Cathay Financial Holding Co., Ltd.

Transcription

1 Stock Code:2882 Cathay Financial Holding Co., Ltd Annual General Shareholders' Meeting Agenda Handbook Meeting Time:June 8, 2018, at 9:00 a.m. Place:1F, No. 9, Songren Road, Taipei, Taiwan, R.O.C. Cathay Financial Conference Hall

2 Table of Contents Meeting Procedures Meeting Agenda... 2 Ⅰ. Matters to Report 1. Business Report for Annual Statements Report audited by the Audit Committee for 2017 (1) Audit Report from the Auditing Committee 7 (2) Independent Auditor's Report on Annual Statements compensation to Employees and Directors... 9 Ⅱ. Matters for Acknowledgement 1. Acknowledgement of Business Operations Report and Financial Statements for Acknowledgement of earnings distribution for Ⅲ. Matters for Discussion 1. Discussion on the amendments to the Articles of Incorporation Discussion on the Corporation s proposal to raise long-term capital Discussion on the relief of certain directors from their non-competition obligations. 37

3 Cathay Financial Holding Co., Ltd. Procedure for the 2018 Annual Meeting of Shareholders 1. Announcement of the Commencement of the Meeting 2. Chairperson Remarks 3. Matters to Report 4. Matters for Acknowledgement 5. Matters for Discussion 6. Provisional Motion(s) 7. Meeting Adjournment 1

4 Cathay Financial Holding Co., Ltd Annual Shareholders' Meeting Agenda Meeting Time:June 8, 2018, at 9:00 a.m. Place:1F, No. 9, Songren Road, Taipei, Taiwan, R.O.C. Cathay Financial Conference Hall 1. Announcement of the commencement of the meeting (report the number of shares represented by shareholders present at the meeting) 2. Chairperson remarks 3. Matters to Report (1) Business Report for 2017 (2) Annual Statements Report audited by the Audit Committee for 2017 (3) 2017 compensation to Employees and Directors 4. Matters for Acknowledgement (1) Acknowledgement of Business Operations Report and Financial Statements for 2017 (including the consolidated financial statements) (2) Acknowledgement of earnings distribution for Matters for Discussion (1) Discussion on the amendments to the Articles of Incorporation (2) Discussion on the Corporation s proposal to raise long-term capital (3) Discussion on the relief of certain directors from their non-competition obligations 6. Provisional Motion(s) 7. Meeting Adjournment 2

5 Ⅰ. Matters to Report 1. Business Report for the year 2017 Looking back on 2017, the global economy exhibited modest expansion and corporate profitability continued to increase. However, the weakening of the US dollar, increased volatility of foreign currencies, and continued appreciation of the New Taiwan Dollar have created more challenges for financial institutions in a competitive financial environment. Through our longterm, steady management strategy and the concerted efforts of all of our employees, Cathay Financial Holdings delivered a consolidated after-tax profit of NT$56.7 billion (US$1.91 billion) and earnings per share of NT$4.47 in Our subsidiaries, Cathay Life Insurance and Cathay United Bank, were the primary contributors. We continue to leverage our years of experience in providing financial services in Taiwan as we expand into China, Southeast Asia, and other overseas markets and increase our profits from overseas. We are focused on keeping our customers at the center of all we do, including incorporating innovation into our core business activities, and endeavoring to provide our customers with better financial services through the use of new technologies. We seek to manage our risk while pursuing innovation and growth. We are committed to corporate sustainability and to safeguarding environmental and social interests while improving our financial and operating performance. Our Subsidiaries Delivered Excellent Performance in 2017 Cathay Life Insurance generated consolidated after-tax profit of NT$36.3 billion (US$1.22 billion) for the year. In addition to continuous improvements in investment performance and proper control over its hedging cost, Cathay Life Insurance also maintained its position as the market leader in terms of premium income. First-year premium income and total premium income for the year were NT$233.2 billion (US$7.87 billion) and NT$768.3 (US$25.92 billion), respectively, the highest in the industry. First-year premium equivalent, an even better indicator of business value, was NT$78.6 billion (US$2.65 billion), which also allowed Cathay Life Insurance to be the leader in the industry. Cathay United Bank recorded consolidated after-tax profit of NT$19.7 billion (US$660 million) for the year, reaching a record high. The market positions of both corporate banking and retail banking continued to increase and each business maintained balanced development. The synergy of our overseas business became more evident and the increase in overseas loans boosted revenue growth while asset quality remained strong. In terms of fee income, Cathay United Bank's credit card business had leading performance 3

6 across all relevant metrics. Our wealth management business is committed to understanding and satisfying our customers needs while safeguarding their wealth, and had a steady performance. Concerning the performance of our other subsidiaries, Cathay Century Insurance was ranked second in the domestic market in terms of premium income. Cathay Securities Investment Trust s assets under management totaled NT$586.7 billion (US$19.79 billion), the highest in the industry. Cathay Securities continued to deliver outstanding performance in its sub-brokerage business. Its investor-centric digital services have also garnered high praise. Expanding Overseas Business We forged a deeper presence in overseas markets throughout In China, Cathay United Bank s Shanghai Branch was approved by the China Banking Regulatory Commission to be upgraded to a subsidiary and the conversion process is currently underway. After the branch becomes a subsidiary, it will be able to capture more business opportunities and provide customers with more comprehensive financial services. We also continue to cultivate our insurance business in China. Cathay Lujiazui Life Insurance currently operates 11 offices (headquarters and branch offices) and 41 sales and service agencies across China. After partnering with strategic investor Ant Financial Services Group, Cathay Century Insurance expects to take advantage of more property and casualty insurance business opportunities in China through a business model that integrates traditional and internetrelated financial services. With respect to our expansion in Southeast Asia, Cathay United Bank has already established overseas offices in nine ASEAN member states, including Vietnam, Cambodia, Singapore, Malaysia, Laos, the Philippines, Thailand, Myanmar, and Indonesia, making Cathay United Bank the Taiwan banking institution with the most extensive network in the ASEAN market. We will continue to strengthen our partnerships, deepen our penetration, and capture opportunities for growth through localized management and refinement of our services. In anticipation of potential growth in Vietnam's insurance market, Cathay Life Insurance has established 42 branch offices. Our property and casualty business in Vietnam also grew steadily. As the formation of our overseas operation platform approaches completion, we expect to be able to take full advantage of the significant growth opportunities in the Asia-Pacific region. Strengthening Asset Management We have made further progress in the development of our asset management business. Following our 100% acquisition of Conning Holdings Corp., we have continued to acquire top-tier asset management teams across the globe to strengthen our ability to manage a variety of asset classes. We 4

7 have also continued to support the development of Conning s business operations and the expansion of its market presence. Our long-term goal is to build a global asset management platform by capitalizing on Conning's presence in the United States and Europe, as well as leveraging Cathay Financial Holdings advantages in Greater China. Reinforcing Corporate Governance, Fulfilling Corporate Social Responsibility To build a comprehensive corporate governance framework, we have established a Corporate Governance and Nomination Committee, more than half of which is composed of independent directors. The Committee is responsible for nominating director candidates, reviewing their qualifications, evaluating board operation rules, and establishing the organizational frameworks for functional committees in order to perfect the functions of the board. In addition, we have established a "Tax Policy" to keep pace with international trends in tax governance. In view of the complex transformations and new risk issues that are expected to emerge across the world in 2018, we will endeavor to complete our risk map framework that facilitates the prudent monitoring and management of potential risks. Meanwhile, we will also strengthen our whistleblowing and anti-money laundering/countering terrorism financing mechanisms so as to enhance the integrity of our management across the Group. To augment the independence and effectiveness of board performance evaluation and perfect corporate governance, we will also appoint an external professional independent institution to conduct external evaluations of board performance before the end of With regard to corporate social responsibility, Cathay FHC has been selected as a DJSI Emerging Markets constituent stock of the Dow Jones Sustainability Index (DJSI), a respected international indicator of corporate sustainability management, for three consecutive years. In 2018, we achieved Bronze Class in the DJSI Annual Sustainability Evaluation and we were the only Taiwan institution to be in the top 15% of improved companies in our designated industry. Furthermore, we were also included as one of the initial batch of constituents of the FTSE4Good TIP Taiwan ESG Index. The above demonstrates that our efforts in corporate sustainability have been recognized by reputable institutions. We continue to be fully committed to corporate sustainability. By integrating our three engines of growth insurance, banking, and asset management with international sustainability frameworks Principles for Sustainable Insurance (PSI), Equator Principles (EPs), and Principles for Responsible Investment (PRI) we actively seek to incorporate environmental, social, and governance (ESG) into our business strategy and 5

8 core competencies in order to increase the depth and breadth of our sustainability framework. Cathay United Bank follows the Equator Principles to reduce the environmental and social impact of large-scale project financing. For many years, Cathay United Bank has actively engaged in green financing by supporting renewable energy industries. Cathay Life Insurance has also included ESG in its management process, and is Taiwan's first life insurance company to adopt the Principles of Sustainable Insurance (PSI). In 2017, Cathay Life Insurance published Taiwan's first PSI Disclosure Report to disclose its corresponding practices and progress in sustainability. We continue to implement the Principles for Responsible Investment (PRI) by incorporating ESG into our investment decisions. We strive toward the goal of co-existence with the environment and society and to achieving both profitability and sustainability. Looking forward to 2018, the global economy continues to recover and we are entering into a cycle of interest rate hikes. However, the world remains highly susceptible to political and economic uncertainties. We will continue to reinforce our risk management capabilities, enhance operational synergies, apply new technologies in service and product developments to optimize customer experiences, provide more diversified products and give due consideration to the interests of both the environment and society. By focusing on our three engines of growth, "Insurance + Banking + Asset Management," as our core development strategy, we will continue to seek to create value for our shareholders and advance toward our vision of becoming a "leading financial institution in the Asia-Pacific region," and thereby demonstrate our sincere gratitude and appreciation to the shareholders who have given us their invaluable support over the years. Chairman Hong-Tu Tsai President Chang-Ken Lee Chief Accountant Huan-Cheng Chang 6

9 2. Annual Statements Report audited by the Audit Committee for 2017 Audit Report from the Auditing Committee The financial statements of Cathay Financial Holdings covering the period from January 1 to December 31, 2017, and the business report and earning distribution plan have been prepared and submitted by the Board of Directors of the Company. The financial statements were audited by Bob Chang, CPA, and James Huang, CPA, of Ernst and Young, who issued an auditors report. The Auditing Committee has appointed Andrew Fuh, CPA, of Ernst & Young to review the aforementioned financial statements and documents pursuant to Article 14-4 of the Securities & Exchange Act and Article 219 of the Company Act. In his opinion, the aforementioned financial statements and documents are fairly presented as stated. To: 2018 Annual General Shareholders Meeting of Cathay Financial Holdings Auditing Committee Tsing-Yuan Hwang, Convener April 26,

10 Independent Auditor's Report on Annual Statements of Cathay Financial Holdings We have audited the accompanying final financial statements as of December 31, 2017, including the business report, financial statements, and earnings distribution for the years then ended. These financial statements are the responsibility of the Branch management. statements based on our audit. Our responsibility is to express an opinion on the final financial In our opinion, the financial statements referred to above have been audited in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and generally accepted auditing standards, and present fairly, in all material respects, the financial position of Cathay Financial Holding Co., Ltd. as of December 31, 2017, and the financial performances and the cash flows for the year then ended in conformity with Regulations Governing the Preparation of Financial Reports by Financial Holdings Companies, Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), and International Financial Reporting Interpretations Committee (IFRIC) Interpretations approved and became effective by the Financial Supervisory Commission. In addition, the earnings distribution is also in compliance with the company s Articles of Incorporation. To Cathay Financial Holdings Auditing Committee Ernst and Young CPAs CPA: Andrew Fuh Firm phone number: Unified Business Number: FSC Approval Document Number: FSC Securities Audit Letter No April 26,

11 report on compensation to Employees and Directors of the Company Proposed by the Board of Directors Explanation: (1) The remuneration distribution was conducted pursuant to Article 29-1 of the Constitution of the Company. (2) In 2017, the remuneration for employees of the Company was 0.01% of profits earned of that year and no more than 0.05% for directors. The distribution amount was NT$5,812,256 and NT$2,700,000 respectively. The remuneration was distributed in cash. 9

12 Ⅱ. Matters for Acknowledgement Agenda 1:Acknowledgement of Business Operations Report and Financial Statements for 2017 Proposed by the Board of Directors Explanation: (1) The 2017 financial statements of the Company were completed by the Board of Directors and audited by Bob Chang, CPA, and James Huang, CPA, both of Ernst & Young. (2) The aforementioned financial statements and the business report were examended by the audit committee. We hereby propose for acknowledgement. RESOLVED: 10

13 Independent Auditors Report English Translation of a Report Originally Issued in Chinese To Cathay Financial Holding Co., Ltd. Opinion We have audited the accompanying consolidated balance sheets of Cathay Financial Holding Co., Ltd. (the Company ) and its subsidiaries as of 31 December 2017 and 2016, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years ended 31 December 2017 and 2016, and notes to the consolidated financial statements, including the summary of significant accounting policies (together the consolidated financial statements ). In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of 31 December 2017 and 2016, and their consolidated financial performance and cash flows for the years ended 31 December 2017 and 2016, in conformity with the requirements of the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies, Regulation Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards, International Accounting Standards, Interpretations developed by the International Financial Reporting Interpretations Committee as endorsed by Financial Supervisory Commission of the Republic of China. Basis for Opinion We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statement by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of Cathay Financial Holding Co., Ltd. and its subsidiaries in accordance with the Norm of Professional Ethics for Certified Public Accountant of the Republic of China (the Norm ), and we have fulfilled our other ethical responsibilities in accordance with the Norm. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audits of 2017 consolidated financial statements. These matters were addressed in the context of our audits of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Financial instruments valuation The Company and its subsidiaries determine the fair value of some of the financial instruments by applying valuation techniques. The Company and its subsidiaries involve internal valuation model to determine the fair value for partial of the financial instruments. The underlying assumptions of the valuation model will significantly impact the fair value of the reported financial instruments. Therefore, we determined financial instruments valuation as a key audit matter. 11

14 Our audit procedures included (but not limited to) assessing and testing the effectiveness of internal controls related to financial instruments valuation, including management s decision and approval of the valuation model and related assumptions, the controls related to the valuation model and change of assumptions, and management s valuation review process. We used internal valuation specialists on a sampling basis to assist in reviewing the valuation techniques, understanding and assessing the rationality of key valuation assumptions, performing independent valuation calculation, and determining whether the valuation differences are acceptable. Please refer to Notes 4, 5. (2) and 12. (2) for information about the Company and its subsidiaries financial instruments valuation. Measurement of insurance liabilities The measurement of the Company and its subsidiaries insurance liabilities are dependent on the calculations based on different assumptions. Partial of the assumptions followed the regulations issued by the authorities while partial of the assumptions followed the professional judgements of internal specialists, and thus resulting in high complexity. Therefore, we determined measurement of insurance liabilities as a key audit matter. Our audit procedures included (but not limited to) evaluating and testing the effectiveness of internal controls around insurance liabilities, including management s decision and approval of the methods and assumptions used in setting aside various reserves and controls for changing the methods and assumptions and examining the data of calculating insurance liabilities. Meanwhile, we involved internal specialists in our audit procedures, including assessing the reasonableness of the actuarial judgements and actuarial assumptions models made by management. In the liability adequacy test, the internal specialists evaluated the reasonableness of underlying assumptions and results. Please refer to Notes 4, 5. (2) and 6. (17) for details of the Company and its subsidiaries insurance liabilities. Investment properties measured at fair value The Company and its subsidiaries investment properties are measured at fair value. Due to inaccessible market prices, the management evaluates the fair value of investment properties based on external real estate appraisers firm s valuation reports, which highly relied on the valuation approach chosen (including but not limited to income approach and market approach) and the assumptions. The approach chosen and the changes to the assumptions will impact the result of the investment properties valuation. Therefore, we determined investment properties measured at fair value as a key audit matter. Our audit procedures included (but not limited to) evaluating the objectivity and qualification of external real estate appraisers, and enlisting the internal valuation specialists assistance to evaluate the external real estate appraisers firm s valuation reports to understand the valuation approach adopted; we also ensure the reasonableness in the valuation approach adopted and key valuation assumptions to verify whether the difference between the internal valuation specialists work and external valuation reports is acceptable. Please refer to Notes 4, 5. (2) and 6. (9) for information about the Company and its subsidiaries investment properties measured at fair value. 12

15 The provision of allowance for loans In accordance with International Accounting Standard 39, the Company and its subsidiaries developed their own systems to perform both individual and collective assessments of impairment loss on loans and receivables. The systems assess the amount of an impairment loss based on parameters from historical experience or future cash flows on a case-by-case basis. The estimates of discount factors, including effective interest rate, incidence of impairment and recoverable rate, and the classification to assess whether there is any objective evidence that loan is impaired, require professional judgment and uses of estimates and assumptions. Therefore, we determined the provision of allowance for loans as a key audit matter. Our audit procedures included (but not limited to) assessing and testing the effectiveness of internal controls relating to the underlying data and systems with respect to impairment calculation. For loan loss provisions calculated on an individual basis, we tested the assumptions which were used to identify and quantify the impairments, on a sampling basis, including estimates of future cash flows, valuation of guarantee and estimates of recovery on default. For loan loss provisions calculated on a collective basis, we reviewed whether the models of impairment were approved by management and relied on our specialists to verify the effectiveness of those models. We also tested the appropriateness and accuracy of the inputs used in those models on a sampling basis, such as recovery rates and historical loss rates. We reviewed the classification of loans and the provision of allowance for loans comply to ensure that management of the Bank and its subsidiaries complied with the related regulations issued by the authorities of the Republic of China. Please refer to Notes 4, 5. (2) and 6. (5) for information about the Company and its subsidiaries the provision of allowance for loans. Assessment of goodwill impairment International Accounting Standards requires entities to perform an impairment test annually. However the calculation made by the management is complex and involves major subjective judgments and assumptions. Therefore, we determined assessment of goodwill impairment a key audit matter. Our audit procedures included (but not limited to) assessing the rationality of financial forecasts and using internal experts to assist in the audit procedure of goodwill impairment assessment, including the rationality of the assumptions and approaches used by the management. Please refer to Notes 4, 5. (2) and 6. (11) for information about the Company and its subsidiaries assessment of goodwill impairment. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the requirements of the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies, Regulation Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards, International Accounting Standards, Interpretations developed by the International Financial Reporting Interpretations Committee as endorsed by Financial Supervisory Commission of the Republic of China and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, 13

16 whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the ability to continue as a going concern of the Company and its subsidiaries, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company and its subsidiaries or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including audit committee or supervisors, are responsible for overseeing the financial reporting process of the Company and its subsidiaries. Auditor s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control of the Company and its subsidiaries. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability to continue as a going concern of the Company and its subsidiaries. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Company and its subsidiaries to cease to continue as a going concern. 5. Evaluate the overall presentation, structure and content of the consolidated financial statements, 14

17 including the accompanying notes, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company and its subsidiaries to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audits. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of 2017 consolidated financial statements and are therefore the key audit matters. We describe these matters in our auditor s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Ernst & Young Taipei, Taiwan The Republic of China 15 March 2018 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 jurisdiction. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China. (About the Notes in the Independent Auditors Report, please refer to 2017 Annual Report Appendix 1:2017 Consolidated Financial Statement) 15

18 English Translation of Financial Statements Originally Issued in Chinese Cathay Financial Holding Co., Ltd. and Subsidiaries Consolidated Balance Sheets As of 31 December 2017 and 31 December 2016 (Expressed in thousands of New Taiwan Dollars) Assets Cash and cash equivalents $245,354,768 $195,913,525 Due from the Central Bank and call loans to banks 125,163,780 71,940,935 Financial assets at fair value through profit or loss 365,808, ,529,264 Available-for-sale financial assets - net 1,681,125,738 1,591,359,657 Derivative financial assets for hedging 246, ,269 Securities purchased under agreements to resell 99,703,578 50,160,342 Receivables - net 169,202, ,212,060 Current income tax assets 4,362,608 4,215,323 Loans - net 2,038,528,190 2,045,532,795 Reinsurance assets - net 7,237,144 8,767,841 Held-to-maturity financial assets - net 98,759,110 81,826,739 Investments accounted for using the equity method - net 37,355,653 35,209,790 Other financial assets - net 3,347,907,301 3,036,381,213 Investment properties - net 318,106, ,014,127 Property and equipment - net 165,095, ,114,231 Intangible assets - net 55,802,976 58,597,243 Deferred tax assets - net 31,243,778 14,729,993 Other assets - net 50,506,788 66,400,120 Total assets $8,841,510,289 $8,135,137,467 16

19 English Translation of Financial Statements Originally Issued in Chinese Cathay Financial Holding Co., Ltd. and Subsidiaries Consolidated Balance Sheets - (continued) As of 31 December 2017 and 31 December 2016 (Expressed in thousands of New Taiwan Dollars) Liabilities & equity Liabilities Due to the Central Bank and call loans from banks $90,417,859 $77,493,795 Financial liabilities at fair value through profit or loss 90,514, ,014,826 Securities sold under agreements to repurchase 112,643,582 59,139,059 Commercial paper payable-net 51,468,158 41,578,838 Payables 57,943,815 55,295,781 Current income tax liabilities 8,879,563 3,512,350 Deposits 2,062,953,012 1,999,943,172 Bonds payable 98,350,000 51,900,000 Other borrowings 441,199 87,229 Provisions 4,972,427,256 4,596,525,084 Other financial liabilities 623,527, ,224,829 Deferred tax liabilities 34,828,440 26,362,443 Other liabilities 28,645,282 17,236,040 Total liabilities 8,233,039,746 7,605,313,446 Equity attributable to owners of parent Capital stock Common stock 125,632, ,632,102 Preferred stock 8,333,000 8,333,000 Capital surplus 130,452, ,448,697 Retained earnings Legal reserve 35,339,841 30,577,724 Special reserve 149,106, ,108,336 Undistributed earnings 99,296,739 73,001,761 Other equity 50,906,313 6,222,952 Non-controlling interests 9,403,472 6,499,449 Total equity 608,470, ,824,021 Total liabilities and equity $8,841,510,289 $8,135,137,467 17

20 English Translation of Financial Statements Originally Issued in Chinese Cathay Financial Holding Co., Ltd. and Subsidiaries Consolidated Statements of Comprehensive Income For the years ended 31 December 2017 and 2016 (Expressed in thousands of New Taiwan Dollars, except earnings per share) ~ ~ Interest income $186,087,791 $168,883,110 Less: Interest expenses (17,627,041) (15,405,207) Net interest income 168,460, ,477,903 Net income other than interest Net commission and handling fee 1,069,774 (8,049,810) Net premiums from insurance business 329,113, ,219,387 Gains on financial assets and liabilities at fair value through profit or loss 97,018,698 19,582,308 Gains from investment properties 9,393,781 12,964,367 Realized gains on available-for-sale financial assets 71,735,163 48,169,789 Realized gains on held-to-maturity financial assets 203,906 57,608 Losses on foreign exchange (116,155,990) (42,817,155) Impairment losses on assets (130,099) (175,164) Share of profit of associates and joint ventures accounted for using the equity method 1,297,864 1,202,103 Net other non-interest gains 22,445,504 40,606,065 Total income 584,453, ,237,401 Bad debt expenses and provision for premiums reserve (3,459,544) (5,231,676) Changes in insurance liabilities and provisions (445,832,540) (408,613,955) Operating expenses Employee benefits expenses (44,810,610) (45,895,849) Depreciation and amortizations expenses (5,424,248) (5,189,148) Other general and administration expenses (25,290,715) (24,122,268) Subtotal (75,525,573) (75,207,265) Profit before income tax from continuing operations 59,635,617 50,184,505 Income tax expense (2,962,393) (2,145,305) Net income 56,673,224 48,039,200 Other comprehensive income Not to be reclassified to profit or loss in subsequent periods: Remeasurements of defined benefit plans (798,222) 753,518 Revaluation gains on property 308,226 - Share of other comprehensive income of associates and joint ventures accounted for using the equity method - not to be reclassified to profit or loss in subsequent periods 183,172 (9,343) Changes of designated financial liabilities at fair value through profit or loss resulting from credit risk (1,579,937) 44,408 Income tax relating to the components not to be reclassified to profit or loss in subsequent periods 339,698 (133,885) To be reclassified to profit or loss in subsequent periods: Exchange differences resulting from translating the financial statements of a foreign operation (2,957,083) (8,920,171) Unrealized gains from available-for-sale financial assets 53,167, ,063 Gains (losses) on cash flow hedges 14,595 (216,856) Share of other comprehensive income of associates and joint ventures accounted for using the equity method - to be reclassified to profit or loss in subsequent periods (1,201,786) (722,914) Income tax relating to the components to be reclassified to profit or loss in subsequent periods (3,122,032) 3,567,798 Other comprehensive income, net of tax 44,354,346 (4,652,382) Total comprehensive income $101,027,570 $43,386,818 Net income attributable to: Owners of parent $56,306,735 $47,618,813 Non-controlling interests 366, ,387 Subtotal $56,673,224 $48,039,200 Total comprehensive income attributable to: Owners of parent $100,990,096 $43,393,475 Non-controlling interests 37,474 (6,657) Subtotal $101,027,570 $43,386,818 Earnings per share (expressed in dollars) : Basic earnings per share: Net income $4.47 $

21 English Translation of Financial Statements Originally Issued in Chinese Cathay Financial Holding Co., Ltd. and Subsidiaries Consolidated Statements of Changes in Equity For the years ended 31 December 2017 and 2016 (Expressed in thousands of New Taiwan Dollars) Capital stock Retained earnings Equity attributable to owners of parent Other equity Items Common stock Preferred stock Capital surplus Legal reserve Special reserve Undistributed earnings Balance on 1 January 2016 $125,632,102 $- $88,781,174 $24,820,095 $140,185,120 $65,190,213 $1,865,366 $(417,073) $371,524 $83,462 $(1,562,755) $10,108,783 $(1,017) $455,056,994 $6,005,208 $461,062,202 Exchange differences resulting from translating the financial statements of a foreign operation Unrealized gains (losses) from availablefor-sale financial assets Gains (losses) on cash flow hedges Changes of designated financial liabilities at fair value through profit or loss Remeasurements resulting from of defined benefit credit risk plans Revaluation gains on property Others Total Non-controlling interests Total equity Appropriations and distribution for 2015 Legal reserve 5,757,629 (5,757,629) - - Special reserve 8,923,216 (8,923,216) - - Cash dividends (25,126,420) (25,126,420) (25,126,420) Other additional paid-in capital Share of changes in net assets of associates and joint ventures accounted for using the equity method 2,523 2,523 2,523 Net income for the year ended 31 December 2016 (Note 1) 47,618,813 47,618, ,387 48,039,200 Other comprehensive income for the year ended 31 December 2016 (9,140,278) 4,440,232 (179,990) 36, ,822 1,017 (4,225,338) (427,044) (4,652,382) Comprehensive income for the year ended 31 December ,618,813 (9,140,278) 4,440,232 (179,990) 36, ,822-1,017 43,393,475 (6,657) 43,386,818 Issue of preferred stock 8,333,000 41,665,000 49,998,000 49,998,000 Increase in non-controlling interests 500, ,898 Balance on 31 December ,632,102 8,333, ,448,697 30,577, ,108,336 73,001,761 (7,274,912) 4,023, , ,321 (945,933) 10,108, ,324,572 6,499, ,824,021 Appropriations and distribution for 2016 Legal reserve 4,762,117 (4,762,117) - - Special reserve (25,126,420) (25,126,420) (25,126,420) Cash dividends (124,585) (124,585) (124,585) Reversal of special reserve (1,365) 1, Other additional paid-in capital Share of changes in net assets of associates and joint ventures accounted for using the equity method (804) (804) (804) Net income for the year ended 31 December 2017 (Note 2) 56,306,735 56,306, ,489 56,673,224 Other comprehensive income for the year ended 31 December 2017 (3,548,330) 49,766,641 12,113 (1,311,348) (503,746) 268,031-44,683,361 (329,015) 44,354,346 Comprehensive income for the year ended 31 December ,306,735 (3,548,330) 49,766,641 12,113 (1,311,348) (503,746) 268, ,990,096 37, ,027,570 Share-based payment 4,212 4,212 4,212 Increase in non-controlling interests 2,866,549 2,866,549 Balance on 31 December 2017 $125,632,102 $8,333,000 $130,452,105 $35,339,841 $149,106,971 $99,296,739 $(10,823,242) $53,789,800 $203,647 $(1,191,027) $(1,449,679) $10,376,814 $- $599,067,071 $9,403,472 $608,470,543 Note1: For the year ended 2016, the remuneration to directors and supervisors in the amount of $1,800 thousand and employees' compensation in the amount of $4,920 thousand have been deducted from the Statement of Comprehensive Income. Note2: For the year ended 2017, the remuneration to directors and supervisors in the amount of $2,700 thousand and employees' compensation in the amount of $5,812 thousand have been deducted from the Statement of Comprehensive Income. 19

22 English Translation of Financial Statements Originally Issued in Chinese Cathay Financial Holding Co., Ltd. and Subsidiaries Consolidated Statements of Cash Flows For the years ended 31 December 2017 and 2016 (Expressed in thousands of New Taiwan Dollars) Items ~ ~ Items ~ ~ Cash flows from operating activities Cash generated from operations (60,343,267) (202,458,229) Profit before income tax from continuing operations $59,635,617 $50,184,505 Interest received 181,281, ,070,791 Adjustments : Dividends received 25,553,382 24,352,712 Income and other adjustments with no cash flow effects Interest paid (16,301,176) (15,297,256) Depreciation expenses 2,455,658 2,295,745 Income taxes paid (8,551,542) (2,735,091) Amortizations expenses 2,968,590 2,893,403 Net cash flows from (used in) operating activities 121,638,818 (32,067,073) Bad debt expense 3,459,544 5,231,676 Cash flows from investing activities Net gains on financial assets and liabilities at fair value through profit or loss (89,225,729) (15,117,537) Acquisition of financial assets at fair value through profit or loss (55,986) (1,523,051) Interest expenses 17,627,041 15,405,207 Disposal of financial assets at fair value through profit or loss 103,091 3,019,067 Interest revenue (186,087,791) (168,883,110) Acquisition of financial assets available for sale (852,826) (1,389,511) Dividend income (24,966,314) (23,847,539) Disposal of financial assets available for sale 739, ,738 Net changes in insurance liabilities and provisions 373,941, ,690,617 Acquisition of financial assets carried at cost (8,241) (5,745) Net changes of other liabilities and provisions 1,717,660 (6,154,971) Acquisition of investments accounted for using the equity method (2,676,067) (6,670,889) Share of gain of associates and joint ventures accounted for using the equity method (1,297,864) (1,202,103) Disposal of investments accounted for using the equity method 49,503 - Losses (gains) on disposal or scrapping of property and equipment 24,546 (225,342) Acquisition of subsidiaries - (4,708,708) Gains on disposal of investment properties (71,271) (1,028,782) Disposal of subsidiaries - (4,609,822) Losses on disposal or intangible assets Cash returned by capital deduction from investments accounted for using equity method 258,202 70,299 Gains on disposal of investments (64,750,343) (48,017,674) Acquisition of property and equipment (4,004,004) (4,325,933) Impairment losses on financial assets 104, ,002 Disposal of property and equipment 22, ,802 Impairment losses on non-financial assets 25,925 58,162 Increase in guarantee deposits paid (15,600) (1,126) Unrealized foreign exchange gains (104,460) (71,422) Decrease in guarantee deposits paid ,030 Revaluation losses (gains) on investment properties 830,441 (1,847,034) Acquisition of intangible assets (409,008) (415,279) Others 6,471 (2,730,769) Acquisition of investment properties (7,078,139) (3,254,915) Subtotal 36,658, ,565,920 Disposal of investment properties 362,453 2,146,998 Changes in operating assets and liabilities Increase in other assets (66,980) (138,634) Changes in operating assets Decrease in other assets 9,947,501 7,151,817 Increase in due from the Central Bank and call loans to banks (1,745,444) (2,636,468) Dividends received 73,518 96,607 (Increase) decrease in financial assets at fair value through profit or loss (28,862,398) 150,814,074 Net cash flows used in investing activities (3,609,815) (13,372,255) Decrease (increase) in available-for-sale financial assets 8,729,797 (83,009,152) Cash flows from financing activities Decrease (increase) in derivative financial assets for hedging 419 (1,798) Increase in short-term borrowings 373,758 87,229 Increase in accounts receivable (15,197,878) (11,544,134) Increase in commercial paper payable 9,890,000 5,900,000 Decrease (increase) in loans 1,076,679 (283,277,168) Issue of corporate bonds 35,000,000 - Decrease (increase) in reinsurance contract assets 1,509,584 (2,322,525) Issue of financial debentures 11,450,000 - (Increase) decrease in financial assets held to maturity (17,319,381) 283,195 Decrease in bonds payable - (20,000,000) Increase in other financial assets (235,789,020) (201,738,797) Decrease in bills and bonds sold under agreements to repurchase (46,444) (14,660) Decrease (increase) in other assets 5,838,196 (4,785,493) Increase in other liabilities 934,650 1,108,978 Subtotal (281,759,446) (438,218,266) Payment of cash dividend (25,474,807) (25,223,449) Changes in operating liabilities Increase in cash capital - 49,998,000 Increase in due to the Central Bank and call loans from banks 14,125,626 36,402,468 Decrease in non-controlling interests (70,187) (55,385) Decrease in financial liabilities at fair value through profit or loss (28,321,989) (107,752,312) Net cash flows from financing activities 32,056,970 11,800,713 Increase in securities purchased under agreements to repurchase 53,550,968 3,629,737 Effects of exchange rate changes on cash and cash equivalents 542,862 1,300,885 Increase in payables 4,713,247 10,761,223 Increase (decrease) in cash and cash equivalents 150,628,835 (32,337,730) Increase in deposits 65,913, ,256,116 Cash and cash equivalents at the beginning of periods 264,597, ,935,688 Decrease in provisions for the liabilities of employee benefits (571,994) (3,415,115) Cash and cash equivalents at the end of periods $415,226,793 $264,597,958 Increase (decrease) in reserves for the operations and liabilities 47,776 (136,830) Increase (decrease) in other financial liabilities 4,490,837 (5,660,297) The components of cash and cash equivalents Increase in other liabilities 11,174, ,622 Cash and cash equivalents presented in balance sheet $245,354,768 $195,913,525 Subtotal 125,122,469 81,009,612 Due from the Central Bank and call loans to banks satisfied the definition of cash and Subtotal of Changes in operating assets and liabilities (156,636,977) (357,208,654) cash equivalents under IAS No.7 70,168,447 18,524,091 Subtotal of Adjustment (119,978,884) (252,642,734) Bills sold under agreements to resell satisfied the definition of cash and cash equivalents under IAS No.7 99,703,578 50,160,342 Cash and cash equivalents at the end of periods $415,226,793 $264,597,958 20

23 English Translation of Financial Statements Originally Issued in Chinese Cathay Financial Holding Co., Ltd. Balance sheets As of 31 December 2017 and 31 December 2016 (Expressed in thousands of New Taiwan Dollars) Assets Cash and cash equivalents $1,212,677 $14,822,959 Available-for-sale financial assets - net 91,136 85,689 Securities purchased under agreements to resell - 79,968 Receivables - net 527, ,085 Current income tax assets 4,341,510 4,215,323 Held-to-maturity financial assets - net 41,000,000 41,000,000 Investments accounted for using the equity method - net 605,207, ,608,375 Other financial assets - net - 430,111 Property and equipment - net 11,247 7,699 Intangible assets - net 6,649 11,968 Deferred tax assets - net 320, ,657 Other assets - net 31,797 10,998 Total assets $652,749,699 $569,292,832 Liabilities & Equity Liabilities Commercial paper payable - net $42,940,000 $35,980,000 Payables 1,156,176 5,625,178 Current income tax liabilities 8,262,477 3,031,746 Provisions 933, ,764 Deferred tax liabilities 226, ,707 Other liabilities 163, ,865 Total liabilities 53,682,628 45,968,260 Equity Capital stock Common stock 125,632, ,632,102 Perferred stock 8,333,000 8,333,000 Capital surplus 130,452, ,448,697 Retained earnings Legal reserve 35,339,841 30,577,724 Special reserve 149,106, ,108,336 Undistributed earnings 99,296,739 73,001,761 Other equity 50,906,313 6,222,952 Total equity 599,067, ,324,572 Total liabilities and equity $652,749,699 $569,292,832 21