE code: 5880, as a consequence, Taiwan Cooperative Bank was to be delisted from the market. With the aim of achieving financial holding synergy, Taiwan Cooperative Bank spun off its securities department to pave the way for the establishment of Taiwan Cooperative Securities Co., Ltd. on Dec. 2,. With a total asset valued near 2.8 trillion as well as NT$120 billion authorized capital, Taiwan Cooperative Holdings ranks the 4 th largest financial holding company in Taiwan by asset. The 51% shares of BNP Paribas Assurance TCB Life Insurance Co., Ltd. and BNP Paribas TCB Asset Management Co., Ltd. held by Taiwan Cooperative Bank were transferred to Taiwan Cooperative Holdings on April 3, 2012, making Taiwan Cooperative Holdings a financial conglomerate with businesses ranging from banking, insurance, securities, bills finance, trust, to assets management. President 09

12 10 Corporate Governance 3. Report of Corporate Governance TCFHC Organization Chart 3.2 Group Structure 3.3 Major Corporate Functions 3.4 Board Structure and Composition

13 ANNUAL REPORT Teng-Cheng Liu, Chairperson Jiin-Tarng Yue, President (from left to right) Wu-Lieh Tsai, E. V. P. & General Auditor Chung-Dea Hsieh, Executive Vice President Shu-Chang Chou, Executive Vice President Mei-Tsu Chen, Executive Vice President (from left to right) 11

14 12 Corporate Governance 3. Corporate Governance 3.1 TCFHC Organization Chart General Meeting of Shareholders Remuneration Committee Board of Directors Chairperson Directors Supervisor Executive Committee Risk Management Committee President S.V.P & General Auditor Executive Vice President Auditing Department Risk Management Department Business Development Department Administration Management Department

15 ANNUAL REPORT 3.2 Group Structure As of Dec.31, Taiwan Cooperative Financial Holding Co., Ltd owned owned United Taiwan Bank 100 owned Taiwan Cooperative Bank 100 owned Taiwan Cooperative Securities 100 owned Cooperative Insurance Brokers Co., Ltd 100 owned Taiwan Cooperative Bills Finance Corporation 100 owned Co-operative Asset Management Co., Ltd. 100 owned Cooperative-I Asset Management Corporation 51 owned BNP Paribas Assurance TCB Life Insurance Co.,Ltd. 51 owned BNP Paribas TCB Asset Management Co., Ltd. Note: The 51% shares of BNP Paribas Assurance TCB Life Insurance Co., Ltd. and BNP Paribas TCB Asset Management Co., Ltd. held by Taiwan Cooperative Bank were transferred to Taiwan Cooperative Holdings on April 3,

16 14 Corporate Governance 3.3 Major Corporate Functions Department Section Functions Auditing Department Business Development Department Administration Management Department Risk Management Department Section One Section Two Strategy Planning Section Marketing Integration Section Financial Planning Section Investment Management Section Human Resource Section Accounting Section General Administration Section Legal Affairs Section Public Relations Section Information Technology Section - Handling of auditing administration, documentation, and inspection of financial institutions. Auditing of the business of the Company and its subsidiaries, evaluation of the performance of subsidiaries internal auditing, and follow-up review of auditing deficiencies. Strategic directions for mid- and long-term development, and adjustment of the organizational framework. Product items, cost sharing, profit sharing, and promotion of cross-marketing for joint marketing by subsidiaries. Fund raising and utilization, and fund-raising assistance for subsidiaries. Planning and management for reinvested businesses. Personnel hiring, dismissal, transfer, design and implementation of personnel training, wages, and welfare. Accounting, budgeting and statistics, compilation of financial statement of subsidiaries and tax matters. General affairs, payments and receipts, procurement, and real estate management and maintenance. Handling of legal affairs, consultation on legal opinions, and planning, management, and implementation of the regulatory compliance system. Public relations liaison with institutional investors and the media, stock matters, credit rating matters, and compilation of annual reports and corporate social responsibility reports. Utilization strategy for information resources, integration of information between parent and subsidiary companies, parent company information planning and design, and other informationrelated matters. Establishment, monitoring, and reporting on risk management by the parent and subsidiary companies. Capital adequacy planning and management. Handling of emergency incidents. Other matters relating to risk management and the formulation of rules.

17 ANNUAL REPORT 3.4 Board Structure and Composition Board of Directors, Supervisors and Executive Officers As of April,24,2012 Board of Directors Supervisors Title Name Title Name Chairperson Teng-Cheng Liu Chung-Fern Wu Director & President Jiin-Tarng Yue Len-E Chen Yung-Cheng Chang Tse-Ching Huang Chang-Ruey Shiau Kuo-Tay Chen Tsuen-Hua Shih Ting-Jeng Chan Supervisors E-Dawn Chen Sen-Hsien Chen Jui-Tsan Chou Directors Dai-Ming Fann Gow-Ning Yuan Kuo-Yang Chen Mu-Chin Cheng Jong-Wei Chang Wen-Lu Chen Feng-Yi Lin As of April,24,2012 Executive Officers Title President Name Jiin-Tarng Yue Shu-Chang Chou Executive Vice President Chung-Dea Hsieh Mei-Tsu Chen E.V.P.& General Auditor S.V.P. &Chief Secretary S.V.P. &General Manager, Auditing Department S.V.P. &General Manager, Administration Management Department S.V.P. &General Manager, Business Development Department S.V.P. &General Manager, Risk Management Department Wu-Lieh Tsai Chih-Cheng Peng Ching-Hsin,Lien Ching-Chun Lin Ming-Sung Chen Shiaw-Yen Lun 15

18 16 Corporate Governance Professional qualifications and independence analysis of Directors and Supervisors As of April,24,2012 Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience Independence Criteria(Note) Name Criteria An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company Number of Other Public Companies in Which the Individual is Concurrently Serving as an Independent Director Chairperson Teng-Cheng Liu Director Jiin-Tarng Yue Director Yung-Cheng Chang Director Tse-Ching Huang Director Chang-Ruey Shiau Director Kuo-Tay Chen Director Tsuen-Hua Shih Director Ting-Jeng Chan Director Dai-Ming Fann Director Gow-Ning Yuan Director Kuo-Yang Chen Director Mu-Chin Cheng Director Jong-Wei Chang Director Wen-Lu Chen p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p

19 ANNUAL REPORT Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience Independence Criteria(Note) Name Criteria An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company Number of Other Public Companies in Which the Individual is Concurrently Serving as an Independent Director Director Feng-Yi Lin Supervisor Chung-Fern Wu Supervisor Len-E Chen Supervisor E-Dawn Chen Supervisor Sen-Hsien Chen Supervisor Jui-Tsan Chou p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p Note: Please tick the corresponding boxes if directors or supervisors have been any of the following during the two years prior to being elected or during the term of office. 1. Not an employee of the Company or any of its affiliates. 2. Not a director or supervisor of the Company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares. 3. Not a natural-person shareholder who holds shares, together with those held by the person s spouse, minor children, or held by the person under others names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings. 4. Not a spouse, relative within the second degree of kinship, or lineal relative within the fifth degree of kinship, of any of the persons in the preceding three subparagraphs. 5. Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds shares ranking in the top five in holdings. 6. Not a director, supervisor, officer, or shareholder holding 5% or more of the share, of a specified company or institution that has a financial or business relationship with the Company. 7. Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof. 8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company. 9. Not been a person of any conditions defined in Article 30 of the Company Law. 10. Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law. 17

20 18 Capital Overview 4. Capital Overview Capital and Shares 4.2 Dividend Policy and Implementation Status

21 ANNUAL REPORT 4. Capital Overview 4.1 Capital and Shares Issued Shares Month/ Year Par Value (NTD) Authorized Capital Paid-in Capital Remark Shares (In Thousands of Shares) Amount (In Thousands of NTD) Shares (In Thousands of Shares) Amount (In Thousands of NTD) Sources of Capital ,000, ,000,000 6,596,825 65,968,254 The TCFHC was established on Dec. 1, through a share swap; the issuance of swapped shares amounted to 6,596,825,000 shares, each with a face value of NT$10. authorized and paid-in capital at the end of stood at NT$120,000,000,000 and NT$65,968,254,000, respectively. As of April 24,2012 Other Type of Stock As of April 24,2012 Share Type Authorized Capital Issued Shares Un-issued Shares Total Shares Remarks Common Stock 6,596,825,431 5,403,174,569 12,000,000,000 (Note) Note: All issued shares are listed on the Taiwan Stock Exchange Status of Shareholders As of April 24,2012 Government Agencies Financial Institutions Other Juridical Person Domestic Natural Persons Foreign Institutions & Natural Persons Total Number of Shareholders , ,779 Shareholding (shares) 2,554,320, ,681,707 1,322,910,933 1,791,508, ,404,162 6,596,825,431 Percentage 38.72% 2.81% 20.05% 27.16% 11.26% 100% Shareholding Distribution Status Common Shares (The par value for each share is NT$10) As of April 24,2012 Class of Shareholding (Unit : Share) Number of Shareholders Shareholding (Shares) Percentage 1~999 39,576 12,660, % 1,000~5,000 53, ,919, % 19

22 20 Capital Overview Class of Shareholding (Unit : Share) Number of Shareholders Shareholding (Shares) Percentage 5,001~10,000 17, ,102, % 10,001~15,000 9, ,926, % 15,001~20,000 3,597 62,835, % 20,001~30,000 5, ,889, % 30,001~50,000 4, ,657, % 50,001~100,000 3, ,974, % 100,001~200,000 2, ,880, % 200,001~400,000 1, ,973, % 400,001~600, ,017, % 600,001~800, ,142, % 800,001~1,000, ,425, % 1,000,001 or over 427 4,751,420, % Total 140,779 6,596,825, % List of Major Shareholders As of April 24,2012 Shareholder's Name Shares Shareholding Percentage Ministry of Finance,R.O.C. 2,351,832, % Taiwan Cooperative Bank 206,739, % Chunghwa Post Co., Ltd. 94,254, % Taiwan Provincial Farmers Association 81,898, % Vanguard Emerging Markets Stock Index Fund, A series of Vanguard International Equity Index Funds 72,203, % Management Board Public Service Pension Fund 53,863, % China Life Insurance Co., Ltd. 53,797, % Dimensional Emerging Markets Value Fund 53,764, % JPMorgan Chase Bank N.A. Taipei Branch in custody for Norges Bank 36,038, % Polaris Taiwan Top 50 Tracker Fund 35,524, % Market Price, Net Worth, Earnings and Dividends per Share Market Price per Share Unit: NT$ Item As of March 31,2012 Highest Market Price Lowest Market Price Average Market Price

23 ANNUAL REPORT Net Worth per Share Earnings per Share Dividends per Share Return on Investment Analysis Item As of March 31,2012 Before Distribution After Distribution - - Weighted Average Shares (thousand shares) 6,390,086 6,390,086 Earnings Per Share Cash Dividends - - Stock Dividends from Retained Earnings - - Dividends Dividends from Capital Surplus - - Accumulated Undistributed Dividends - - Price / Earnings Ratio (Note 1) Price / Dividend Ratio (Note 2) - - Cash Dividend Yield Rate (Note 3) - - Note 1: Price / Earnings Ratio = Average Market Price / Earnings per Share Note 2: Price / Dividend Ratio = Average Market Price / Cash Dividends per Share Note 3: Cash Dividend Yield Rate = Cash Dividends per Share / Average Market Price 4.2 Dividend Policy and Implementation Status Dividend Policy If the Company s final annual budget shows a surplus, it should be used first to make up for the losses of past years and then allocated for the legal reserve. In accordance with legal regulations and business needs, it may also be allocated for a special reserve; the balance may be allocated for employee bonuses at a rate of 0.02% to 0.16%, and for directors and supervisors remuneration up to a ceiling of 1%. The Board of Directors formulates a profit distribution proposal for any remaining surplus together with undistributed profit from previous years and asks the Shareholders Meeting to pass a resolution for its distribution as stock dividends, bonuses, or retained earnings. The Company s distribution of cash dividends follows the principle of their not being less than 50%, with the remainder being distributed as stock dividends. If the distributable cash dividend is less than NT$0.1 per share, it will not be distributed unless otherwise decided by the Shareholders Meeting Proposed Distribution of Profits The proposal of the current Annual General Meeting of Shareholders for the distribution of cash dividends is NT$0.5 per share, for a total distribution of NT$3,298,412,715. Stock dividends for a capital increase from capital reserves are to be distributed at a rate of 5% (that is, 50 shares are issued for each 1,000 shares), for a total distribution of NT$3,298,412,

24 22 Operational Highlights 5. Operational Highlights Business Overview 5.2 Operating Policies in Corporate Social Responsibilities

25 ANNUAL REPORT 5. Operational Highlights 5.1 Business Overview Taiwan Cooperative Holdings According to Taiwan s Financial Holding Company Act, the business of a financial holding company shall be limited to investment in, and management of, its invested enterprise(s). Unit: NT$ thousand Item Year Amount % Investment income from equity investments accounted for by the equity method 222, Other operating revenue 4,513 2 Total 227, The business overview of the subsidiaries are shown in the table below: Taiwan Cooperative Bank Unit: NT$ thousand Item 2010 Amount % Amount % Change (%) Net interest income 24,688, ,697, Net fee income 4,356, ,297, Gains on financial assets and liabilities at fair value through profit or loss -1,248, ,003, Realized gain on available-for sale financial assets 257, , Investment income recognized by the equity method 50, , Foreign exchange gain 2,531, , Asset impairment reversals 23, , Gain on financial assets carried at cost 249, , Interests of property transactions 39, , Recovery of bad debts and overdue accounts 2,238, ,388, Other non-interest income-net 375, , Total 33,563, ,267,

26 24 Operational Highlights Item Taiwan Cooperative Securities Year Amount % Unit: NT$ thousand Brokerage fee income 11, Underwriting income Gain on sale of operating securities-underwriting Interest income 7, Future commission income Other operating income Total 20, Note: Taiwan Cooperative Securities was established on Dec. 2,. Taiwan Cooperative Bills Finance Corporation Unit: NT$ thousand Year 2010 Item Amount % Amount % Bills revenue 194, , Bond proceeds 107, , Other non-interest income 76, , Total 379, , Item Co-operative Asset Management Co., Ltd. Year (Consolidated) 2010 (Consolidated) Amount % Amount % Unit: NT$ thousand Operating income 1,195, , Gain on disposal of assets- not for operating 7, Interest income , Other operating income Total 1,204, , Item BNP Paribas Assurance TCB Life Insurance Co., Ltd. Year 2010 (Note) Amount % Amount % Unit: NT$ thousand Total premiums 33,575, ,455, Note: BNP Paribas Assurance TCB Life Insurance Co., Ltd. was established on April 20, 2010.

27 ANNUAL REPORT Item BNP Paribas TCB Asset Management Co., Ltd. Year Unit: NT$ thousand Amount % Total management fee 42, Operating Policies in 2012 The Company is a financial holding company that was transformed out of Taiwan s biggest private bank. In addition to stable development of the core banking business, the Group s operating goal for 2012 is to make vigorous use of the bank s existing channel advantage and customer base to stimulate the rapid growth of the businesses of other subsidiaries so as to fulfill an operating strategy of profit source diversification and enhance the Group s overall operating performance. In consideration of the ongoing European debt crisis and the sluggish recovery of the world s economies, in its pursuit of business growth, the Company will place heavy emphasis on risk control and will reinforce the Group s capital structure in order to be able to respond to potential market changes and challenges. Taiwan Cooperative Financial Holding Co. will hold steadfastly to the operating principles of proactive, agile, and innovative and will adopt the following four core values as the directions of its operational development in 2012: (1) Integration of Group resources, realization of operating synergies, and creation of profit for the overall enterprise The management effectiveness of the different subsidiaries will be boosted by integrating Group resources and financial planning, and joint marketing and cross-industry cooperation between subsidiaries will be reinforced so as to provide one-stop financial services. (2) Reinforcement of overseas deployment and enhancement of international competitiveness in combination with strategic partners Overseas deployment will be continuously developed on the existing solid foundation, and international competitiveness will be upgraded in concert with strategic cooperative partners as the Holding Company moves toward becoming a landmark financial institution for the Asia-Pacific region. (3) Institution of comprehensive risk control, reinforcement of information disclosure, and implementation of the corporate governance mechanism Internal controls and internal auditing will be thoroughly implemented in order to establish an effective compliance and risk management mechanism, and corporate governance will be carried out so as to guarantee shareholder and public interests and establish a foundation for sustainable operation. 25

28 26 Operational Highlights (4) Fulfillment of corporate responsibility and emphasis on employee interests with the aim of becoming an outstanding financial holding company Fulfillment of corporate responsibility under the constant philosophy of knowing and cherishing your blessings, and paying back to society and participation in public-benefit and environmental protection activities as we advance toward becoming a high-quality financial holding company. 5.3 Corporate Social Responsibilities (1) The Company adheres firmly to the principle of stable operation and conforms to the regulations of the competent authority and the rules of social responsibility, establishing a good corporate governance mechanism and corporate culture so as to create maximum value for our shareholders. (2) Environmental protection The Company adheres to the government policy of energy conservation and carbon reduction, and strives to promote the concept of environmental protection by controlling the temperature of air conditioning in office premises and using electricity-saving LED lighting equipment to reduce electricity usage, installing water-saving devices on water-supply equipment to conserve water, and propagating electricity- and water-conservation concepts among employees. In its procurement the Company gives priority to equipment that bears environmental protection and energy-conservation labels, and uses green-building-labeled products in its building decoration. In its operating environment and office space, the Company works to upgrade the reuse of resources and carry out resource recovery. (3) Consumer rights The Company has instituted Customer Data Protection Measures to protect the rights of consumers, and has announced them on its official website. The Company and its different subsidiaries all have official websites that provide information on products and services, and have installed customerservice telephones or boxes as a channel for customer complaints and communication. (4) Employee care, human rights, and safety and health The Company has established work rules and personnel management regulations in accordance with the Labor Standards Act and other relevant labor laws and regulations, and handles labor insurance, national health insurance, and retirement pensions in accordance with the Labor Insurance Act, Labor Pension Act, and other relevant laws and regulations. The Company has instituted Regulations for Employee Retirement Pensions and Severance to provide for its retirement system, and allocates retirement pension funds into a special retirement account, in accordance with regulations, to assure the livelihoods of retired employees.

29 ANNUAL REPORT The Company has established guidelines for the prevention of sexual harassment in the workplace, for surveys and the handling of complaints, and for punishments in accordance with the Sexual Harassment Prevention Act and Gender Equality in Employment Act to provide employees with a work environment free of sexual harassment. The Company provides employees with comfortable, healthy, and safe office space with regular safety inspections of buildings and fire-prevention facilities, and all interior decorations are made of fireresistant, flame-retardant, and non-toxic materials so as to protect the health and safety of workers. Breastfeeding rooms are also provided to give employees a healthy and comfortable breastfeeding environment. (5) The Company s operating principles are based on the fulfillment of corporate social responsibility. The contributions made to society by public-benefit activities, social services, and community participation carried out by subsidiaries under its flag in are as follows: The BNP Paribas Assurance TCB Life Insurance Co., Ltd. BNP Paribas TCB Asset Management Co., Ltd. Taiwan Cooperative Bills Finance Corp., and Co-operative Asset Management Co., Ltd. held a public-benefit garden party on Sep. 24 and donated all of the proceeds to the Child Welfare League Foundation to help disadvantaged groups and fulfill the Group s corporate social responsibility. Taiwan Cooperative Bank (TCB) holds public-benefit activities such as charity donations, sports events, and local art promotions every year; in, it organized an ROC Centennial New Year s Eve Fireworks Show and Golden Decade ROC Centennial Financial Carnival, and sponsored a River of Wisdom The Moving Qingming Festival on the River Exhibition and Mysteries of Eternal Life Mummies of Ancient Egypt Exhibition. To promote sports for all the people and arouse an interest in ball sports among children, Taiwan Cooperative Bank used the resources of its three ball teams baseball, badminton, and table tennis to hold winter and summer vacation children s camps as well as TCB Cup table tennis and slow-pitch softball tournaments. The Bank also sponsored the LPGA Taiwan Championship, Chinese Taipei Badminton Open, Chinese Taipei Junior and Cadet [Table Tennis] Open, and World Junior [Badminton] Championships to show concern for the community and pay back to society. The TCB also performed well in helping develop ball sports, and on Sep. 9 was recognized with two gold Sports Booster Awards, one for sponsorship and one for promotion, from the Sports Affairs Council. In the TCB provided for patients from the Taiwan Foundation for Rare Disorders, along with children from the Central Region Children s Home of the Ministry of the Interior and the Taichung Christian Herald Children s Home, to visit The Moving Qingming Festival on the River Exhibition. 27

30 28 Operational Highlights The Bank also arranged for families supported by the Xindian Family Support Center and Xinbao Social Care Association to visit the Mysteries of Eternal Life Mummies of Ancient Egypt Exhibition. The Child Welfare League Foundation, a beneficiary of payback from the TCB s Care Card, held a Give Children a Warm Hug press conference on May 9, with the TCB the only bank attending as a VIP, appealing to all sectors to contribute their love and care to disadvantaged children in remote areas. The accumulated amount of Care Card donations to the Foundation since June 2007 have exceeded NT$1 million, making significant contributions to the welfare and care of disadvantaged children. To fulfill its corporate social responsibility and express its concern for children with heart disorders, the TCB cooperated with the Children s Heart Foundation in issuing a Children s Heart Disease Card for which the Bank donates a certain amount of card consumption to the Foundation to help children with heart disorders. The accumulated amount of such donations has topped NT$1 million. TCB issued a co-branded card in cooperation with the New Age Fashion Mall and donates a certain percentage of consumption using the card to the Garden of Mercy Foundation and Maria Social Welfare Foundation to help AIDS babies and children with physical and mental disabilities to receive appropriate care. To coordinate with government activities and promote local development, TCB provided sponsorship for the Summer Love Carnival International Sunshine Festival Light Up Hualien activity; and to fulfill its corporate social responsibility by paying back to society, the Bank donated to disadvantaged and charity groups such as the Formosa Cancer Foundation, Taiwan MPS Society, Cheng Feng Hsi Cultural and Educational Fund, Sacred Heart Child Development Center, St. Francis Old Folks Home, Chan Guang Orphanage, and other organizations that take in the orphaned, indigent, and disabled. To encourage university and graduate students to engage actively in financial and economic research, TCB has established Regulations for the Establishment of Research Grants and provided grants to 27 outstanding students in. The accumulated total number of grant recipients has reached 661, and this program has made substantial contributions to upgrading academic research in the fields of economics and finance.

31 6.Financial Information 29

32 30 Financial Information 6. Financial Information INDEPENDENT AUDITORS REPORT The Board of Directors and Stockholders Taiwan Cooperative Financial Holding Co., Ltd. We have audited the accompanying consolidated balance sheets of Taiwan Cooperative Financial Holding Co., Ltd. and subsidiaries (collectively, the "Company") as of December 31,, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the period from December 1, (date of establishment) to December 31,. These consolidated financial statements are the responsibility of the Company'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, the Rules Governing the Audit of Financial Statements 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Taiwan Cooperative Financial Holding Co., Ltd. and subsidiaries as of December 31, and the results of their operations and their cash flows for the period from December 1, (date of establishment) to December 31,, in conformity with the Guidelines Governing the Preparation of Financial Reports by Financial Holding Companies,

33 ANNUAL REPORT Guidelines Governing the Preparation of Financial Reports by Public Banks, Guidelines Governing the Preparation of Financial Reports by Securities Firms, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China. March 23, 2012 Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of operations 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 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 auditors report and consolidated financial statements shall prevail. 31

34 32 Financial Information TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, (In Thousands of New Taiwan Dollars, Except Par Value) ASSETS CASH AND CASH EQUIVALENTS (Notes 3 and 29) $ 52,877,576 DUE FROM THE CENTRAL BANK AND CALL LOANS TO OTHER BANKS (Notes 4, 29 and 30) 574,368,770 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 2, 5 and 29) 29,683,803 RECEIVABLES, NET (Notes 2, 6 and 29) 26,711,626 DISCOUNTS AND LOANS, NET (Notes 2, 7, 29 and 30) 1,943,392,930 AVAILABLE-FOR-SALE FINANCIAL ASSETS (Notes 2, 8 and 30) 55,865,511 HELD-TO-MATURITY FINANCIAL ASSETS (Notes 2 and 9) 8,716,618 EQUITY INVESTMENTS UNDER THE EQUITY METHOD (Notes 2 and 10) 1,572,078 OTHER FINANCIAL ASSETS, NET (Notes 2 and 11) 49,326,551 PROPERTIES, NET (Notes 2 and 12) 35,457,864 INTANGIBLE ASSETS, NET (Notes 2 and 13) 3,859,007 OTHER ASSETS, NET (Notes 2, 14 and 24) 5,933,086 TOTAL $ 2,787,765,420 The accompanying notes are an integral part of the consolidated financial statements.

35 ANNUAL REPORT LIABILITIES AND STOCKHOLDERS EQUITY DUE TO THE CENTRAL BANK AND OTHER BANKS (Notes 15 and 29) $ 228,380,002 COMMERCIAL PAPER ISSUED, NET (Note 16) 879,696 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 2, 5 and 20) 4,218,801 SECURITIES SOLD UNDER REPURCHASE AGREEMENTS (Notes 2, 5, 8, 11, 17 and 29) 61,834,898 PAYABLES (Notes 2, 18 and 29) 43,360,504 DEPOSITS AND REMITTANCES (Notes 19 and 29) 2,212,922,547 BONDS PAYABLE (Notes 2 and 20) 90,080,000 OTHER BORROWINGS (Notes 16 and 21) 970,000 ACCRUED PENSION COST (Notes 2 and 24) 2,391,743 OTHER FINANCIAL LIABILITIES (Notes 22 and 29) 12,947,680 OTHER LIABILITIES (Notes 2, 12, 23 and 26) 6,685,907 Total liabilities 2,664,671,778 STOCKHOLDERS' EQUITY OF PARENT COMPANY Capital stock Common stock at par value of NT$10.00; authorized - 12,000,000 thousand shares; issued and outstanding: 6,596,825 thousand shares 65,968,254 Capital surplus Additional paid-in capital from share issuance in excess of par value 58,051,217 Retained earnings 262,533 Other equity Unrealized revaluation increments 5,434,727 Cumulative translation adjustments 57,313 Unrealized gain on financial instruments 287,047 Treasury stock; 206,739 thousand shares ( 7,136,010 ) Total other equity ( 1,356,923 ) Total stockholders' equity of parent company 122,925,081 MINORITY INTEREST 168,561 Total stockholders' equity 123,093,642 CONTINGENCIES AND COMMITMENTS (Notes 2 and 31) TOTAL $ 2,787,765,420 33

36 34 Financial Information TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME PERIOD FROM DECEMBER 1, TO DECEMBER 31, (Note 1) (In Thousands of New Taiwan Dollars, Except Per Share Amounts) INTEREST REVENUE (Notes 2, 29 and 32) $ 4,088,789 INTEREST EXPENSE (Notes 2, 29 and 32) ( 1,913,083 ) NET INTEREST 2,175,706 NET REVENUE AND GAIN OTHER THAN INTEREST Service fee and commission income, net (Notes 2, 29 and 32) 435,544 Gain on financial assets and liabilities at fair value through profit or loss (Notes 2, 29 and 32) 158,971 Realized loss on available-for-sale financial assets (Notes 2 and 32) ( 15,051 ) Loss from equity investments under the equity method, net (Notes 2 and 10) ( 64,341 ) Foreign exchange loss, net (Note 2) ( 15,430 ) Impairment loss on assets (Notes 2, 11 and 14) ( 1,223 ) Recovery of bad debts written off and overdue accounts 205,561 Other noninterest gain, net (Notes 2 and 29) 55,097 Total net revenue and gain other than interest 759,128 TOTAL NET REVENUE 2,934,834 ALLOWANCE FOR BAD-DEBT EXPENSES (Notes 2 and 7) ( 492,154 ) OPERATING EXPENSES (Notes 2, 24 and 25) Personnel ( 1,184,345 ) Depreciation and amortization ( 99,791 ) General and administrative ( 899,082 ) Total operating expenses ( 2,183,218 ) CONSOLIDATED INCOME BEFORE INCOME TAX 259,462 INCOME TAX EXPENSE (Notes 2 and 26) ( 70,202 ) CONSOLIDATED NET INCOME BEFORE EXTRAORDINARY GAIN 189,260 EXTRAORDINARY GAIN (Notes 1 and 2) 71,588 CONSOLIDATED NET INCOME $ 260,848 ATTRIBUTABLE TO: Parent company $ 262,533 Minority interest ( 1,685 ) $ 260,848 (Continued)

37 ANNUAL REPORT TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME PERIOD FROM DECEMBER 1, TO DECEMBER 31, (Note 1) (In Thousands of New Taiwan Dollars, Except Per Share Amounts) BASIC EARNINGS PER SHARE (Note 27) Before Income Tax After Income Tax Net income before extraordinary gain $ 0.03 $ 0.03 Extraordinary gain Net income $ 0.04 $ 0.04 DILUTED EARNINGS PER SHARE (Note 27) Net income before extraordinary gain $ 0.03 $ 0.03 Extraordinary gain Net income $ 0.04 $ 0.04 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) 35

38 36 Financial Information TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY PERIOD FROM DECEMBER 1, TO DECEMBER 31, (Note 1) (In Thousands of New Taiwan Dollars) Stockholders Equity of Parent Company (Issued and Outstanding) Capital Stock (Notes 2 and 28) Shares (In Thousands) Common Stock Capital Surplus (Notes 2 and 28) Unappropriated Earnings (Notes 2 and 28) Unrealized Revaluation Increments (Notes 2, 12, 14 and 28) Cumulative Translation Adjustments (Note 2) Other Equity Unrealized Gain (Loss) on Translation Instruments (Note 2) Treasury Stock (Notes 2 and 28) Minority Interest Total Stockholders' Equity BALANCE, DECEMBER 1, 6,596,825 $ 65,968,254 $ 58,051,217 $ - $ 4,325,873 $ 146,348 $ 24,657 $ (7,136,010 ) $ 175,535 $ 121,555,874 Consolidated net income for the period from December 1, to December 31, , ( 1,685 ) 260,848 Change in cumulative translation adjustments ( 89,035) - - ( 5,289) ( 94,324) Change in unrealized gain on financial instruments , ,390 Change in unrealized revaluation increments ,108, ,108,854 BALANCE, DECEMBER 31, 6,596,825 $ 65,968,254 $ 58,051,217 $ 262,533 $ 5,434,727 $ 57,313 $ 287,047 $ (7,136,010 ) $ 168,561 $ 123,093,642 The accompanying notes are an integral part of the consolidated financial statements.

39 ANNUAL REPORT TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS PERIOD FROM DECEMBER 1, TO DECEMBER 31, (Note 1) (In Thousands of New Taiwan Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Consolidated net income $ 260,848 Extraordinary gain ( 71,588 ) Loss on valuation of financial instruments 36,540 Depreciation and amortization expenses 99,791 Impairment loss on assets 1,223 Allowance for bad-debt expenses 492,154 Recovery of credits written off 1,107 Loss on the sale of available-for-sale financial assets 15,053 Loss from equity investments under the equity method 64,341 Provision for pension costs 18,899 Loss on the sale of properties, nonoperating assets and collaterals assumed, net 1,122 Gain on the sale of debts instruments with no active market ( 2,277 ) Amortization of premium or discount on bonds 39,599 Deferred income tax (1,618 ) Net changes in operating assets and liabilities Held-for-trading financial assets 1,002,774 Receivables 21,285 Other assets 135,365 Held-for-trading financial liabilities 2,251 Payables 8,230,420 Other liabilities 786,057 Net cash provided by operating activities 11,133,346 CASH FLOWS FROM INVESTING ACTIVITIES Increase in due from the Central Bank and call loans to other banks ( 17,179,832 ) Increase in discounts and loans ( 9,021,798 ) Acquisition of available-for-sale financial assets ( 1,702,223 ) Proceeds of the sale of available-for-sale financial assets 525,228 Acquisition of held-to-maturity financial assets (3,788 ) Return of principal on held-to-maturity financial assets 682,815 Acquisition of debt instruments with no active market ( 499,155 ) Proceeds of the sale of and return of principal on debt instruments with no active market 601,645 Decrease in other financial assets 52,955 Acquisition of properties, intangible assets and nonoperating assets ( 133,730 ) Proceeds of the sale of properties, nonoperating assets and collaterals assumed 12,056 (Continued) 37

40 38 Financial Information Decrease in other assets $ 61,773 Net cash used in investing activities ( 26,604,054) CASH FLOWS FROM FINANCING ACTIVITIES Decrease in due to the Central Bank and other banks ( 14,146,976 ) Increase in commercial paper issued 6,995 Increase in securities sold under repurchase agreements 4,351,101 Increase in deposits and remittances 42,021,305 Increase in other borrowings 8,000 Decrease in other financial liabilities ( 342,779 ) Increase in other liabilities 8,064 Net cash provided by financing activities 31,905,710 EFFECTS OF EXCHANGE RATE CHANGES ( 47,378 ) INCREASE IN CASH AND CASH EQUIVALENTS 16,387,624 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 36,489,952 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 52,877,576 SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 2,851,169 Income tax paid $ 395,196 The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

41 ANNUAL REPORT TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ONE MONTH ENDED DECEMBER 31, (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. ORGANIZATION AND OPERATIONS Taiwan Cooperative Financial Holding Co., Ltd. (TCFHC) was established by Taiwan Cooperative Bank, Ltd. (TCB), Taiwan Cooperative Bills Finance Corporation Ltd. (TCBF) and Co-operative Asset Management Co., Ltd. (CAM) through a share swap on December 1, under the Financial Holding Companies Act and related regulations in the Republic of China (ROC). The TCFHC s shares have been listed on the Taiwan Stock Exchange (TSC) since December 1,. After the share swap, TCB, TCBF and CAM became wholly owned subsidiaries of TCFHC. TCFHC obtained 13,346 thousand shares of TCBF held by a minority stockholder. The acquired net asset values of respective investees in excess of the initial investment costs were allocated proportionately and applied as a reduction to the book values of identifiable noncurrent assets, and the excess of $71,588 thousand after this allocation was credited to extraordinary gain. TCFHC invests in and manages financial institutions. TCB engages in (a) all commercial banking operations allowed under the Banking Law; (b) international banking operations; (c) overseas branch operations as authorized by the respective foreign governments; and (d) other operations as authorized by the central authority-in-charge. TCB has its Head Office in Taipei. It had a Business, International Banking, Finance and Trust Departments as well as 293 domestic branches, an offshore banking unit (OBU), 6 overseas branches and 1 representative office as of December 31,. The operations of TCB's Trust Department are (1) planning, managing and operating the trust business and (2) custodianship of nondiscretionary trust funds in domestic and overseas securities and mutual funds. These operations are regulated under the Banking Law and Trust Law of the ROC. TCB merged with the Farmers Bank of China (FBC) on May 1, 2006, with TCB as the survivor entity. On December 2,, TCB spun off its Security Department for the establishment of Taiwan Cooperative Securities Corp. (TCS). TCS issued new common shares to TCFHC and became its 100% subsidiary. TCS primarily (a) brokers securities; (b) deals securities; (c) underwrites securities; (d) provides pecuniary and securities financing facilities for the trading of listed securities; (e) trading of futures introducing broker business; (f) does other business as approved by the authorities. The details of assets and abilities transferred to TCS were as follows: Amount Cash and cash equivalents $ 428,986 Financial assets at fair value through profit or loss - current 157,450 Margin loans receivable, net 2,049,200 Receivables 186 Prepaid expenses 6,406 Other receivables, net 47,027 Properties, net 34,047 Intangible assets 17,348 Operating deposits 373,489 Settlement funds 73,176 Refundable deposits 877 Cash and cash equivalents - collection from underwriting securities 1,370 (Continued) 39

42 40 Financial Information Amount Securities brokerage accounts, net ( 24,909 ) Deposits on short-sale transactions ( 59,752 ) Payables for short-sale transactions ( 69,288 ) Collection payables ( 3,269 ) Other payables ( 18,733 ) Collection from underwriting securities ( 1,370 ) Unrealized gain on financial instruments ( 12,241 ) $ 3,000,000 (Concluded) TCBF, established on May 13, 1998, has a head office in Taipei and a branch in Kaohsiung. TCBF engages in (a) brokering and dealing short-term bills; (b) underwriting commercial paper; (c) acting as registrar of commercial paper; (d) providing guarantees on or endorsements of commercial paper and bank acceptance; (e) brokering call loans between financial institutions; (f) providing consulting services on corporate financial matters; (g) brokering and dealing government bonds; (h) underwriting, brokering and dealing bank debentures; (i) dealing corporate bonds; (j) investment related equity instruments; (k) other operations approved by the authorities. CAM was established on October 18, 2005; its main businesses are the purchase, appraisal, auction and management of financial institutions' creditors' rights as well as the purchase of accounts receivable and management of overdue receivables. Cooperative Insurance Brokers Co., Ltd (CIB) was established on November 25, 2005; it engages in life and property insurance brokering. TCB set up the United Taiwan Bank S.A. (UTB) in Belgium through raising funds with Bank of Taiwan, Land Bank of Taiwan and Taiwan Business Bank. UTB started its operation on December 23, 1992; it is TCBs subsidiary and its main business is in general deposits and loans. The above consolidated entities are hereinafter referred to collectively as the Company. Please see Table 1 (attached) for more information on the consolidated entities. As of December 31,, TCFHC and its subsidiaries (the "Company") had 8,991 employees. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Financial Holding Companies, Guidelines Governing the Preparation of Financial Reports by Public Banks, Guidelines Governing the Preparation of Financial Reports by Securities Firms, Business Accounting Law, Guidelines Governing Business Accounting and accounting principles generally accepted in the ROC. For the convenience of readers, the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the ROC. 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 consolidated financial statements shall prevail. The Company's significant accounting policies are summarized as follows: Basis of Presentation in Consolidation Financial Statements The Company's consolidated financial statements for the period from December 1, to December 31, included the accounts of TCFHC, TCB and its subsidiaries, CAM and its subsidiary, TCBF and TCS. All significant intercompany transactions and balances have been eliminated for consolidation purposes. The accompanying consolidated financial statements also include TCB's accounts of the Head Office,

43 ANNUAL REPORT OBU, all domestic and overseas operating departments, branches and representative offices. All interoffice account balances and transactions have been eliminated. Foreign-currency Transactions TCB records foreign-currency transactions (except derivative transactions) in the respective currencies in which these are denominated. Every month-end, foreign-currency income and expenses are translated into New Taiwan dollars at the prevailing exchange rates. On the balance sheet date, monetary financial assets and liabilities are translated into New Taiwan dollars at the prevailing exchange rates, and exchange differences are recognized in the income statement. Unrealized exchange differences on nonmonetary financial assets (investments in equity instruments) are a component of the change in their entire fair value. For nonmonetary financial assets and liabilities classified as financial instruments measured at fair value through profit or loss, unrealized exchange differences are recognized in the income statement. For nonmonetary financial instruments that are classified as availablefor-sale, unrealized exchange differences are recorded directly under stockholders' equity until the asset is sold or becomes impaired. Nonmonetary financial instruments that are classified as carried at cost are recognized at the prevailing exchange rates on the transaction dates. TCB translates overseas branches' and the equity-method investees' financial statements at the following rates: Assets and liabilities - the prevailing exchange rates on the balance sheet date; and income and expenses - the average exchange rate in the period. Translation differences net of income tax are recorded as "cumulative translation adjustments" under stockholders' equity and will be recognized as gain or loss if overseas branches and equity-method investments are sold or liquidated. Accounting Estimates In preparing consolidated financial statements in conformity with these guidelines and principles, the Company is required to make certain estimates and assumptions that could affect the allowance for credit losses, reserve for losses on guarantees, depreciation of properties and nonoperating assets, amortization of intangible assets, pension costs, impairment loss on assets, valuation of financial instruments, bonus to employees, remuneration to directors and supervisors, income tax, accrued litigation loss, etc. Actual results may differ from these estimates. Current and Noncurrent Assets and Liabilities Since the operating cycle in the financial holding and banking industry cannot be reasonably identified, accounts included in TCFHC's, TCB's, UTB's, and TCBF's financial statements are not classified as current or noncurrent. Other subsidiaries' assets and liabilities are classified as follows: Cash and cash equivalents and those assets to be converted and those consumed within a year are classified as current. Obligations to be liquidated or settled within a year are classified current. All other assets and liabilities are classified as noncurrent. The consolidated financial statements, however, do not show the classification of current or noncurrent assets/liabilities because the banking industry accounts for the majority of the consolidated accounts. Thus, accounts in the consolidated financial statements are instead categorized by nature and sequenced by their liquidity. Please refer to Note 32 for the maturity analysis of assets and liabilities. Regular Way Purchase or Sale of a Financial Asset The Company uses settlement date accounting when recording transactions, except those on beneficial certificates, for which trade date accounting is used. The Company recognizes gain or loss on the sale of financial assets on the settlement date. The changes in fair values between the trade date and the settlement date for purchase of financial assets are recognized by the following methods: (a) financial assets at fair value through profit or loss - credited or charged to current income; (b) available-for-sale financial assets - credited or charged to stockholders' equity. 41

44 42 Financial Information Basis of Fair Value Fair values are determined as follows: (a) short-term bills - at reference prices published by the Taiwan Bills Index Rate (TAIBIR) or Reuters; (b) listed securities and GreTai Securities Market (GTSM) securities - at closing prices as of the balance sheet date; (c) beneficial certificates (open-end funds) - at net asset values as of the balance sheet date; (d) bonds - domestic - at period-end reference prices published by the GTSM; (e) securities that are not listed or not traded in the GTSM but have quoted market prices or trading records - at quoted market prices or trading prices; and (f) financial instruments with no active markets - at fair value estimates based on valuation techniques. Financial Instruments at Fair Value through Profit or Loss Financial instruments at fair value through profit or loss (FVTPL) are financial assets or liabilities that are designated as at fair value through profit or loss on initial recognition and those classified as held for trading. These instruments are initially measured at fair value and are remeasured at fair value on the balance sheet date, with changes in fair value recognized directly in profit or loss in the year in which they arise. Financial instruments used in derivative transactions that do not qualify for hedge accounting is classified as financial assets or liabilities held for trading. If the fair value of a derivative is a positive number, the derivative is recognized as a financial asset; otherwise, the derivative is recognized as a financial liability. Applying the fair value option eliminates accounting measurement mismatch for items that naturally offset each other or eliminates the burden of separating embedded derivatives that are not considered to be closely related to the host contract pertaining to a hybrid instrument. The company did not adopt hedge accounting in. If the hedged items are not designated as financial assets or liabilities at FVTPL, accounting measurement mismatches on these items will occur as a result of differences in measurement attributes. Thus, the Company designated debt instruments and bank debentures issued as financial assets and liabilities at FVTPL. Available-for-sale Financial Assets Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the asset acquisition. Any difference between the initial carrying amount of a debt security and its amount on maturity is amortized using the effective interest method. However, the straightline method is used for amortization if there is only a minor difference between the result of using the effective interest method and that of the straight-line method. When assets are subsequently measured at fair value, the changes in fair value are excluded from earnings and reported as a separate component of stockholders' equity. The accumulated gains or losses are recognized as earnings when the financial asset is de-recognized from the balance sheet. Cash dividends received on earnings generated before investment acquisition are recognized as a reduction of the original investment cost and are subsequently recognized as investment income up on the stockholders' resolution. Stock dividends received are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated on the basis of the new number of shares held. If an available-for-sale financial asset is determined to be impaired, a loss is recognized. If the impairment loss on equity securities decreases, this loss is reversed to the extent of the decrease and recorded as an adjustment to stockholders' equity; for debt instruments, this loss is reversed and recognized as earnings. Held-to-maturity Financial Assets Held-to-maturity financial assets are carried at amortized cost using the effective interest method. However, the straight-line method is used for amortization if there is only a minor difference between the result of using the effective interest method and that of the straight-line method. These financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the asset acquisition. Gains or losses are recognized at the time of derecognition, impairment or amortization.

45 ANNUAL REPORT If a held-to-maturity financial asset is determined to be impaired, a loss is recognized. If the impairment loss decreases, the previously recognized impairment loss is reversed. However, the reversal should not result in the carrying amount of financial assets exceeding the carrying amount that would have been determined had no impairment loss been recognized. Other Financial Assets Financial assets carried at cost are those investments in equity instruments (including unlisted stocks and emerging stocks) with no quoted market prices in an active market and with fair values that cannot be reliably measured. The accounting treatment of dividends is the same as that for dividends on available-for-sale financial assets. If there is objective evidence that a financial asset carried at cost is impaired, an impairment loss is recognized. However, impairment loss reversal is prohibited. Debt instruments with no active market are those with no quoted market prices in an active market and with predetermined amounts. The accounting treatment for these debt instruments is the same as that for held-to-maturity financial assets, except for the absence of restriction on the timing of the disposal of held-tomaturity financial assets. Acquired Loans For nonperforming loans purchased from financial institutions, the initial cost of acquired loans is the purchase price. The cost recovery method is used to recognize gain or loss on acquired loans. Upon the recovery of an acquired loan, any surplus obtained from the consideration received on recovery against the consideration paid on acquisition of the loan will be recognized as income from recoveries of acquired loans. The agreement purchase price and all necessary handling charges on acquisition are the total cost of the acquired loans, and the fair value of each individual loan is used as the basis for cost allocation. All marketing and related operating expenses, including bidding fees and legal payments, are expensed when incurred. Marketing and handling expenses for the acquired loans are expensed as they are incurred from the acquisition date to the resale date. If the debtor fails to repay the debt, the related expenses incurred for the provisional seizure or provisional disposition executed by the court - including the expenses for applying for auction permission, the judge expenses for collateral auction, and appraisal expenses - are accounted for as operating expenses. Overdue Loans Loans and other credits (including accrued interest) that are overdue for at least six months are classified as overdue loans in accordance with the guideline issued by the Financial Supervisory Commission. Overdue loans (except other credits) are classified as discounts and loans, and the remaining are classified as other financial assets. Allowance for Credit Losses and Reserve for Losses on Guarantees In determining the allowance for credit losses and reserve for losses on guarantees, the Company evaluates the losses on particular loans and overall credit portfolio, considering the balances of bills, discounts, loans, receivables, and overdue loans as well as guarantees as of the balance sheet date. Loans and receivables are assessed for impairment at the end of each reporting period and considered impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the loans and receivables, the estimated future cash flows of the asset have been affected. Objective evidence of impairment could include: Significant financial difficulty of the debtor; The loans and receivables becoming overdue; Probability that the debtor will enter into bankruptcy or undergo financial reorganization. 43

46 44 Financial Information Loans and receivables that are individually assessed as not impaired are further assessed collectively for impairment. Objective evidence of impairment for a portfolio of loans and receivables could include the Company's past difficulty in collecting payments and an increase in the number of delayed payments, as well as observable changes in national or local economic conditions that correlate with defaults on loans and receivables. The impairment loss recognized is the difference between the asset carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rates of the loans and receivables, after taking into account the related collateral and guarantees. The carrying amount of the loans and receivables is reduced through the use of an allowance account. Under Financial Supervisory Commission (FSC) guidelines, TCB should classify credit assets as sound credit assets or unsound credit assets, with the unsound assets further categorized as special mention, substandard, with highly doubtful collectibility, and uncollectible, on the basis of the customers' financial position, valuation of collaterals and the length of time the principal repayments or interest payments have become overdue. TCB made 100%, 50%, 10% and 2% provisions for credits deemed uncollectible, collectibility highly doubtful, substandard and special mention, respectively, as minimum provisions for possible losses on unsound credit assets before January 1,. However, effective January 1,, the minimum provisions for possible losses should be the sum of 0.5% of the outstanding balance of sound credit assets (excluding assets that represent claims against an ROC government agency) and the foregoing provisions for unsound credit assets. Under "The Regulations Governing the Procedures for Bills Finance Companies to Evaluate Assets, Set Aside Loss Reserves, and Handle Nonperforming Credits, Nonaccrual Loans, and Bad Debts" issued by the FSC, TCBF makes the following minimum provisions for losses on credits for these categories: Uncollectible - 100%; with doubtful collectibility - 50%; substandard - 10%; "special mention" - 2%; and collectible - 1%. Under FSC guidelines, write-offs of specific loans are offset against the recorded allowance for loan losses, as approved by the board of directors. Purchase on Margin and Short Sale TCS recognizes margin loans as loans to customers for purchases on margin while providing financing to investors who buy stocks. Margin loans made by TCS are generally collateralized by securities in the client's account. These collateralized securities are not entered in TCS books but are recorded using memorandum entries. After the security investors settle the margin loan, these pledged securities are returned to investors. TCS requires a deposit from security investors for short sale services while providing short sale services to investors. This deposit is recorded as deposits on short-sale transactions. The amount collected from selling short sale securities (net of securities transaction tax, brokerage fee and handling fee) is kept by TCS as collateral and recorded as payable for short-sale transactions. The securities lent to clients as short sale are recorded using memorandum entries. The deposits on short-sale transactions and payables for short sale are returned to security investors after investors settle the short-sale transactions. The margin deposited by securities firms to securities finance companies is recorded as loan from refinanced margin. The refinancing securities delivered to TCS are recorded through memorandum entries as refinancing stock loans. A portion of the proceeds of the short-sale of securities borrowed from securities finance companies is retained by the securities finance companies as collateral and is recorded as refinancing deposit receivable. Securities Purchased/Sold Under Resale/Repurchase Agreements Securities purchased under resell agreements and securities sold under repurchase agreements are generally treated as collateralized financing transactions. Interest earned on resell agreements or interest incurred on repurchase agreements is recognized as interest revenue or interest expense over the life of each agreement.

47 ANNUAL REPORT Brokerage Accounts, Net Under the Guidelines Governing the Preparation of Financial Reports by Securities Firms, the brokerage accounts, net are recorded as brokerage accounts - debit (including cash and cash equivalents - settlement account, brokerage securities receivable, exchange clearance, credit transactions and settlements receivable) and brokerage accounts - credit (including brokerage securities payable, exchange clearances, credit transactions and settlements payable). As a result, brokerage accounts - debits are offset against brokerage accounts - credit and recorded as brokerage accounts, net. Asset Impairment The Company tests assets (mainly properties, nonoperating assets, goodwill and computer software) and cash-generating units (CGUs) for impairment on each balance sheet date. If impairment is determined, the Company estimates the recoverable amounts of assets or CGUs. An impairment loss should be recognized whenever the recoverable amount of the asset or the CGU is below the carrying amount. If asset impairment loss (excluding goodwill) is reversed, the increase in the carrying amount resulting from reversal is credited to current income. However, loss reversal should not be more than the carrying amount (net of depreciation or amortization) had the impairment loss not been recognized. For the unrealized revaluation increments recognized upon revaluation required by law, the impairment loss is recognized as a reduction of the reported revaluation increments. If the impairment loss exceeds the reported revaluation increments, the excess is recognized as current loss. If this impairment loss is reversed, this reversal is recognized as current income to the extent of the loss previously recognized, and any reversal exceeding the amount of previously recognized loss is reported as unrealized revaluation increments. Goodwill is tested for impairment annually or more frequently if events indicate goodwill impairment. An impairment loss is recorded if the book value exceeds value in use. No recording of a subsequent recovery of fair value of goodwill is allowed. Equity Investments under the Equity Method Investments in shares of companies in which the Company exercises significant influence on their operating and financial policy decisions are accounted for by the equity method. Under the equity method, the investments are carried at cost on the acquisition date and subsequently adjusted for the Company's proportionate share in the net income or loss and net assets of the investees. The proportionate share in the net income or loss is recognized as current income or loss, and any cash dividends received are reflected as a reduction of the carrying values of the investments. When the Company subscribes for its investee's newly issued shares at a percentage different from its current percentage of ownership in the investee, the Company records the change in its equity in the investee's net assets as an adjustment to investments, with a corresponding amount credited or charged to capital surplus. When the adjustment should be debited to capital surplus, but the capital surplus arising from long-term investments is insufficient, the shortage is debited to retained earnings. The acquisition cost is allocated to the assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition, and the acquisition cost in excess of the fair value of the identifiable net assets acquired is recognized as goodwill. Goodwill is not being amortized. The fair value of the net identifiable assets acquired in excess of the acquisition cost is used to reduce the fair value of each of the noncurrent assets acquired (except for financial assets other than equity investments accounted for under the equity method, noncurrent assets held for sale, deferred income tax assets, prepaid pension or other postretirement benefit) in proportion to the respective fair values of the noncurrent assets, with any excess recognized as an extraordinary gain. When the Company's share in losses of an investee over which the Company has significant influence equals its investment in that investee plus any advances made to the investee, the Company discontinues applying the equity method. The Company continues to recognize its share in losses of the investee if (a) 45

48 46 Financial Information the Company commits to provide further financial support to the investee or (b) the losses of the investee are considered temporary and sufficient evidence shows imminent return to profitability. If the Company has investments that it jointly controls with one or more entities, the investments are accounted for under the equity method. Stock dividends received are recognized only as increases in the number of shares held and not as income. Cost of equity investments sold is determined by the weighted-average method. If there is objective evidence that an equity-method investment is impaired, an impairment loss is recognized. The Company tests equity investments on which the Company has significant influence but over which the Company has no control on the basis of the individual carrying amounts of the investments. Properties and Nonoperating Assets Properties and nonoperating assets (part of other assets) are stated at cost, or cost plus revaluation increments and less accumulated depreciation and accumulated impairment. Major renewals, additions and improvements are capitalized; while costs of repairs and maintenance are expensed as incurred. Depreciation of properties and nonoperating assets is computed on the straight-line basis over useful lives estimated as follows: buildings, 5 to 50 years; machinery and equipment, 3 to 20 years; transportation equipment, 3 to 20 years; other equipment, 2 to 20 years; and leasehold improvements, 1 to 10 years. Assets still being used after they have reached their full depreciation value are depreciated over newly estimated service lives. Upon retirement or disposal of properties and nonoperating assets, their cost (including revaluation increments), related accumulated depreciation, accumulated impairment and any unrealized revaluation increments of an item of property and nonoperating asset are removed from the accounts. Any resulting gain or loss is credited or charged to current income. Intangible Assets Goodwill is stated at cost less accumulated impairment. Computer software is recorded at acquisition cost and amortized by the straight-line method over three to five years. Collaterals Assumed Collaterals assumed (part of other assets) are recorded at cost and revalued at the lower of cost or net fair value as of the balance sheet date. If cost exceeds net fair value, an impairment loss is recognized. If the impairment loss is reversed, this reversal is recognized as current income. If collaterals assumed are not disposed of within the statutory period, relevant regulations require that the Company should either apply for the extension of the disposal period or increase their provision for possible losses. Operating Deposits Under the regulations, securities firms should place in government-designated banks guarantee deposits based on their respective type of business operations after registration (part of other assets). Settlement Fund Under the regulations, securities firms that broker marketable securities and trade securities for their own purposes should deposit settlement funds to the Taiwan Stock Exchange and the Gre Tai Securities Market before and after the start of business operation (part of other assets). Pension Costs The Company has two pension plans: Defined benefit and defined contribution.

49 ANNUAL REPORT Under the defined benefit plan, pension cost is determined actuarially. Under the defined contribution plan, the Company's pension fund contributions are recognized as current expenses throughout the employees' service periods. Income Tax The inter-period and intra-period income tax allocation methods are used, by which tax effects of loss carryforwards, unused investment tax credits, deductible temporary differences and debits of stockholders' equity adjustments are recognized as deferred income tax assets, and those of taxable temporary differences and credits of stockholders' equity adjustments are recognized as deferred income tax liabilities. A valuation allowance is provided for deferred income tax assets that are not certain to be realized. Any adjustments of prior years' tax liabilities are included in the current year's income tax expense. According to the Income Tax law, income taxes (10%) on undistributed earnings generated annually since 1998 are recorded as expenses in the year when the stockholders resolve to retain the earnings. Treasury Stock Issued shares reacquired as treasury stock are carried at cost and presented as a deduction to arrive at stockholders' equity. When the treasury shares are reissued to the employees, the difference between the disposal price and acquisition cost will be credited or debited to "capital surplus - treasury stock." If this capital surplus is not enough for debiting purposes, the shortfall is charged to unappropriated retained earnings. Under a directive issued by the Securities and Futures Bureau (SFB), if a financial institution (FI) repurchases its own capital stock pursuant to the Securities and Exchange Law and becomes a wholly owned subsidiary of a financial holding company (FHC), resulting in the conversion of the FI's treasury stock to the FHC's stock, the FHC's shares held by the FI should be treated as treasury stock. The FHC should also present the shares it issued in exchange for FI's capital stock as treasury stock. If shares of the FIs under the same FHC were held among each other before the share swap, the FHC should also state these shares as treasury stocks. Interest Revenue and Service Fees Interest revenue on loans and financial instruments are recorded on the accrual basis. Interest revenue on loans and other credits extended by the Company that are classified as overdue loans is recognized only upon collection. Service fees are recorded as income upon receipt or upon substantial completion of the earnings process depending on the nature of the transaction. Contingencies A loss is recognized when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. If loss is possible but cannot be reasonably estimated, information on the circumstances that might give rise to the possible loss is disclosed in the notes to the consolidated financial statements. The Share Swap TCFHC was established as a financial holding company through a share swap, and the share swap for the affiliated companies should be treated as reorganization. Thus TCFHC should treat the investees' net worth (any impairment loss on asset should be deducted from its book value) as paid-in capital. The stock issued by TCFHC is accounted for as capital stock, the stockholders' equity accounts of financial institutions related to assets and liabilities (such as cumulative translation adjustments and unrealized revaluation increments, etc.) are accounted for in original accounts, and the remaining balance is accounted for as capital surplus. TCFHC 47

50 48 Financial Information should apply statement of Financial Accounting Standards No "Business Combinations" for the share swap of investees' minority stockholders. The fair value of the net identifiable assets acquired in excess of the acquisition cost is used to reduce the fair value of each of the noncurrent assets acquired (except for financial assets other than investments accounted for by the equity method, noncurrent assets held for sale, deferred income tax assets, prepaid pension or other postretirement benefit) in proportion to the respective fair values of the noncurrent assets, with any excess recognized as an extraordinary gain. 3. CASH AND CASH EQUIVALENTS Cash on hand $ 21,506,058 Notes and checks in clearing 22,976,933 Due from banks 8,394,585 $ 52,877, DUE FROM THE CENTRAL BANK AND CALL LOANS TO OTHER BANKS Reserves for deposits - account A $ 23,517,685 Reserves for deposits - account B 57,495,186 Reserves for deposits - community financial institutions 41,674,475 Reserves for deposits - foreign-currency deposits 223,421 Deposits in the Central Bank 39,200,000 Time deposits in the Central Bank 1,400,000 Negotiable certificates of deposit in the Central Bank 334,300,000 Due from the Central Bank - transferred accounts 1,529,037 Due from the Central Bank - central government agencies' deposits 1,399,827 Call loans to banks 73,629,139 $ 574,368,770 The deposit reserves are determined monthly at prescribed rates based on the average balances of various types of deposit accounts held by the Company. The deposit reserves are subject to withdrawal restrictions, but deposit reserve - account A and foreign-currency deposit reserves may be withdrawn anytime. Under the guideline issued by the Central Bank of the Republic of China (CBC), TCB should deposit sixty percent of the deposits of central government agencies in the CBC, and the deposits are subject to withdrawal restrictions. 5. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS Held-for-trading financial assets Commercial paper $ 24,487,892 Beneficial certificates 200,000 Convertible bonds 146,703 Negotiable certificates of deposit 112,003 Listed stocks - domestic 28,768 Government bonds 101 (Continued)

51 ANNUAL REPORT Currency swap contracts $ 2,486,492 Forward contracts 342,762 Cross-currency swap contracts 63,485 Interest rate swap contracts 61,352 Foreign-currency margin contracts 45,474 Currency option contracts - buy 34,904 Futures exchange margins 5,086 Non-deliverable forward contracts 2,042 28,017,064 Financial assets designated at fair value through profit or loss Bank debentures 897,027 Government bonds 769,712 1,666,739 $ 29,683,803 Held-for-trading financial liabilities Currency swap contracts $ 1,846,871 Cross-currency swap contracts 227,892 Forward contracts 189,010 Interest rate swap contracts 85,246 Currency option contracts - sell 36,038 Foreign-currency margin contracts 4,380 Non-deliverable forward contracts 1,847 2,391,284 Financial liabilities designated at fair value through profit or loss Bank debentures (Note 20) 1,827,517 $ 4,218,801 (Concluded) As of December 31,, some securities, with face values of $21,853,200 thousand, had been sold under repurchase agreements. TCB enters into derivative transactions mainly to accommodate customers' needs and to manage its exposure to adverse changes in exchange rates and interest rates. TCB's strategy for hedging against risk is to avoid most of the market price risk or cash flow risk. As of December 31,, TCB's contract (notional) amounts of derivative transactions were as follows: Currency swap contracts $ 318,546,096 Forward contracts 28,867,794 Currency option contracts - sell 13,507,086 Currency option contracts - buy 12,750,211 Cross-currency swap contracts 9,045,552 Interest rate swap contracts 6,299,075 Foreign-currency margin contracts 1,220,940 Non-deliverable forward contracts 490,499 49

52 50 Financial Information 6. RECEIVABLES, NET Acquired loans $ 6,339,276 Accounts receivable factored without recourse 5,783,390 Accrued interest 5,007,560 Acceptances 3,217,811 Credit cards 2,385,791 Margin loans receivable 1,917,531 Tax refundable 1,714,310 Receivables on merchant accounts in the credit card business 587,151 Credits receivable 503,024 Refundable deposits receivable in leasehold agreements 467,993 Receivables on overdue bonds 456,227 Accounts receivable 365,762 Others 358,751 29,104,577 Less: Allowance for credit losses 2,392,951 $ 26,711,626 Credits receivable due to the merger with the Farmers Bank of China on May 1, 2006 were recognized at the fair value of credits written off by the Farmers Bank of China in the past. The fair values were evaluated by PricewaterhouseCoopers Financial Advisory Service Co., Ltd. The allowances for possible losses on receivables (except tax refundable and spot exchange receivable - foreign currencies amounted to $1,716,211 thousand) assessed for impairment as of December 31, were as follows: Items Receivables Allowance for Possible Losses With objective evidence of impairment Assessment of individual impairment $ 6,510,784 $ 1,608,365 Assessment of collective impairment 210,111 99,132 With no objective evidence of impairment Assessment of collective impairment 20,667, ,454 Total 27,388,366 2,392,951 The changes in allowance for possible losses are summarized below: Balance, December 1 $ 2,944,731 Provisions 2,711 Write-offs ( 575,327 ) Recovery of written-off receivables 370 Effects of exchange rate changes and other change 20,466 Balance, December 31 $ 2,392,951

53 ANNUAL REPORT 7. DISCOUNTS AND LOANS, NET Bills discounted $ 1,935,244 Overdraft Unsecured 581,123 Secured 1,080,997 Import and export negotiations 676,235 Short-term loans Unsecured 317,221,027 Accounts receivable financing 848,379 Secured 116,734,451 Medium-term loans Unsecured 290,464,620 Secured 295,197,803 Long-term loans Unsecured 52,381,944 Secured 873,247,969 Overdue loans 12,433,710 1,962,803,502 Less: Allowance for credit losses 19,202,415 Less: Adjustment of discount 208,157 $ 1,943,392,930 Accrual of interest on the above overdue loans had stopped. Thus, the unrecognized interest revenue was $20,722 thousand in December based on the average loan interest rate for the year. In, the Company had written off credits only after completing the required legal procedures. The allowances for possible losses on discounts and loans assessed for impairment as of December 31, were as follows: Items Discounts and Loans Allowance for Possible Losses With objective evidence of impairment Assessment of individual impairment $ 27,055,855 $ 7,669,800 Assessment of collective impairment 13,563,852 3,407,593 With no objective evidence of impairment Assessment of collective impairment 1,922,183,795 8,125,022 Total 1,962,803,502 19,202,415 The changes in allowance for possible losses are summarized below: Balance, December 1 $ 18,771,062 Provisions 451,387 Recovery of written-off credits 356 Effects of exchange rate changes and other change ( 20,390 ) Balance, December 31 $ 19,202,415 51

54 52 Financial Information The details of the allowance for bad-debt expenses in December were as follows: Provision for possible losses on discounts and loans $ 451,387 Provision for possible losses on receivables 2,711 Reversal of provision for possible losses on overdue receivables ( 3,658 ) Reserve for guarantees 41,714 $ 492, AVAILABLE-FOR-SALE FINANCIAL ASSETS Government bonds $ 43,717,559 Bank debentures 5,278,650 Corporate bonds 3,283,618 Listed stocks 3,128,057 Beneficial certificates 457,627 $ 55,865,511 As of December 31,, available-for-sale financial assets with face value of $34,629,400 thousand had been sold under repurchase agreements. 9. HELD-TO-MATURITY FINANCIAL ASSETS Bank debentures $ 5,493,870 Preferred stocks 2,000,000 Corporate bonds 790,373 Certificates of deposit (Note 30) 275,503 Government bonds 156,872 $ 8,716, EQUITY INVESTMENTS UNDER THE EQUITY METHOD Equity investments under the equity method are summarized as follows: Amount % of Ownership BNP Paribas Assurance TCB Life Insurance Co., Ltd. (Note 35) $ 1,380, BNP Paribas TCB Asset Management Co., Ltd. (Note 35) 96, United Real Estate Management Co., Ltd. 95, $ 1,572,078 On these investments, there were net losses of $64,341 thousand in December.

55 ANNUAL REPORT 11. OTHER FINANCIAL ASSETS, NET Overdue receivables $ 296,989 Less: Allowance for credit losses 282,869 Overdue receivables, net 14,120 Debt instruments with no active market, net 45,080,654 Financial assets carried at cost, net 4,231,777 Debt instruments with no active market are summarized as follows: $ 49,326,551 Corporate bonds $ 28,853,692 Bank debentures 15,922,463 Government bonds - overseas 156,641 Beneficial securities under securitization 147,858 $ 45,080,654 As of December 31,, debt instruments with no active market and with a face value of $2,123,800 thousand had been sold under repurchase agreements. Some issuers of bonds with no active market had filed for bankruptcy or faced financial difficulties. After the Company's evaluation of the possibility of recovery of losses on these bonds, the Company recognized an impairment loss of $12,249 thousand in December. Financial assets carried at cost are summarized as follows: Amount % of Ownership Taiwan Asset Management Co., Ltd. $ 3,120, Taiwan Power Company 631, Financial Information Service Co., Ltd. 135, Taiwan Financial Asset Service Co., Ltd. 101, Others 243,160 $ 4,231,777 The above equity investments, which had no quoted prices in an active market and had fair values that could not be reliably measured, were carried at cost. 12. PROPERTIES Cost Land - cost $ 16,713,162 Land - revaluation increments 7,424,006 Buildings 13,659,602 Machinery and equipment 5,625,197 Transportation equipment 684,618 Other equipment 1,330,336 (Continued) 53

56 54 Financial Information Leasehold improvements 840,710 46,277,631 Accumulated depreciation Buildings 4,655,243 Machinery and equipment 4,438,161 Transportation equipment 567,808 Other equipment 1,145,949 Leasehold improvements 630,261 11,437,422 Accumulated impairment Land 6,574 Construction in progress 571,905 Prepayment for equipment 52,324 $ 35,457,864 TCB revalued its properties four times in 1979, 1998, 2007 and. As of December 31,, the revaluation increments on properties and nonoperating assets amounted to $7,643,483 thousand and the reserve for land revaluation increment tax (part of other liabilities) was $2,562,372 thousand (including $133,588 thousand for properties obtained from community financial institutions taken over by TCB and from the Farmers' Bank of China (FBC) on FBC's merger with TCB). The revaluation increments net of tax were included in other stockholders' equity - unrealized revaluation increments. In testing assets for impairment, TCB defined each operating unit or operating segment as a cashgenerating unit (CGU). The recoverable amount of a CGU was determined at its value in use. The discount rate for the CGUs' value in use was 11.08% as of December 31,. 13. INTANGIBLE ASSETS Goodwill $ 3,170,005 Computer software 689,002 $ 3,859,007 Goodwill resulting from TCB's merger with the Farmers Bank of China was allocated to operating units or operating segment (cash-generating units with allocated goodwill). There was no impairment loss on goodwill as of December 31,. 14. OTHER ASSETS, NET Nonoperating assets, net $ 4,403,475 Refundable deposits 495,195 Prepaid expenses 244,276 Operating deposits and settlement funds 657,486 Collaterals assumed, net 115,393 Others 17,261 $ 5,933,086

57 ANNUAL REPORT Nonoperating assets as of December 31, were as follows: Land Cost $ 2,909,507 Revaluation increments 219,477 3,128,984 Buildings - cost 1,676,099 Total cost and revaluation increments 4,805,083 Less: Accumulated depreciation 393,005 Less: Accumulated impairment 8,603 $ 4,403,475 Part of the buildings and the land included in nonoperating assets had been leased to third parties. If there are no indications that the value in use of nonoperating assets significantly exceeded net fair value, the net fair value should be used as the recoverable amount. Thus, to determine the fair value of its nonoperating assets, the Company designated real estate appraisers to valuate these assets. On the basis of the guidelines of the Financial Supervisory Commission and the Company's evaluation of the possibilities of recovery, the Company recognized $11,026 thousand in reversal of impairment losses on collaterals assumed in December. 15. DUE TO THE CENTRAL BANK AND OTHER BANKS Call loans from banks $ 104,348,794 Due to banks 92,229,717 Deposits from Chunghwa Post Co., Ltd. 30,927,392 Bank overdraft 558,019 Due to the Central Bank 316,080 $ 228,380, COMMERCIAL PAPER ISSUED, NET The face value of commercial paper issued was $880,000 thousand, and the annual discount rates were from 0.958% to 0.978% as of December 31,. The foregoing commercial paper was accepted and guaranteed by financial institutions. Some of the commercial paper will mature by February 20, As of December 31,, TCFHC and CAM and its subsidiaries had not used the amount of $7,850,000 thousand, the sum of the amount of the commercial paper issued and the credit. 17. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS Under repurchase agreements, securities sold for $61,834,898 thousand as of December 31, will be purchased for $61,865,875 thousand by October 19, PAYABLES Checks for clearing $ 22,976,933 Collections payable 4,151,859 Accrued interest 4,081,862 (Continued) 55

58 56 Financial Information Accrued expenses 3,556,555 Acceptances 3,247,054 Collections of notes and checks for various financial institutions in other cities 1,880,942 Payables on notes and checks collected for others 638,380 Tax payable 326,448 Factored accounts payable 221,026 Dividend payable 203,992 Payables on notes and checks collected for community financial institutions 175,870 Others 1,899,583 $ 43,360, DEPOSITS AND REMITTANCES (Concluded) Deposits Checking $ 42,974,437 Demand 343,546,870 Savings - demand 593,211,312 Time 454,364,047 Negotiable certificates of deposit 2,137,100 Savings - time 705,292,669 Treasury 71,132,189 Remittances 263,923 $ 2,212,922, BONDS PAYABLE Details of bank debentures issued by TCB are as follows: First subordinated bonds in 2006: TCB s floating interest rate for 1-year time deposit plus 0.25% amounting to $15,000,000 thousand, and fixed rate of 2.24% amounting to $3,200,000 thousand; maturity - April 24, 2013 $ 18,200,000 Second subordinated bonds in 2006: Reuters fixed rate for 90 days New Taiwan dollar commercial paper plus 0.235%; maturity - December 8, ,000,000 First cumulative subordinated bonds in 2007: Reuters fixed rate for 90 days New Taiwan dollar commercial paper plus 0.7% in first five years; Reuters' fixed rate for 90 days New Taiwan dollar commercial paper plus 1.7% if 13,000,000 TCB fails to redeem the bank debenture after five years from the issuance date; no maturity date Second subordinated bonds in 2007, Type A: Reuters fixed rate for 90 days' New Taiwan dollar commercial paper plus 0.34%; maturity - September 28, ,360,000 Second cumulative subordinated bonds in 2007, Type B: Reuters fixed rate for 90 days New Taiwan dollar commercial paper plus 0.85% in first five years; Reuters fixed rate for 90 days New Taiwan dollar commercial paper plus 1.85% if TCB fails to redeem the bank debenture after five years from the issuance date; no maturity 5,810,000 date First subordinated bonds in 2008, Type A: Reuters fixing rate for 90 days New Taiwan dollar commercial paper plus 0.43%; maturity - May 28, ,000,000 First subordinated bonds in 2008, Type B: Fixed rate of 3.0%; maturity - May 28, ,500,000 First cumulative subordinated bonds in 2008, Type C: Reuters fixed rate for 90 days New Taiwan dollar commercial paper plus 0.95% in first six years; Reuters fixing rate for 90 days New Taiwan dollar commercial paper plus 1.95% if TCB fails to redeem the bank debenture after six years from the issuance date; no maturity date 4,500,000

59 ANNUAL REPORT First subordinated bonds in 2009: Fixed rate of 2.25%; maturity - November 25, ,100,000 Second subordinated bonds in 2009: Fixed rate of 2.10%; maturity - March 28, ,000,000 First subordinated bonds in 2010: TCB s floating interest rate for 1-year time deposit plus 0.25%; maturity - June 21, ,000,000 Second subordinated bonds in 2010, Type A: Reuters fixed rate for 90 day s New Taiwan dollar commercial paper plus 0.15%; maturity - October 25, ,000,000 Second subordinated bonds in 2010, Type B: Fixed rate of 1.45%; maturity - October 25, ,000,000 First subordinated bonds in, Type A: Reuters fixed rate for 90 day s New Taiwan dollar commercial paper plus 0.15%; maturity - May 25, ,300,000 First subordinated bonds in, Type B: Fixed rate of 1.65%; maturity - May 25, ,700,000 Second subordinated bonds in, Type A: Reuters fixed rate for 90 day s New Taiwan dollar commercial paper plus 0.25%; maturity - July 28, ,200,000 Second subordinated bonds in, Type B: Fixed rate of 1.7%; maturity - July 28, ,410,000 $ 90,080,000 The details of bank debentures designated at fair value through profit or loss are summarized below: First subordinated bonds in 2006: Fixed rate of 2.24%, maturity - April 24, 2013 $ 1,800,000 Valuation adjustment 27,517 $ 1,827,517 To increase its capital adequacy ratio, strengthen its capital structure and raise medium-term and long-term capital, TCB proposed the issuance of domestic unsecured subordinated bank debentures with an aggregate face value of $15,000,000 thousand. The proposal was approved by the Financial Supervisory Commission on March 17,. As of December 31,, TCB debentures amounting to $390,000 thousand had not yet been issued. 21. OTHER BORROWINGS Amount Rate Short-term borrowings (Note 16) $ 970, OTHER FINANCIAL LIABILITIES Structured products - host contracts $ 9,937,568 Appropriation for loans 1,901,254 Guarantee deposits received 1,108,858 $ 12,947,680 57

60 58 Financial Information 23.OTHER LIABILITIES Reserve for land revaluation increment tax $ 2,562,372 Advance receipts 1,948,561 Reserve for losses on guarantees 1,633,693 Deferred income tax liabilities 480,928 Others 60,353 $ 6,685, PENSION PLANS The pension plan under the Labor Pension Act (the "Act") is a defined contribution plan. Based on the Act, the rate of the Company's monthly contributions to individual pension accounts of employees covered by the defined contribution plan is at 6% of monthly salaries and wages. The funds are deposited in individual labor pension accounts at the Bureau of Labor Insurance. These contributions, recognized as pension costs, were $3,200 thousand in December. Other regular Company employees are covered by the defined benefit pension plan. Upon retirement, an employee will receive an amount calculated on the basis of service years and the average salary or wage of the six months before the date of approval for retirement. Under this plan, TCB and TCBF make monthly contributions equal to 15% and 2%, respectively, of salaries and wages. The fund is deposited in TCB of Taiwan. The Company recognizes pension expenses based on actuarial calculations. Other information in on the defined benefit plan was as follows: a. Net pension cost Service cost $ 81,331 Interest cost 11,935 Actual return on plan assets ( 4,601 ) Amortization ( 3,269 ) Net pension cost $ 85,396 b. The reconciliation of plan funded status to balance sheet amounts Benefit obligation: Vested benefit obligation $ 5,617,318 Non-vested benefit obligation 1,359,253 Accumulated benefit obligation 6,976,571 Additional benefits based on future salaries 1,825,180 Projected benefit obligation 8,801,751 Fair value of plan assets ( 5,115,424 ) Funded status 3,686,327 Unrecognized transitional net benefit obligation ( 641 ) Unamortized prior service cost ( 5,360 ) Unamortized net pension gain or losses ( 1,293,383 ) Prepaid pension (part of other assets - prepaid expense) 4,800 Accrued pension cost $ 2,391,743 Vested benefits $ 6,601,543

61 ANNUAL REPORT c. Actuarial assumptions Discount rate 1.65%-1.75% Rate of increase in compensation 2.00% Expected long-term rate of return on plan assets 1.65%-1.75% The changes in the pension fund are summarized below: Balance, January 1 $ 4,428,437 Contributions 744,742 Interest income 55,214 Benefits paid ( 112,969 ) Balance, December 31 $ 5,115, PERSONNEL, DEPRECIATION AND AMORTIZATION EXPENSES Personnel expenses Salaries $ 593,787 Incentives 303,539 Pension and compensation 93,536 Overtime 68,193 Others 125,290 Depreciation and amortization expenses 99, INCOME TAX Under Article 49 of the Financial Holding Company Act, a financial holding company (FHC) can elect to file consolidated income tax returns for the regular corporate income tax as well as the 10% income tax on undistributed earnings of FHC and its subsidiaries if the FHC holds more than 90% of the subsidiaries' outstanding shares for the entire tax year. As of December 31,, TCFHC and its subsidiaries did not meet this holding requirement. Reconciliation of income tax (statutory rate) on pretax income to income tax expense is as follows: Tax on pretax income at statutory rate (17%) $ 56,279 Tax-exempt income ( 458 ) Permanent differences 13,419 Temporary differences 3,185 Income tax expenses - current 72,425 Change in deferred income tax ( 1,618 ) Tax adjustment from previous years ( 605 ) Income tax expense $ 70,202 59

62 60 Financial Information Deferred income tax liabilities (part of other liabilities) as of December 31, are summarized as follows: Deferred income tax assets Loss carryforwards $ 350,150 Pension 322,440 Provision for losses on unrealized asset impairment and market price decline 93,481 Allowance for credit losses and reserve for losses on guarantees 277,249 Loss from equity investments under the equity method 80,278 Valuation adjustment on available-for-sale financial assets 69,125 Other 23,142 1,215,865 Less: Allowance for valuation of deferred income tax assets 1,028,417 Deferred income tax liabilities 187,448 Cumulative translation adjustments ( 11,862 ) Unrealized gain or loss on financial instruments ( 117,613 ) Goodwill ( 538,901 ) ( 668,376 ) Net deferred income tax liabilities $ ( 480,928 ) The loss carryforwards not yet expired as of December 31, were as follows: (Concluded) Expiry Year Amount 2018 $ 199, ,831, ,057 Imputed tax credits are summarized as follows: Balances of stockholders' imputed tax credit December 31, Estimated creditable tax ratio for distributing the earnings TCFHC TCB TCS CAM CIB TCBF $ - $ 2,582,634 $ - $ 295,281 $ 9,012 $ 99, % 22.94% % 20.75% 29.69% The actual creditable tax ratio may differ from the estimated creditable tax ratio since this ratio is computed on the date the dividend is actually paid or distributed. Under the Income Tax Law, TCB's unappropriated retained earnings of $19,985 thousand generated until December 31, 1997 were included in the unappropriated retained earnings as of December 31,. TCFHC, TCS, CAM, CIB and TCBF had no retained earnings generated until December 31, TCFHC and TCS were established in. The year for which other subsidiaries' income tax returns had been examined by tax authorities were as follows: TCB CAM CIB TCBF

63 ANNUAL REPORT For TCB's income tax return from 2006 to 2009, the Taipei National Tax Administration (TNTA) claimed that the appraisal of goodwill was not reasonable and that there were no unrecognized losses on the sale of nonperforming loans in TCB s records on the date of the merger with the Farmers Bank of China (FBC). Thus, TNTA denied the expenses for the goodwill amortization of $2,324,670 thousand and the deferred loss amortization of $3,014,642 thousand on the sale of nonperforming loans. TCB disagreed with the TNTA s decision and initiated an administrative litigation. Under TNTA s interpretation in 2007, TCB added $787,981 thousand to its stockholders imputed tax credit account because of its merger with the FBC. However, the TNTA disallowed this addition because it still had unsettled questions on FBC s accumulated unappropriated retained earnings generated before FBC s merger with TCB. Thus, the TNTA assessed that TCB made an over-distribution in 2008 of the stockholders imputed tax credit by $542,373 thousand. TCB disagreed with the TNTA s assessment and initiated an administrative litigation. In the reexamination in 2006 stockholders imputed tax credit return, the TNAT agreed the addition. In addition, the TNTA s reexamination showed no over-distribution of the stockholders imputed tax credit on TCB s management believes that other tax returns showed no over-distribution of the stockholders imputed tax credits. 27. EARNINGS PER SHARE The numerators and denominators used in computing TCFHC s earnings per share (EPS) are summarized as follows: Amount (Numerator) Before Income Tax After Income Tax Shares (Denominator in Thousands) Before Income Tax EPS (NT$) After Income Tax Basic EPS Net income before extraordinary gain $ 190,945 $ 190,945 $ 0.03 $ 0.03 Extraordinary gain 71,588 71, Net income 262, ,533 6,390,086 $ 0.04 $ 0.04 Effect of dilutive common stock: Bonus to employees Diluted EPS $ 262,533 $ 262,533 6,390,107 $ 0.04 $ 0.04 If TCFHC decides to settle the bonus to employees by cash or shares, TCFHC should presume that the entire amount of the bonus will be settled in shares. If the resulting potential shares have a dilutive effect, these shares should be included in the weighted average number of shares outstanding used in the calculation of diluted EPS. The number of shares is estimated by dividing the entire amount of the bonus by the closing price of the shares at the balance sheet date. The dilutive effect of the potential shares should be included in the calculation of diluted EPS until the stockholders resolve the number of shares to be distributed to employees at their meeting in the following year. 28. STOCKHOLDERS EQUITY a. Capital stock On December 1,, TCFHC was incorporated through a share swap. TCFHC issued 6,596,825 thousand shares with a par value of NT$ As of December 31,, TCFHC s authorized capital stock amounted to $120,000,000 thousand, and issued and outstanding capital stock amounted to $65,968,254 thousand. 61

64 62 Financial Information Sources b. Capital surplus Under related regulations, capital surplus may be used to offset a deficit. Capital surplus from the issuance of shares in excess of par value (including additional paid-in capital from the issuance of common shares and capital surplus from mergers and treasury stock transactions) and donations may be capitalized only once a year within a certain percentage of TCFHC s paid-in capital. Based on the Company Law revised on January 4, 2012, the foregoing capital surplus may also be distributed as cash dividends. Under related regulations, the capital surplus from equity investments under the equity method cannot be distributed for any purpose. Under the Financial Holding Company Law and related directives issued by the Securities and Futures Bureau (SFB), the distribution of the ex-conversion unappropriated earnings that are generated by financial institutions (the subsidiaries) and become part of capital surplus of the financial holding company through a share swap is exempted from the appropriation restriction of the Securities and Exchange Law. These unappropriated earnings should be net of the appropriation of legal reserve or special reserve. The subsidiaries unappropriated retained earnings before stock conversion were $10,410,804 thousand, which were recognized as TCFHC s capital surplus as of its establishment date. The capital surplus as of December 31, came from the issuance of shares in excess of par value. Capital surplus sources and uses were as follows: From subsidiaries Capital surplus (mainly additional paid-in capital from share issuance in excess of par value) $ 27,783,766 Legal reserve 15,799,245 Special reserve 195,968 Unappropriated earnings 10,410,804 54,189,783 Additional paid-in capital from TCFHC s share issuance in excess of par value 3,861,434 Balance on December 31, $ 58,051,217 c. Equity adjustments To adopt the International Financial Reporting Standards, TCB s board of directors decided on December 1, to revalue its land. The revaluation amount of $1,108,854 thousand was credited to equity as unrealized revaluation increment. d. Treasury stock Reason for Redemption Beginning of Period Increase Decrease End of Period TCB holds TCFHC s shares as result 206, ,739 of a share swap Note: Shares in thousands. On December 1,, the TCFHC s shares held by TCB as treasury stock amounted to $7,136,000 thousand, which was the carrying value of the equity investment under the equity method. Under the Financial Holding Company Act, when a financial institution (a subsidiary) holds the shares of a financial holding company (FHC) as a result of a share swap, those shares should be sold to FHC or the subsidiary s employees or be exchanged for other purposes - even be sold on the Taiwan Stock Exchange or over-the-counter exchange - within three years from the swap date. Otherwise, the shares

65 ANNUAL REPORT will be regarded as FHC s unissued capital, and the FHC may change the amount of is registered capital. Under the Securities and Exchange Law, TCFHC is not allowed to buy more than 10% of its issued capital stock. In addition, TCFHC may not spend more than the sum of retained earnings, additional paid-in capital in excess of par value, capital surplus which are realized. Further, TCFHC may not pledge or hypothecate any purchased capital stock. TCFHC s capital stock held by subsidiaries is treated as treasury stock. However, the subsidiaries cannot exercise stockholders rights attached to the treasury stock if the shares had been bought by subsidiaries before TCFHC s establishment. Under SFC regulations, to maintain the stability of TCFHC s financial structure and protect stockholders, TCFHC appropriated a special reserve from retained earnings at an amount equal to the carrying value of the treasury stock held by subsidiaries in excess of the market value at balance sheet date. The special reserve may be reversed if the market value of treasury stock is higher than the carrying value at the year-end. e. Appropriation of earnings When TCFHC appropriates its earnings, legal reserve should be appropriated from the annual net income less any accumulated deficit. A special reserve may then be appropriated depending on regulations and operating needs. Any remainder should be appropriated as follows: 1) 0.02% to 0.16% as bonus to employees 2) 1% or less as remuneration to directors and supervisors 3) Dividends, determined annually by the board of directors. Unless otherwise restricted by related regulations, TCFHC s policy indicates that cash dividends must be 50% or above of the total dividends and bonus distributed. If the cash dividend per share is less than NT$0.1, the cash dividend will not be distributed unless the distribution is resolved in the stockholders meetings. In December, the estimates of the bonus to employees of $378 thousand and the remuneration to directors and supervisors of $2,363 thousand, were 0.16% and 1%, respectively, of earnings. If the bonus and remuneration approved by the TCFHC s board of directors change materially, the change should be included in the expenses of the current year. If the bonus and remuneration approved by the TCFHC s stockholders differ from the board of directors proposal, this change should be treated as a revision of the accounting estimate, and the related accrued expenses should be adjusted in the year of the stockholders approval of the bonus and remuneration. If bonus shares are resolved to be distributed to employees, the number of shares is determined by dividing the amount of bonus by the closing price (after considering the effect of cash and stock dividends) of the eve of the stockholders meeting. Under the Company Law, legal reserve should be appropriated until the reserve equals TCFHC s paidin capital. This reserve may be used to offset a deficit. Under the Company Law revised on January 4, 2012, when the reserve exceeds 25% of TCFHC s paid-in capital, the excess may be distributed as capital or cash dividends. Under an SFB directive, a special reserve is appropriated from the balance of the retained earnings at an amount that is equal to the debit balance of accounts in the stockholders equity section (such as unrealized gain or loss on financial instruments and cumulative translation adjustments, except treasury stocks). The balance of the special reserve is adjusted to reflect any changes in the debit balance of the related accounts. The board of directors had not resolved the appropriation of the earnings. Information on the appropriation of earnings or deficit offsetting can be accessed through the website of the Taiwan Stock Exchange ( 63

66 64 Financial Information Under the integrated income tax system, certain stockholders are allowed tax credits for the income tax paid by the Company. 29. RELATED-PARTY TRANSACTIONS In addition to those mentioned in other notes, the related-party transactions are summarized as follows: a. Related parties Related Party United Real Estate Management Co., Ltd. BNP Paribas Assurance TCB Life Insurance Co., Ltd. BNP Paribas TCB Asset Management Co., Ltd. BNP Paribas TCB Elite Taiwan Fund Others Relationship with the Bank Equity-method investee Equity-method investee Equity-method investee Fund managed by BNP Paribas TCB Asset Management Co., Ltd. Directors, supervisors, managers, relatives up to the second degree of the Company s chairman and president b. Significant transactions between the Company and related parties: Amount % to Total 1) Due from banks (part of cash and cash equivalents) $ 22 $ - 2) Call loans to bank Highest Balance Ending Balance % to Total Interest Revenue Interest Rate (%) $ 10,074,405 $ 9,440,060 2 $ 10, Amount % to Total Interest Expense 3) Due to banks $ 3,158,327 1 $ 2,717 4) Call loans from banks Highest Balance Ending Balance % to Total Interest Expense Interest Rate (%) $ 2,323,133 $ 151,375 - $ ) Loans Highest Balance Ending Balance % to Total Interest Revenue Interest Rate (%) $ 126,736 $ 125,919 - $ Under the Banking Law, except for customer loans and government loans, credits extended by TCB to any related party should be 100% secured, and the terms of credits extended to related parties should be similar to those for third parties. 6) Securities sold under repurchase agreements Ending Balance % to Total Interest Expense Interest Rate (%) $ 50,000 - $ ) Deposits

67 ANNUAL REPORT Ending Balance % to Total Interest Expense Interest Rate (%) $ 4,434,043 - $ 3, Amount % to Total 8) Accrued income (part of receivables) $ 66,666-9) Accrued interest (part of receivables) $ 9,584-10) Accrued interest (part of payables) $ 1,236-11) Accrued expense (part of payables) $ 33,900-12) Guarantee deposits received (part of other financial liabilities) $ 2,665-13) Service fee (part of service fee and commission income, net) BNP Paribas Assurance TCB Life Insurance Co., Ltd. $ 66, Other 3,060 1 $ 69, ) Service expense (part of service fee and commission income, net) $ 33, ) Rental income (part of other noninterest gain, net) $ ) Other income (part of other noninterest gain, net) $ 84 - Terms of other transactions with related parties were similar to those for third parties, except for the more favorable interest rate for managers savings within a prescribed limit. 17) Purchases and sales of securities Related Party Purchase Sale Sale Under Repurchase Agreement Purchase Under Repurchase Agreement BNP Paribas TCB Elite Taiwan Fund $ - $ - $ 50,000 $ - 18) Derivatives December 31, Related Party Type of Derivatives Contract Period Nominal Amounts Valuation Gain Amount on the Balance Sheet Account Amount Cross-currency swap contracts US$ 5,000 $ 664 Financial assets at fair value through profit or loss $ 2,907 BNP Paribas Assurance TCB Life Insurance Co., Ltd. Cross-currency swap contracts US$ 5, Financial assets at fair value through profit or loss 4,220 Cross-currency swap contracts US$ 5, Financial assets at fair value through profit or loss 7,509 19) Loans 65

68 66 Financial Information December 31, Highest Balance in the Year Ended Loan Classification Differences in Terms of Transaction for Related and Type Account Volume or Name December 31, (Note) Ending Balance Normal Loans Nonperforming Loans Collaterals Unrelated Parties Consumer loans 12 $ 26,043 $ 25,745 $ 25,745 $ - Land and buildings None Self-used housing mortgage loans , , ,174 - Land and buildings None Note: The highest balance is the largest sum in the year of all daily accounts for each type. c. Subsidiaries related-party transactions and balances that each amounted to more than $100,000 thousand as of and for the years ended December 31, 1) Taiwan Cooperative Bank, Ltd. a) Call loans to banks Highest Balance Ending Balance % to Total Interest Revenue Interest Rate (%) $ 14,629,573 $ 13,934,623 2 $ 17, Amount % to Total Interest Expense b) Due to banks $ 3,156,302 1 $ 2,717 c) Call loans from banks Highest Balance Ending Balance % to Total Interest Expense Interest Rate (%) $ 3,036,915 $ 531,809 - $ d) Loans Highest Balance Ending Balance % to Total Interest Revenue Interest Rate (%) $ 126,736 $ 125,919 - $ Under the Banking Law, except for customer loans and government loans, credits extended by TCB to any related party should be 100% secured, and the terms of credits extended to related parties should be similar to those to third parties. e) Deposits Ending Balance % to Total Interest Expense Interest Rate (%) $ 5,064,545 - $ 3, f) Derivative

69 ANNUAL REPORT December 31, Related Party Type of Derivatives Contract Period Nominal Amounts Valuation Gain Amount on the Balance Sheet Account Amount Cross-currency swap contracts US$ 5,000 $ 664 Financial assets at fair value through profit or loss $ 2,907 BNP Paribas Assurance TCB Life Insurance Co., Ltd. Cross-currency swap contracts US$ 5, Financial assets at fair value through profit or loss 4,220 Cross-currency swap contracts US$ 5, Financial assets at fair value through profit or loss 7,509 2) Taiwan Cooperative Securities Corp. Amount % to Total Cash in bank (part of cash and cash equivalents) Taiwan Cooperative Bank, Ltd. $ 340, ) Taiwan Cooperative Bills Finance Corporation Ending Balance Interest Rate (%) Interest Revenue Cash in bank Taiwan Cooperative Bank, Ltd. $ 119, $ 2 d. Compensation of directors, supervisors and management personnel Salaries $ 4,362 Incentives 1,077 Bonus 4,541 $ 9, PLEDGED ASSETS a. The face values of the pledged bonds and certificates of deposit as of December 31, as follows: Collaterals for call loans of foreign currency $ 40,000,000 Collaterals for day-term overdraft 30,700,000 Collaterals for overdraft of domestic U.S. dollar settlement 2,000,000 Guarantee deposits for provisional collateral seizure for loan defaults and others 666,200 Guarantee deposits for securities operation 385,000 Overseas branches capital adequate reserve (US$9,100 thousand in ) 275,503 Guarantee deposits for the bills finance business 177,400 Guarantee deposits for the trust business compensation reserve 150,000 Others 29,400 $ 74,383,503 67

70 68 Financial Information To comply with the CBC s clearing system for real-time gross settlement (RTGS), the Company provided certificates of deposit as collateral for day-term overdraft (part of due from the Central Bank and call loans to other banks). The pledged amount may be adjusted anytime, and the unused overdraft amount at the end of a day can also be treated as TCB s liquidity reserve. b. To expand their capital sourcing and enhance their liquidity position, TCB s Seattle Branch and Los Angeles Branch obtained access privileges at the Discount Window of the Federal Reserve Bank of San Francisco. For this access, the two branches pledged the following assets: (In Thousands of U.S. Dollars) Outstanding Balance Collateral Date Loan Bond Total Value December 31, $ 137,559 $ 81,900 $ 219,459 $ 170, COMMITMENTS AND CONTINGENT LIABILITIES In addition to those mentioned in other notes, the contingencies and commitments as of December 31, were as follows: a. Taiwan Cooperative Financial Holding Co., Ltd. TCFHC s outstanding major construction and procurement contracts amounted to $39,386 thousand, of which $38,870 thousand was still unpaid. b. Taiwan Cooperative Bank, Ltd. 1) TCB has operating lease agreements covering its office premises being rented from third parties. As of December 31,, refundable deposits on these leases amounted to $337,719 thousand. Minimum rentals payable in the next five years are as follows: Year Amount 2012 $ 573, , , , ,650 2) TCB s outstanding major construction and procurement contracts amounted to $2,408,816 thousand, of which $1,801,099 thousand was still unpaid. c. United Taiwan Bank S.A. United Taiwan Bank S.A. has operating lease agreements with unrelated parties on its office premises. The rentals payable in the next five years are as follows: Year Amount 2012 $ 2, , , , ,067

71 ANNUAL REPORT d. CIB 1) CIB entered into insurance agent contracts with various insurance companies. The contracts are summarized as follows: Insurance Company Contract Date Commission Contract Period Taiwan Life Insurance Co., Ltd Cardif Assurance Vie Fubon Life Assurance Co., Ltd Shin Kong Life Insurance Co., Ltd Tokio Marine Newa Insurance Co., Ltd. Shin Kong Fire & Marine Insurance Co., Ltd Charties Insurance Company Mingtai Fire & Marine Insurance Co., Ltd Fubon Insurance Co., Ltd Taiwan Fire & Marine Insurance Co., Ltd China Life Insurance Co., Ltd Mass Mutual Mercuries Life Insurance Co., Ltd CIGNA Life Insurance Co., Ltd Farglory Life Insurance Co., Ltd Chung Kuo Insurance Co., Ltd The First Insurance Co., Ltd Zurich Insurance Co., Ltd Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Effective February 7, 2008; expiry on February 6, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective February 7, 2008; expiry on February 6, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective June 27, 2008; expiry on June 26, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective August 21, 2008; expiry on August 20, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective January 8, 2008; expiry on January 7, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective January 8, 2008; expiry on January 7, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective January 8, 2008; expiry on January 7, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective January 8, 2008; expiry on January 7, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective January 8, 2008; expiry on January 7, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective January 8, 2008; expiry on January 7, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. ffective December 11, 2007; expiry on December 10, 2008; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective December 27, 2007; expiry on December 26, 2008; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective November 16, 2007; expiry on November 15, 2008; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective February 14, 2008; expiry on February 13, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective February 19, 2008; expiry on February 18, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective February 19, 2008; expiry on February 18, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective February 19, 2008; expiry on February 18, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. (Continued) 69

72 70 Risk Management Insurance Company Contract Date Commission Contract Period Taian Insurance Co., Ltd Union Insurance Co., Ltd South China Insurance Co., Ltd Cardif-Assurances Risques Divers Cathay Life Insurance Co., Ltd BNP Paribas Assurance TCB Life Insurance Co., Ltd Cathay Life Insurance Co., Ltd Fubon Life Insurance Co., Ltd Shin Kong Life Insurance Co., Ltd Taiwan Fire & Marine Insurance Co., Ltd Chung Kuo Insurance Co., Ltd The First Insurance Co., Ltd South China Insurance Co., Ltd Fubon Insurance Co., Ltd Shin Kong Fire & Marine Insurance Co., Ltd. Mass Mutual Mercuries Life Insurance Co., Ltd Taian Insurance Co., Ltd Zurich Insurance Co., Ltd Tokio Marine Newa Insurance Co., Ltd Allianz Insurance Co., Ltd Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Effective February 19, 2008; expiry on February 18, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective February 19, 2008; expiry on February 18, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective February 19, 2008; expiry on February 18, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective June 18, 2008; expiry on June 17, 2009; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective July 29, 2009; expiry on July 28, 2010; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective April 13, 2010; expiry on April 12, ; contract is automatically extended for one year unless either party gives a notice declining contract renewal. ffective January 31, ; expiry on January 30, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective January 27, ; expiry on January 26, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective January 27, ; expiry on January 26, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective March 1, ; expiry on February 29, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective March 1, ; expiry on February 29, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective March 1, ; expiry on February 29, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective March 1, ; expiry on February 29, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective March 1, ; expiry on February 29, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective March 1, ; expiry on February 29, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective January 27, ; expiry on January 26, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective March 1, ; expiry on February 29, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective March 1, ; expiry on February 29, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective March 1, ; expiry on February 29, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective March 31, ; expiry on March 30, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. (Continued)

73 ANNUAL REPORT Insurance Company Contract Date Commission Contract Period CIGNA Life Insurance Co., Ltd Taiwan Life Insurance Co., Ltd Cardif-Assurances Risques Divers Cardif Assurance Vie Mingtai Fire & Marine Insurance Co., Ltd Union Insurance Co., Ltd Bank Taiwan Life Insurance Co., Ltd Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Billed and received under contract terms Effective February 15, ; expiry on February 14, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective February 15, ; expiry on February 14, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective March 17, ; expiry on March 16, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective March 17, ; expiry on March 16, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective March 1, ; expiry on February 29, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. Effective March 1, ; expiry on February 29, 2012; contract is extended one year automatically unless either party gives a notice declining contract renewal. Effective November 18, ; expiry on November 17, 2012; contract is automatically extended for one year unless either party gives a notice declining contract renewal. 2) CIB and Land Bank signed a contract in January. Under this contract, CIB should pay Land Bank certain percentages of CIB s commission revenue from insurance companies, as follows: (a) if the revenue is $250,000 thousand or less - 90%; (b) if the revenue exceeds $250,000 thousand - 90% of $250,000 thousand plus 95% of the excess. As of December 31,, the commission payable to Land Bank was 33,900 thousand. e. Taiwan Cooperative Bills Finance Cooperation As of December 31,, the commitments or contingencies were as follows: Guarantees of commercial paper $ 11,829,300 Purchase of fixed-rate commercial paper $ 2,050,000 Sale of fixed-rate commercial paper $ 200,000 f. Taiwan Cooperative Securities Corp. Agreements on the decoration of buildings and various purchases related to the improvements of existing premises occupied by its branches amounted to approximately $17,130 thousand. As of December 31, this amount had been unpaid. 32.FINANCIAL INSTRUMENTS a. Fair values of financial instruments Carrying Amount Estimated Fair Value Financial assets Financial assets - with fair value approximating carrying amounts Financial assets at fair value through profit or loss $ 29,683,803 $ 29,683,803 Available-for-sale financial assets 55,865,511 55,865,511 Other short-term financial assets 652,243, ,243,662 Discounts and loans 1,943,392,930 1,943,392,930 (Continued) 71

74 72 Risk Management Carrying Amount Estimated Fair Value Other financial assets - overdue receivables 14,120 14,120 Refundable deposits, operating deposits and settlement funds 1,152,681 1,152,681 Held-to-maturity financial assets 8,716,618 8,668,433 Other financial assets - debt instruments with no active market 45,080,654 45,022,008 Financial liabilities Financial liabilities - with fair value approximating carrying amounts Commercial paper issued 879, ,696 Financial liabilities at fair value through profit or loss 4,218,801 4,218,801 Other short-term financial liabilities 333,248, ,248,956 Deposits and remittances 2,212,922,547 2,212,922,547 Other borrowings 970, ,000 Other financial liabilities 12,947,680 12,947,680 Bank debentures 90,800,000 90,774,667 (Concluded) b. Methods and assumptions applied in estimating the fair values of financial instruments are as follows: 1) For financial instruments at fair value through profit or loss, available-for-sale financial assets, and held-to-maturity financial assets, fair value is best determined on the basis of quoted market prices. However, in many instances where there are no quoted market prices for the Company s various financial instruments, fair values are based on estimates using other financial data and appropriate valuation methodologies. Fair values of forward contracts, currency swap contracts, foreigncurrency margin contracts, cross-currency swap contracts and interest rate swap contracts are calculated using the discounted cash flow method, unless the fair values are provided by counterparties. Fair values of option contracts are based on estimates using the Black Scholes model. The Company estimates the fair value of each forward contract on the basis of the swap points quoted by Reuters on each settlement date. Fair values of interest rate swap contracts and crosscurrency swap contracts are calculated using the Bloomberg information system, unless the fair values are provided by counter-parties. The calculation of the fair value of each option contract is based on the mid-price (the average of bid and ask prices) quoted by Reuters. 2) The carrying amounts of short-term financial instruments approximate their fair values because of the short maturities of these instruments. Short-term financial assets are cash and cash equivalents, due from the Central Bank and call loans to other banks and receivables (except tax refundable). Short-term financial liabilities are due to the Central Bank and other banks, securities sold under repurchase agreements and payables (except tax payable). 3) Discounts and loans, commercial paper issued, other borrowings and deposits are interest-earning assets and interest-bearing liabilities. Thus, their carrying amounts represent fair value. The fair value of overdue loans and overdue receivable is based on their carrying amount, net of allowance for credit losses. 4) For other financial assets, if there are theoretical prices from the GreTai Securities Market (GTSM, Taiwan s over-the-counter securities exchange) on the balance sheet date, they are used as the basis for evaluating the fair value of debt instruments with no active market. Otherwise, the latest trade prices and quoted prices by major markets are used. 5) Other financial liabilities include structured products, appropriations for loans and guarantee deposits received. They are interest-bearing liabilities items that can be transferred to other banks at any time depending on the business situation or can be withdrawn by providers. The carrying

75 ANNUAL REPORT amounts of these liabilities are their fair values. 6) The fair values of bank debentures are recorded as follows: (a) debentures with no maturity dates - at book values; (b) debentures with floating interest rates - at theoretical prices quoted by the GreTai Securities Market (Taiwan s over-the-counter securities exchange); and (c) debentures with fixed interest rates - at estimates made using the discounted cash flow method. The discount rates used were between 0.80% and 1.10% as of December 31, and were comparable with interest rates for loans with similar terms and characteristics. 7) If equity investments under the equity method and financial assets carried at cost both consist of unlisted stocks, these investments have no quoted market prices in an active market and their fair value cannot be reliably measured. Thus, the Company does not disclose their fair value. 8) The fair values of refundable deposits, operating deposits and settlement funds are based on their carrying amounts because they do not have specific maturity dates. c. The fair value hierarchy of the Company s financial instruments was as follows: Nonderivative financial instruments Assets December 31, Total Level 1 Level 2 Level 3 Financial assets at fair value through profit or loss (FVTPL) Held-for-trading financial assets Stocks $ 28,768 $ 28,768 $ - $ - Debt instruments 146, , Others 24,799, ,000 24,599,895 - Designated as at FVTPL on initial recognition 1,666, , ,040 - Available-for-sale financial assets Stocks 3,128,057 3,128, Debt instruments 52,279,827 13,952,874 38,326,953 - Others 457, , Other financial assets Debt instruments with no active market 45,022,008-45,022,008 - Liabilities Financial liabilities at FVTPL ( 1,827,517 ) - ( 1,827,517 ) - Derivative financial instruments Assets Financial assets at FVTPL 3,041,597 5,086 3,036,511 - Liabilities Financial liabilities at FVTPL ( 2,391,284 ) - ( 2,391,284 ) - 1) Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities. In accordance with the Statement of Financial Accounting Standards (SFAS) No Financial Instruments: Recognition and Measurement, active markets are markets with all of the following conditions: (i) the products traded in the market are homogeneous, (ii) willing parties are available 73

76 74 Financial Information anytime in the market, and (iii) price information is available to the public. 2) Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (e.g., as prices) or indirectly (e.g., derived from prices). 3) Level 3 - inputs not based on observable market data (unobservable inputs). d. Current income and valuation adjustments 1) The net gains (losses) on financial instruments at fair value through profit or loss in December are summarized as follows: Interest Revenue Gains (Losses) Gains (Losses) (Expense) from Disposal from Valuation Cash Dividends Total Held-for-trading financial assets $ 23,447 $ 1,185,524 $ (1,153,276) $ 10 $ 55,705 Financial assets designated at fair value through profit or loss 6,633 - ( 7,317 ) - ( 684 ) Held-for-trading financial liabilities - ( 990,023 ) 1,122, ,797 Financial liabilities designated at fair value through profit or loss ( 3,415 ) - 1,233 - ( 2,182 ) $ 26,665 $ 195,501 $ (36,540 ) $ 10 $ 185,636 Financial instrument valuation resulted in net losses of $36,540 thousand in December, of which the results of the valuation at estimated market prices were net losses of $35,695 thousand. 2) In December, for the Company s financial instruments not measured at fair value through profit or loss, the total interest revenue and the total interest expense were as follows: Interest revenue $ 4,058,709 Interest expense ( 1,909,668 ) $ 2,149,041 3) The adjustments of stockholders equity credited directly from available-for-sale financial assets amounted to $247,337 thousand in December, and the gain recognized and deducted from the adjustments of stockholders equity and minority interest were $15,053 thousand. 4) The net service fee and commission incomes in December were as follows: Service fee and commission incomes $ 519,415 Service charge and commission expenses ( 83,871 ) $ 435,544 e. Financial risk information 1) Risk control and hedge strategy TCFHC has set up a Risk Management Committee in charge of relevant policies, procedures, principles and standards. In addition, the committees coordinate and supervise the subsidiaries risk control tasks. TCFHC also requests each subsidiary to set up risk management procedures based on regulations, so that the Company can effectively identify, measure, manage, and monitor various types of risks and to achieve profit objectives under reasonable risk. TCB has set up a Risk Management Committee in charge of bank-wide risk control tasks. Under

77 ANNUAL REPORT this committee is a Risk Management Division devoted to carrying out resolutions adopted by the Committee and performing other duties with regard to risk management. Currently, TCB s risk management operating procedures call for the business departments and offices in the Head Office to implement routine risk review and control in accordance with business management regulations and risk policies. The Risk Management Division regularly reports risk exposure items affecting liquidity, interest rates, industry, and securities to the Risk Management Committee and Board of Directors in accordance with risk limit regulations. TCB s risk policy seeks to effectively identify, measure, manage, and monitor various types of risk and to incorporate risk factors in management decision-making, establishing risk limits, determining trading or authorization limits, regularly checking and assessing risk exposures, and establishing risk indicators and early warning mechanisms. In addition, to effectively control capital adequacy and ensure that TCB meets the minimum statutory requirements, TCB incorporates all risks within the scope of capital assessment work in accordance with the authorities capital adequacy management regulations. In consideration of overall risk exposure, the characteristics of equity capital and liabilities are taken into consideration in asset allocation. 2) Market risks TCFHC s market risk management involves monitoring and controlling the market risk of TCFHC and subsidiaries and setting their risk limit depending on their business needs, including the VaR (value at rsk) limit, position-limit and stop-loss limit. TCFHC also regularly submits to its board of directors a risk evaluation report, which covers the taking of risk exposure by each risk-based unit and the adequacy of the current risk management system. For securities investments, loans and related financial instruments held by the Company, their fair values will change because of interest rate and exchange rate fluctuations as of the balance sheet date. a) The foreign-currency financial assets and liabilities with significant effect on financial statements were as follows: (In Thousands) Financial assets December 31, Foreign Currencies Exchange Rate New Taiwan Dollars Monetary items USD $ 8,989, $ 272,149,803 EUR 157, ,176,668 HKD 1,670, ,509,656 GBP 46, ,148,204 AUD 364, ,205,228 SGD 4, ,655 CHF 8, ,124 CAD 20, ,503 JPY 48,571, ,928,168 SEK 2, ,165 MYR NZD 16, ,145 THB 7, ,429 ZAR 14, ,160 (Continued) 75

78 76 Financial Information December 31, Foreign Currencies Exchange Rate New Taiwan Dollars RMB $ 271, $ 1,301,859 PHP 2, ,663 Financial liabilities Monetary items USD $ 8,429, $ 255,212,962 EUR 240, ,436,826 HKD 1,040, ,056,616 GBP 83, ,883,451 AUD 351, ,820,223 SGD 6, ,583 CHF 4, ,835 CAD 76, ,271,043 JPY 30,278, ,799,473 SEK 6, ,090 MYR NZD 118, ,769,506 THB 8, ,512 ZAR 2,431, ,020,458 RMB 204, ,826 PHP (Concluded) b) Average amount and average interest rate of interest-earning assets and interest-bearing liabilities Average balance is calculated by the daily average balances of interest-earning assets and interest-bearing liabilities. i. Taiwan Cooperative Bank, Ltd. Interest-earning assets Average Balance Average Rate (%) Due from banks $ 5,136, Due from the Central Bank 503,357, Call loans to banks 60,101, Held-for-trading financial assets 12,122, Financial assets designated at fair value through profit or loss 2,460, Securities purchased under resell agreements 166, Discounts and loans 1,860,953, Available-for-sale financial assets 41,584, Held-to-maturity financial assets 9,088, Debt instruments with no active market 38,025, (Continued)

79 ANNUAL REPORT Average Balance Average Rate (%) Interest-bearing liabilities Due to the Central Bank and other banks $ 201,415, Financial liabilities designated at fair value through profit or loss 1,800, Securities sold under repurchase agreements 42,777, Demand deposits 335,075, Savings - demand deposits 586,106, Time deposits 445,991, Time savings deposits 695,162, Treasury deposits 65,510, Negotiable certificates of deposit 2,415, Structured products 13,431, Bank debentures 83,507, (Concluded) ii. United Taiwan Bank S.A. Interest-earning assets Average Balance Average Rate (%) Due from banks $ 92, Call loans to banks 613, Discounts and loans 4,676, Debt instruments with no active market 1,927, Interest-bearing liabilities Due to the Central Bank and other banks 4,846, Demand deposits 63,878 - Time deposits 115, iii. Taiwan Cooperative Bills Finance Corporation Interest-earning assets Average Balance Average Rate (%) Demand deposits and time deposits $ 1,385, Call loans to banks 56, Financial assets at fair value through profit or loss - bills 10,761, Financial assets at fair value through profit or loss - bonds 15, Available-for-sale financial assets - bonds 6,984, Interest-bearing liabilities Call loans from banks 92, Securities sold under repurchase agreements - bills 9,998, Securities sold under repurchase agreements - bonds 5,309, (Concluded) 77

80 78 Financial Information c) Interest rate sensitivity information i. Taiwan Cooperative Bank, Ltd. (TCB) Interest Rate Sensitivity (New Taiwan Dollars) December 31, (In Thousands of New Taiwan Dollars, %) Items 1 to 90 Days 91 to 180 Days 181 Days to One Year Over One Year Interest rate-sensitive assets $ 2,098,595,064 $ 113,340,697 $ 8,479,526 $ 56,601,685 $ 2,277,016,972 Interest rate-sensitive liabilities 1,157,662, ,436,710 73,087,785 34,592,209 2,191,779,021 Interest rate sensitivity gap 940,932,747 (813,096,013 ) (64,608,259 ) 22,009,476 85,237,951 Net worth 105,463,503 Ratio of interest rate-sensitive assets to liabilities Ratio of interest rate sensitivity gap to net worth Note 1: The above amounts included only New Taiwan dollar amounts held by TCB s head office and branches (i.e., excluding foreign currency). Note 2: Interest rate-sensitive assets and liabilities refer to interest-earning assets and interest-bearing liabilities with revenues or costs that are affected by interest rate changes. Note 3: Interest rate sensitivity gap = Interest rate-sensitive assets - Interest rate-sensitive liabilities Note 4: Ratio of interest rate-sensitive assets to liabilities = Interest rate-sensitive assets/interest rate-sensitive liabilities (in New Taiwan dollars) Total Interest Rate Sensitivity (U.S. Dollars) December 31, (In Thousands of U.S. Dollars, %) Items 1 to 90 Days 91 to 180 Days 181 Days to One Year Over One Year Total Interest rate-sensitive assets $ 9,854,237 $ 1,116,145 $ 288,449 $ 113,268 $ 11,372,099 Interest rate-sensitive liabilities 9,864, , ,191 9,900 10,826,214 Interest rate sensitivity gap (9,786) 516,045 (63,742) 103, ,885 Net worth 236,799 Ratio of interest rate-sensitive assets to liabilities Ratio of interest rate sensitivity gap to net worth Note 1: The above amounts included only U.S. dollar amounts held by TCB s head office, domestic branches, OBU and overseas branches and excluded contingent assets and contingent liabilities. Note 2: Interest rate-sensitive assets and liabilities refer to interest-earning assets and interest-bearing liabilities with revenues or costs that are affected by interest rate changes. Note 3: Interest rate sensitivity gap = Interest rate-sensitive assets - Interest rate-sensitive liabilities Note 4: Ratio of interest rate-sensitive assets to liabilities = Interest rate-sensitive assets/interest rate-sensitive liabilities ii. United Taiwan Bank S.A. Interest Rate Sensitivity (U.S. Dollars) December 31, (In Thousands of U.S. Dollars, %) Items 1 to 90 Days 91 to 180 Days 181 Days to One Year Over One Year Total Interest rate-sensitive assets $ 206,455 $ 35,992 $ - $ 8,281 $ 250,728 Interest rate-sensitive liabilities 125,000 50, ,956 Interest rate sensitivity gap 81,455 (14,964) - 8,281 74,772 (Continued)

81 ANNUAL REPORT Items 1 to 90 Days 91 to 180 Days 181 Days to One Year Over One Year Net worth 55,746 Ratio of interest rate-sensitive assets to liabilities Ratio of interest rate sensitivity gap to net worth Note 1: The above amounts included only U.S. dollar amounts held by the head office, domestic branches, OBU and overseas branches of United Taiwan Bank S.A. and excluded contingent assets and contingent liabilities. Note 2: Interest rate-sensitive assets and liabilities refer to interest-earning assets and interest-bearing liabilities with revenues or costs that are affected by interest rate changes. Note 3: Interest rate sensitivity gap = Interest rate-sensitive assets - Interest rate-sensitive liabilities Note 4: Ratio of interest rate-sensitive assets to liabilities = Interest rate-sensitive assets/interest rate-sensitive liabilities (in U.S. dollars) Total Currency iii. Taiwan Cooperative Bills Finance Corporation (TCBF) TCBF holds bonds, bills and related financial instruments, with fair values that are affected by changes in market interest rates. When the market interest ratio increases by 0.01%, the interest rate sensitivity analysis is as follows: Due in One Month Due after One Month Up to Three Months Due after Three Months Up to One Year December 31, Due after One Year Up to Seven Years Due After Seven Years New Taiwan Dollars $ 20 $ 102 $ 82 $ 2,000 $ 729 $ 2,933 3) Credit risk Every major subsidiary of TCFHC has complete examination procedures to evaluate credit risks of clients or counterparties. To maintain good asset quality, TCFHC s subsidiaries have set up not only fair credit approval processes but also management policy on and requirements for counterparties credit rating and determination of risk concentration in persons, groups, and affiliates. The Company is exposed to credit risk from counter-parties default on financial instruments. When providing loans, acceptances and guarantees, the Company conducts cautionary credit evaluations. As of December 31,, the securing of financial instruments by collaterals was as follows: (a) about 66% of TCB s total loans; (b) 7.27% to 16.92%, with an average of 14.76%, of TCB s guarantees and letters of credit issued; and (c) about 47.37%, of TCBF s total guarantees. Collaterals were mostly in the form of cash, inventory, liquid securities and other assets. If the customers break a contract, the Company will execute its right on the collaterals and decrease its credit risk. However, the Company discloses its maximum credit exposure without consideration of collateral fair value. The maximum credit exposure of financial assets is the carrying amount of financial assets on the balance sheet date; please refer to related notes to the consolidated financial statements for more information. The amounts of financial contracts with off-balance-sheet credit risks as of December 31, were as follows: a) Taiwan Cooperative Bank, Ltd. Credit card commitments $ 38,501,980 Guarantees and letters of credit issued 107,976,164 Irrevocable loan commitments 61,816,331 Total 79

82 80 Financial Information b) United Taiwan Bank S.A. Irrevocable loan commitments $ 1,159,207 c) Taiwan Cooperative Bills Finance Corporation Guarantees of commercial paper $ 11,829,300 The concentration of credit risk exists when counter-parties to financial transactions are individuals or groups engaged in similar activities or activities in the same region, which would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. TCB s groups or industries with outstanding loans amounting to 10% or more of total outstanding loans were as follows: Amount % Domestic Natural person $ 807,266, Manufacturing 388,001, Government institutions 107,439,483 5 For Taiwan Cooperative Bills Finance Corporation, concentrations of credit risk were as follows: Counter-party Amount Maximum Credit Exposure Private enterprise $ 11,829,300 $ 11,829,300 Industries Amount Maximum Credit Exposure Real estate Finance and insurance $ 3,322,100 $ 3,322,100 Manufacturing 3,890,700 3,890,700 2,171,300 2,171,300 $ 9,384,100 $ 9,384,100 4) Liquidity risk TCFHC s guidelines for managing liquidity risk are shown in The Liquidity and Interest Risk Management Guideline of Taiwan Cooperative Financial Holding Company. This guideline requires TCFHC and its subsidiaries to maintain appropriate liquidity, payment ability, and financial stability and to improve their ability to handle exigencies. TCFHC and subsidiaries also follow the requirements of authorities, adopt numeral management, and compile cash flow gap analysis reports regularly. Additionally, the Company uses a liquidity risk management index to monitor strictly its transactions. In December, TCB s liquidity reserve ratio was 16.75%. TCB has sufficient equity capital and working capital to execute all contract obligations and thus has no liquidity risk. The possibility that futures contracts cannot be sold at reasonable prices is low; hence, the liquidity risk is insignificant.

83 ANNUAL REPORT The Company manages the currency requirements for assets and liabilities that have various maturity dates. However, because of uncertainties as well as the great variety of transactions, exchange rates on asset and liability maturity dates can result in either gain or loss. To minimize its liquidity risk, TCB, Taiwan Cooperative Bills Finance Corporation and United Taiwan Bank S.A. apply appropriate ways to group assets and liabilities by maturity. The maturity analysis of assets and liabilities is shown as follows: a) Maturity analysis of financial assets and liabilities i. Taiwan Cooperative Bank, Ltd. December 31, Due in One Month Due after One Month up to Three Months Due after Three Months up to Six Months Due after Six Months up to One Year Due after One Year Total Assets Cash and cash equivalents $ 52,772,714 $ - $ - $ - $ - $ 52,772,714 Due from the Central Bank and call loans to 274,658, ,422,074 55,256,710 33,687,542 58,207, ,231,935 other banks Financial assets at fair value through profit or loss 15,796, , , ,428 17,160,870 Receivables 12,464,642 2,326,871 1,104,824 2,496,858 2,150,049 20,543,244 Discounts and loans 92,406, ,666, ,694, ,741,222 1,391,140,580 1,957,649,319 Available-for-sale financial assets 717,799 5,000, ,372 3,768,821 36,757,595 47,021,325 Held-to-maturity financial assets 544,723 63, , ,224 7,034,942 8,712,829 Other financial assets (excluding financial assets carried at cost) 222, ,815 1,526,686 3,324,150 37,945,105 44,012,303 $ 449,583,921 $ 311,824,592 $ 181,226,120 $ 248,529,817 $ 1,533,940,089 $ 2,725,104,539 Liabilities Due to the Central Bank and other banks $ 95,632,832 $ 97,076,601 $ 15,978,768 $ 18,856,686 $ 299,856 $ 227,844,743 Financial liabilities at fair value through profit 2,391, ,827,517 4,218,801 or loss Securities sold under repurchase agreements 35,109,129 5,823,528 2,547,320 12,659-43,492,636 Payables 28,648,747 1,338,229 3,264,719 5,871,909 3,914,571 43,038,175 Deposits and remittances 332,899, ,446, ,132, ,275, ,663,095 2,213,417,495 Bank debentures ,080,000 90,080,000 Other financial liabilities 10,397,779 84,646 71, ,022 2,220,000 12,952,325 $ 505,079,435 $ 449,769,801 $ 334,995,598 $ 607,194,302 $ 738,005,039 $ 2,635,044,175 (Concluded) 81

84 82 Financial Information ii. United Taiwan Bank S.A. December 31, Assets Due in One Month Due after One Month up to Three Months Due after Three Months up to Six Months Due after Six Months up to One Year Due after One Year Total Cash and cash equivalents $ 127,638 $ - $ - $ - $ - $ 127,638 Due from the Central Bank and call loans to other banks 611, ,832 Receivables 19, ,539 Discounts and loans 33, , , ,907 4,304,863 5,154,183 Other financial assets (excluding financial assets carried at cost) , , ,074 1,365,340 $ 792,085 $ 230,362 $ 665,823 $ 735,325 $ 4,854,937 $ 7,278,532 Liabilities Due to the Central Bank and other banks $ 1,803,260 $ 1,790,464 $ 1,542,693 $ - $ - $ 5,136,417 Payables 17, ,081 Deposits and remittances 135, ,308 $ 1,955,649 $ 1,790,464 $ 1,542,693 $ - $ - $ 5,288,806 iii. Taiwan Cooperative Bills Finance Corporation December 31, Assets Due in One Month Due after One Month up to Three Months Due after Three Months up to One Year Due after One Year up to Seven Years Due after Seven Years Total Financial assets at fair value through profit or loss Available-for-sale financial assets Liabilities $ 5,618,992 $ 5,815,783 $ 718,779 $ - $ - $ 12,153, , ,928 7,798,275-8,827,817 5,618,992 6,117,397 1,446,707 7,798,275-20,981,371 Securities sold under repurchase agreements 15,445,894 2,881,359 15, ,342,262 $ (9,826,902) $ 3,236,038 $ 1,431,698 $ 7,798,275 $ - $ 2,639,109

85 ANNUAL REPORT b) Maturity analysis of assets and liabilities i. Taiwan Cooperative Bank, Ltd. Maturity Analysis of Assets and Liabilities (New Taiwan Dollars) December 31, (In Thousands of New Taiwan Dollars) Total Remaining Period to Maturity 1 to 30 Days 31 to 90 Days 91 to 180 Days 181 Days to One Year Over One Year Main capital inflow on $ 2,610,099,381 $ 459,809,127 $ 324,848,595 $ 207,004,571 $ 335,964,428 $ 1,282,472,660 maturity Main capital outflow on 3,354,841, ,460, ,433, ,492, ,465,635 1,143,988,661 maturity Gap (744,742,407 ) 47,348,477 (168,585,278 ) (251,488,398 ) (510,501,207 ) 138,483,999 Note: The above amounts included only New Taiwan dollar amounts held by TCB s head office and domestic branches (i.e., excluding foreign currency). Maturity Analysis of Assets and Liabilities (U.S. Dollars) December 31, (In Thousands of U.S. Dollars) Remaining Period to Maturity Total 181 Days to 1 to 30 Days 31 to 90 Days 91 to 180 Days One Year Over One Year Main capital inflow on maturity $ 15,007,809 $ 6,843,113 $ 3,648,499 $ 1,631,608 $ 1,018,435 $ 1,866,154 Main capital outflow on maturity 15,007,809 10,478,572 3,212, , ,035 35,109 Gap - (3,635,459 ) 436, , ,400 1,831,045 Note: The above amounts included only U.S. dollar amounts held by TCB s head office and domestic branches. ii. United Taiwan Bank S.A. Maturity Analysis of Assets and Liabilities (U.S. Dollars) December 31, (In Thousands of U.S. Dollars) Remaining Period to Maturity Total 181 Days to 1 to 30 Days 31 to 90 Days 91 to 180 Days One Year Over One Year Main capital inflow on maturity $ 250,728 $ 26,051 $ 11,039 $ 21,982 $ 24,266 $ 167,390 Main capital outflow on maturity 194,982 65,861 59,140 50,956-19,025 Gap 55,746 (39,810 ) (48,101 ) (28,974 ) 24, ,365 Note: The above amounts included only U.S. dollar amounts held by the head office, domestic branches and OBU of United Taiwan Bank S.A. 83

86 84 Financial Information Items Use of funds iii. Taiwan Cooperative Bills Finance Corporation Period 1 to 30 Days 31 to 90 Days 91 to 180 Days 181 Days to One Year Over One Year Bills $ 5,625,800 $ 5,827,500 $ 722,000 $ - $ - Bonds - 330, ,000 7,810,000 Cash in bank 721, , Total 6,346,983 6,257, , ,000 7,810,000 Borrowings 300, Securities sold under Source of funds repurchase agreements 14,873,786 3,463,048 15, Capital ,072,503 Total 15,173,786 3,463,048 15,054-3,072,503 Net flows (8,826,803 ) 2,794, , ,000 4,737,497 Accumulated capital net flows (8,826,803 ) (6,032,251 ) (5,325,305 ) (4,625,305 ) 112, ASSET QUALITY, PROFITABILITY AND RELEVANT INFORMATION OF TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES a. Taiwan Cooperative Bank, Ltd. s asset quality Table 2 (attached) b. Concentration of credit extensions 1) Taiwan Cooperative Bank, Ltd. Rank (Note 1) (In Thousands of New Taiwan Dollars, %) December 31, Industry of Group Enterprise (Note 2) Total Amount of Credit Percentage of TCB s Endorsement or Other Equity Transactions (Note 3) Group A Railway transportation $ 56,299, Group B Petroleum and coal products Manufacturing 47,226, Group C Other electronic parts and component manufacturing not classified elsewhere 25,186, Group D Iron and steel smelting 22,545, Group E Liquid crystal panel and component manufacturing 15,616, Group F Cotton and textile 15,159, Group G Sea transportation 10,208, Group H Real estate development 9,275, Group I Iron and steel smelting 9,043, Group J Integrated circuit manufacturing 7,879,

87 ANNUAL REPORT Rank (Note 1) ) Taiwan Cooperative Bills Finance Corporation Industry of Group Enterprise (Note 2) Group A Other financial intermediation not classified elsewhere Group B Other retail sale in non-specialized stores Group C Shipping agency service Group D Manufacture of cleaning preparations Group E Real estate development Group F Wholesale of motor vehicles and motorcycle parts and accessories Group G Real estate development Group H Rolling and extruding of iron and steel Group I Financial leasing Group J Real estate development December 31, Total Amount of Credit Endorsement or Other Transactions (Note 3) (In Thousands of New Taiwan Dollars, %) Percentage of TCBF s Equity $ 575, , , , , , , , , , (Concluded) Note 1: The list shows rankings by total amount of credit, endorsement or other transactions but excludes government-owned or state-run enterprises. If the borrower is a member of a group enterprise, the total amount of credit, endorsement or other transactions of the entire group enterprise must be listed and disclosed by code and line of industry. The industry of the group enterprise should be presented as the industry of the member firm with the highest risk exposure. The lines of industry should be described in accordance with the Standard Industrial Classification System of the Republic of China published by the Directorate-General of Budget, Accounting and Statistics under the Executive Yuan. Note 2: Group enterprise refers to a group of corporate entities as defined by Article 6 of Supplementary Provisions to the Taiwan Stock Exchange Corporation Rules for Review of Securities Listings. Note 3: The total amount of credit, endorsement or other transactions is the sum of various loans (including import and export negotiations, discounted, overdraft, unsecured and secured short-term loans, margin loans receivable, unsecured and secured medium-term loans, unsecured and secured long-term loans and overdue loans), exchange bills negotiated, accounts receivable factored without recourse, acceptances and guarantees. c. Profitability 1) Taiwan Cooperative Financial Holding Co., Ltd. and its subsidiaries Items December 31, Return on total assets Before income tax 0.14 After income tax 0.11 Return on equity Before income tax 3.23 After income tax 2.54 Net income ratio ) Taiwan Cooperative Financial Holding Co., Ltd. Items December 31, Before income tax 2.56 Return on total assets After income tax 2.56 (%) (%) (Continued) 85

88 86 Financial Information Items December 31, Return on equity Before income tax 2.56 After income tax 2.56 Net income ratio ) Taiwan Cooperative Bank, Ltd. Items December 31, Return on total assets Before income tax 0.33 After income tax 0.28 Return on equity Before income tax 7.79 After income tax 6.55 Net income ratio ) Taiwan Cooperative Bills Finance Corporation Ltd. Items December 31, Return on total assets Before income tax 0.80 After income tax 0.75 Return on equity Before income tax 5.58 After income tax 5.27 Net income ratio ) Taiwan Cooperative Securities Corp. Items December 31, Return on total assets Before income tax ( 0.89 ) After income tax ( 0.88 ) Return on equity Before income tax ( 0.94 ) After income tax ( 0.93 ) Net income ratio ( ) (%) (%) (%) Note 1: Return on total assets = Income before (after) income tax Average total assets. Note 2: Return on equity = Income before (after) income tax Average stockholders equity. Note 3: Net income ratio = Income after income tax Total net revenue. Note 4: Income before (after) income tax represents income in for TCB and TCBF and income from the date of establishment to December 31, for TCFHC and TCS. Note 5: The above profitability ratios are expressed annually. Note 6: Income before income tax includes net income before extraordinary gain and extraordinary gain before income tax. d. Taiwan Cooperative Bank, Ltd. s operation and legal risk Matters Requiring Special Notation Causes Within the past year, a responsible person or professional employee violated the law in the course of business, resulting in an indictment by a prosecutor. Within the past year, a fine was levied on TCB for violations of laws and regulations. (In Thousands of New Taiwan Dollars) Summary and Amount December 31, None None (Continued)

89 ANNUAL REPORT Causes Within the past year, misconduct occurred, resulting in the authorities imposing strict corrective measures on TCB. Within the past year, the individual loss or total loss from employee fraud, accidental and material events, or failure to abide by the Guidelines for Maintenance of Soundness of Financial Institutions exceeded NT$50 million. Within the past year, TCB faced penalties due to violations of Article 61-1 of the Banking Law of Republic of China. Other Summary and Amount December 31, None None The FSC instructed the Bank to improve its process on the sending to clients of mails or s, including credit-card related marketing information, to enhance the protection of clients private and sensitive information. None Note: The term within the past year means one year before the balance sheet date. 34. TAIWAN COOPERATIVE BANK, LTD. S TRUST BUSINESS UNDER THE TRUST LAW a. Trust-related items are those shown in the following balance sheets, statements of income and trust property list These items were managed by TCB s Trust Department. However, these items were not included in the consolidated financial statements. Balance Sheets of Trust Accounts December 31, Trust Assets Trust Liabilities Cash in banks $ 1,562,707 Payables Short-term investments Accrued expense $ 2,468 Mutual funds 119,216,256 Redemption of funds 6,482 Stocks 439,467 Mutual funds 200 Bonds 279,929 Others 2, ,935,652 11,431 Receivables 2,433 Accounts payable on securities under custody 61,981,985 Trust capital Real estate Cash 121,518,822 Land 26,447,153 Real estate 26,329,417 Buildings 18,363 Securities 125,846 26,465,516 Others 94,830 Securities under custody 61,981, ,068,915 Reserves and retained earnings Net income ( 137,223 ) Appropriation ( 19,887 ) Retained earnings 43,072 ( 114,038 ) Total $ 209,948,293 Total $ 209,948,293 87

90 88 Financial Information Investment Items Trust Property List December 31, Cash in banks $ 1,562,707 Short-term investments Mutual funds 119,216,256 Stocks 439,467 Bonds 279,929 Receivables Accrued interest 1,507 Receivable on the sale of securities 200 Cash dividends 726 Real estate Land 26,447,153 Buildings 18,363 Securities under custody 61,981,985 Total $ 209,948,293 Statements of Income on Trust Accounts Years Ended December 31, Revenue Interest revenue $ 3,864 Cash dividend 26,741 Realized gain on investment - stocks 19,497 Unrealized gain on investment - stocks 53,794 Realized gain on investment - mutual funds 23,089 Unrealized gain on investment - mutual funds 19,405 Unrealized exchange gain 770 Total revenue 147,160 Expenses Management fees 16,182 Taxes 1,353 Insurance fees 47 Service charge 1,480 Postage 12 Unrealized loss on investment - stocks 71,959 Unrealized loss on investment - mutual funds 45,882 Realized loss on investment - mutual funds 29,869 Realized loss on investment - stocks 15,016 Realized exchange loss 25,301 Unrealized exchange loss 28,572 Others 48,710 Total expenses 284,383 Loss before income tax ( 137,223 ) Income tax expense - Net loss ( $ 137,223 )

91 ANNUAL REPORT b.nature of trust business operations under the Trust Law: Note JOINT VENTURE a. BNP Paribas Assurance TCB Life Insurance Co., Ltd. 1) TCB acquired 51% of the entire capital ($4,000,000 thousand) of the BNP Paribas Assurance TCB Life Insurance Co., Ltd., which was established on the basis of a joint venture agreement (the Agreement ) signed by TCB and BNP Paribas Investment Partner S.A. Under the Agreement, TCB, BNP Paribas Assurance TCB Life Insurance Co., Ltd., and the Cooperative Insurance Brokers Co., Ltd. signed on April 13, 2010 another agreement under which only BNP Paribas Assurance TCB Life Insurance Co., Ltd. will be the sole insurance product supplier and TCB the sole seller. 2) TCB s proportionate interests in the accounts of BNP Paribas Assurance TCB Life Insurance Co., Ltd. were as follows: Cash and cash equivalents $ 3,600,659 Receivables 314,225 Investments 21,664,121 Assets reserved for reinsurance 346 Properties 41,328 Other assets 398,865 Separate account - assets of insurance products 5,959,014 Payables 239,267 Financial liabilities 131,806 Reserve for liabilities 23,945,040 Other liabilities 323,301 Separate account - liabilities of insurance products 5,959,014 Revenues 14,286,286 Costs 14,433,877 Expenditures 169,676 b. BNP Paribas TCB Asset Management Co., Ltd. 1) TCB acquired 51% of the entire capital ($300,000 thousand) of BNP Paribas TCB Asset Management Co., Ltd. 2) TCB s proportionate interests in the accounts of BNP Paribas TCB Asset Management Co., Ltd. were as follows: Current assets $ 88,165 Properties 15,129 Intangible assets 2,982 Other assets 933 Current liabilities 9,014 Other liabilities 1,463 Revenues 21,748 Expenditures 78,840 Nonoperating revenues and gains

92 90 Financial Information 36. TCFHC S FINANCIAL STATEMENTS AND CONDENSED FINANCIAL STATEMENTS OF SUBSIDIARIES Please see Table 3 (attached). 37. BUSINESS SEGMENT FINANCIAL INFORMATION Please see Table 4 (attached). 38.CAPITAL ADEQUACY RATIO Under the Financial Holding Company Act and related regulations, TCFHC should maintain a consolidated capital adequacy ratio (CAR) of at least 100%. If the ratio falls below 100%, the appropriation of earnings as cash dividends or other assets will be restricted, and the authorities may discipline TCFHC, depending on the situation. The Banking Law and related regulations require that TCB maintains both stand-alone and consolidated CARs at a minimum of 8% each. If TCB s CAR falls below 8%, the authorities may impose certain restrictions on the amount of cash dividends that TCB may declare or, in certain conditions, prohibit TCB from declaring cash dividends. The Act Governing Bills Finance Business and related regulations require that the bills finance business maintains CARs at a minimum of 8%. The CAR of TCBF was 18.09% as of December 31,. Under the rules governing securities firms and related regulations, the CAR of a securities firm should be at least 200% to ensure its stability as well as maintain the health of the security markets. If the ratio is below 200%, the authority may impose certain restrictions on a firm s operations. The CAR of TCS was 1,582% as of December 31,. Please refer to related information in Table DISCLOSURE REQUIRED UNDER ARTICLE 46 OF THE FINANCIAL HOLDING COMPANY ACT Please see Table 6 (attached). 40. PREPARATION OF PRO FORMA FINANCIAL STATEMENTS Under the Guidelines Governing the Preparation of Financial Reports by Financial Holding Companies, a financial holding company formed through business combination or share swap under the Financial Holding Company Act should prepare comparative pro forma financial statements as supplemental information, which pertain to the period when the combination or share swap was completed and the immediately succeeding year. Please see Tables 11 and 12 (attached). 41. PLAN FOR THE ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS Under Rule No issued by the Financial Supervisory Commission (FSC) on February 2, 2010, TCFHC discloses the following information on the adoption of International Financial Reporting Standards (IFRSs): a. Under Rule No issued by the FSC, effective 2013, companies with shares listed on the Taiwan Stock Exchange or traded on the Taiwan GreTai Securities Market or Emerging Stock Market and financial institutions supervised by the FSC should prepare their financial statements in accordance with the International Financial Reporting Standards, International Accounting Standards (IAS), and the Interpretations as well as related guidance translated by the Accounting Research and

93 ANNUAL REPORT Development Foundation (ARDF) and issued by the FSC. To comply with this rule, TCFHC has set up a project team and made a plan to adopt the IFRSs. Leading the implementation of this plan is the vice president in charge of the Operating Management Department. The main contents of the plan, schedule and status of execution/target completion month as of December 31, were as follows: Task/Item Procedure for Task Accomplishment 1) First stage: Analysis and planning a) Establishment of the project team a) Hold an executive meeting to discuss IFRSs and have the board of directors approve the project. b) Choose suitable members of the project team. c) Hold the first meeting of the project team. d) Assign and confirm the responsibility of each member and establishing operating procedures. b) IFRSs and their impact Understand the IFRS impact on the current operating processes of each department. c) Conversion plan and schedule a) Draw up the conversion plan, taking into consideration the Company s scale and the project members opinions. b) Submit the conversion plan to the board of directors. d) Initial analysis of choices of accounting policies Identify the impact of accounting changes on operating processes, financial reports and internal controls. Status of Execution/ Target Completion Date Completed Completed Completed Completed e) Consolidated entities Identify which subsidiaries to include in the consolidation based on IFRSs Completed f) Comparison of ROC GAAP and Identify the significant differences between the current accounting policies and Completed IFRSs IFRSs and the impact of these differences. g) Analysis of IFRS 1 - First-time Adoption of International Financial Reporting Standards 2) Second stage: Design and implementation Identify the impact of the IFRS 1 exemption options on financial reports, tax issues, and internal controls. a) Conversion plan amendment Amend the conversion plan after considering regulatory requirements and the results of the assessment in the analysis and planning phases. b) Selection of IFRS accounting policies Select the accounting policies to be adopted after considering regulations and other factors, such as operating items, business environment, economic reality of transactions. c) Impact on operations of conversion to IFRSs d) Impact on the internal control system and internal audit system e) Changes in business procedures, financial reporting procedures, IT system and operations in each department Completed Completed January 2012 Evaluate the impact of conversion to IFRSs on business procedures, financial January 2012 reports, IT system, tax issues, internal controls and daily operations and formulate solutions to any problems. Determine the impact of IFRS adoption on the internal control and internal audit January 2012 systems as well as financial reports. Make the needed adjustments to the related operations, systems and procedures. January 2012 f) New-system testing a) After adjusting the business process, financial reporting, information systems, and department operations, make the necessary tests. b) On the basis of the test results, evaluate whether IFRS 1 and other IFRS standards need to be adopted, and make the necessary procedural and system corrections and adjustments g) Communication to stockholders of the expected impact of IFRS adoption 3) Third stage: Conversion a) Account balances on the transition day a) Confirming that the plan and the impact of adopting IFRS are disclosed in financial statements on a regular basis. b) Assess the probable impact of IFRSs on contracts, financial situation and business performance and inform related parties of these assessment results Determine the account balances on the transition day based on the second-stage analysis. January 2012 January 2012 February 2012 (Continued) 91

94 92 Financial Information Task/Item b) Make a final choice of accounting policies to apply and determine their impact on the financial statements. c) Financial reports on the transition day ( ) d) IFRS financial reports for the first quarter of 2012 e) Enhanced process for preparing IFRS financial statements Procedure for Task Accomplishment Confirm the impact of the selected IFRS accounting policies on the Company s financial statements. a) Determine the account balances on the transition day in accordance with the selected IFRS accounting policies and special requirements for first-time adoption. b) Prepare the statement of financial position as of the transition day. Prepare IFRS financial reports for the first quarter of 2012 in accordance with the selected IFRS accounting policies. a) Compare IFRS financial reports with ROC GAAP financial reports, check for differences, and modify the process for financial statement preparation, if necessary. b) Review the process for preparing the IFRS financial statements for the first quarter of 2012 and determine if this process needs improvement. f) Internal control operation Assess the effectiveness of internal control after the second-stage adjustments and monitor operations for continuing efficiency. 4) Fourth Stage: Adjustment and improvement a) Reintegrate management information and performance evaluation criteria b) Design IFRS assessment tasks for the new trading patterns in the future Review the existing management information and performance evaluation criteria and make appropriate modifications. Develop standard assessment processes to determine how new trading patterns will comply with the requirements of IFRSs Status of Execution/ Target Completion Date February 2012 March 2012 March 2012 June 2012 December 2012 June 2013 December 2013 (Concluded) b. Significant differences between the existing accounting policies and the accounting policies to be adopted under IFRSs were as follows: Accounting Issues Valuation allowance for deferred income tax assets Short-term compensated absences Regular way purchase or sale of financial assets Actuarial gains and losses Preferential rates for employees deposits The revaluation increment of land Description of Differences Under ROC GAAP, a valuation allowance is provided if it is more likely than not that a deferred tax asset will not be realized. Under IFRSs, a deferred tax asset is recognized only when it is probable that taxable profits will be available, against which the deferred tax assets can be used; thus, a valuation allowance is not needed. The Company recognizes short-term compensated absences (paid vacation leaves) as these leaves are actually taken by the employees. Under IFRSs, the Company recognizes the cost of short-term cumulative compensated absences as the employees render services that increase their entitlement to these compensated absences. The Company applies trade date accounting to beneficial certificates and call option and settlement date accounting to the rest of its financial assets. However, under IAS 39 - Financial Instruments: Recognition and Measurement, only one method should be used for recognizing all regular way purchases or sales of financial assets, and this method should be consistently applied to all financial assets that belong to the same category as defined in IAS 39. As a result, the Company will apply trade date accounting to all regular way purchase or sale of financial assets upon conversion to IFRSs. Under ROC GAAP, the corridor approach is applied. On conversion to IFRS, the Company will immediately recognize all actuarial gains and losses on retirement benefits under other comprehensive income. Under the current policy, the interest expense for employees preferential deposits is currently recognized at actual cost under the accrual basis, which affects the classification and disclosure of these amounts in the financial statements. Under IFRSs, the preferential rate for employees deposits that is in excess of market rate should be treated as post-employment benefits and recognized under personnel expenses based on actuarial calculations. Under the revised Guidelines Governing the Preparation of Financial Reports by Public Banks, the personnel expense for the preferential rate for employees deposits would not be recognized until the employees retire. In addition, the accounting treatment for the preferential interest-related amounts before employees retire could be the same as under ROC GAAP, i.e., recognized at actual cost under the accrual basis. The Company had revalued a part of its landholdings. Under IFRSs, the Company cannot revalue its land based on regulations. (Concluded) c. The Company has prepared the above assessments in compliance with (a) the 2010 version of the IFRSs translated by the ARDF and issued by the FSC and (b) the Guidelines Governing the Preparation of Financial Reports by Financial Holding Companies amended and issued by the FSC on December

95 ANNUAL REPORT 26,. These assessments may be changed as the regulators may issue new rules governing the adoption of IFRSs. Actual accounting policies adopted under IFRSs in future may differ from those contemplated during the assessments. 42. OTHER SIGNIFICANT TRANSACTIONS a. TCB s application to set up the Phnom Penh Branch in Cambodia was approved by the Financial Supervisory Commission on December 6,. As of December 31,, this investment had not yet been approved by the Investment Commission under the Ministry of Economic Affairs and the relevant authorities of Cambodia. b. On December 1,, TCB s board of directors resolved to reduce TCB s capital by $1,524,390 thousand and return TCB s long-term equity investments in BNP Paribas Assurance TCB Life Insurance Co., Ltd. and BNP Paribas TCB Asset Management Co., Ltd. to TCFHC. As of December 31,, the application for this capital reduction had not yet been approved by the relevant authorities. c. On January 31, 2012, TCB s board of directors decided to issue subordinated bank debentures (with the total amount not to exceed $20,000,000 thousand). As of March 23, 2012, this issuance had not been approved by the authorities. d. On January 31, 2012, TCFHC s board of directors authorized TCB to set up Taiwan Cooperative Insurance Agency Co., Ltd. TCB s investment of $20,000 thousand was authorized by TCB s board of managing directors on February 10, As of March 23, 2012, the date of the accompanying auditors report, this investment had not yet been approved by the authorities. e. TCB s application to set up the Tianjin Branch and the Gaoshin subbranch of the Suzhou branch in Mainland China was approved by the Financial Supervisory Commission on February 9, TCB will invest RMB600,000 thousand in the Tianjin branch, and Suzhou branch is expected to appropriate RMB100,000 thousand to the Gaoshin subbranch as its operating funds based on the Regulations Governing Approvals of Banks to Engage in Financial Activities Between the Taiwan Area and the Mainland Area. As of March 23, 2012, the date of the accompanying auditors report, these investments had not yet been approved by the Investment Commission under the Ministry of Economic Affairs and the relevant authorities of Mainland China. f. To adopt the International Financial Reporting Standards (IFRSs), TCB s board of directors decided on March 15, 2012 to revalue its land. The revaluation amount of $647,363 thousand was credited to equity as unrealized revaluation increments and had been retroactively adjusted to January 1, 2012 (the day of conversion to IFRSs). g. The provisions of the resolution passed by TCFHC s board of directors on March 23, 2012 were as follows: 1) For the second phase of organizational restructuring, TCB will transfer to TCFHC its 51% equity investment in BNP Paribas Assurance TCB Life Insurance Co., Ltd. Under the FSC s letter, TCFHC issued a letter of commitment on its investment in BNP Paribas Assurance TCB Life Insurance Co., Ltd. 2) As TCFHC s subsidiary, TCB intends to start implementing 2012 project retirement and severance programs for employees career planning and enhancement of business performance. The effective date of retirement or severance is tentatively scheduled for May 1, Under this program, an employee who voluntarily retires or undergoes severance will be entitled to pension, severance pay and retirement pay corresponding to up to 15 months. 3) TCFHC intends to invest $153,000 thousand in BNP Paribas TCB Asset Management Co., Ltd by June 30,

96 94 Financial Information 43.ADDITIONAL DISCLOSURES a. Related information of significant transactions and b. investees: 1) Financing provided: TCFHC and investee company - none or not applicable. 2) Endorsement/guarantee provided: TCFHC - not applicable; investee company - none or not applicable. 3) Marketable securities held: TCFHC, TCB, TCBF and TCS - not applicable; investee company - Table 7 (attached). 4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 10% of the paid-in capital (TCFHC and TCB disclosed its investees acquired or disposed of): TCS - not applicable; TCFHC and investee company - none. 5) Acquisition of individual real estate at costs of at least NT$300 million or 10% of the paid-in capital: TCFHC and investee company - none. 6) Disposal of individual real estates at costs of at least NT$300 million or 10% of the paid-in capital: TCFHC and investee company - none. 7) Financial asset securitization of subsidiaries: None. 8) Allowance of service fees to related parties amounting to at least NT$5 million: None. 9) Sale of nonperforming loans of subsidiaries: None. 10) Receivables from related parties amounting to at least NT$300 million or 10% of the paid-in capital: None. 11) Percentage share in investees and related information: Table 8 (attached). 12) Derivative transactions: Notes 5 and 32 to the consolidated financial statements. 13) Other significant transactions which may affect the decisions of users of financial reports: Note 42 to the consolidated financial statements. c. Investment in Mainland China: Based on the Regulations Governing Approvals of Banks to Engage in Financial Activities between the Taiwan Area and the Mainland Area, TCB invested RMB300,000 thousand to set up the Suzhou Branch in Mainland China. This investment was approved by the Financial Supervisory Commission on June 28, The branch s information - major operating items, capital stock, the way of investment, investment inflows and outflows, the holding percentage, the investment income or loss, the book value at year-end, the remitted investment profits and the limit on the amount of investment in Mainland China - is shown in Table 9. d. Business relationships and significant transactions between the parent company and subsidiaries: Table 10 (attached). 44.OPERATING SEGMENTS The information reported to the Company s chief operating decision makers for the assessment of segment performance focuses mainly on business and profit or loss. The Company s reportable segments under the Statement of Financial Accounting Standards No Operating Segments are as follows: a. TCB business, including deposit and loan, capital, offshore, trust and other business; b. Other noncore business. The accounting policies of the reportable segments are the same as the Company s accounting policies described in Note 2. The measure reported by a segment to the chief operating decision makers is profit before income tax. The terms of transactions between segments are similar to those for third parties.

97 ANNUAL REPORT The revenue, expenses, and related information of the Company s reportable segments were as follows: Year Ended December 31, TCB Business Others Total Adjustment and Elimination Net interest $ 2,147,911 $ 25,635 $ 2,173,546 $ 2,160 $ 2,175,706 Net revenue and gain other than interest 480, , ,636 19, ,128 Net revenue 2,628, ,340 2,913,182 21,652 2,934,834 Allowance for bad-debt expenses ( 484,113 ) ( 7,877 ) ( 491,990 ) ( 164 ) ( 492,154 ) Operating expenses ( 1,865,623 ) ( 86,179 ) ( 1,951,802 ) ( 231,416 ) ( 2,183,218 ) Income (loss) before income tax $ 279,106 $ 190,284 $ 469,390 $( 209,928 ) $ 259,462 The chief operating decision makers of the Company rely only on the average amounts of loans and deposits during the period to assess the performance of the operating segments and make decisions. Under an explanation issued by Accounting Research and Development Foundation of ROC, the measure of segment assets is zero. Total TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED ENTITIES DECEMBER 31, Subsidiaries included in the consolidated financial statements: TABLE 1 Investor Company Investee Company Location Main Business and Products Percentage of Ownership Taiwan Cooperative Bank, Ltd. Taipei City Banking Taiwan Cooperative Financial Holding Co., Ltd. (the Company ) Taiwan Cooperative Bank, Ltd. Co-operative Assets Management Co., Ltd. Co-operative Assets Management Co., Ltd. Taipei City Acquisition of delinquent loans Taiwan Cooperative Bills Finance Corporation Taipei City Bills finance dealer Taiwan Cooperative Securities Taipei City Securities dealer United Taiwan Bank S.A. Belgium Banking Cooperative Insurance Brokers Co., Ltd. Taipei City Life and property insurance agent Cooperative I Assets Management Co., Ltd. Taipei City Real estate appraisal and acquisition of delinquent loans Note Subsidiaries not included in the consolidated financial statements: Investor Company Investee Company Location Main Business and Products Taiwan Cooperative Bank, Ltd. BNP Paribas Assurance TCB Life Insurance Co., Ltd. BNP Paribas TCB Asset Management Co., Ltd. Percentage of Ownership Note Taipei City Insurance industry Note Taipei City Securities investment trust Note Note: Based on the Guidelines Governing the preparation of Financial Reports by Financial Holdings Companies, the Company s subsidiaries, BNP Paribas Assurance TCB Life Insurance and BNP Paribas TCB Asset Management, should have been included in the consolidation. However, the authorities had approved the Company s exclusion of these the two companies from the consolidated financial reports as of December 31, because the Company did not have real control over these two companies. 95

98 96 Financial Information Items Corporate banking Consumer banking TAIWAN COOPERATIVE BANK, LTD. ASSET QUALITY - NONPERFORMING LOANS AND RECEIVABLES DECEMBER 31, (In Thousands of New Taiwan Dollars, %) Period Nonperforming Loans (Note 1) Loans December 31, Ratio of Nonperforming Loans (Note 2) Allowance for Credit Losses Coverage Ratio (Note 3) Secured $ 5,938,646 $ 559,361, $ 3,809, Unsecured 4,654, ,044, ,714, Housing mortgage (Note 4) 2,117, ,760, ,816, Cash cards Small-scale credit loans (Note 5) 197,625 14,029, , Other (Note 6) Secured 936, ,083, ,076, Unsecured 140,308 9,369, , Loan 13,985,684 1,957,649, ,943, Nonperforming Receivables (Note 1) Receivables Ratio of Nonperforming Receivables (Note 2) Allowance for Credit Losses Coverage Ratio (Note 3) Credit cards 15,473 2,399, , Accounts receivable factored without recourse (Note 7) Amounts of executed contracts on negotiated debts not reported as nonperforming loans (Note 8) Amounts of executed contracts on negotiated debts not reported as nonperforming receivables (Note 8) Amounts of executed debt-restructuring projects not reported as nonperforming loans (Note 9) Amounts of executed debt-restructuring projects not reported as nonperforming receivables (Note 9) 87,708 5,871, , ,487 84,117 45,019 85,925 TABLE 2 (Concluded) Note 1: Nonperforming loans are reported to the authorities and disclosed to the public, as required by the Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/Nonaccrual Loans. Nonperforming credit card receivables are reported to the authorities and disclosed to the public, as required by the Banking Bureau s letter dated July 6, 2005 (Ref. No ). Note 2: Ratio of nonperforming loans: Nonperforming loans Outstanding loan balance. Ratio of nonperforming receivables: Nonperforming receivables Outstanding receivable balance. Note 3: Coverage ratio of loans: Allowance for credit losses for loans Nonperforming loans. Coverage ratio of receivables: Allowance for credit losses for receivables Nonperforming receivables. Note 4: The mortgage loan is for house purchase or renovation and is fully secured by housing that is purchased (owned) by the borrower, the spouse or minor children of the borrowers. Note 5: Based on the Banking Bureau s letter dated December 19, 2005 (Ref. No ), small-scale credit loans are unsecured, involve small amounts and exclude credit cards and cash cards. Note 6: Other consumers banking loans refer to secured or unsecured loans that exclude housing mortgage, cash and credit cards, and small-scale credit loans. Note 7: As required by the Banking Bureau in its letter dated July 19, 2005 (Ref. No ), accounts receivable factored without recourse are reported as nonperforming receivables within three months after the factors or insurance companies refuse to indemnify banks for any liabilities on these accounts. Note 8: Amounts of executed contracts on negotiated debts that are not reported as nonperforming loans or receivables are disclosed to the public in accordance with the Banking Bureau s letter dated April 25, 2006 (Ref. No ). Note 9: Amounts of executed debt-restructuring projects not reported as nonperforming loans or receivables are disclosed to the public in accordance with the Banking Bureau s letter dated September 15, 2008 (Ref. No ).

99 ANNUAL REPORT 1. TCFHC s financial statements TABLE 3 TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES TCFHC'S FINANCIAL STATEMENTS AND CONDENSED FINANCIAL STATEMENTS OF SUBSIDIARIES YEAR ENDED DECEMBER 31, Taiwan Cooperative Financial Holding Co., Ltd. Assets Balance Sheet December 31, Cash and cash equivalents $ 40,485 Liabilities (In Thousands of New Taiwan Dollars, Except Par Value) Liabilities and Stockholder s Equity Receivables 4,509 Payables $ 19,273 Equity investments under the equity method 122,954,278 Other borrowings 66,000 Properties, net 11,753 Other financial liabilities 1,738 Other assets, net 1,440 Other liabilities 373 Total liabilities 87,384 Stockholders equity Common stock - NT$10.00 par value, authorized 12,000,000 thousand shares; issued and outstanding 6,596,825 65,968,254 thousand shares Capital surplus 58,051,217 Retained earnings 262,533 Unrealized revaluation increment 5,434,727 Cumulative translation adjustments 57,313 Unrealized valuation gain on financial instruments 287,047 Treasury stock ( 7,136,010 ) Total stockholders equity 122,925,081 Total $ 123,012,465 Total $ 123,012,465 (Continued) 97

100 98 Financial Information Taiwan Cooperative Financial Holding Co., Ltd. Statement of Income Period from December 1, to December 31, (In Thousands of New Taiwan Dollars, Except Per Share Amounts) Revenues and gains Income from equity investments under the equity method $ 222,488 Other revenues and gains 4,513 Total revenues and gains 227,001 Expenses and losses Loss from equity investments under equity method 2,346 Operating expenses 33,643 Other expenses and losses 67 Total expenses and losses 36,056 Income before income tax 190,945 Income tax expense - Income before extraordinary gain 190,945 Extraordinary gain 71,588 Net income $ 262,533 Before Income Tax After Income Tax Basic earnings per share Income before extraordinary gain $ 0.03 $ 0.03 Extraordinary gain Net income $ 0.04 $ 0.04 Diluted earnings per share $ 0.03 $ 0.03 Income before extraordinary gain Extraordinary gain $ 0.04 $ 0.04 Net income (Continued)

101 ANNUAL REPORT Taiwan Cooperative Financial Holding Co., Ltd. Statement of Changes in Stockholders' Equity Period from December 1, to December 31, (In Thousands of New Taiwan Dollars) Equity Adjustments Issued and Outstanding Capital Stock Unrealized Valuation Shares (In Thousands) Common Stock Capital Surplus Unappropriated Earnings Unrealized Revaluation Increments Cumulative Translation Adjustments Gain on Financial Instruments Treasury Stock Total Stockholders' Equity BALANCE, DECEMBER 1, 6,596,825 $ 65,968,254 $ 58,051,217 $ - $ 4,325,873 $ 146,348 $ 24,657 $( 7,136,010) $121,380,339 Net income in December , ,533 Change in cumulative translation adjustments ( 89,035 ) - - ( 89,035 ) Change in unrealized valuation gains on financial instruments , ,390 Change in unrealized revaluation increments ,108, ,108,854 BALANCE, DECEMBER 31, 6,596,825 $ 65,968,254 $ 58,051,217 $ 262,533 $ 5,434,727 $ 57,313 $ 287,047 $( 7,136,010) $ 122,925,081 (Continued) 99

102 100 Financial Information Taiwan Cooperative Financial Holding Co., Ltd. Statement of Cash Flows Period from December 1, to December 31, (In Thousands of New Taiwan Dollars) Cash flows from operating activities Net income $ 262,533 Adjustments to reconcile net income to net cash used in operating activities Extraordinary gain ( 71,588 ) Income from equity investments under the equity method, net ( 220,142 ) Depreciation expenses 198 Net changes in operating assets and liabilities Receivables ( 4,509 ) Payables 19,273 Other liabilities 373 Net cash used in operating activities ( 13,862 ) Cash flows from investing activities Acquisition of properties ( 11,951 ) Increase in refundable deposits ( 1,440 ) Net cash used in investing activities ( 13,391 ) Cash flows from financing activities Increase in other borrowings 66,000 Increase in other financial liabilities 1,738 Net cash provided by financing activities 67,738 Net increase in cash and cash equivalents 40,485 Cash and cash equivalents, beginning of period - Cash and cash equivalents, end of period $ 40,485 SUPPLEMENTARY CASH FLOW INFORMATION Income tax paid $ 1 (Continued)

103 ANNUAL REPORT 2. Subsidiaries condensed balance sheets Assets Taiwan Cooperative Bank, Ltd. Condensed Balance Sheet December 31, Cash and cash equivalents $ 52,772,714 Liabilities Due from the Central Bank and call loans to other banks Financial assets at fair value through profit or loss Liabilities and Stockholder s Equity (In Thousands of New Taiwan Dollars) 577,231,935 Due to the Central Bank and other banks $ 227,844,743 17,160,870 Receivables, net 19,351,808 Financial liabilities at fair value through profit or loss Securities sold under repurchase agreements 4,218,801 43,492,636 Discounts and loans, net 1,938,497,764 Payables 43,038,175 Available-for-sale financial assets 47,021,325 Deposits and remittances 2,213,417,495 Held-to-maturity financial assets 8,712,829 Bank debentures 90,080,000 Equity investments under the equity method 3,202,912 Accrued pension cost 2,391,743 Other financial assets, net 47,951,934 Other financial liabilities 12,952,325 Properties, net 35,386,491 Other liabilities 5,562,592 Intangible assets 3,831,442 Total liabilities 2,642,998,510 Other assets, net 4,509,079 Stockholder s equity Capital stock 60,854,930 Capital surplus 20,647,756 Retained earnings 25,427,015 Unrealized revaluation increments 5,434,727 Cumulative translation adjustments 57,313 Unrealized valuation gain on financial instruments 210,852 Total stockholder s equity 112,632,593 Total $ 2,755,631,103 Total $ 2,755,631,103 (Continued) 101

104 102 Financial Information Assets Taiwan Cooperative Bills Finance Corporation Condensed Balance Sheet December 31, (In Thousands of New Taiwan Dollars) Liabilities and Stockholder s Equity Financial assets at fair value through profit or loss $ 821,183 Liabilities Available-for-sale financial assets, net 12,153,554 Call loans from other banks $ 300,000 Receivables, net 8,844,185 Securities sold under repurchase agreements 18,342,262 Properties, net 151,611 Payables 44,611 Other financial assets 15,381 Other liabilities 1,117,067 Intangible assets 709,477 Total liabilities 19,803,940 Other assets 2, ,148 Stockholder s equity Capital stock 2,547,270 Retained earnings 461,761 Unrealized valuation gain on financial instruments 63,472 Total stockholder s equity 3,072,503 Total $ 22,876,443 Total $ 22,876,443 Taiwan Cooperative Securities Co., Ltd Condensed Balance Sheet December 31, (In Thousands of New Taiwan Dollars) Assets Liabilities and Stockholder s Equity Current assets $ 2,662,348 Liabilities Properties, net 40,850 Current liabilities $ 180,130 Intangible assets 23,021 Other liabilities 513 Other assets 456,746 Total liabilities 180,643 Securities brokerage accounts 8,055 Stockholder s equity Capital stock 3,000,000 Retained earnings ( 2,346 ) Unrealized valuation gain on financial instruments 12,723 Total stockholder s equity 3,010,377 Total $ 3,191,020 Total $ 3,191,020 (Continued)

105 ANNUAL REPORT Assets Co-operative Assets Management Co., Ltd. Condensed Balance Sheet December 31, Current assets $ 63,066 Liabilities Accounts receivable - acquired loans, net of loans Liabilities and Stockholder s Equity (In Thousands of New Taiwan Dollars) 5,159,336 Current liabilities $ 1,642,928 Equity investments under the equity method 505,872 Other liabilities 1,557 Properties, net 2,797 Total liabilities 1,644,485 Intangible assets 149 Other assets 152,070 Stockholder s equity Capital stock 3,500,000 Retained earnings 738,805 Total stockholder s equity 4,238,805 Total $ 5,883,290 Total $ 5,883, Subsidiaries condensed income statements Taiwan Cooperative Bank, Ltd. Condensed Income Statement Year Ended December 31, (In Thousands of New Taiwan Dollars, Except Per Share Amounts) Items Net interest $ 24,688,950 Net revenues and gains other than interest 8,874,282 Total net revenues 33,563,232 Allowance for bad-debt expenses ( 5,170,597 ) Operating expenses ( 19,381,915 ) Income before income tax $ 9,010,720 Net income $ 7,571,015 Earnings per share (NT$) Before income tax $ 1.41 After income tax $ 1.19 (Continued) 103

106 104 Financial Information Taiwan Cooperative Bills Finance Corporation Condensed Income Statement Year Ended December 31, (In Thousands of New Taiwan Dollars, Except Per Share Amounts) Items Net interest $ 170,427 Net revenue and gains other than interest 104,886 Total net revenues 275,313 Provision ( 4,472 ) Operating expenses ( 103,831 ) Income before income tax $ 167,010 Net income $ 157,874 Earnings per share (NT$) Before income tax $ 0.66 After income tax $ 0.62 Taiwan Cooperative Securities Co., Ltd Condensed Income Statement Period from December 2, to December 31, (In Thousands of New Taiwan Dollars, Except Per Share Amounts) Items Revenues $ 20,647 Expenses ( 23,011 ) Loss before income tax ( $ 2,364 ) Net loss ( $ 2,346 ) Loss per share (NT$) Before income tax ( $ 0.01 ) After income tax ( $ 0.01 ) Co-operative Assets Management Condensed Income Statement Year Ended December 31, (In Thousands of New Taiwan Dollars, Except Per Share Amounts) Items Revenues and gains $ 1,196,066 Expenses and losses ( 1,011,756 ) Income before income tax $ 184,310 Net income $ 145,356 Earnings per share (NT$) Before income tax $ 0.53 After income tax $ 0.42 (Concluded)

107 ANNUAL REPORT TABLE 4 TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES BUSINESS SEGMENT FINANCIAL INFORMATION PERIOD FROM DECEMBER 1, TO DECEMBER 31, (In Thousands of New Taiwan Dollars) Items Business Segment Banking Securities Others Consolidated Net interest $ 2,159,482 $ 9,658 $ 6,566 $ 2,175,706 Net revenues and gains other than interest 647,016 9, , ,128 Total net revenues 2,806,498 19, ,773 2,934,834 Allowance for bad-debt expenses ( 492,308 ) ( 492,154 ) Operating expenses ( 2,056,409 ) ( 9,431 ) ( 117,378 ) ( 2,183,218 ) Income (losses) before income tax 257,781 10,286 ( 8,605 ) 259,462 Income tax expenses ( 68,266 ) - ( 1,936 ) ( 70,202 ) Income (losses) before extraordinary gains 189,515 10,286 ( 10,541 ) 189,260 Extraordinary gains ,588 71,588 Net income 189,515 10,286 61, ,848 TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CAPITAL ADEQUACY RATIO DECEMBER 31, TABLE 5 1. Taiwan Cooperative Financial Holding Co., Ltd. s Capital Adequacy Ratio (Unit: In Thousands of New Taiwan Dollars, %) Company Items Proportionate Share Group s Net Eligible Capital Group s Statutory Capital Requirement Taiwan Cooperative Financial Holdings Co., Ltd. $ 122,925,081 $ 122,971,980 Taiwan Cooperative Bank, Ltd ,603, ,018,239 Taiwan Cooperative Bills Finance Corporation 100 3,098,123 1,369,764 Taiwan Cooperative Securities Corp ,494, ,531 Co-operative Assets Management Co., Ltd ,238,805 2,941,645 Deduction ( 142,544,185) ( 122,954,278) Total 157,816, ,583,881 Group capital adequacy ratio % Note 1: The above amounts are calculated under the Regulations Governing the Consolidated Capital Adequacy of Financial Holding Companies. Note 2: Group capital adequacy ratio = Group s net eligible capital Group s statutory capital requirement. 105

108 106 Financial Information 2. Taiwan Cooperative Financial Holding Co., Ltd. s Eligible Capital (Unit: In Thousands of New Taiwan Dollars) Items December 31, Common stock $ 65,968,254 Qualified noncumulative perpetual preferred stocks and noncumulative subordinated debts without maturity dates, which conform to the terms of Bank s Tier 1 capital - Other preferred stocks and subordinated debts - Capital collected in advance - Capital surplus 58,051,217 Legal reserve - Special reserve - Cumulative earnings 262,533 Equity adjustments 5,779,087 Less: Goodwill - Less: Deferred assets - Less: Treasury stock 7,136,010 Total eligible capital 122,925,081 Note: The above amounts are calculated under the Regulations Governing the Consolidated Capital Adequacy of Financial Holding Companies. 3. Taiwan Cooperative Bank, Ltd. s Capital Adequacy Ratio (Unit: In Thousands of New Taiwan Dollars, %) Year December 31, Items Standalone Consolidated Tier 1 capital $ 99,235,347 $ 100,219,325 Tier 2 capital 68,368,385 69,382,339 Tier 3 capital - - Eligible capital 167,603, ,601,664 Standardized approach 1,569,701,294 1,571,938,427 Credit risk Internal ratings-based approach - - Securitization 69,831 69,831 Basic indicator approach - - Operational risk Standardized approach/alternative standardized approach 52,217,558 54,508,321 Advanced measurement approach - - Market risk Standardized approach 15,739,309 15,737,951 Internal model approach - - Risk-weighted assets 1,637,727,992 1,642,254,530 Capital adequacy ratio Eligible capital Risk-weighted assets Ratio of Tier 1 capital to risk-weighted assets Ratio of Tier 2 capital to risk-weighted assets Ratio of Tier 3 capital to risk-weighted assets - - Ratio of common stock to total assets Ratio of leverage Note 1: Eligible capital and risk-weighted assets are calculated under the Regulations Governing the Capital Adequacy Ratio of Banks and the Explanation of Methods for Calculating the Eligible Capital and Risk-weighted Assets of Banks. Note 2: Formulas used were as follows: 1) Eligible capital = Tier 1 capital + Tier 2 capital + Tier 3 capital. 2) Risk-weighted assets = Risk-weighted assets for credit risk + Capital requirements for operational risk and market risk x ) Capital adequacy ratio = Eligible capital Risk-weighted assets. 4) Ratio of Tier 1 capital to risk-weighted assets = Tier 1 capital Risk-weighted assets. 5) Ratio of Tier 2 capital to risk-weighted assets = Tier 2 capital Risk-weighted assets. 6) Ratio of Tier 3 capital to risk-weighted assets = Tier 3 capital Risk-weighted assets. 7) Ratio of common stock to total assets = Common stock Total assets. 8) Ratio of leverage = Tier 1 capital Adjusted average total asset (the average total asset excludes goodwill, deferred losses on the sale of nonperforming loans and ineligible items deducted from Tier 1 capital under the Explanation of Methods for Calculating the Eligible Capital and Risk-Weighted Assets of Banks ). (Concluded)

109 ANNUAL REPORT TABLE 6 TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES DISCLOSURE REQUIRED UNDER ARTICLE 46 OF THE FINANCIAL HOLDING COMPANY ACT DECEMBER 31, (In Thousands of New Taiwan Dollars, %) 1. Same person Name Total Amounts of Credits, Endorsement or Other Transactions Percentage of TCFHC s Equity Tai Power Co., Ltd. $ 119,986, Taiwan High Speed Rail Corporation 56,299, CPC Corporation, Taiwan 40,366, National Treasury Agency 40,283, Kaohsiung City Government 35,892, Industrial Development Bureau, Ministry of Economic Affairs Development and Management of Fund 17,498, Chi Mei Optoelectronics Corp. 16,817, AUO Co., Ltd. 11,418, Dragon Steel Corporation 10,441, Bureau Of High Speed Rail, Motc 10,206, Taiwan Railways Administration 10,000, Bureau of National Health Insurance 8,700, Formosa Chemical & Fibre Corporation 8,571, Taoyuan County Government 8,400, Promos Technologies Inc. 7,731, China Airlines Ltd. 7,157, Nan Ya Plastic Co., Ltd. 6,976, Formosa Petrochemical Corp 6,529, Eva Airways Corporation 5,696, Ruen Chen Investment Holding Co., Ltd. 5,500, Far Eastern New Century Corporation 5,302, Foundation of China Aviation Development Foundation 4,500, Prince Motor Co., Ltd. 4,473, Hon Hai Precision Co., Ltd. 4,444, Yunlin County Government 4,300, Formosa Plastics Corporation 4,234, Taichung City Government 4,182, Chiayi County Government 4,137, Inotera Memories, Inc. 4,086, Pacific Sogo Department Stores Co., Ltd. 4,014, (Continued) 107

110 108 Financial Information Name Total Amounts of Credits, Endorsement or Other Transactions Percentage of TCFHC s Equity Chung Hung Steel Corporation $ 3,969, Radium Life Tech. Cc., Ltd. 3,854, Advanced Semiconductor Engineering, Inc. 3,593, Quanta Computer Inc. 3,473, Wan Hai Lines Ltd. 3,349, Yang Ming Marine Transport Corp. 3,320, BES Engineering Co. 3,272, Aerospace Industrial Development Corporation 3,246, Science Park Administration 3,126, Powerchip Technology Corporation 3,123, Taiwan Asset Management Co., Ltd. 3,120, Taiwan Water Corporation 3,110, Powertech Technology Inc. 3,092, Yien United Steel Corp. 3,072, Wistron Corporation 3,025, Hualien County Government 3,000, Same related parties Lin sir 4,543, Cheng sir 3,459, Same affiliate Hon Hai Precision Co., Ltd. 22,637, China Steel Corporation 20,860, Chimei Lighting Technology Corp. 19,792, GIO Optoelectronics Corp. 17,895, Chi Mei Optoelectronics Corp. 17,551, F.S.E Corporation 16,827, AUO Co., Ltd. 15,466, Far Eastern New Century Corporation 14,831, Nan-Hwa Cement Corporation 14,588, Far Eastern Department Stores Ltd. 13,633, U-Ming Marine Transport Corp. 13,530, Far EasTone Telecommunications Co., Ltd. 13,030, M.Setek Co., Ltd. 12,544, Formosa Chemical & Fiber Corporation 12,485, Dragon Steel Corporation 12,348, Auo Sunpower Snd. Bhd. 12,327, BriView Corporation 11,872, (Continued)

111 ANNUAL REPORT Name Total Amounts of Credits, Endorsement or Other Transactions Percentage of TCFHC s Equity SiPix Technology, Inc. $ 11,717, Lextar Electronics Corp. 11,689, Foundation of China Aviation Development Foundation 11,657, Formosa Taffeta Co., Ltd. 11,141, Formosa Advanced Tech Co., Ltd. 11,141, Evergreen Marine Corp. (Taiwan) Ltd. 10,204, Nan Chung Petrochemical Corp. 9,836, Formosa Chemicals Industries (Ningbo) Limited 9,480, Formosa PS (Ningbo) Ltd. Co 9,268, Taiwan Acetic Acid Chemical Co., Ltd. 9,219, Oriental Petrochemical (Taiwan) Corporation 9,000, Nan Ya Plastic Co., Ltd. 8,632, Nan Ya Plastics (Hong Kong) Corp. Ltd. 8,331, Pai Ting Investment Co., Ltd. 8,190, Pai Yang Investment Co., Ltd. 7,786, Yang Ming Marine Transport Corp. 7,684, Yang Ming Marine Transport (Liberia) Corp. 7,684, Ruentex Industries Limited 7,669, Taiwan Cement Co., Ltd. 7,547, NanYa Printed Circuit Board (Hong Kong) Corporation 7,388, Uni-President Enterprises Corp. 7,247, China Airlines Ltd. 7,164, Eva Airways Corporation 7,038, Inotera Memories, Inc. 6,896, Yieh Hsing Enterprise Co., Ltd. 6,778, Uni Airways Corporation 6,713, Ceung Hung Steel Corporation 6,530, Hung Li Steel Co., Ltd. 6,530, Evergreen Aviation Technologies Corp. 6,196, Tatung Co. 5,875, Formosa Plastics Corp USA 5,867, Cayman President Holdings Ltd. 5,669, Oriental Textile Holding Limited 5,605, Asia Cement Corporation 5,554, Chahui Power Corporation 5,554, Ni-President Southeast Asia Holdings Ltd. 5,549, All Oceans Transportation Inc. 5,504, (Continued) 109

112 110 Financial Information Name Total Amounts of Credits, Endorsement or Other Transactions Percentage of TCFHC s Equity Far Eastern Construction. Co., Ltd. $ 5,502, Chunghwa Picture Tubes, Ltd. 5,421, Radum Life Tech. Co., Ltd. 5,239, Jiangsu Pengfei Group Co., Ltd. 5,197, Yien United Steel Corp. 5,006, China Steel Structure Co., Ltd. 4,920, Wan Da Tong Enterprise Co., Ltd. 4,903, Chung Hang Co., Ltd. 4,853, Prince Motor Co., Ltd. 4,833, Kuo Chang Industry Co., Ltd. 4,722, Wpg Holdings Limited 4,706, Yongmei Automobile Co., Ltd. 4,674, Taiwan Song Stacker Co., Ltd. 4,674, G-Tech Optoelectronics Corporation 4,651, Inteplast Group Ltd. 4,641, Formosa Plastics Corporation 4,588, Hui Rong Automobile Co., Ltd. 4,552, Ubilux Optoelectronics Corporation 4,517, Powerchip Technology Corporation 4,517, Hannstar Display Corp. 4,450, Advanced Semiconductor Engineering, Inc. 4,268, Hung Ching Development & Construction Co., Ltd. 4,192, Li Jiang Development Co., Ltd. 4,190, Quanta International Limited 4,115, Quanta Computer Inc. 4,115, Kao Ming Container Terminal Corp. 3,910, Chailease Finance Co., Ltd. 3,880, Kaohsiung Rapid Transit Corporation 3,820, Today's III Inc. 3,803, Suzhou Riyuexin Semiconductors Co., Ltd. 3,669, Unimicron Technology Corp. 3,625, Advanced Semiconductor Engineering Inc. 3,620, Walsin Lihwa Holdings Limited 3,560, Wan Hall Ine (Singapore) Pte Ltd. 3,554, Dragontech Precision Co., Ltd. 3,548, Pan Asia Chemical Co. 3,358, Smart Idea Holdings Limited 3,313, (Continued)

113 ANNUAL REPORT Name Total Amounts of Credits, Endorsement or Other Transactions Percentage of TCFHC s Equity Life-On Mobile Pte Ltd. 3,286, Life-On Technology Corp. 3,286, Ritek Corporation 3,133, Sunny Asset Management Co., Ltd. 3,121, President Tokyo Corporation 3,113, President Tokyo Lease Corporation 3,113, Winbond Electronics Corp. 3,034, (Concluded) TABLE 7 TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES MARKETABLE SECURITIES HELD DECEMBER 31, (In Thousands of New Taiwan Dollars) Holding Company Name Marketable Securities Type and Issuer Relationship with the Holding Company Financial Statement Account Shares (Thousands) December 31, Carrying Value Percentage of Ownership Market Value or Net Asset Value Note Co-operative Assets Management Co., Ltd. Stock Cooperative I Asset Management Co., Ltd. Subsidiary Equity investments under the equity method 50,000 $ 505, $ 505,872 Note Cooperative Insurance Brokers Co., Ltd. Bonds Government Bonds - 88 A3 - Held-to-maturity financial assets - 3,789-3,804 Note: When TCFHC prepared the consolidated financial statements, the related account and security transaction were eliminated. 111

114 112 Financial Information TABLE 8 TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES PROPORTIONATE SHARE IN INVESTEES AND RELATED INFORMATION PERIOD FROM DECEMBER 1, TO DECEMBER 31, (In Thousands of New Taiwan Dollars) Investor Company Investee Company Location Main Businesses and Products Percentage of Ownership Carrying Value Investment Gain Proportionate Share of the Company and Its Affiliates in Investees (Note 1) Shares (Thousands) Pro Forma Shares (Note 2) Shares (Thousands) Total Percentage of Ownership Note Taiwan Cooperative Bank, Ltd. Taipei Banking $112,632,593 $ 210,840 6,085,493-6,085, Note 3 Taiwan Cooperative Financial Holding Co., Ltd. Taiwan Cooperative Securities Corp., Taiwan Cooperative Bills Finance Corporation Taipei Taipei Securities dealer Bills finance dealer ,010,377 ( 2,346 ) 300, , Note ,072,503 8, , , Note 3 Co-operative Assets Management Co., Ltd. Taipei Acquisition of delinquent loans ,238,805 3, , , Note 3 Note 1: Shares or pro forma shares held by the Company, directors, supervisors, president, vice president and affiliates in accordance with the Company Law have been included. Note 2: a. Pro forma shares are shares that are assumed to have been obtained through buying equity-based securities or entering into equity-linked derivative contracts for purposes defined in Paragraph 2 of Article 36 and Article 37 of the Financial Holding Company Act. b. Equity-based securities, such as convertible bonds and warrants, are covered by Article 11 of the Securities and Exchange Law Enforcement Rules. c. Derivative instruments, such as stock options, are those conforming to the definition of derivatives in Statement of Financial Accounting Standards No Financial Instruments: Recognition and Measurement, such as stock options. Note 3: When preparing the consolidated financial statements, this investment was eliminated.

115 ANNUAL REPORT TABLE 9 TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES INVESTMENT IN MAINLAND CHINA YEAR ENDED DECEMBER 31, (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) Accumulated Inward Remittance of Earnings as of December 31, Investment Flows Accumulated Carrying Value as of December 31, Investment Gain (Loss) % Ownership of Direct or Indirect Investment Outflow of Investment from Taiwan as of December 31, Accumulated Outflow of Investment from Taiwan as of January 1, Investment Type Total Amount of Paid-in Capital Main Businesses and Products Outflow Inflow Investee Company Name 100% $ 47,675 $ 4,723,368 $ - USD 154,395 ($4,674,308) (Note 1) $ - USD 109,423 ($3,312,781) (Note 1) USD 44,972 ($1,361,527) (Note 1) Direct USD 154,395 ($4,674,308) (Note 1) Deposits, loans, import and export, exchange and foreign exchange business Taiwan Cooperative Bank Suzhou Branch Maximum Investment Allowable (Note 2) Investment Amount Approved by the Investment Commission, MOEA Accumulated Investment in Mainland China as of December 31, $ 67,680,692 USD 159,611 ($ 4,832,223) (Note 1) USD 154,395 ($ 4,674,308) (Note 1) Note 1: Translation into New Taiwan dollars at the exchange rates prevailing on the balance sheet date. Note 2: Based on the Investment Commission s Regulation on the Examination of Investment or Technical Cooperation in Mainland China, investments are limited to the higher of 60 % of TCB s net asset value or 60% of TCB s consolidated net asset value. 113

116 114 Financial Information TABLE 10 TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES BUSINESS RELATIONSHIPS AND SIGNIFICANT TRANSACTIONS BETWEEN THE PARENT COMPANY AND SUBSIDIARIES PERIOD FROM DECEMBER 1, TO DECEMBER 31, (In Thousands of New Taiwan Dollars) Description of Transactions (Notes 3 and 5) No. (Note 1) Transacting Company Counter-party Transaction Flow (Note 2) Financial Statement Account Amounts (Note 5) Trading Terms Transaction Amount/Total Consolidated Net Revenue or Total Consolidated Assets (%) 1 Taiwan Cooperative Bank, Ltd Taiwan Cooperative Securities Corp., 3 Deposit and remittances $ 340,763 Note 4-2 Taiwan Cooperative Securities Corp., Taiwan Cooperative Bank, Ltd. 3 Cash in bank 340,763 Note 4-1 Taiwan Cooperative Bank, Ltd. Taiwan Cooperative Bills Finance Corporation 3 Deposit and remittances 119,656 Note 4-3 Taiwan Cooperative Bills Finance Corporation Taiwan Cooperative Bank, Ltd. 3 Cash in bank, other financial assets 119,656 Note 4-1 Taiwan Cooperative Bank, Ltd. Cooperative Insurance Brokers Co., Ltd. 1 Deposit and remittances 114,174 Note 4-4 Cooperative Insurance Brokers Co., Ltd. Taiwan Cooperative Bank, Ltd. 2 Cash in bank, restricted asset 114,174 Note 4-1 Taiwan Cooperative Bank, Ltd. United Taiwan Bank S.A. 1 Call loans to banks 4,494,563 Note 4-5 United Taiwan Bank S.A. Taiwan Cooperative Bank, Ltd. 2 Call loans from banks 4,494,563 Note 4-1 Taiwan Cooperative Bank, Ltd. United Taiwan Bank S.A. 1 Call loans from banks 380,434 Note 4-5 United Taiwan Bank S.A. Taiwan Cooperative Bank, Ltd. 2 Call loans to banks 380,434 Note 4 - Note 1: These companies listed in Table 10 are identified as follows: a. Parent company: 0. b. Subsidiaries are numbered sequentially from 1. Note 2: Transaction flows are as follows: 1. From parent company to subsidiary. 2. From subsidiary to parent company. 3. Between subsidiaries. Note 3: For calculating the percentages, the asset or liability account is divided by the consolidated total assets, and the revenue or expense account is divided by the total consolidated net revenue of the same year. Note 4: The terms for the transactions between the transacting company and related parties are similar to those for unrelated parties. Note 5: Referring to transactions exceeding NT$100 million.

117 ANNUAL REPORT TABLE 11 Taiwan Cooperative Financial Holding Co., Ltd. Pro Forma Balance Sheet December 31, (In Thousands of New Taiwan Dollars, Except Per Share Amounts) Assets Liabilities and Stockholders Equity Cash and cash equivalents $ 29,137 Liabilities Receivables 54,102 Payables $ 94,300 Equity investments under the equity method 122,924,537 Other borrowings 150,000 Properties, net 9,578 Other liabilities 4,486 Other assets, net 1,440 Total liabilities 248,786 Stockholders equity Common stock - NT$10.00 par value, authorized 12,000,000 thousand shares; issued and outstanding 6,596,825 65,968,254 thousand shares Capital surplus 50,265,720 Retained earnings 7,630,117 Unrealized revaluation increment 5,434,727 Cumulative translation adjustments 57,313 Unrealized valuation gains on financial instruments 287,047 Treasury stock ( 6,873,170 ) Total stockholders equity 122,770,008 Total $ 123,018,794 Total $ 123,018,794 Basic assumptions used in preparing pro forma balance sheets 1. The main changes of equity investments under the equity method were estimated at the investment income recognized on the equity method investments. 2. Cash was estimated under the consideration of cash dividends appropriated by subsidiaries, and capital allocation of TCFHC. 115

118 116 Financial Information TABLE 12 Taiwan Cooperative Financial Holding Co., Ltd. Pro Forma Statement of Income Year Ended December 31, (In Thousands of New Taiwan Dollars, Except Per Share Amounts) Revenues and gains Income from equity investments under the equity method $ 7,595,185 Other revenues and gains 54,102 Total revenues and gains 7,649,287 Expenses and losses Operating expenses 235,007 Other expenses and losses 3,860 Total expenses and losses 238,867 Income before income tax 7,410,420 Income tax expense - Income before extraordinary gain 7,410,420 Extraordinary gain 38,672 Net income $ 7,449,092

119 ANNUAL REPORT Before Income Tax (NT$) After Income Tax (NT$) Basic earnings per share Income before extraordinary gain $ 1.16 $ 1.16 Extraordinary gain Net income $ 1.17 $ 1.17 Diluted earnings per share Income before extraordinary gain $ 1.16 $ 1.16 Extraordinary gain Net income $ 1.17 $ 1.17 Basic assumptions used in preparing the pro forma statement of income 1. Income from equity investments under the equity method was estimated on the basis of net income or loss of subsidiaries. 2. Operating expenses were mainly for salaries payment and for licenses. License expenses were estimated on the basis of legal regulations while salary expenses were estimated on the basis of the number of employees and adjustment ranges of salary. 3. Other revenues and gains were mainly the remunerations to directors and supervisors, which were estimated by subsidiaries. 4. Other expenses and losses were mainly the interest expense for borrowings from banks, which were estimated at the average rate of 1.93%. (Concluded) 117

120 118 Risk Management 7. Risk Management Investment Policies in 7.2 Review of Investment Performance 7.3 Investment Plans for Analysis of Risk Management