中華民國一 四年年報. Stock Code:2834

Transcription

1 Taiwan Stock Exchange Market Observation Post System: TBB s Annual Report is available at: Stock Code:2834 中華民國一 四年年報 2015 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. Published in March 2016

2 Taiwan Business Bank Head Office Address: No. 30, Ta Cheng St., Taipei, Taiwan, R.O.C. Tel: Web Site: Spokesperson Name: Chang-Yi Chen Title: Executive Vice President Tel: / ext:1711 Address: Deputy Spokesperson Name: Jun-Shen Tseng Title: V.P. & Chief Secretary Tel: / ext: Address: h28@mail.tbb.com.tw Deputy Spokesperson Name: Chih-Chien Chang Title: Executive Vice President Tel: / ext: Address: h27@mail.tbb.com.tw Stock Registration Agent Name: Capital Securities Corp. Address: B2, No. 97, Sec. 2, Tun-Hua South Road, Taipei, Taiwan, R.O.C. Tel: Web Site: Rating Agency Name: Taiwan Ratings Co. Address: 49F, No.7, Sec.5, Xinyi Road., Taipei, Taiwan, R.O.C. Tel: Web Site: The CPA-auditor of the Financial Report Name: Fung-Huei Lee, Fu-Wei Chen Name of Employer: KPMG Certified Public Accountants Address: 68F, No.7, Sec. 5, Xinyi Road, Taipei, R.O.C. Tel: Web Site: Flotation at Overseas Stock Exchange and Information Inquiry: None

3 We can be the best!

4 Contents I. Message from the Management II. Bank Profile III. Organizational Framework Organization Chart Directors Information List of Major Shareholders Operations of Major TBB Units IV. Business Performance in The Domestic and Overseas Financial Environment 2. Changes in the Bank's Organization 3. Implementation of Business Plans and Operating Strategies 4. Budget Implementation 5. Revenues, Expenditures, and Profitability 6. Research and Development 18 V. Business Plans for Operating Directions and Policies 2. Business Targets 3. Future Development Strategies 4. The Impact of External Competition Environment, Regulatory Environment, and Overall Operating Environment 5. Results of Latest Credit Rating

5 22 VI. Financial Statements Statement of Compliance Independent Accountants' Audit Report VII. Corporate Social Responsibility VIII. Directory of Head Office and Branch Units

6 I Message from the Management 04 Taiwan Business Bank Annual Report 2015

7 Global economic growth in 2015 was disappointing due to such factors as uncertainty over interest rates rise in the United States, the fall in international raw materials prices, and slowing growth in emerging economies. In Taiwan, exports of manufactured products slowed and economic performance weakened in response to international economic conditions. Thanks to the support of all our shareholders and clients, however, and the dedicated efforts of our entire staff, the Taiwan Business Bank posted growth in both profitability and business development during the year. Looking ahead to 2016 we see that despite such worries in the international economy as slowing growth in mainland China, falling international raw materials prices, and turbulence in global financial markets, major international forecasting institutions expect that moderate growth in the U.S. economy and quantitative easing monetary policies in Europe and Japan will lead to a slight improvement in global economic performance compared with According to the latest forecasts by major domestic and international institutions, Taiwan's economy is also expected to improve in the new year. The government's continuous efforts in recent years to deregulate the financial market, loosen restrictive measures, expand the scope of financial businesses, assist the financial industry with international development, and promote the orderly development of cross-strait financial businesses have enlarged the space for advancement of the banking business. The TBB will continue the profit growth momentum of the past year and focus on key businesses with development potential as our entire staff exerts its utmost concerted efforts with the aim of upgrading overall operating performance, achieving profit growth targets, and realizing four major operating principles--pursuit of business performance, enhancement of added values of employees, emphasis on shareholders' equity, and fulfillment of corporate social responsibility--as we progress vigorously toward the ranks of outstanding banks and create an even better business performance. I MESSAGE FROM THE MANAGEMENT Chairman Robert Rueen-Fong Chu President Tzeng-Show Lin 05

8 II Bank Profile 06 Taiwan Business Bank Annual Report 2015

9 II Executive Vice President Executive Vice President Executive Vice President Chang-Yi Chen Chih-Chien Chang Tsan-Huang Chou 1. Establishment and History Executive Vice President Gordon Y. Wang Executive Vice President (Chief Compliance Officer) Mei-Yeh Wu Chief Auditor Chiu-Yen Chen BANK PROFILE The forerunners of the Taiwan Business Bank were two private cooperative savings institutions, one established in Taipei in June of 1915 and the other in Tainan the following month. The Taipei institution was merged into another company in 1920 and the Tainan institution was reorganized under a different name in Following the restoration of Taiwan to China on Oct. 25, 1945, these two savings institutions, along with two others, were taken over by the Taiwan Provincial Government and, on Sep. 1, 1946 were combined and reorganized into the Taiwan Mutual Financial Co. On May 31 the following year this new financial institution absorbed the Tokiwa Real Estate Co., bringing its capitalization to NT$10 million. Its name was changed to the Taiwan Provincial Loans and Savings Co. on June 1, 1947 and again to the Taiwan Mutual Loans and Savings Co. in January The government moved to promote Taiwan's economic development and boost the growth of its small and medium enterprises (SMEs) in 1975 by revising the Banking Law and writing in an additional provision for a specialized SME bank. In line with this government policy, the Taiwan Mutual Loans and Savings Co. was reorganized into the Medium Business Bank of Taiwan (later to be known as the Taiwan Business Bank, or TBB) on July 1, 1976, whereupon it became a specialized bank charged with the provision of financial assistance and guidance to SMEs. It has been cultivating the SME financial services field now for more than 30 years. At the time of the TBB's reorganization in 1976, it had a capitalization of NT$500 million, 50 branches, and 58 sub-branches. To build up the Bank's operating capital and strengthen its operating structure, repeated capital increases have brought total capitalization to NT$56, million today. The Bank's structural framework has also been readjusted constantly in response to changes in the financial environment and in business needs; an Auditing Department and Secretarial Department that operate under the Board of Directors,the Bank's headquarters management units include 18 departments under three major business groups and three major management centers. Domestic business units number 125, including the Banking Department and an Offshore Banking Unit; it also operates six overseas branches, in Hong Kong, Los Angeles, Sydney, Brisbane, Shanghai, and Wuhan, along with the Yangon Representative Office. Regional Operation Centers were set up to handle business development and supervision, centralized business managemenet, operational services, and other business support functions in order to enhance business promotion capability and reinforce asset quality control. In addition, Domestic Processing Centers were established to upgrade operating performance through the centralized handling of domestic remittances, bills collection and withdrawal. 07

10 2. Bank M&A, reinvestment in related enterprises, and reorganization in 2015 and to the end of February 2016 The Bank carried out no M&A or reorganization during this period. Reinvestment was made in 100% ownership in four enterprises the Taiwan Business Bank Life Insurance Agency Co., Ltd., Taiwan Business Bank Property Insurance Agency Co., Ltd., TBB International Leasing Co., Ltd. and TBB (Cambodia) Microfinance Instituion PLC- -and the TBB International Leasing Co., Ltd. reinvested in 100% ownership in a firm, the Taiwan Business Bank International Leasing Co., Ltd. 3. Membership in a designated financial holding company: None. 4. Major exchanges or transfers of shares by directors, supervisors, and others required to report shareholding under Article 25, Paragraph 3 of the Banking Law: None. 5. Major changes in operating rights, operating methods, or business content; other major events of sufficient import to affect shareholder rights; and their influence on the Bank: None. 08 Taiwan Business Bank Annual Report 2015

11 III Organizational Framework Organization Chart 2. Directors Information 3. List of Major Shareholders 4. Operations of Major TBB Units

12 1. Organization Chart Compliance and Legal Affair Center Compliance and Legal Dept. Human Resources Dept. Administration Management Center General Affairs Dept. Accounting Dept. Personal Information Protection Management Committee Risk Management Dept. Audit Committee Remuneration Committee Risk Management Center Loan Supervision Dept. Credit Investigation Dept. Domestic Processing Center Shareholders' Meeting Board of Directors Chairman of the Board Risk Management Committee President Chief Compliance Offcer Executive Vice President Operating Management Center Overdue Loan & Control Dept. Business Management Dept. Information Technology Dept. Digital Banking Dept. Regional Operation Center Business Development Div. Loan Supervision Div. Appraisal Div. Loan Review Div. Overdue Loan & Control Div. Banking Dept. Domestic Branches Treasury Group Treasury Dept. ALM Committee Business Strategy Committee Corporate Banking Group Corporate Banking Dept. International Banking Dept. Offshore Banking Branch Overseas Branches Personal Banking Dept. Credit Card Dept. Loan Supervision Committee NPL Management Committee Trust Asset Evaluation Committee Personal Banking Group Wealth Management Dept. Personnel Evaluation Committee IT Planning & Development Committee Securities Dept. Securities Branches Trust Dept. Secretarial Dept. General Auditor Auditing Dept. 10 Taiwan Business Bank Annual Report 2015

13 2. Directors Information Dec Title Acting Chairman of the Board Managing Director Managing Director Managing Director Independent Managing Director Director Director Director Director Director Director Director Director Director Director Name Robert Rueen-Fong Chu Tzeng-Show Lin Shiu Yen Lin Hong-Chi Chang Chih Yu Cheng Wen-Chieh Wang Hung-Sheng Yu Lillian L. Lin Wan Fu Lin Chung-Min Huang Cheng-Lung Lu Jong-Jyr Kau Che Nan Wang Chau-Chen Yang Yaw-Huei Huang III ORGANIZATIONAL FRAMEWORK 3. List of Major Shareholders Name Shares % Bank of Taiwan 979,134, % Dec Hua Nan Commercial Bank Trustee Account- exchangeable stock of Mega Financial Holding Company 682,944, % Chen Hai Lin 163,599, % Kin Ming Investment Co., Ltd. 150,005, % Land Bank of Taiwan 137,997, % Ministry of Finance 125,410, % Vanguard Emerging Markets Stock Index Fund, A Series Of Vanguard International Equity Index Funds 71,700, % Chun Jin Shi 58,968, % CitiBank Taiwan was commissioned and management investor account of Dimension emerging market estimate fund 57,280, % BES Engineering Corporation 56,620, % Note: The holding shares accords with the book records of last ex-dividend date. Hua Nan Commercial Bank Trustee Account-exchangeable/ non-exchangeable stock is a trust property of Mega Financial Holding Company which was trusted on April 16, Mega Financial Holding Company remains the right of deposal. 11

14 4. Operations of Major TBB Units (1) Corporate Banking Group This unit handles financial services for corporate customers, including business planning, promotion, and improvement in respect to loan products, forex products, and corporate financial planning products. It understands customers' needs and proactively carries out marketing, and is responsible for development and service in regard to the Group's products and customers as well as for improvement of the Bank's asset quality, operating income, and profit. The Corporate Banking Dept. and International Banking Dept. operate under the Corporate Banking Group. (2) Personal Banking Group This unit handles planning, promotion, and improvement of the Bank's personal loan products, financial planning for customers, and marketing services for financial planning products. It carries out proactive marketing based on an understanding of customers' needs, is responsible for development and service in regard to the Group's products and customers, and maintains improvement of the Bank's asset quality, operating income, and profit. The Personal Banking Dept., Credit Card Dept., Wealth Management Dept., Securities Dept, and Trust Dept. operate under the Personal Banking Group. (3) Treasury Group The Treasury Group handles planning, promotion, and improvement of the Bank's financial businesses, and is responsible for development and service in regard to the Group's products and customers as well as for maintaining improvement of the Bank's asset quality, operating income, and profit. The Treasury Dept. operates under the Treasury Group. (4) Risk Management Center The Risk Management Center handles risk control, maintenance of the quality of the Bank's loan assets, and investigation and review of loan cases and products, middle-office risk control for financial planning, economic and financial are search and industry investigation, and the collection of overdue loans. The Loan Supervision Dept., Credit Investigation Dept., Overdue Loan & Control Dept., and Risk Management Dept. operate under the Risk Management Center. (5) Operating Management Center The Operating Management Center is charged with bank-wide performance analysis, management and planning for operational management and information operations, provision of full and necessary support for business development, and simplification of the planning process, so as to achieve operational centralization and upgrade operational efficiency. The Center also handles planning and implementation of bank-wide operating strategy formulation, confidential matters, and public relations. The Business Management Dept., Digital Banking Dept. and Information Technology Dept. operate under the Center. (6) Administration Management Center This Center handles the planning and implementation of document administration, legal affairs, human resources, and accounting systems, as well as other matters not assigned to other units. The Human Resources Dept., Legal Affairs Dept., General Affairs Dept., and Accounting Dept. operate under the Center. (7) Compliance and Legal Department Compliance and Legal Department handles the planning, management and implementation of legal compliance system and legal affair conduct. 12 Taiwan Business Bank Annual Report 2015

15 IV Business Performance in The Domestic and Overseas Financial Environment 2. Changes in the Bank's Organization 3. Implementation of Business Plans and Operating Strategies 4. Budget Implementation 5. Revenues, Expenditures, and Profitability 6. Research and Development

16 1. The Domestic and Overseas Financial Environment Because of worries about the heating up of geopolitical economic risks, the Greek bailouts, and the timetable of interest rate increases in the U.S., along with the falling prices of crude oil and bulk commodities, the slowdown of growth in mainland China and other emerging economies, and the turmoil in global financial markets, global economic growth in 2015 did not meet the optimistic expectations current at the beginning of the year and the pace of recovery lagged. According to data released by Global Insight in February 2016, global economic growth rate in 2015 amounted to 2.6%, down by 0.4% from the January 2015 forecast and lower than the 2.7% growth rate achieved the year before. This shows that although the global economy was continuing to recover, the strength of the recovery was weak. Due to weakening global economic growth and the fall in prices of crude oil and other commodities in the first quarter of 2015, the growth in Taiwan's commodity exports (in US dollar terms) turned negative; however, when exports were calculated in NT dollars with price factors excluded and exports of services added, the growth in exports of goods and services remained positive. In addition, private consumption grew at a steady pace because of a continued improvement in employment and incomes, driving Taiwan's annualized economic growth rate for the quarter to 4.04%.In the second quarter, the domestic private consumption continued to grow moderately, but the global recovery was disappointing and the weakening of Taiwan's goods exports intensified, depressing growth for the quarter to 0.57%. In the third quarter, despite an increased growth in private investment because of an expansion of advanced manufacturing processes by domestic semiconductor companies, plus increased investment in railroads and other mass transportation facilities, weakness in the global economic recovery and a continued drop in prices of crude oil and other materials, along with the crowding out effect of the increasing autonomy of supply chains in mainland China, the weakening of Taiwan's exports expanded continuously; this, plus the impact of a large drop in domestic stock prices, caused consumer confidence to decline and the economic growth rate to drop further, to -0.80%. In the fourth quarter, investment in advanced processes by the domestic semiconductor industry and by railroads and other mass transportation facilities continued to grow and private consumption steadily heated up; but because of continued weakness in global economic growth and in external demand, the decline in Taiwan's goods exports continued and economic growth rate for the quarter was -0.52%. According to figures compiled by the Directorate General of Budget, Accounting and Statistics, Taiwan's economic growth rate in 2015 was 0.75%. With the disappointing global economic performance in 2015, domestic growth was slow and the expectation was that inflation would be moderate. To stimulate growth, the Central Bank lowered the policy interest rate by 0.125% in September and again in December, for a total reduction of 0.25%. In the area of exchange rates, in the first half of 2016 the New Taiwan Dollar appreciated slightly against the US Dollar; but in the second half of the year the Chinese yuan underwent a large drop in value, leading to a trend of depreciation in Asian currencies. In addition, under the influence of the continued decline in Taiwan's exports and the overselling of Taiwan stocks by foreign investors and the remittance of the proceeds off the island, plus the interest rate reductions by the Central Bank, at the end of 2015 the NT Dollar was trading at to the US Dollar, representing a depreciation of 4.08%. The average exchange rate for the year was NT$ to the US Dollar, a drop of 4.80% for the year. 2. Changes in the Bank's Organization (1) In response to the development of Bank 3.0 and global mobile payments, the Bank's original Digital Banking Section was expanded into the Digital Banking Department in charge of e-banking R&D, planning, marketing, integration, guidance, management and evaluation. (2) To secure the loyalty of investors and highlight the Bank's reasonable share value, the staff of the Investor Relations (IR) team has been enlarged, the frequency of small seminars has been increased through proactive invitations, and IR websites in Chinese and English versions have been established to strengthen the disclosure of operating information and enhance the overall effectiveness of IR operations. 14 Taiwan Business Bank Annual Report 2015

17 3. Implementation of Business Plans and Operating Strategies (1) Profitability The Bank experienced stable growth in profitability and various areas of business in 2015, with a net profit after-tax of NT$5.113 billion (net profit before-tax was NT$6.196 billion), and carried out a capital increase via earnings. Pre-distribution (2014) annual dividends per share were NT$0.73. (2) Corporate Governance A. The Bank ranked in the top 5% in the First Annual Corporate Governance Evaluation held by the Taiwan Stock Exchange, indicating substantial achievements in the establishment of a corporate governance system. B. The Bank was awarded the highest rating of A++ in the Securities & Futures Institute's 12th Information Disclosure Evaluation for Publicly Listed Companies, making the TBB the only government bank in Taiwan to win this highest ranking for seven years in a row. (3) Core Business A. Corporate Banking: a. The Bank won Outstanding Awards from the Financial Supervisory Commission for the Program to Encourage Lending by Domestic Banks to Small and Medium Enterprises (Division A) and the Program to Encourage Lending by Domestic Banks to Creative Enterprises (Division A). b. In recognition of the Bank's outstanding performance in helping small and medium enterprises with financial services, it was presented four top Outstanding Bank for Small and Medium Enterprise Credit Guarantee Financing awards: the Credit Guarantee Partner Award, Direct Guarantee Performance Award, Assistance for Regional Development Award, and Young Entrepreneur Support Award. IV BUSINESS PERFORMANCE IN 2015 c. In the handling of small and medium enterprise loans, The TBB scored first place in Taiwan in the value of loans transferred to the Small and Medium Enterprise Credit Guarantee Fund for guarantee. d. In the aggressive promotion of policy project loans, the Bank took first place nationally with the extension of 12 project loans. B Foreign Exchange and Trade Financing a. Strengthening the absorption of foreign-currency deposits and expanding the scale of deposits, and the accumulated average balance of foreign-currency deposits in 2015 grew 12.75% over b. Foreign-currency loans were vigorously expanded to strengthen interest-spread income, and the average amount of foreign-currency loans in 2015 expanded by 7.20% over C Wealth Management a. To meet market demand, the Bank introduced two discretionary investment-oriented insurance products, for which combined sales exceeded NT$10 billion. b. To promote the fund custodian business, the Bank raised the Yuanta Emerging Indonesian Opportunity Bond Fund with outstanding sales results. c. With vigorous promotion of a special program aimed at the marketing of designated financial service products, fee income from the wealth management business rose 35.21% in (4) Products Innovation A. Internet cashier services offer convenient online payment services for small sellers (in microbusinesses such as specialty agricultural products and homestay accommodation). B. In response to the advent of the aging society, the Bank introduced a program of elderly care trust combined with mortgage life insurance. C. A special loan program was introduced to provide borrowers with insurance against death and disability along with the funds they need. 15

18 D. A credit loan program was introduced to serve the government employees and teachers of the entire country by satisfying their needs for consumption and investment capital. E. In response to the development of mobile payments, the Bank inaugurated the mobile credit card to provide customers with a diversified range of products and services. F. The ipass co-branded card, combining the functions of a credit card with ipass small payments, was issued. (5) Expansion of Scope of Channel Services A. The Bank has actively engaged in international deployment, with the Yangon Representative Office opening for business on Dec. 7, 2015 and the Wuhan Branch opening on Dec. 29 that year. In addition, permission from the U.S. Federal Reserve for the establishment of the New York Branch was received on Dec. 31, 2015, and an application for the establishment of a Tokyo Branch was approved by the Financial Supervisory Commission on Jan. 4, B. The 100%-invested TBB (Cambodia) Microfinance Institution Plc opened for business in Cambodia on Aug. 10, 2015, marking the first operating base to be established by the TBB in the Southeast Asian market. It will take advantage of the opportunities of rapid economic growth in the region. C. To continue developing and assisting small and medium business clients in industrial zones, the Bank reinforced development of its core industrial zone SME business with the opening of the Ta Fa Branch on Dec. 28, 2015 to provide customers with even more outstanding services. (6) Information Operations A. In coordination with the 12 online services included in the Financial Supervisory Commission's Digital Finance Environment 3.0 plan, the TBB has completed development and has put online 11 of the e-services. The exception is the joint marketing of businesses within the financial holding company scope. B. The Bank achieved outstanding success in the promotion of e-banking, and this achievement was recognized by two awards, the Best Development Award for Electronic Payment Business and the Outstanding Innovative Award for Electronic Payment Business, presented by the Financial Information Service Co. C. The Bank inaugurated the TBB My Dream fans club on Facebook, with all kinds of financial products presented on the fans' page in line with advertisements for marketing activities, thereby enhancing the Bank's exposure. (7) Corporate Social Responsibility A. To conform to international standards, the Bank's CSR report for 2014 was compiled in accordance with GRI G4 international criteria. The Bank responds to the hopes and needs of stakeholders by publishing its CSR report annually and by carrying through with the Corporate Social Responsibility Best Practice Principles, actively implementing CSR and fulfilling its values of sustainable operations. B. To carry through with the principle of care for society and fulfill its CSR, the Bank contributes to 40 disadvantaged groups and subsidizes breakfasts for elementary school students in remote areas, in this way helping disadvantaged groups and participating actively in social welfare. C. The Bank has been awarded for excellence in green procurement for four consecutive years by the Environmental Protection Administration of the Executive Yuan and the Department of Environmental Protection of the Taipei City Government. D. The Bank won an energy-conservation enterprise award from the Bureau of Energy, Ministry of Economic Affairs and an outstanding award from the Taiwan Power Company in the small and medium enterprise electricity-conservation competition. E. The Bank's headquarters building acquired ISO50001 energy management system certification in response to the promotion of energy conservation by the Taipei City Government. F. The Bank is committed to publicizing campus and community financial know-how, promoting correct financial management concepts, and propagating anti-financial fraud education with the aim of laying down 16 Taiwan Business Bank Annual Report 2015

19 a solid foundation for financial education. In recognition of this effort, the Bank was awarded by the Banking Bureau of the Financial Supervisory Commission for its promotion of campus and community financial knowhow activities. 4. Budget Implementation (1) Average deposits was NT$1, billion, an increase of 5.33% over (2) The annual average amount of loans outstanding by the Bank was NT$1, billion, an increase of 6.11% from the year before. (3) The amount of foreign exchange transactions undertaken during the year totaled US$ billion, a growth of 4.67% from the previous year. (4) Fee income from life insurance and property insurance was NT$1.619 billion, up 61.09% from the year before. (5) The budget achievement rates for the above items were between 90.73% and %. 5. Revenues, Expenditures, and Profitability (1) Revenues and Expenditures Net income in 2015 amounted to NT$ billion, bad debt expenses and guarantee liability provisions were NT$2.409 billion, operating expenses were NT$ billion, and net income before tax from continuing operations was NT$6.196 billion (a growth of 12.95% from 2014); net profit after-tax was NT$5.113 billion, giving a return on assets (after tax) of 0.36%, return on equity (after tax) of 7.84%, profit margin (after tax) of 25.36%, and after-tax earnings per share of NT$0.90. IV BUSINESS PERFORMANCE IN 2015 (2) Profitability The various items of pre-provision, pre-tax net income (including recovered bad debts) totaled NT$9.499 billion, an increase of NT$349 million over To strengthen loan risk appetite, the Bank allocated NT$3.303 billion in reserves against bad debts, giving a coverage ratio of %; it also wrote off bad debts in the amount of NT$3.095 billion, giving a non-performing loan ratio of 0.48%. Before-tax profit in 2015 amounted to NT$6.196 billion, an increase of NT$710 million compared with 2014; this was due primarily to a growth in loans and deposits, an increase in net interest earnings, and expansion of the wealth management business and increase in net fee income. 6. Research and Development (1) Establishment of an Exclusive Unit for Industry Research A. A total of 162 industry analysis reports were written and published in the Bank's E-Library in 2015 for colleagues to peruse. B. Elite professionals from industry, government, and academe are invited to speak on an irregular basis to help the Bank's employees understand the latest trends in industrial development. (2) Encouragement of Innovation and Professionalism in Line with Business Development Needs A. Employees are encouraged to take the initiative in carrying out innovation and suggesting new financial products and methods of business improvement that will enhance the Bank's business competitiveness. A total of 66 employee suggestions were accepted in B. Business lectures are held on a scheduled basis and a rich variety of digital learning courses are offered to encourage employees to engage in further on-the-job studies and absorb new knowledge that will strengthen their competitiveness and enhance their professional know-how. 17

20 V Business Plans for Operating Directions and Policies 2. Business Targets 3. Future Development Strategies 4. The Impact of External Competition Environment, Regulatory Environment, and Overall Operating Environment 5. Results of Latest Credit Rating 18 Taiwan Business Bank Annual Report 2015

21 1. Operating Directions and Policies In response to the shift in the development of financial markets toward Asia, aging populations, mobile functions, and internationalized renminbi (RMB), and to coordinate with the Financial Supervisory Commission's encouragement of financial institutions to deploy in Asia and establish Asia-Pacific wealth-management centers, promote financial infrastructure construction, the digitization of the financial environment, and other key financial development strategies, the Bank has formulated six major strategies and promoted "deep-rooting plans" for financial infrastructure construction in order to reinforce its customer service foundation. The Bank will also strengthen policy finance, lending, and guidance, will deepen cultivation of the specialized field of small and medium enterprise businesses, and will strive to develop in the direction of niche banking. (1) Augmentation of Equity Capital and Expansion of Business Capabilities A. Reinforcement of investor relations and highlighting of the Bank's reasonable share value. B. Augmentation of capital and enhancement of business expansion capability. (2) Addition of Overseas Units and Integration of Channel Services A. Expansion of deployment in overseas markets and heightening of the proportion of overseas branch profits. B. Adaptation to local conditions and maintenance of close customer relations. (3) Optimization of Human Resources and Strengthening of Manpower Training V BUSINESS PLANS FOR 2016 A. Strengthened training of international personnel and development of sufficient seed personnel for overseas branches. B. Optimization of human resources, provision of assistance in career transition, and establishment of a corporate culture of shared learning and know-how. (4) Reinforcement of Technological Investment and Development of Digital Finance A. Reinforcement of investment in IT installations and enhancement of information system performance. B. Accelerated use of big data collection and analysis, and reinforcement of CRM for targeted marketing. C. Real/virtual integration and synchronous advancement, and optimization of the customer experience. (5) Optimization of Internal Processes and Strengthening of Risk Management A. Reinforcement of operational and customer management processes. B. Strengthening of strategic alliances and introduction of innovative capacity. C. Implementation of risk management mechanisms to enhance asset quality. (6) Reinforcement of Corporate Governance and Fulfillment of Corporate Social Responsibility A. Reinforcement of corporate governance, and enhancement of information disclosure and transparency. B. Realization of consumer protection and the Equator Principles, care for disadvantaged groups, emphasis on energy conservation and carbon reduction, and fulfillment of social responsibility. 19

22 2. Business Targets To give equal weight to the protection of shareholder interests, improvement of the capital structure, and upgrading of asset quality, the Bank, in consideration to economic growth forecasts of 2016 by the Directorate General of Budget, Accounting and Statistics and the reduction of interest rates by the Central Bank on Sept. 24, 2015, as well as the application of IFRS 9's "Financial Instruments" in 2018, is required to increase provisions of various kinds. (1) Annual average deposit balance, NT$1, billion. (2) Annual average loans outstanding, NT$1, billion. (3) Total foreign exchange transactions, US$72.00 billion. 3. Future Development Strategies (1) Focus on key businesses that have development advantage, manifestation of the spirit of full-staff marketing in the form of action, and overall upgrading of operating performance. (2) Deep cultivation of the core small and medium enterprise business as a specialized SME financing and service bank and a self-professed role as rear support for Taiwan's million SMEs, maintaining the Bank's leadership position through its professional advantage in SME financing and services. (3) Reinforcement of integrated business marketing, with expansion of business relations with core clients through cross-marketing, and upgrading of profitability to create enterprise value and shareholder equity. (4) Deep cultivation of core customers and focus on core products, expansion of the scale of key businesses, and upgrading of business competitiveness and market share. (5) Creation of a superior digital financial environment through innovation of digital financial products, expansion of digital marketing channels, and development of the digital banking business. (6) Deep cultivation of the Asia-Pacific region, global deployment, and enhancement of the ratio of profit from overseas markets (7) Adjustment of asset structure and quality, and enhancement of rate of return on risk-weighted assets; upgrading of the ratio of fee income, and improvement of the revenue structure. (8) Augmentation of equity capital, upgrading of risk appetite, strengthening of risk control, maintenance of asset quality, reduction of the non-performing loan ratio, and advancement toward the ranks of outstanding banks. 4. The Impact of External Competition Environment, Regulatory Environment, and Overall Operating Environment (1) To boost the international competitiveness of Taiwan's banking industry, the Financial Supervisory Commission has opened up cooperation between payment institutions of the island's financial institutions and those of mainland China in handling the payments business, and has formulated the Act Governing Electronic Payment Institutions, in response to the impending entry of non-financial institutions in payment services and banking transition faced by banks due to the impact of the passage of the Act and the development of Bank Taiwan Business Bank Annual Report 2015

23 (2) In view of the international trend toward anti-money laundering and countering terrorism financing, plus the assessment by the Asia/Pacific Group on Money Laundering Group in the fourth quarter of 2018, the competent authorities are strengthening oversight of anti-money laundering and anti-terrorist financing activities and are asking financial institutions to complete the planning and establishment of management measures and risk assessment, and to formulate anti-money laundering and terrorist financing risk prevention plans, in accordance with the established timetable. 5. Results of Latest Credit Rating Ratings Date of Rating Rating Company Outlook Long-term Credit Short-term Credit JAN. 15, 2016 Taiwan Ratings twa+ twa-1 Positive Note: The TBB's level of capital has improved, and capital and profit are maintained at suitable levels; the Bank's rating outlook has been raised from "stable" to "positive." V BUSINESS PLANS FOR

24 VI Financial Statements Statement of Compliance 2. Independent Accountants' Audit Report 22 Taiwan Business Bank Annual Report 2015

25 1. Statement of Compliance For the year ended December 31, 2015 (from January 1, 2015 to December 31, 2015), the enterprises which the Company should include in the consolidated financial statements of the Company in accordance with Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises are the same as the enterprises which the Company should include in the consolidated financial statements prepared in accordance with IAS 10 which is accepted by the Financial Supervisory Commission. The required disclosure of the financial statements of affiliated enterprise is disclosed in the abovementioned consolidated financial statements and the Company does not prepare financial statements for affiliated enterprises separately. We hereby certify that the above is true and faithful. FINANCIAL STATEMENTS Company Name: Taiwan Business Bank Ltd. Chairman of the Board: Robert Rueen-Fong Chu Date: March 23,

26 2. Independent Accountants' Audit Report The Board of Directors Taiwan Business Bank, Ltd. We have audited the accompanying consolidated balance sheets of Taiwan Business Bank, Ltd. and its subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of comprehensive income as well as changes in consolidated equity and cash flows for the year ended December 31, 2015 and These consolidated financial statements are the responsibility of the Bank's management. Our responsibility is to issue a report on these financial statements based on our audit. We conducted our audits in accordance with the Rules Governing Auditing and Certification of Financial Statements of Financial Institutions by Certified Public Accountants and generally accepted auditing standards in the Republic of China.Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Taiwan Business Bank, Ltd. as of December 31, 2015 and 2014, and the results of its operations and cash flows for the year then ended, in conformity with the Regulations Governing the Preparation of Financial Reports by Public Held Banks, International Financial Reporting Standards(IFRSs), International Accounting Standards and the explanations of the Standing Interpretations Committee and the International Financial Reporting Interpretations Committee accepted by the FSC. We have also audited the financial report which was prepared separately for the year of 2015 and 2014 of Taiwan Business Bank Ltd. and expressed an unqualified opinion. KPMG Taipei, Taiwan, R.O.C. March 23, 2016 Notice to Readers The accompanying consolidated financial statements are intended only to present the financial position, financial performance and cash flows in accordance with IFRSs accepted by the Financial Supervisory Commission and not those of any other jurisdictions. The standards, procedures, and practices to audit such financial statements are those generally accepted and applied in the Republic of China. The accountants' audit report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, the English and Chinese language accountants' audit report and financial statements, the Chinese version shall prevail. 24 Taiwan Business Bank Annual Report 2015

27 TAIWAN BUSINESS BANK, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2015 AND 2014 (Expressed In Thousands of New Taiwan Dollars) December 31, 2015 December 31, 2014 Assets Amount Amount Cash and cash equivalents(notes 6(A) and 7) $ 41,061, ,242,245 5 Due from the Central Bank and call loans to banks (Notes 6(B) and 7) 118,884, ,844,444 5 Financial assets at fair value through profit or loss (Note 6(C)) 2,082,611-2,610,707 - Securities purchased under resell agreements (Note 6(D)) 26,784, ,527,837 - Receivables net (Note 6(E)) 24,697, ,821,960 2 FINANCIAL STATEMENTS Current Income tax assets 293, ,755 - Discounts and loans net (Notes 6(F) and 7) 1,007,398, ,001,234, Available-for-sale financial assets net (Notes 6(G) and (N)) 25,668, ,043,539 1 Held-to-maturity financial assets net (Notes 6(H)) 206,277, ,541, Other financial assets net (Note 6(I)) 2,086,966-3,268,115 - Premises and equipment net (Note 6(J)) 14,105, ,101,430 1 Intangible assets-net 131, ,029 - Deferred income tax assets-net (Note 6(V)) 1,437,671-2,125,784 - Other assets net (Note 6(K)) 4,980,803-4,642,581 - Total assets $ 1,475,891, ,392,390,

28 Liabilities and equity December 31, 2015 December 31, 2014 Amount % Amount % Liabilities Deposits from the Central Bank and other banks (Note 6(L) and 7) $ 77,857, ,595,072 6 Financial liabilities at fair value through profit or loss (Note 6(M)) 219, ,213 - Securities sold under repurchase agreements (Note 6(N)) 4,163,147-3,895,308 - Payables (Note 6(O)) 30,924, ,556,802 3 Deposits and remittances (Notes 6(P) and 7) 1,232,320, ,152,156, Financial debentures (Note 6(Q)) 45,600, ,800,000 3 Other financial liabilities (Note 6(R)) 12,197, ,739,260 1 Provision for liabilities (Note 6(S)) 3,321,737-3,018,791 - Deferred income tax liabilities(note 6(V)) 920, ,420 - Other liabilities (Note 6(T)) 706, ,786 - Total liabilities 1,408,232, ,329,652, Equity parent company Common stock (Note 6(U)) 56,846, ,979,141 4 Retained earnings: Legal reserve (Note 6(U)) 5,626, ,032,090 - Special reserve (Note 6(U)) 185, ,365 - Undistributed earnings (accumulated deficit)(note 6(U)) 4,873,804-5,381,104 - Other items in equity 126,948-64,217 - Total equity 67,659, ,737,917 4 Total liability and equity $ 1,475,891, ,392,390, Taiwan Business Bank Annual Report 2015

29 TAIWAN BUSINESS BANK, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2015 AND 2014 (Expressed In Thousands of New Taiwan Dollars) For the year ended December 31, Percent Amount Amount Change% Interest revenue (Note 6(Z) and 7) $ 25,853, ,259, Less: Interest expenses (Note 6(Z) and 7) ( 10,384,359 ) ( 51 ) ( 10,469,421 ) ( 55 ) ( 1 ) Net interest income 15,469, ,790, Non-interest income Service fee and commission income (Note 6(AA) and 13) 3,540, ,779, Gains (losses) on financial assets or liabilities at fair value through profit or loss - net (Note 6(AB)) Realized gains on available-for-sale financial assets - net (Note 6(AC)) 185, ,010 2 ( 43 ) 90,107-53, Realized losses on held-to-maturity financial assets - net ( 13 ) Foreign exchange gains 524, ,166 4 ( 38 ) Reversal of impairment loss on assets 6, Other net non-interest income (Note 6(AD) and 7) 43,861 - ( 121,326 ) ( 1 ) 136 Net profit or loss on financial assets measured at cost 131, , Securities brokerage income - net 171, ,333 1 ( 15 ) Net revenue 20,161, ,994, Provisions for bad debt expenses and guarantee reserve (miscellaneous provision)(note 6(AE)) ( 2,409,189 ) ( 12 ) ( 2,538,587 ) ( 13 ) ( 5 ) Operating expenses Employee benefit expenses (Note 6(AF) and 12) ( 7,157,141 ) ( 35 ) ( 7,034,153 ) ( 37 ) ( 2 ) Depreciation and amortization expenses (Note 6(AG) and 12) ( 380,054 ) ( 2 ) ( 408,087 ) ( 2 ) ( 7 ) Other general and administrative expenses (Note 6(AH)) ( 4,019,336 ) ( 20 ) ( 3,527,782 ) ( 19 ) 14 Total operating expenses ( 11,556,531 ) ( 57 ) ( 10,970,022 ) ( 58 ) 5 Income from continuing operations before income tax 6,196, ,485, Income tax expenses (Note 6(V)) ( 1,083,128 ) ( 5 ) ( 170,579 ) ( 1 ) 535 Net income 5,113, ,315, ( 4 ) Other comprehensive income Items not to be reclassified into profit or loss Remeasurements of defined benefit plans ( 306,693 ) ( 1 ) 10,550 - ( 3,007 ) Income tax of items not to be reclassified 52,138 - ( 1,793 ) - 3,008 Total items not to be reclassified into profit or loss ( 254,555 ) ( 1 ) 8,757 - ( 3,007 ) Items that are or may be reclassified subsequently to profit or loss Difference of foreign exchange in translating financial statements of foreign operating units 151, ,690 1 ( 38 ) Unrealized valuation (losses) gains on available-for-sale financial assets ( 66,530 ) ( 1 ) ( 43,745 ) - ( 52 ) Income tax related to items that are or may be reclassified to profit or loss ( 22,470 ) - ( 40,490 ) - 45 Total items that are or may be reclassified subsequently to profit or loss 62, ,455 1 ( 61 ) Other comprehensive income (net amount after tax) ( 191,824 ) ( 1 ) 169,212 1 ( 213 ) Total comprehensive income $ 4,921, ,484, ( 10 ) Earnings per share (in NT dollar)(note 6 (X)) Basic earnings per share (in NT dollar) $ Diluted earnings per share (in NT dollar) $ FINANCIAL STATEMENTS 27

30 TAIWAN BUSINESS BANK, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY CHANGE FOR THE YEAR ENDED DECEMBER 31, 2015 AND 2014 (Expressed In Thousands of New Taiwan Dollars) Equity attributed to the parent company Stock Retained earnings Other item in equity Common stock Legal reserve Special reserve Undistributed earnings Total Difference of foreign exchange in translating financial statements of foreign operating units Unrealized gains and losses on available -for-sale financial assets Balance January 1, 2014 $ 50,941,482 3,423, ,088 2,028,781 6,408,324 (111,235) 14,997 57,253,568 Net Income for the year ended December 31, 2014 Other comprehensive income (losses) for the year ended December 31, 2014 Total comprehensive income for the year ended December 31, ,315,137 5,315, ,315, ,757 8, ,093 (42,638) 169, ,323,894 5,323, ,093 (42,638) 5,484,349 Earnings appropriation and distribution Legal reserve appropriated - 608,635 - (608,635) Reversal of special reserve - - (674,723) 674, Common stock dividend 2,037, (2,037,659) (2,037,659) Balance - December 31, ,979,141 4,032, ,365 5,381,104 9,694,559 91,858 (27,641) 62,737,917 Net Income for the year ended December 31, ,113,036 5,113, ,113,036 Other comprehensive income (losses) for the year ended December 31, 2015 Total comprehensive income for the year ended December 31, (254,555) (254,555) 129,784 (67,053) (191,824) ,858,481 4,858, ,784 (67,053) 4,921,212 Earnings appropriation and distribution Legal reserve appropriated - 1,594,541 - (1,594,541) Reversal of special reserve - - (96,237) 96, Common stock dividend 3,867, (3,867,477) (3,867,477) Balance December 31, 2015 $ 56,846,618 5,626, ,128 4,873,804 10,685, ,642 (94,694) 67,659,129 Total 28 Taiwan Business Bank Annual Report 2015

31 TAIWAN BUSINESS BANK, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Cash flows from operating activities: THE YEAR ENDED DECEMBER 31, 2015 AND 2014 (Expressed In Thousands of New Taiwan Dollars) For the year ended December 31, Net income before tax $ 6,196,164 5,485,716 Adjustments Accounts that do not affect cash flow Depreciation expenses 303, ,023 Amortization expenses 76,489 84,064 Provision of bad debt expenses 2,404,596 2,493,093 Net loss (gain) on financial assets and liabilities at fair value through profit or loss 94,369 ( 147,424 ) FINANCIAL STATEMENTS Interest expenses 10,384,359 10,469,421 Interest revenues ( 25,853,374 ) ( 25,259,678 ) Net change of provision for guarantee reserve 4,593 45,494 Net change of other miscellaneous liability reserve ( 10,046 ) ( 76,428 ) Losses on disposal and retirement of premises and equipment Losses on disposal of investments - 10,218 Other ( 126,000 ) 328,905 Total ( 12,720,854 ) ( 11,727,926 ) Change in assets and liabilities related to operating activities Net change in assets related to operating activities (Increase) decrease in due from the Central Bank and call loans to banks ( 57,040,327 ) 6,451,683 Decrease in financial assets at fair value through profit or loss 308, ,535 (Increase) decrease in securities purchased under resale agreements ( 21,256,678 ) 15,342,188 Increase in receivables ( 2,858,038 ) ( 7,069,389 ) Increase in discounts and loans ( 8,471,950 ) ( 45,767,194 ) Decrease in other financial assets 22,124 54,785 Decrease (increase) in other assets 2,313,112 ( 2,618,677 ) Total ( 86,983,346 ) ( 33,053,069 ) 29

32 For the year ended December 31, Net change in liabilities related to operating activities (Decrease) increase in deposits from the Central Bank and other banks Increase (decrease) in financial liabilities at fair value through profit or loss Increase (decrease) in bills and bonds sold under repurchase agreements ( 2,737,535 ) 1,515,319 42,102 ( 19,893 ) 267,839 ( 303,934 ) Increase in payables 428,957 10,922,593 Increase in deposits and remittances 80,163,687 56,736,725 (Decrease) increase in other financial liabilities ( 3,548,270 ) 1,580,485 Increase (decrease) in provision for employee benefits 74,698 ( 34,290 ) Total 74,691,478 70,397,005 Total Change in assets and liabilities related to operating activities ( 12,291,868 ) 37,343,936 Total adjustments ( 25,012,722 ) 25,616,010 Cash (used in) provided by operating activities ( 18,816,558 ) 31,101,726 Interest collected 25,743,075 24,886,771 Interest paid ( 10,445,687 ) ( 10,587,414 ) Income tax paid ( 326,191 ) ( 289,315 ) Net cash (used in) provided by operating activities ( 3,845,361 ) 45,111,768 Cash flows from investing activities Purchase of available-for-sale financial assets ( 9,692,299 ) ( 3,040,859 ) Proceeds from repayments of debt investment without active market 1,500,000 - Purchase of hold-to-maturity financial assets ( 11,735,908 ) ( 107,400 ) Purchase of capital deduction of financial assets carried at cost ( 328,104 ) ( 6,000 ) Proceeds from capital deduction of financial assets carried at cost - 3,122 Purchase of premises and equipment ( 315,739 ) ( 149,365 ) Proceeds from disposition of premises and equipments 10, Decrease (increase) in guarantee deposits paid 53,035 ( 71,018 ) Purchase of intangible assets ( 55,015 ) ( 30,487 ) Net cash used in investing activities ( 20,564,030 ) ( 3,401,742 ) Cash flows from financing activities Decrease in due to the Central Bank and other banks - ( 13,000 ) Issuance of financial debentures 10,000,000 - Redemption of financial debentures ( 6,200,000 ) ( 9,650,000 ) Increase in guarantee deposits received 33,854 51,996 Increase in lease payable 6,127 5,193 Decrease in other liabilities ( 2,568,532 ) ( 120,861 ) Net cash provided by (used in) financing activities 1,271,449 ( 9,726,672 ) Foreign exchange effect ( 42,493 ) 14,728 Net (decrease) increase in cash and cash equivalents ( 23,180,435 ) 31,998,082 Cash and cash equivalents, at the beginning of the period 64,242,245 32,244,163 Cash and cash equivalents, at the end of the period $ 41,061,810 64,242, Taiwan Business Bank Annual Report 2015

33 TAIWAN BUSINESS BANK, LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2015 and 2014 (Expressed in Thousands of New Taiwan Dollars, Unless Otherwise Stated) 1. COMPANY HISTORY Taiwan Business Bank, Ltd. (the "Bank") was formerly a general savings union known as "Taiwan Mutual Financing Bank" or "Tai-Shio Mutual Financing Bank" when it was established in After several mergers and acquisitions, it was renamed as Taiwan Business Bank, Ltd. in order to finance and provide banking assistance to small and medium-size businesses on July 1, The Bank's major lines of business are the following: (A) As prescribed by the Banking Law, provides professional services tailored to the needs of small and medium size businesses; (B) Trust and securities brokerage businesses as approved by the relevant authority; (C) International banking business; and FINANCIAL STATEMENTS (D) Other relevant businesses as authorized by the relevant authority in charge. As of December 31, 2015, the Bank not only set up the banking dept., international dept., securities dept. and trust dept. under head office but also has 124 domestic branches, 1 offshore banking unit, 6 overseas branches, and 18 securities brokerage locations. The Bank became listed on the Taiwan Stock Exchange on January 3, Under the "Statute for Privatization of State Enterprises" and upon the approval of Taiwan Province Government, the shares of the Bank owned by the provincial government were sold to the public. In line with privatization of the three other major Taiwan province government owned run commercial banks, the Bank had completed its own privatization on January 22, The Bank passed the CG6009 (General Version) Corporate Governance System evaluation certification of Taiwan Corporate Governance Association on June 23, The Bank was awarded as one of the top 5 percent of listed companies in "the first corporate governance evaluation" on April 30, FINANCIAL STATEMENTS AUTHORISATION DATE AND AUTHORISATION PROCESS These consolidated financial statements were reported to the board of directors on March 23, NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED (A) The effect of adopting the standards newly released and modified which are endorsed by the FSC: Starting from 2015, the Group have fully adopted the 2013 version of International Financial Reporting Standards (excluding the application of IFRS 9 "Financial Instruments," as accepted by the Financial Supervisory Commission (the "FSC"), when compiling quarterly consolidated financial reports. The newly issued and revised accounting standards and interpretations are as follows: 31

34 New Standards And Interpretations Not Yet Adopted Amendment to IFRS 1 Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters Amendment to IFRS 1 Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters issued IASB released of effective date July 1, 2010 July 1, 2011 Amendment to IFRS 1 Government loans January 1, 2013 Amendment to IFRS 7 Disclosures Transfers of Financial Assets July 1, 2011 Amendment to IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities January 1, 2013 IFRS 10 Consolidated Financial Statements January 1, 2013 (Investment entity is effective on January 1, 2014) IFRS 11 Joint Arrangements January 1, 2013 IFRS 12 Disclosure of Interest in Other Entities January 1, 2013 IFRS 13 Fair Value measurement January 1, 2013 Amendment to IAS 1 Changes to the presentation of other comprehensive income July 1, 2012 Amendment to IAS 12 Deferred Tax Recovery of Underlying Assets January 1, 2012 Amendment to IAS 19 Employee Benefits January 1, 2013 Amendment to IAS 27 Separate Financial Statement January 1, 2013 Amendment to IAS 32 Offsetting Financial Assets and Financial Liabilities January 1, 2014 IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine January 1, 2013 Except for the following listed items, the adoption of the 2013 version of IFRSs by the Group would have no significant impact on the consolidated financial reports: 1.IFRS 13 Fair value measurement The standard redefines fair value that provides a single IFRS framework for measuring fair value and requires disclosures about fair value measurement. The Group has disclosed at fair value as prescribed in the standard, which have been carried forward except for comparative information which is not required. However the standards have been carried forward since 2015, the new measurement prescription has no significant impact on asset and liability items of the Group. 2. IAS 1 Presentation of Financial Statements The amendments change the presentation of other comprehensive income. That section is required to present line items which are classified by their nature, and grouped between those items that will or will not be reclassified to profit and loss in subsequent periods. The other comprehensive items shown pre-tax amounts, and the related tax also need to be presented separately with the above two categories. The Group has changed the presentation of other comprehensive income section accordance with the guidelines, and be consistent from period to period. (B) The standards and interpretations newly issued and amended but not yet endorsed by the FSC: A summary as below of the new standards and interpretations issued by the International Accounting Standards Board (the "IASB") that may have an impact on the consolidated financial statements not yet endorsed by the FSC: 32 Taiwan Business Bank Annual Report 2015

35 New Standards And Interpretations Not Yet Adopted IASB released of effective date IFRS 9 Financial Instruments January 1, 2018 Amendments to IFRS 10 and IAS 28 Sales or contributions of assets between an investor and its associate/joint venture Amendments to IFRS 10, IFRS 12 and IAS 28 Investment entities: Applying the consolidation exception Determination by council January 1, 2016 Amendment to IFRS 11 Acquisition of an interest in a joint operation January 1, 2016 IFRS 14 Regulatory Deferral Accounts January 1, 2016 IFRS 15 Revenue from Contracts with Customers January 1, 2018 IFRS 16 Leasing January 1, 2019 Amendments to IAS 1 Disclosure initiative January 1, 2016 Amendments to IAS 7 Disclosure initiative January 1, 2017 Amendments to IAS 12 Recognition of deferred tax assets for unrealised losses January 1, 2017 Amendments to IAS 16 and IAS 38 Acceptable methods of depreciation and amortisation January 1, 2016 Amendments to IAS 16 and IAS 41 Bearer Plants January 1, 2016 Amendment to IAS 19 Defined Benefit Plans: Employee Contributions July 1, 2014 Amendments to IAS 27 Equity Method in Separate Financial Statements January 1, 2016 Amendment to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets January 1, 2014 Amendment to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting January 1, 2014 Annual Improvements to IFRSs and Cycle July 1, 2014 Annual Improvements to IFRSs Cycle January 1, 2016 IFRIC 21 Levies January 1, 2014 FINANCIAL STATEMENTS The Group is evaluating the effect on financial status and operating result from adopting the above mentioned standards and interpretation. Relevant influence will be disclosed when the evaluation is completed. 4. SIGNIFICANT ACCOUNTING POLICIES (A) Statement of compliance These consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Public Held Banks (hereinafter referred to as the Regulations), Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations and SIC Interpretations endorsed by the FSC (hereinafter referred to as the IFRS endorsed by the FSC). (B) Basis of preparation (a) Basis of measurement The consolidated financial statements have been prepared on a historical cost basis except for the following material items in the statement of financial position: (1) Financial instruments measured at fair value through profit or loss are measured at fair value (including derivative instruments); (2) Available-for-sale financial assets are measured at fair value; and (3) The net defined benefit liability (asset) is recognized as fair value of plan assets, less present value of defined benefit obligation and the effect of the asset ceiling in note4. 33

36 (b) Consolidation of financial statement The consolidation financial statements include the headquarter and all the domestic branches, foreign branches and its subsidiaries. The internal transactions within the headquarter, the domestic branches and the foreign branches are offset when preparing the consolidated financial statement. (c) Functional and presentation currency The functional currency of each Group entities is determined based on the primary economic environment in which the entities operate. The Group consolidated financial statements are presented in New Taiwan Dollar, which is the Company's functional currency. All financial information presented in New Taiwan Dollar has been rounded to the nearest thousand. (C) Basis of consolidation (a) Subsidiary A subsidiary is an enterprise controlled by the Bank. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Gains or losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. (b) Elimination of inter-group transaction Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. The unrealized profits arising from the transactions with the investments under the equity method are eliminated to the extent of the percentage of shares possessed by the group over the investee. The unrealized losses are eliminated in the same way as the unrealized profit, but only under the circumstances that there are no evidences of impairment. List of subsidiaries in the consolidated financial statements Taiwan Business Bank Insurance Agency Co., Ltd. Taiwan Business Bank Property Insurance Agency Co., Ltd. Taiwan Business Bank International Leasing Co., Ltd. Taiwan Business Bank International Financing Leasing Co., Ltd. TBB (Cambodia) Microfinance Institution Plc (D) Foreign currency Established location Taiwan Taiwan Main business scope Agent of personal insurance Agent of property insurance Stockholder's equity (Holding %) December 31, 2015 December 31, Taiwan Leasing business China Leasing business Kampuchea Financial company (a) Foreign currency transaction Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies on the reporting date are retranslated to the functional currency at the exchange rate of Bank of Taiwan at 10 AM. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the year adjusted for the effective interest 34 Taiwan Business Bank Annual Report 2015

37 and payments during the year, and the amortised cost in foreign currency translated at the exchange rate at the end of the year. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of translation. Foreign currency differences arising on retranslation are recognized in profit or loss, except for the available-for-sale equity investment which are recognized in other comprehensive income arising on the retranslation. (b) Foreign operations The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to the Group's functional currency by the following procedures: (1) Assets and liabilities are translated to the Group's functional currency at exchange rates at the reporting date; (2) Profit and loss are translated to the Group's functional currency by the average rate (unless the exchange rate of the period fluctuates intensively, then it applies the exchange rate on the trade date); FINANCIAL STATEMENTS (3) Foreign currency differences are recognized in other comprehensive income. All the translation differences arising from above procedures are presented in the foreign currency translation reserve in equity. The exchange difference from translating net investments in foreign operations is recognized in other comprehensive income. When a foreign operation is wholly or partially disposed, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. (E) Cash and cash equivalent Cash and cash equivalent comprise cash on hand, petty cash, foreign currency on hand and cash in banks, but excludes those items which are designated for specific purposes or restricted by contracts and law. (F) Financial Instruments (a) Financial assets and liabilities at fair value through profit or loss Financial instruments in this category includes financial assets and liabilities classified as held-for-trading and financial assets and liabilities designated as at fair value through profit or loss on initial recognition. Financial instrument is classified in this category if acquired principally for the purpose of selling or repurchasing in the short term. This type of financial asset is measured at fair value at the time of initial recognition, and attributable transaction costs are recognised in profit or loss as incurred. A regular way purchase or sale of financial assets shall be recognised and derecognised, as applicable, using trade-date accounting. The derivative financial instruments held by the Group, except for those designated as hedging instruments, are classified under this account. In addition, the Group designates financial assets, other than ones classified as held-for-trading, as at fair value through profit or loss at initial recognition under one of the following situations: (1) A hybrid instrument contains one or more embedded derivatives; (2) Designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; and (3) In accordance with the Bank and its subsidiaries' risk control policy or investment strategy, a set of financial assets or liabilities and its components managed are also designated at fair value. 35

38 (b) Available for sale financial assets Financial assets are measured at fair value and unrealized gains and losses thereon are recognized as an adjustment item of equity. Financial instruments held by the Bank and its subsidiary are recorded on the trade dates. Financial instruments are initially recognized at fair value plus transaction costs. The impairment loss is recognized if there is evidence indicating that a decline in the value of an investment is other than temporary. If the impairment loss in the following period is reduced, reversal of loss for equity investments is adjusted to equity, and reversal of loss for debt instrument is credited to current income if the reduction of impairment loss resulted from a subsequent event. (c) Held-to-maturity financial assets Financial assets are measured at amortized cost and its interest income via effective rate. Financial assets held by the Bank and its subsidiary are recorded on the trade dates and are initially recognized at fair value plus transaction costs. The impairment loss is recognized if there is evidence indicating that a decline in the value of an investment is other than temporary. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previous recognized impairment loss is reversed through the profit or loss. The carrying value after the reversal should not exceed the amortized balance of the assets assuming no impairment loss was recognized. (d) Financial assets measured at cost Equity instruments with no quoted market price and whose fair value cannot be reliably measured are stated at cost. The impairment loss is recognized if there is evidence indicating that a decline in the value of an investment is other than temporary, and the impairment loss is irreversible. (e) Debt instrument with no active market These are debt instruments with no active market quote and measured at amortized cost. The impairment loss is recognized if there is evidence indicating that a decline in the value of an investment is other than temporary. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previous recognized impairment loss is reversed through the profit or loss. The carrying value after the reverse should not exceed the amortized balance of the assets assuming no impairment loss was recognized. (f) Derecognition of financial assets The Group shall derecognize a financial asset when the contractual rights to the cash flows from the financial asset expire or when the Group transfer substantially all the risks and rewards of ownership of the financial assets. A financial liability should be removed from the balance sheet when, and only when, it is extinguished, that is, when the obligation specified in the contract is either discharged or cancelled or expires. If the bonds or stocks are taken as collateral, shall not be derecognized because the Group have retained substantially all the risks and rewards of ownership. (g) Financial assets offsetting A financial asset and a financial liability should be offset and the net amount reported when, and only when, an entity has a legally enforceable right to set off the amounts; and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. (h) Loans and advances Loans and advances are recorded as initial fair value (including direct transaction cost), and the subsequent measurement recognizes interest income via effective interest rate method (if there is not 36 Taiwan Business Bank Annual Report 2015

39 much difference then it can adopt straight line method) and is booked as per amortized cost deducted by impairment loss. Interest accrual on loans and advances is suspended if either of the following occurs: (1) Payment of principal or interest is very likely not to be redeemed as per contracts. (2) Non-performing loans are categorized as overdue loans in six months after the settlement period ends. (i) Allowance for bad debts and reserve for guarantee Adequate allowance for bad debts is provided for loans and receivables by assessing whether there is evidence indicating that a single financial asset or a group of financial assets are impaired per the "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-Performing and Non-Accrual Loans," and the "Regulations Governing Institutions Engaging in Credit Card Business". For loans and receivables, the objective evidence should be identified first to reveal any impairment existing for financial assets that are individually significant, and individual or collective impairment for financial assets that are not individually significant. If no objective evidence of impairment exists in an individually assessed financial asset, it should be included in a group of financial assets with similar credit risk characteristics and collectively assessed for impairment. For assets which have recognized impairment losses or continue to recognize impairment losses, the aforementioned assessment method is not required. FINANCIAL STATEMENTS If there is an objective evidence that an impairment loss on a financial asset has occurred, the amount of the loss is recognized and measured via the difference between the asset's carrying amount and the present value of the estimated future cash flows discounted at the financial asset's original effective interest rate; the amount of the loss should be recognized as bad debt expenses in profit or loss of the current period. The estimate of future cash flows includes the recoverable amount of collaterals and related insurances when determining the amount of the loss. Above evidences of impairment loss usually include the following: (1) Significant financial difficulty occurs to the issuer or the debtor. (2) There are already default circumstances occur to the issuer or debtor, for example: default or overdue payment of interest or principal. (3) The creditor give in to the debtor due to commercial or legal concern. (4) The debtor is likely to bankrupt or execute certain financial reorganization. (5) The issuer has financial difficulty and the financial assets can not be traded in the active market. (6) The payment status of the debtor worsens. (7) The national and regional situation related to the default of the asset changes. The Bank and its subsidiaries should recognize bad debt expenses when there is an impairment loss on the financial assets measured at amortized cost. The impaired amount is the difference between the book value of the financial asset and the sum of estimated future cash flows discounted by the original effective rate. The book value of the financial assets is reduced by the allowance account and the amount of impairment losses shall be recognized as current gains and losses. When deciding the amount of the impairment loss, the estimate of future cash flows should include the collaterals and the recoverable amount of relevant insurances. 37

40 According to "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-Performing and Non-Accrual Loans ", the Bank shall provide the sum of the following to be the allowance for bad debts: (1) 1% of the first class credit assets deducted by the amount of credit assets from the government. (2) 2% of the second class credit assets. (3) 10% of the third class credit assets. (4) 50% of the fourth class credit assets. (5) 100% of the fifth class credit assets. The allowance for bad debts assessed by the previously stated method shall not be less than the amount regulated by "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-Performing and Non-Accrual Loans ". The Bank provides reserve for guarantee liabilities for off-balance-sheet non-credit assets taking into account the regulation of "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-Performing and Non-Accrual Loans". Unrecoverable overdue loans and bad debts, which are not able to be recovered after the overdue collection process, are written-off after deducting the recoverable portion. Upon approval by the board of directors and notification to supervisors, the excess amount of written off loans over such allowance or reserve is reflected as a current loss. Above amounts provided are booked under the account of bad debt expenses. (G) Impairment loss on non financial assets The recoverable amount for an individual asset or a cash-generating unit is the higher of its fair value less costs to sell or its value in use. If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment loss. An impairment loss shall be recognized immediately in profit or loss. An impairment loss recognized in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. If this is the case, the carrying amount of the asset shall be increased to its recoverable amount, as a reversal of a previously recognised impairment loss. An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. (H) Property, Plant and Equipment Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributed to the acquisition of the asset. Subsequent expenditure is capitalized only when it is probable that the future economic benefits associated with the expenditure will flow to the Group. The carrying amount of those parts that are replaced is derecognized. Ongoing repairs and maintenance is expensed as incurred. Land has an unlimited useful life and therefore is not depreciated.the estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows: 38 Taiwan Business Bank Annual Report 2015

41 (a) buildings (b) Equipment and machine (c) Lease asset years 3 8 years 5 years The Group reviews and adjusts the residual value and the useful lives of assets at the end of each fiscal year. Whenever there is evidence indicating that the carrying amount is unable to be recovered due to environmental activities or changes, the Group evaluate the impairment loss of assets. If the carrying amount is higher than the recoverable amount, the carrying amount is adjusted to the recoverable amount. The recoverable amount is the fair value or the use value deducted by the disposition expense. The gain or loss on disposal is the difference between the carrying amount and net disposal proceeds, and gain or loss on disposal shall be recognized as net gain or loss on non-other interest of consolidated comprehensive income. When purchasing machinery equipment and computer software, the education fee implied in the contract is not recognized as the cost of machinery equipment and is recognized as expense. For the lease contracts which regulate the Group to restore the property to the original status, the Group reviews the terms of each contract and calculated the present value of the restoration expenses when signing the contracts. The decommissioning liability reserve is provided based on the calculation and the discount rate is determined based on the Bank's policy. FINANCIAL STATEMENTS (I) Leasehold Leases contract can be divided into operating lease contracts and financing (capital) lease contracts. If a lease contract transfers almost all the risk and reward comes with the leasehold, the leasehold is considered financing (capital) lease. If a lease contract does not transfers almost all the risk and reward comes with the leasehold, the leasehold is considered operating lease. Depreciation is calculated per the regulation of IAS 16 "Property, Plant and Equipment" and IAS 38 "Intangible Assets". If there is no reason to be sure that the lessee will obtain the ownership of the assets at the end of the lease period for financing leasehold, the assets shall be depreciated within the lease period or the durable service time, whichever is shorter. The lease contracts of the Bank and its subsidiaries include operating lease and financing lease. (J) Deferred assets The costs of installation for utilities, including electricity and water, as well as security facilities, are capitalized and amortized equally over 5 years. (K) Collateral assumed Collaterals assumed are stated at the lower of net book value or net realizable value; i.e., the amount the Bank receives when creditors cannot meet obligations and the collaterals and salvages are auctioned off. Under FSC Letter Ruling (2) on July 11, 2005, collateral assumed must be disposed before December 31, If the Bank is unable to dispose the collateral assumed before December 31, 2005, it reserves a provision for loss equal to the carrying value of the collateral assumed. On disposition of collateral, the related provision is reversed. The selling price deducts the original book value of collateral assumed is recognized as gain on sale of collateral assumed. (L) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probably that an outflow of economic benefits will be 39

42 required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. Amortization of the discount is recognized as interest expense. Future operating loss can not be recognized as liability reserve. Contingent liability refers to the possible obligation results from past events. The existence of contingent liability can only be proved by whether one or more uncertain events which can not be controlled by the Bank and its subsidiaries occurs or not. Contingent liability also refers to the current obligation results from a past event, but not likely to cause outflow of economic resource to redeem the obligation or the amount of the obligation can not be measured reliably. The Bank and its subsidiaries do not recognized contingent liability and disclose it per related regulations. (M) Employee benefit (a) Short term employee benefit Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. (b) Retirement benefit The pension provision of the Bank and its subsidiaries includes defined contribution plan and defined benefit plan. For the personnel of foreign offices, the Bank provides pension fund per the regulations of the local authorities. Defined contribution plan refers to the plan that the Bank and its subsidiaries annually provide certain amount of money to funds to fulfill the obligation. The Bank and its subsidiaries provide pension based on compulsory obligation, contracts or voluntary will to public or private managed pension funds. If certain pension fund fail to pay the employees the benefit which they deserve for the service they provided, the Bank and its subsidiary do not hold legal or constructive obligation to pay additional provision. The Bank and its subsidiaries recognize the pension fund provided as current pension cost on accrual basis. The Bank's net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognized past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on government bonds that have maturity dates approximating the terms of the Bank's obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Bank, the recognized asset is limited to the total of the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Bank. An economic benefit is available to the Bank if it is realizable during the life of the plan, or on settlement of the plan liabilities. When the benefits of a plan are improved, the expense, the portion of the increased benefit relating to past service by employees, is recognized immediately in profit or loss to the extent that the benefits vest immediately. The remeasurements of defined benefit liability (asset) include: (1) Actuarial gains and losses ; (2) Return on plan assets, excluding net interest on the net defined benefit liability (asset); and 40 Taiwan Business Bank Annual Report 2015

43 (3) the effect of the asset ceiling, excluding net interest on the net defined benefit liability (asset). The remeasurements of defined benefit liability (asset) are recognized as other comprehensive income with a corresponding debit or credit to retained earnings in the period in which they occur. The Bank recognizes gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on curtailment comprises any resulting change in the fair value of plan assets and change in the present value of defined benefit obligation. (c) Deposits with favorable rate The Bank provides deposits with favorable rate to employees, which include current employee fix amount deposits with favorable rate and retired employee fix amount deposits with favorable rate. The rate difference between the favorable rate and the market rate belongs to the category of employee benefit. According to article 28 of "Regulations Governing the Preparation of Financial Report by Public Banks", the additional interests result from the difference between deposit with favorable rate and the deposits with market interest rate shall be calculated by actuary per the regulations related to defined benefit plan in IAS 19. The parameters of actuarial assumptions shall follow the regulations of the competent authority. FINANCIAL STATEMENTS In accordance with the regulation of "Discussion of the employee benefit actuarial assumption related matter for adopting IAS 19 with respect to the additional interest of employee deposits with favorable rate" issued by the Banking Bureau, the difference between the actual payment and the estimated retirement benefit obligation is deemed as changes in accounting estimate and is recognized in profit or loss. (d) Termination benefits Termination benefits are recognised as an obligation when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. The Bank and its subsidiaries recognize liabilities when an formal irrevokable termination project is undertaken or when benefit is provided for encouraging voluntary resignation. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value. (N) Income tax Income tax expenses refer to current and deferred income taxes. Current and deferred income taxes shall be recognized as profit or loss except for the items related to corporate merger or recognized under the equity and other comprehensive income. Current income tax includes expected tax payable or tax refundable calculated based on the taxable income (loss) multiplied by the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period and the adjustments of tax payables from prior years. Deferred income tax is measured and recognized based on the temporary difference between the carrying amount of the assets and liabilities for financial reporting purpose and the amount served as the taxable basis. It is measured by the tax rate which the assets expected to be realized or liabilities to be settled and is based on tax rates that have been enacted or substantively enacted on the balance sheet date. The land incremental tax results from the revaluation per relevant regulations is categorized as taxable temporary difference and is recognized as deferred tax liabilities. Deferred tax assets are recognized for loss carried forward, unused tax credit and deductible temporary differences to the extent that the future taxable income is likely to be available to apply against the deferred 41

44 tax assets. The carrying amount of deferred tax assets should be reviewed at the end of each reporting period and the amount is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of partial or entire deferred tax asset to be utilized. The 10% surtax on undistributed earnings is recognized as current expense on the date when the stockholders decide not to distribute the earnings in the annual meeting. (O) Revenue recognition Interest is recognized according to interest method. Interest accrual is suspended from the date when the loan is reclassified to non-performing loan and only when the Bank and its subsidiaries receive cash, the revenue is recognized. The revenue of handling fee is recognized when cash collected or when the process of the profit are mostly completed. In addition, for the individual loan which does not belong to labor service and the handling fee is over 1% of the principal, the interest rate shall be adjusted from the original agreed interest rate to the effective interest rate. For the individual loan which does not belong to the service and the handling fee is less that 1% of the principal, the recognition of the revenue should be deferred and be recognized as revenue during the loan period. (P) Operating segments Operating segment is the component of the Bank and its subsidiaries that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the Bank and its subsidiaries). The segments operating results are reviewed regularly by the Bank's chief operating decision maker to make decisions pertaining to the allocation of resources to the segment and to assess the performance for which discrete financial information is available. (Q) Earnings per share (EPS) EPS is based on the weighted-average number of shares outstanding. In the event of capital increase through capitalization of retained earnings, capital surplus, or employee bonuses, EPS is retroactively adjusted based on the percentage of capital increase, regardless of the period when the incremental shares are outstanding. The employee bonuses of the Bank and its subsidiaries issued by stocks were dilutive potential common shares. If the potential common shares have a non-dilutive effect, the Bank and its subsidiaries should only disclose the basic earnings per share. On the contrary, if the potential common shares have a dilutive effect, the Bank and its subsidiaries should disclose both the basic and diluted earnings per share. In calculating the diluted earnings per share, it is based on the assumption that all dilutive potential common shares are outstanding, and therefore the net income and the shares outstanding shall be adjusted in accordance with the calculation. 5. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATIONS, ASSUMPTIONS, AND SOURCES OF ESTIMATION UNCERTAINTY The preparation of the consolidated financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may differ from these estimates. The management inspects estimates and basic assumptions continuously, changes in accounting estimate will be recognized in the periods which the change occurred and future periods effected. Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes: 42 Taiwan Business Bank Annual Report 2015

45 (A) Impairment losses on loans The Bank and its subsidiaries review loan portfolios quarterly to evaluate impairment losses. When deciding whether to recognize impairment or not, the Bank and its subsidiaries observe evidences indicating the possibilities of impairment. The observable evidence may include the unfavorable changes of payment status or the economic conditions of the countries or areas related to the default loan. The management applies past loss experience of assets with similar credit risk characteristic to analyze the expected cash flows. The Bank and its subsidiary regularly review the methods and assumptions applied for calculating the amount and timing of the expected cash flows in order to diminish the difference between the estimated amount and the actual amount. (B) Retirement benefit The present value of the retirement benefit obligation is the actuarial result based on several assumptions. Any change of the assumptions may influence the carrying amount of the retirement benefit obligation. The assumptions applied to determine net pension cost (revenue) include the discount rate. The Bank and its subsidiaries determine the appropriate discount rate at the end of each year and apply it to calculate the present value of the future cash outflows which are to be paid to the retirement benefit obligation. To determine the appropriate discount rate, the Bank and its subsidiaries should consider the interest rate of high quality corporate bonds and government bonds. The currency of the retirement benefit shall be the same as that of the high quality corporate bond or government bonds and the duration till maturity date shall comply with the duration of the related pension obligation. Other significant assumptions of retirement benefit obligation are based on the current market situation. FINANCIAL STATEMENTS 6. EXPLANATION OF SIGNIFICANT ACCOUNTS (A) Cash and cash equivalents December 31, 2015 December 31, 2014 Petty cash and revolving fund $ 8,522,890 9,377,085 Foreign currencies on hand 1,017,077 1,006,821 Checks for clearing 3,844,857 7,654,077 Due from other banks 27,676,986 46,204,262 Total $ 41,061,810 64,242,245 (B) Due from the Central Bank and call loans to banks December 31, 2015 December 31, 2014 Due from the Central Bank $ 65,326,427 42,756,826 Deposits transferred to the Central Bank 178, ,523 Call loans to banks 53,379,518 18,977,095 Trust fund indemnity reserve deposited 70,000 70,000 Securities served as trust fund indemnity reserve deposited ( 70,000 ) ( 70,000 ) Total $ 118,884,771 61,844,444 As of December 31, 2015 and 2014, in accordance with the Banking Law and the Central Bank Law, the required reserve deposited by the Bank with the Central Bank amounted to $65,064,860 and $42,602,403, of which $32,419,372 and $30,304,020 respectively, were restricted and such restriction may only be lifted when the required reserve is adjusted to a lower amount. 43

46 Effective December 2000, in accordance with the amended "Rules Governing Adjustments to and Review of Deposits in Financial Institutions and Reserve for Other Liabilities", the Bank provides the required additional reserve on foreign currency deposits. As of December 31, 2015 and 2014, the required reserve with the Central Bank amounted to $261,567 and $154,423 respectively, and its use is unrestricted. As of December 31, 2015 and 2014, deposits collected on behalf of the armed forces, prisons, and other national deposits are restricted. Effective January 20, 2001, in accordance with the requirement of the Central Bank of China, the Bank complies with Clause 34 of the Trust Law to treat the discretionary trust of investments in overseas marketable securities as a default loss reserve. As of December 31, 2015 and 2014, the Bank deposited marketable securities of both $70,000 as trust fund reserves. (C) Financial assets at fair value through profit or loss December 31, 2015 December 31, 2014 Financial assets held for trading: Commercial paper $ 209,896 79,949 Common Stock 133,842 - Beneficiary certificates 290,215 - Foreign exchange forward contracts 61,679 59,331 Currency swap contracts 321, ,148 Interest swap contracts - 1,261 Foreign currency options-call 68,067 66,340 Structured product options-call Stock index futures 27,324 27,285 Sub-total 1,112, ,462 Financial assets designated at fair value through profit or loss: Overseas bonds 970,043 1,892,245 Total $ 2,082,611 2,610,707 As of December 31, 2015 and 2014, the nominal amounts of unsettled financial derivative instrument contracts were as follows: December 31, 2015 December 31, 2014 Foreign exchange forward contracts $ 4,338,602 5,132,526 Currency swap contracts 63,859,563 52,982,358 Non-delivery forward contracts 328,325 - Interest swap contracts 986,400 4,600,200 Option contracts-call 3,125,120 1,726,731 Option contracts-put 3,126,106 1,726,731 (D) Securities purchased under resell agreements December 31, 2015 December 31, 2014 Securities under resell agreements $ 26,784,515 5,527,837 Face amount 26,811,300 5,534,000 Resell period ~ ~ Range of resell interest rate 0.37%~0.42% 0.6%~0.75% Resell price Securities purchased under resell agreement $ 26,791,690 5,529, Taiwan Business Bank Annual Report 2015

47 Please refer to Note 6(N) for information with regard to repurchase conditions for securities purchased under resell agreements shown above. (E) Receivables net December 31, 2015 December 31, 2014 Interest receivable $ 2,408,377 2,329,291 Acceptances receivable 1,264,956 1,608,642 Accrued incomes 84,908 77,984 Accounts receivable 548, ,124 Spot exchange receivable-foreign currencies 17,789,230 14,456,636 Refinancing guaranty deposits - 3,026 Guaranteed proceeds receivable from refinancing - 3,340 Receivable from credit card 1,318,632 1,429,914 Receivable from security brokerage 113, ,211 Settlement fund 69, ,365 Installment receivables and leases 927, ,661 Other receivables 261, ,901 Sub-total 24,787,393 21,938,095 Less: Allowance for bad debts ( 89,635 ) ( 116,135 ) Net $ 24,697,758 21,821,960 FINANCIAL STATEMENTS The change in allowance for bad debts is as follows: For the year ended December 31, Receivables Beginning balance $ 116, ,326 Provision (reversal) 61,218 ( 17,495 ) Write off ( 87,826 ) - Foreign exchange Ending balance $ 89, ,135 (F) Discounts and loans net December 31, 2015 December 31, 2014 Import/export bills negotiated $ 215, ,466 Bills and notes discounted 1,232,112 1,476,099 Overdrafts 12,687 16,835 Secured overdrafts 764, ,478 Short-term loans 222,558, ,437,942 Short-term secured loans 156,523, ,168,111 Margin loans receivable 1,717,363 2,221,662 Medium-term loans 133,863, ,601,507 Medium-term secured loans 133,160, ,804,405 Long-term loans 15,750,630 16,957,020 Long-term secured loans 348,360, ,799,385 Account receivable financing 575, ,313 Overdue loans 4,241,327 4,162,467 Sub-total 1,018,975,141 1,012,434,690 Less: Adjustment of discount and premium ( 235,246 ) ( 266,459 ) Less: Allowance for bad debts ( 11,341,593 ) ( 10,933,661 ) Net $ 1,007,398,302 1,001,234,570 45

48 The change in allowance for bad debts is as follows: Loan Beginning balance $ 10,933,661 10,462,121 Provision 2,418,854 2,545,394 Transfer out ( 62,605 ) ( 29,773 ) Write-off ( 2,793,281 ) ( 3,165,160 ) Foreign exchange ( 16,818 ) 35,416 Written-off recovered 861,782 1,085,663 Ending balance $ 11,341,593 10,933,661 (G) Available for sale financial assets net December 31, 2015 December 31, 2014 Government bonds $ 6,121,612 4,130,829 Corporate bonds 10,457,790 5,076,756 Overseas bonds 6,943,965 5,071,057 Listed and OTC stocks 2,145,418 1,764,897 Total $ 25,668,785 16,043,539 Please refer to Note 6(N) for the information with regard to repurchase conditions for available-for-sale financial assets shown above. (H) Held to maturity financial assets net December 31, 2015 December 31, 2014 Certificates of deposit with the Central Bank $ 165,115, ,700,000 Government bonds 10,936,236 4,354,399 Corporate bonds 11,602,452 7,743,667 Overseas bonds 18,554,743 10,676,998 Negotiable certificates of deposit 69,048 66,507 Total $ 206,277, ,541,571 As of December 31, 2015 and 2014, held-to-maturity financial assets provided and deposited as reserve for provisional seizure by the court, international card payment reserve, trust claim reserve and operating guaranty funds amounted to $701,100 and $707,800, respectively. As of December 31, 2015 and 2014, the three overseas branches have provided $69,048 and $66,507, respectively, for the reserve of overdraft guarantee. In order to comply with the immediate tax settlements mechanism of Central Bank and the interbank funds transfer system, the Bank provided time deposits with the Central Bank amounting to $8,200,000 and $12,000,000 as overdraft guarantee as of December 31, 2015, and 2014, respectively. The amount of the guarantee can be modified anytime and the remaining amount could be served as liquid reserves. As of December 31, 2015 and 2014, in compliance with the item 16 of "Guidelines Governing Financial Institution in Conducting Treasury Affairs Authorized by Central Bank", the Bank provided secured central bank certificates of deposit with face value of $825,000 and $800,000, respectively to the Central Bank. When certain conditions are satisfied, the Bank will be returned the certificates without interest from Central Bank. As of December 31, 2015and 2014, the Bank provided Central bank certificates of deposit with face value of $17,000,000 to serve as a guarantee for borrowing US dollars from Central bank. 46 Taiwan Business Bank Annual Report 2015

49 (I) Other financial assets net December 31, 2015 December 31, 2014 Non-accrual loans transferred from non-loan financial assets $ 70, ,205 Less: Allowance for bad debts non-accrual loans transferred from non-loan financial assets ( 20,285 ) ( 273,317 ) Non-accrual loans transferred from non-loan financial assets net 50,557 59,888 Exchange bills negotiated 1,303 1,222 Less: Allowance for bad debt exchange bills negotiated ( 15 ) ( 12 ) Exchange bills negotiated net 1,288 1,210 Financial assets carried at cost 2,035,121 1,707,017 Debts investment without active market - 1,500,000 Total $ 2,086,966 3,268,115 (a) Financial assets carried at cost are as follows: Investee December 31, 2015 December 31, 2014 Amount % Amount % Taiwan Power Company $ 11,427-11,427 - Taiwan Sugar Corporation 58, , Sunysino Development Associated Inc. 17, , Taiwan Small & Medium Enterprises Devel. Co., Ltd. 29, , Taipei Forex Incorporation 7, , Financial Information Service Co., Ltd. 45, , Evernight Investment Co., Ltd 500, , Taiwan Stock Exchange Corp. 198, , Taiwan Futures Exchange Co., Ltd. 20, , Taiwan Asset Management Corp 750, , Taiwan Finance Asset Service Corp 50, , Financial E-Solution Co., Ltd. 9, , Taiwan Depository and Clearing Corp. 4, , Yand Guang Asset Management Corp Taiwan Trusted Service Manager Co., Ltd. 6, , Taipei Financial Center Corp. 328, Total $ 2,035,121 1,707,017 FINANCIAL STATEMENTS The investees of the Bank, Taiwan Integrated Shareholder's Service Company has been purchased and merged by Taiwan Depository and Clearing Corp, which is the extended company after the merger, on March 24, Taiwan Business Bank received cash which amounted to $3,122 and recognized an investment loss of $178. The investee Financial E-Solution Co., Ltd. executed capital reduction on April 16, 2014 to recover the loss. The Bank recognized $10,040 as investment loss based on the proportion of the capital reduction. (b) Debt instrument with no active market are as follows: Investee December 31, 2015 December 31, 2014 Taiwan High Speed Rail Corp. preferred Stock $ - 1,500,000 47

50 (c) The change in allowance for bad debts is as follows: Other financial assets For the year ended December 31, Beginning balance $ 273, ,294 Reversal ( 75,476 ) ( 34,806 ) Transfer in 62,605 29,773 Write-off ( 271,960 ) ( 29,773 ) Written-off recovered 31,802 39,841 Ending balance $ 20, ,329 (J) Premises and equipment net December 31, 2015 Cost Revaluation appreciation Accumulated depreciation Accumulated impairment Land $ 6,678,952 2,986,161-14,156 9,650,957 Buildings 7,439,580 31,184 3,520,394 21,411 3,928,959 Machinery 1,967,149-1,790, ,451 Transportation equipment 290, ,268-42,058 Miscellaneous equipment 586, ,051-64,306 Leasehold improvement 71,008-38,373-32,635 Construction in progress 101, ,726 Prepayment for equipment 58, ,325 Leased assets 70,577-20,616-49,961 Total $ 17,264,000 3,017,345 6,140,400 35,567 14,105,378 December 31, 2014 Cost Revaluation appreciation Accumulated depreciation Accumulated impairment Land $ 6,678,952 2,986,161-14,156 9,650,957 Buildings 7,420,356 31,184 3,356,676 21,411 4,073,453 Machinery 1,908,648-1,754, ,812 Transportation equipment 293, ,246-42,955 Miscellaneous equipment 577, ,885-57,416 Leasehold improvement 79,605-49,810-29,795 Construction in progress 11, ,105 Prepayment for equipment 36, ,622 Leased assets 55,222-9,907-45,315 Total $ 17,061,012 3,017,345 5,941,360 35,567 14,101,430 Total Total Change of cost January 1, 2015 Increase Decrease Foreign Exchange December 31, 2015 Land $ 9,665, ,665,113 Buildings 7,451,540 19, ,470,764 Machinery 1,908, ,661 47,164 2,004 1,967,149 Transportation equipment 293,201 9,977 14,108 1, ,326 Miscellaneous equipment 577,301 21,418 15,044 2, ,357 Leasehold improvement 79,605 20,575 28,398 (774) 71,008 Construction in progress 11,105 99,066 8, ,726 Prepayment for equipment 36,622 26,463 4,760-58,325 Leased assets 55,222 15, ,577 Total $ 20,078, , ,919 5,168 20,281, Taiwan Business Bank Annual Report 2015

51 January 1, 2014 Increase Decrease Foreign Exchange December 31, 2014 Land $ 9,665, ,665,113 Buildings 7,438,929 12, ,451,540 Machinery 1,920,537 44,750 58,177 1,538 1,908,648 Transportation equipment 296,526 20,140 23, ,201 Miscellaneous equipment 579,970 16,548 19, ,301 Leasehold improvement 91,087 10,757 22, ,605 Construction in progress 51 11, ,105 Prepayment for equipment 42,455 18,974 24,807-36,622 Leased assets 37,933 17, ,222 Total $ 20,072, , ,717 2,299 20,078,357 Change of depreciation January 1, 2015 Increase Decrease Foreign Exchange December 31, 2015 Buildings $ 3,356, , ,520,394 Machinery 1,754,836 83,037 46,573 ( 602 ) 1,790,698 Transportation equipment 250,246 11,983 13,893 ( 68 ) 248,268 Miscellaneous equipment 519,885 17,093 14, ,051 Leasehold improvement 49,810 16,780 27,872 ( 345 ) 38,373 Leased assets 9,907 10,954 - ( 245 ) 20,616 Total $ 5,941, , ,325 ( 1,200 ) 6,140,400 FINANCIAL STATEMENTS January 1, 2014 Increase Decrease Foreign Exchange December 31, 2014 Buildings $ 3,193, , ,356,676 Machinery 1,703, ,031 57, ,754,836 Transportation equipment 262,116 11,441 23, ,246 Miscellaneous equipment 522,361 16,838 19, ,885 Leasehold improvement 54,399 16,898 22, ,810 Leased assets 2,702 7, ,907 Total $ 5,738, , ,208 2,242 5,941,360 Accumulated impairment January 1, 2015 Increase Decrease Foreign Exchange December 31, 2015 Land $ 14, ,156 Buildings 21, ,411 Total $ 35, ,567 January 1, 2014 Increase Decrease Foreign Exchange December 31, 2014 Land $ 14, ,156 Buildings 21, ,411 Total $ 35, ,567 When the Bank first adopted IFRSs, it elected to apply the revaluation amount calculated per the regulation of GAAP of R.O.C as the original cost on the transition date. 49

52 As of December 31, 2015 and 2014, the appreciation from revaluation of properties all amounted to $3,017,345. Reserve for land incremental tax all amounted to $879,056 (Recognized under deferred tax liabilities). The difference of revaluation is recognized as retained earnings. As of December 31, 2015 and 2014, land which was illegally occupied amounted to $5,496 and $69,321, respectively. Part of the illegally occupied land would be disposed after the Bank received the certificate of legal costs and the rest would be auctioned at appropriate time. (K) Other assets December 31, 2015 December 31, 2014 Office supplies $ 27,936 28,820 Prepayments 4,164,850 3,659,021 Operating guaranty deposits and settlement fund 32,510 30,531 Guarantee deposits paid 209, ,394 Less: Accumulated impairment ( 22,606 ) ( 28,710 ) Guarantee deposits paid net 186, ,684 Collateral assumed - 2,509 Less: Accumulated impairment - ( 2,509 ) Collateral assumed net - - Deferred assets Temporary payments and suspense accounts 364, ,047 Proceeds of settlement and credit transaction 203, Total $ 4,980,803 4,642,581 (L) Deposits from the Central Bank and other banks December 31, 2015 December 31, 2014 Deposits from the Central Bank $ 233, ,486 Call loans from the Central Bank 8,055,600 3,167,000 Deposits from banks 186, ,062 Call loans from banks 30,790,166 36,719,823 Overdrafts on banks 870,323 1,274,988 Deposits transferred from Chunghwa Post Co., Ltd. 37,720,840 39,044,713 Total $ 77,857,537 80,595,072 (M) Financial liabilities at fair value through profit or loss December 31, 2015 December 31, 2014 Foreign exchange forward contracts $ 65, ,662 Currency swap contracts 84, ,554 Non-delivery forward contracts Interest swap contracts - 11,509 Foreign currency option-put 68,710 66,340 Structured product option-put Total $ 219, ,213 Please refer to 6(C) for the nominal amount of unsettled financial derivatives instrument contracts of December 31, 2015 and Taiwan Business Bank Annual Report 2015

53 (N) Securities sold under repurchase agreements December 31, 2015 Assets Available-for-sale financial assets Par value Selling Price (Recognized in securities sold under repurchase agreements) Designated repurchase amount $ 3,924,900 4,163,147 4,165,361 Designated repurchase date Prior to June 30, 2016 Assets Available-for-sale financial assets (O) Payables Par value December 31, 2014 Selling Price (Recognized in securities sold under repurchase agreements) Designated repurchase amount $ 3,695,500 3,895,308 3,898,081 Designated repurchase date Prior to June 18, 2015 December 31, 2015 December 31, 2014 Interest payable $ 1,677,603 1,738,931 Accounts payable 5,257,427 7,654,291 Acceptances 1,293,501 1,721,714 Accrued expenses 2,290,385 2,296,894 Collection payable 1,015, ,057 Deposits received from securities borrowers 88, ,078 Guaranteed price deposits received from securities borrowers 98, ,437 Spot exchange payable foreign currencies 17,790,115 14,455,510 Other payables 1,196, ,262 Trusted security payable 180, ,919 Settlement - 668,386 Others 36,088 35,323 Total $ 30,924,431 30,556,802 FINANCIAL STATEMENTS (P) Deposits and remittances December 31, 2015 December 31, 2014 Savings deposits $ 576,072, ,162,499 Time deposits 315,174, ,713,140 Demand deposits 315,517, ,176,426 Checking account deposits 25,056,541 24,671,227 Remittances 499, ,706 Total $ 1,232,320,685 1,152,156,998 51

54 (Q) Financial debentures Bonds Issue date Maturity date Terms of Transactions Interest Rate & repayment /30/ /30/2015 (A) The debentures bear annual interest rate, which is the index rate plus 1.02%. The index rate is the average offer of 90-days CP which is indicated in Reuters page 6165 at 11 A.M Taipei time, 2 operation days prior to the interest commencement date. (B) The Republic of China 104 years since January 1, according to various indicators of interest rate changes during the value date two business days before the pricing (FIXING) Bank of the Republic of China Business Association National Union RCAs website "Taipei fixing the financial sector call loan rate (TAIBOR)" three-month interest rate fixing.simple interest rate is accrued four times a year and paid annually. The principal will be repaid in full at maturity /27/ /27/2015 The debentures bear annual interest rate of 2.35%. Simple interest is accrued and paid annually. The principal will be repaid in full at maturity P 10/23/2009 None The debentures bear annual interest rate which is the seven Banks' board floating average interest rate for 1-year time deposit plus 1.29% for the seven years after the issue date. The interest rate will be the seven Banks' board floating average interest rate for 1-year time deposit plus 2.29% from the eighth year. The bond is redeemable per face at the interest payment date after seven years from the issue date under the consent of the competent authority /18/ /18/2016 The debentures bear an annual interest rate of 2.5%. Simple interest rate is accrued and paid annually. The principal will be repaid in full at maturity /05/ /05/2017 The debentures bear an annual interest rate of 2.32%. Simple interest is accrued and paid annually. The principal will be repaid in full at maturity /02/ /02/2017 The debentures bear an annual interest rate of 1.92%. Simple interest is accrued and paid annually. The principal will be repaid in full at maturity P A 09/23/2010 None The debentures bear annual interest rate which is the Chunghwa post's board average interest rate for 1-year time deposit plus 1.34% for the ten years after the issue date. The interest rate will be the Chunghwa post's board interest rate for 1-year time deposit plus 2.34% from the eleventh year. The debentures is redeemable per face value plus accrued interest at the interest payment date after ten years from the issue date under the consent of the competent authority. Type Unsecured subordinated long-term financial debentures Perpetual accumulated subordinated financial debentures Bond Issued December 31, 2015 Amount December 31, 2014 $ - 5,200,000-1,000,000 Unsecured subordinated long-term financial debentures 12,000,000 12,000,000 1,550,000 1,550,000 1,050,000 1,050,000 6,000,000 6,000,000 Perpetual non-accumulated subordinated financial debentures 3,200,000 3,200, Taiwan Business Bank Annual Report 2015

55 Bonds Issue date Maturity date Terms of Transactions Interest Rate & repayment P B 09/23/2010 None The debentures bear an interest rate of 3.05% for the first ten years. The interest rate will be 4.05% from the eleventh year. The debentures is redeemable per face value plus accrued interest at the interest payment date after ten years from the issue date under the consent of the competent authority /25/ /25/2020 The debentures bear an annual interest rate of 1.68%. Simple interest is accrued and paid annually. The principal will be repaid in full at maturity A 11/25/ /25/2020 (A) The debentures bear annual interest rate, which is the index rate plus 0.52%. The index rate is the average offer of 90-days CP which is indicated in Reuters page 6165 at 11 A.M Taipei time, 2 operation days prior to the interest commencement date. (B) The Republic of China 104 years since January 1, according to various indicators of interest rate changes during the value date two business days before the pricing (FIXING) Bank of the Republic of China Business Association National Union RCAs website "Taipei fixing the financial sector call loan rate (TAIBOR)" three-month interest rate fixing.simple interest rate is accrued four times a year and paid annually. The principal will be repaid in full at maturity B 11/25/ /25/2020 The debentures bear an annual interest rate of 1.92%. Simple interest is accrued and paid annually. The principal will be repaid in full at maturity P 06/18/2015 None The debenture bear an annual interest rate of 3.9%. Simple interest is accrued and paid annually.the debentures is redeemable per face value plus accrued interest at interest payment date after five years from the issued date under the consent of the competent authority A 08/31/ /31/2023 The debenture bear an annual interest rate of 2.05%. Simple interest is accrued and paid annually.the principal will be repaid in full at maturity B 08/31/ /31/2025 The debenture bear an annual interest rate of 2.10%. Simple interest is accrued and paid annually.the principal will be repaid in full at maturity. Type Bond Issued December 31, 2015 Amount December 31, , ,000 Unsecured subordinated long-term financial debentures 5,000,000 5,000,000 3,100,000 3,100,000 2,900,000 2,900,000 Perpetual non-accumulated subordinated financial debentures Unsecured subordinated long-term financial debentures 5,000,000 - $ 4,700, ,000 - $ 45,600,000 41,800,000 FINANCIAL STATEMENTS (R) Other financial liabilities December 31, 2015 December 31, 2014 Appropriated loans funds $ 12,150,600 15,698,870 Lease payable 46,517 40,390 Total $ 12,197,117 15,739,260 53

56 Cumulative earnings on appropriated loan fund is the project contract signed by National Development Council, Small and Medium Enterprise Administration, Ministry of Economic Affairs, and the Bank. The Bank appropriates the fund to the companies which meet the conditions for loans. The fund is classified as principal account, interest yielding account, loaned account and un-loaned account. The interests paid to the government are calculated respectively. (S) Liability reserve December 31, 2015 December 31, 2014 Reserve for guarantee liabilities $ 97,708 93,009 Reserve for lawsuit 413, ,135 Other-Employee benefit 2,810,900 2,481,647 Total $ 3,321,737 3,018,791 Change of reserves January 1, 2015 Increase Decrease Use Reversal Foreign exchange December 31, 2015 Reserve for guarantee liabilities $ 93,009 23, , ,708 Reserve for lawsuit 444, ,046 ( 20,960 ) 413,129 Reserve for employee benefit obligation 2,481, , ,039 17,821 (306,693) - 2,810,900 Total $ 3,018, , ,039 17,821 (277,970 ) ( 20,854 ) 3,321,737 January 1, 2014 Increase Decrease Use Reversal Foreign exchange December 31, 2014 Reserve for guarantee liabilities $ 47,344 71, , ,009 Reserve for lawsuit 541,203-76, ( 20,640 ) 444,135 Reserve for employee benefit obligation 2,524, , ,635 59,816 10,550-2,481,647 Total $ 3,113, , ,063 59,816 36,814 ( 20,469 ) 3,018,791 Please refer to Note 6(W) for the information with regard to provision for employee benefit obligation shown above. (T) Other liabilities December 31, 2015 December 31, 2014 Advance interest receipts $ 3,857 5,255 Unearned revenue 86, ,320 Other advances receipts 62,078 57,484 Guarantee deposits received 549, ,248 Other 5,332 5,479 Total $ 706, ,786 (U) Equity (a) Common stock As of December 31, 2015 and 2014, the Bank's authorized capital were all $60,000,000 and the paid-in capital for common shares of the Bank were $56,846,618 and $52,979,141 and the face value of each share is NTD $10. The outstanding shares were 5,684,662 thousand shares and 5,297,914 thousand shares, respectively. 54 Taiwan Business Bank Annual Report 2015

57 Pursuant to the resolution approved by the stockholders' meeting of the Bank on June 26, 2015, the Bank increased its capital from the retained earnings by $3,867,477 and issued 386,748 thousand shares. The capital increase has been approved by Financial Supervisory Commission and came into effect on August 4, The base date of the capital increase is set on August 31, 2015.The Bank has completed the registration of change in paid-in capital on September 14, Pursuant to the resolution approved by the stockholders' meeting of the Bank on June 20, 2014, the Bank increased its capital from retained earnings by $2,037,659 and issued 203,766 thousand shares. The capital increase has been approved by Financial Supervisory Commission and came into effect on July 24, The base date of the capital increase is set on August 18, 2014.The Bank has completed the registration of change in paid-in capital on October 9, (b) Capital surplus Pursuant to the amendment of the Company Act which was published in January 2012, the Company can only transfer realized capital surplus into capital or distribute cash dividends after the capital surplus be used to offset a deficient. In compliance with the resolution, realized capital surplus includes the income derived from the issuance of new shares at a premium and the income from endowments received by the company. According to the Regulations Governing the Offering and Issuance of Securities by Securities Issuers, the total amount of capital surplus to be used to increase capital shall not exceed 10% of total paid-in capital. FINANCIAL STATEMENTS (c) Earnings distribution and dividend policy Under the Bank's Articles of Incorporation, earnings are used initially to pay for income taxes and restore cumulative losses, and 30% of the remaining earnings is set aside as legal reserve. Special reserve is appropriated from or reversed to earnings per other regulations. The remaining balance of these earnings, if any, is distributed as follows: (1) Add accumulated retained earnings from previous years as distributable dividends and the amount of dividends is resolved by the annual stockholders' meeting according to the proposal submitted by the Board of Directors. (2) Employees bonus: 1% to 8% (recognized as expense). (3) Remuneration to directors : 1% (recognized as expense). In order to continuously expand scale and increase profitability, the Bank, based on the future capital budget plan, adopts residual dividend policy and primarily distributes stock dividend to ensure the capital is sufficient. When there is surplus of capital, the remaining capital can be distributed by cash dividend. Cash dividend shall not be lower than 10% of the total dividend distributed. If the cash dividend distributed per share is lower than NTD$ 0.1, except for otherwise resolved by the shareholder's meeting, it is not distributed. If there is any situation conforms to that is regulated in article 44 item 1 of the Banking Act of The Republic of China, the Bank is not allowed to distribute earnings by cash or purchase shares outstanding. Employee bonus can be issued by new shares or by cash per the resolution of the board meeting. The maximum cash earning distribution is not allowed to be over 15% of the total paid in capital unless the legal reserve reaches the total paid-in capital. In compliance with the amendment of Company Act published in January 2012, if the Company incurs no loss, under the consent of the shareholder's meeting, the Company is allowed to distribute new shares or cash dividends from legal reserve to the extent that the legal reserve issued is the surplus exceeding 25% of the paid in capital. 55

58 Under the Ruling No issued on April 6, 2012 by the FSC, special reserve is appropriated from retained earnings based on the equivalent amounts of the contra accounts in equity. This special reserve may not be distributed as dividends to stockholders until the balances of these contra accounts in equity are reversed. In compliance with the amendment of Company Act published on May 2015, Employee bonuses and directors remuneration are not recognized as Earnings distribution. The bank will amend the articles to comply to the Act before the deadline ruled by the competent authority. Employee bonuses and directors remuneration are calculated based on the amount of income after tax deducted by legal reserve and special reserve, and multiplied by the estimated percentage, which is 8% for employee bonuses and 1% for directors remuneration. The estimated employee bonuses are $305,347 and the directors remuneration are $38,168 for the year ended December 31, The shares of stock dividends were calculated based on the closing price of the date before the stockholder's meeting and it also took into consideration the effect of stock dividends exclusion. The resolved amounts of $305,347 and $38,168 of the employee bonuses and directors remuneration which were determined by the shareholder's meeting on June 26, 2015 were the same as the estimated amount of the 2014 annual financial statment. The Bank resolved the earning distribution for the earnings of 2014 and 2013 in the shareholder's meeting on June 26, 2015 and June 20, The dividends distributed are as follows: Distribution rate (NT dollar) Amount Distribution rate (NT dollar) Amount Dividends to common share holders Share $ ,867, ,037,659 (d) Other equity items Unrealized gains and losses of avaliable-for-sale financial assets Difference of foreign exchange in translating financial statements of foreign operating unit January 1, 2015 $ ( 27,641 ) 91,858 64,217 Available-for-sale financial assets -Valuation adjustment ( 4,670 ) - ( 4,670 ) -Realized amount ( 62,383 ) - ( 62,383 ) Currency translation difference 129, ,784 -Current exchange difference December 31, 2015 $ ( 94,694 ) 221, ,948 January 1, 2014 $ 14,997 ( 111,235 ) ( 96,238 ) Available-for-sale financial assets -Valuation adjustment ( 65,133 ) - ( 65,133 ) -Realized amount 22,495-22,495 Currency translation difference - 203, ,093 -Current exchange difference December 31, 2014 $ ( 27,641 ) 91,858 64,217 Total 56 Taiwan Business Bank Annual Report 2015

59 (V) Income taxes (a) The amount of income tax for the year 2015 and 2014 were as follows: For the year ended December 31, Current tax expense Current period $ 184, ,498 Adjustment for prior periods 16,686 9,941 Basic tax 141,634 49, , ,287 Deferred tax expense Origination and reversal of temporary different 740,251 ( 128,708 ) Income tax expenses $ 1,083, ,579 (b) The amount of expense (income) tax recognised in other comprehensive income for the year 2015 and 2014 were as follows: For the year ended December 31, Items not to be reclassified into profit or loss: Remeasurements of defined benefit plans $ 52,138 ( 1,793 ) FINANCIAL STATEMENTS Items that are or may be reclassified subsequently to profit or loss: Foreign exchange difference in translating financial statements of foreign operations $ ( 21,947 ) ( 41,597 ) Unrealized valuation gains on available-for-sale financial assets ( 523 ) 1,107 Total $ ( 22,470 ) ( 40,490 ) The reconciliation between the income tax expense (income) and net income before tax of the Bank for the year 2015 and 2014 is as follows: For the year ended December 31, Income tax computed on net income before tax $ 1,054, ,572 Permanent differences: - Tax-exempt securities transaction loss 4, Net income from offshore banking unit ( 200,734 ) ( 70,703 ) - Recognized loss (gain) from financialassets and liabilities measured at fair valuethrough profit or loss 16,279 ( 23,784 ) - Cash Dividend ( 27,860 ) ( 28,405 ) - Reversal of impairment gain on assets ( 1,038 ) ( 109 ) - Non-deductible expense Temporary differences: -Difference between the actual allowance for bad debts and the 12,512 13,370 statutory allowance for bad debts amount regulated in the Tax Law -Reversal of losses on lawsuit - ( 12,993 ) -Difference between the actual pension and the statutory pension amount regulated in the Tax Law 5,259 ( 12,425 ) - Other ( 150 ) 264 Taxable income 862, ,234 Duduct: Loss carryforward ( 849,483 ) ( 783,709 ) Income tax payable 13,261 14,525 Decrease (increase) in deferred income tax assets 740,251 ( 128,708 ) Additional tax resulted from Alternative Minimum Tax 141,634 49,848 Overseas branch income tax expenses 158, ,953 Underestimate prior income tax expense 16,686 9,961 Other 13,270 - Income tax expense $ 1,083, ,579 57

60 (c) Changes in deferred tax assets and liabilities of the Bank and its subsidiaries are as follows: Temporary difference Deferred tax assets resulted from allowance for bad debts exceeding the limit regulated in Tax Law Beginning balance For the year ended December 31, 2015 Recognized in profit or loss Recognized in other comprehensive income Ending balance $ 345,724 12, ,236 Loss on assets impairment 46, ,627 Indemnity reserve 75, ,446 Reserve for employee benefit liabilities 398,592 5, ,851 Land value increment tax ( 879,056 ) - - ( 879,056 ) Exchange differences from the translation of financial statements of foreign operations Unrealized valuation profit or loss on available-for-sale financial assets ( 18,814 ) - ( 21,947 ) ( 40,761 ) ( 549 ) - ( 523 ) ( 1,072 ) Actuarial gains and losses 61,473-52, ,611 Other 264 ( 150 ) Subtotal 29,707 17,621 29,668 76,996 Losses carried forward 1,197,657 ( 757,872 ) - 439,785 Net deferred tax assets (liabilities) $ 1,227,364 ( 740,251 ) 29, ,781 The information stated on the balance sheet is as follows: Deferred tax assets $ 2,125,784 1,437,671 Deferred tax liabilities $ 898, ,890 Temporary difference Deferred tax assets resulted from allowance for bad debts exceeding the limit regulated in Tax Law Beginning balance For the year ended December 31, 2014 Recognized in profit or loss Recognized in other comprehensive income Ending balance $ 332,354 13, ,724 Loss on assets impairment 46, ,627 Indemnity reserve 88,439 ( 12,993 ) - 75,446 Reserve for employee benefit liabilities 411,017 ( 12,425 ) - 398,592 Land value increment tax ( 879,056 ) - - ( 879,056 ) Exchange differences from the translation of financial statements of foreign operations Unrealized valuation profit or loss on available-for-sale financial assets 22,783 - ( 41,597 ) ( 18,814 ) ( 1,656 ) - 1,107 ( 549 ) Actuarial gains and losses 63,266 - ( 1,793 ) 61,473 Other Subtotal 83,774 ( 11,784 ) ( 42,283 ) 29,707 Losses carried forward 1,057, ,492-1,197,657 Net deferred tax assets (liabilities) $ 1,140, ,708 ( 42,283 ) 1,227,364 The information stated on the balance sheet is as follows: Deferred tax assets $ 2,021,651 2,125,784 Deferred tax liabilities $ 880, , Taiwan Business Bank Annual Report 2015

61 As of December 31, 2015, the tax losses which are to be carried forward for deducting future income and which are not yet recognized as deferred tax assets are as follows: Loss for the year No loss carryforwards Loss on not recognized as deferred income tax assets Available for carryforward 2006 $ 1,021, ,565, $ 2,586,974 (d) The Bank's income tax returns for years up to 2012 have been approved by the Tax Authority. The income tax returns of the subsidiaries Taiwan Business Bank Insurance Agency Co., Ltd., and Taiwan Business Bank International Leasing Co., Ltd. have been approved until 2013 by the Tax authority. Taiwan Business Bank Property Insurance Agency Co., Ltd. have been approved until 2014 by the Tax authority. (e) Imputation Credit Account and Tax Deductible Ratio are summarized below December 31, 2015 December 31, 2014 Stockholders' imputation credit account $ 125, ,990 year FINANCIAL STATEMENTS 2015(expected) 2014(actual) Stockholders' tax deductible ratio 2.29% 9.95% As of December 31, 2014 and 2013, all of the ending balance of undistributed retained earnings arose from earnings in 1998 and thereafter. The above imputation information is calculated based on the Decree No issued by the Ministry of Finance, R.O.C on October 17, (W) Employee benefit liability reserve As of December 31, 2015 and 2014, the balance of reserve for employee benefit obligation of the Bank and its subsidiaries were as follows: December 31, 2015 December 31, 2014 Recognized on the balance sheet Defined benefit plan $ 2,061,094 1,751,221 Employee deposit with favorable rate 749, ,426 Total $ 2,810,900 2,481,647 (a) Defined benefit plan Composition of plan assets: December 31, 2015 December 31, 2014 Present value of defined benefit obligation $ 7,237,239 6,864,745 Less: Fair value of defined benefit plan assets ( 5,176,145 ) ( 5,113,524 ) Net defined benefit liability $ 2,061,094 1,751,221 The Bank makes defined benefit plan contributions to the pension fund account at Bank of Taiwan that provides pensions for employees upon retirement. The plans (covered by the Labour Standards Law) entitle a retired employee to receive an annual payment based on years of service and average salary for the six months prior to retirement. 59

62 (1) Composition of plan assets The Group allocates pension funds in accordance with the Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund, and such funds are managed by the Labour Pension Fund Supervisory Committee. With regard to the utilization of the funds, minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with interest rates offered by local banks. The Group's Bank of Taiwan labour pension reserve account balance amounted to $5,176,145 and $5,113,514 on December 31, 2015 and For information on the utilisation of the labour pension fund assets including the asset allocation and yield of the fund, please refer to the website of the Labour Pension Fund Supervisory Committee. (2) Changes in the present value of defined benefit obligations The changes in the present value of defined benefit obligations of the Bank for the year 2015 and 2014 were as follows: For the year ended December 31, Defined benefit obligation on January 1 $ 6,864,745 6,808,683 Benefits paid by the plan 326, ,638 Remeasurements of the net defined benefit liability Actuarial gain and loss on experience adjustment 56,576 19,677 Actuarial gain and loss on financial assumptions changed 297,296 - Benefits paid by the plan ( 308,358 ) ( 297,253 ) Defined benefit obligation on December 31 $ 7,237,239 6,864,745 (3) Changes in the fair value of defined benefit plan assets The changes in the fair value of defined benefit plan assets of the Bank for the year 2015 and 2014 were as follows: For the year ended December 31, Fair value of plan assets on Junuary 1 $ 5,113,524 5,010,252 Interest income 89,164 89,123 Remeasurements of the net defined benefit liability 47,179 30,227 -plan assets revenue (excluded of current interest) Contributions made 234, ,175 Benefits paid by the plan ( 308,358 ) ( 297,253 ) Fair value of plan assets on December 31 $ 5,176,145 5,113,524 (4) Expenses recognised in profit or loss The expenses recognised in profit or loss of the Bank for the year 2015 and 2014 were as followes : For the year ended December 31, Current service costs $ 209, ,317 Net interest on the net defined benefit liability 28,336 29,198 $ 237, , Taiwan Business Bank Annual Report 2015

63 (5) Remeasurements of the net defined benefit liability recognized in other comprehensive income Actuarial gains and losses recognised in other comprehensive income for the year ended December and 2014 were as follows For the year ended December 31, Amount on January 1 $ 361, ,152 Recognised during the period 306,693 ( 10,550 ) Amount on December 31 $ 668, ,602 (6) Actuarial assumptions The material actuarial assumptions used to determine present value of a defined benefit obligation on the reporting date as follow : December 31, 2015 December 31, 2014 Discount rate of defined benefit plan 1.30% 1.75% Future salary increase rate 1.50% 1.50% The expected allocation payment made by the Bank to the defined benefit plans for the one year period after the reporting dates is $236,057 in FINANCIAL STATEMENTS The weighted average duration of defined benefit plans is 9.49 years. (7) Sensitivity analysis When calculating the present value of defined pension obligations, the company must apply judgments and estimates to determine the actuarial assumptions on balance sheet date, including discount rates and expected rate of return on plan assets. Any changes in these assumptions could significantly impact the carrying amount of defined pension obligations. The effects of changes in major actuarial assumptions adopted in defined benefit obligation on December 31, 2015 as follows : Defined benefit plan obligation Increase0.25% Decrease0.25% December 31, 2015 Discount rate(change0.25%) (2.32)% 2.40% Future salary increase rate(change0.25%) 2.33% (2.25)% The above sensitivity analysis is based on the effects of changes in assumptions single analysis under other assumptions remain unchanged. In practice many changes in assumptions may be moving. Sensitivity analysis and the net defined benefit liability on the balance sheet date are determined by consistent method. (b) Defined contribution plan The Group allocates 6% of each employee's monthly wages to the labour pension personal account at the Bureau of the Labour Insurance in accordance with the provisions of the Labour Pension Act. Under this defined contribution plan, the Group allocates a fixed amount to the Bureau of the Labour Insurance without additional legal or constructive obligations. 61

64 The Bank and its subsidiaries' pension costs under the defined contribution method were $83,170 and $75,767 for the nine months ended December 31, 2015 and 2014, respectively. (c) Employee deposit with favorable rate The reconciliation of the Bank's defined benefit plan assets of employee deposit with favorable rate and fair value of assets are as follows: Present value of defined benefit obligation (Liabilities recognized in separate financial statement) December 31, 2015 December 31, 2014 $ 749, ,426 Less: Fair value of defined benefit plan assets - - Net defined benefit liability $ 749, ,426 The Bank and its subsidiaries conducted the obligation of time deposit with favorable rate for retired and current employees based on the internal regulation "Saving Deposits for Employees". (1) Changes in the present value of defined benefit obligations The changes in the present value of defined benefit obligations of the Bank for the year 2015 and 2014 were as follows: For the year ended December 31, Defined benefit obligation on January 1 $ 730, ,263 Interest cost 27,604 27,439 Remeasurements of the net defined benefit liability 153, ,038 -current actuarial gains and losses Benefits paid by the plan ( 162,121 ) ( 161,314 ) Defined benefit obligation on December 31 $ 749, ,426 (2) Changes in fair value of defined benefit plan assets The changes in the present value of the defined plan assets of the Bank for the year 2015 and 2014 were as follows: For the year ended December 31, Fair value of plan assets on January 1 $ - - Contributions made 162, ,314 Benefits paid by the plan ( 162,121 ) ( 161,314 ) Fair value of plan assets on December 31 $ - - (3) Expenses recognised in profit or loss The expenses recognised in profit or loss of the Bank for the year 2015 and 2014 were as follows: For the year ended December 31, Net interest on the net defined benefit liability $ 181, ,477 (4) Primary actuarial assumption The material actuarial assumptions used to determine present value of a defined benefit obligation on the reporting date as follow : 62 Taiwan Business Bank Annual Report 2015

65 December 31, 2015 December 31, 2014 Discount rate of employee deposit with favorable rate 4.0% 4.0% Rate of return for capital deposited 2.0% 2.0% Annual Diminishing rate of account balance 1.0% 1.0% Possibility that employee deposit with favorable rate be modified 50.0% 50.0% (X) Earnings per share For the year ended December 31, Net income $ 5,113,036 5,315,137 Weighted average number of common stock shares outstanding (in thousands) (Note 1) 5,684,662 5,684,662 Basic earnings per shares (in dollars) $ Dilutive potential common shares (in thousands) (Note 2) 40,890 33,226 Weighted average number of shares outstanding for diluted EPS (in thousands) (Note 1) 5,725,552 5,720,313 Diluted earnings per shares (in dollars) $ Note 1: The basic earnings per share of 2014 has applied retrospective adjustments. Note 2: The shares were calculated based on the stock price on the balance sheet date. FINANCIAL STATEMENTS (Y) Employees and directors remuneration According by the Bank's Articles of Incorporation has been approved by the Board but not been approved by shareholders' meeting yet. If there is an annual profit, distributable earnings shall be asided to employees remuneration from 1% to 6% and no more than 0.6% shall be asided to board of directors as remuneration. But when there are accumulated losses, the Bank shall first remain earning for the deficit. The estimated employee and the directors remuneration are $334,482 and $39,259 for the periods ended December , respectively. The esimates are based on pre-tax net profit for the period, before deducting employee and directors remuneration, multiplied by the elaboration of the Bank's Articles of Association of employee and the directors remuneration ratio, and recognized as operating cost. According to changes in accounting estimates, if there are differences between the actual distribution amount and estimates, and recognized the difference as gains and loss in (Z) Net interest income For the year ended December 31, Interest revenue: Loan $ 6,599,264 6,286,694 Secured loans 14,589,753 14,228,496 Bills negotiated 4,337 5,509 Bank overdraft 18,806 18,327 Discount 24,670 27,776 Time deposit from Central Bank 1,448,492 1,547,684 Due from the Central Bank 182, ,964 Call loans to banks 532, ,894 Bond 754, ,042 International credit card 69,110 75,030 Overdue loans 313, ,898 Bills 123, ,920 63

66 For the year ended December 31, Due from other Banks 986,622 1,437,534 Other 206, ,910 Subtotal 25,853,374 25,259,678 Interest expense: Deposits 9,026,917 8,913,450 Deposits from banks Call loans from banks 334, ,449 Fund 22,370 27,912 Financial debentures 973,407 1,031,029 Bond sold under repurchase agreement 26,566 26,367 Other 946 1,036 Subtotal 10,384,359 10,469,421 Total $ 15,469,015 14,790,257 (AA) Net service charge income For the year ended December 31, Service charge income: Remittance service fee $ 105, ,523 Import bills negotiated service fee 59,143 71,094 Export bills negotiated service fee 20,368 24,949 Letter of credit service fee 12,189 12,474 Certification service fee 1,071 1,120 Acceptance service fee 2,012 2,172 Trust service fee 495, ,281 Guarantee service fee 94,390 77,558 Agency service fee 84,143 37,770 Interbank service fee 67,196 68,590 Card service fee 133, ,789 Commission revenue of insurance premium 1,857,340 1,186,491 Custodian service fee 134, ,570 Foreign currency service fee 114, ,202 Commission of futures 7,791 5,094 Loan service fee 208, ,908 Miscellaneous fees 430, ,228 Subtotal 3,827,481 3,063,813 Service fee expense: Foreign currency service fee 23,093 20,968 Interbank service fee 126, ,319 Trust service fee 5,410 8,768 Agency service fee 4,035 3,547 IC card service fee 63,851 57,621 Check clearing service fee 13,247 14,652 Remittance service fee 3,195 2,162 Custodian service fee 29,267 27,925 Call loans service fee 1,794 1,163 Miscellaneous fees 16,169 20,868 Subtotal 286, ,993 Total $ 3,540,500 2,779, Taiwan Business Bank Annual Report 2015

67 (AB) Gains (losses) on financial assets and liabilities at fair value through profit or loss For the year ended December 31, Valuation profit and loss: Government bonds $ Corporate bonds ( 9,338 ) ( 9,953 ) Financial debentures 1,603 35,913 Stock of listed company ( 7,208 ) - Beneficiary certificates ( 4,557 ) - Commercial paper 8 3 Option contracts 1,500 ( 1,847 ) Interest swap contracts 10,247 32,614 Foreign exchange forward contracts 51,133 ( 70,479 ) Currency swap contracts ( 137,285 ) 160,352 Non-delivery forward contracts ( 472 ) - FINANCIAL STATEMENTS Subtotal ( 94,369 ) 147,424 Disposition profit and loss: Government bond - 1 Financial debentures - ( 50,448 ) Stock of listed company ( 47,928 ) ( 4,488 ) Beneficiary certificates ( 80,772 ) ( 3,285 ) Commercial paper 8 - Option contracts 12,505 18,299 Interest swap contracts ( 3,520 ) ( 39,313 ) Foreign exchange forward contracts ( 132,220 ) ( 212,611 ) Currency swap contracts 505, ,348 Non-delivery forward contracts ( 3,523 ) ( 1,524 ) Subtotal 249, ,979 Dividend revenue 4,671 8,944 Interest income 25,151 44,663 Total $ 185, ,010 (AC) Realized gains (losses) on available for sale financial assets For the year ended December 31, Gains on disposition of government bond $ 39, Gains on disposition of corporate bonds 18,759 12,535 Gains from disposition of financial debentures - 9,896 Gains from disposition of stock of listed company 4,507 - Dividend revenue 27,724 30,583 Total $ 90,107 53,078 65

68 (AD) Other non interest income For the year ended December 31, Rental revenue of operating assets $ 7,507 8,204 Losses on disposal and retirement of premises and equipment ( 595 ) ( 386 ) Loss of account error ( 96 ) ( 151 ) Gold deposit book 6,331 6,009 Gains on sale of collateral assumed 3,337 - Gains (losses) on sale of non-performing loans - 21,824 Miscellaneous income of dormant account recategorized as expense - ( 206,140 ) Other operating expense ( 31,918 ) ( 22,870 ) Other miscellaneous income 59,295 72,184 Total $ 43,861 ( 121,326 ) (AE) Bad debt expenses and provision for guarantee reserve For the year ended December 31, Discounts, loans and overdue loans $ 2,418,854 2,545,394 Receivables and other financial assets ( 14,258 ) ( 52,301 ) Subtotal 2,404,596 2,493,093 Guarantee reserve 4,593 45,494 Total $ 2,409,189 2,538,587 (AF) Employee benefit expense For the year ended December 31, Salary expense $ 5,636,070 5,578,887 Labor and health insurance 401, ,191 Pension expense 320, ,282 Other employee benefit 798, ,793 Total $ 7,157,141 7,034,153 (AG) Depreciation and amortization For the year ended December 31, Property and equipment depreciation $ 303, ,023 Amortization Computer software 76,312 83,812 Other deferred charges Total $ 380, , Taiwan Business Bank Annual Report 2015

69 (AH) Other operation and management expense For the year ended December 31, Compensation loss $ Water and electricity fee 106, ,208 Postage and telecommunication 152, ,674 Transportation fee 38,441 30,907 Printing and advertisement fee 170, ,723 Maintainance fee 39,157 34,862 Insurance fee 343, ,102 Professional service fee 177, ,814 Materials and supplies 107,877 96,617 Rental expenses 639, ,640 Duties and levies 1,485,430 1,097,537 Membership, donation and partaking 528, ,214 FINANCIAL STATEMENTS Storage, packing and processing 41,700 39,852 Cash transit 124, ,400 Other 61,988 58,397 Total $ 4,019,336 3,527,782 (AI) Financial Instruments (a) Fair value information (1) General description Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The financial instruments are record as fair value when original recognizing, usually refer to the transection price in many circumstances. Except some amortised cost financial instruments, the financial instruments are measured in fair value. A quoted market price in an active market provides the most reliable evidence of fair value. If financial instruments are without active market, the Group adopted the value technique, refer to Bloomberg, Reuters or the price at which the asset could be bought or sold in a current transaction between willing parties. (2) The definition of fair value hierarchy A. Level 1 inputs Level 1 inputs is quoted prices in active markets for identical financial instruments. The active market: A market in which transactions for the homogenous assets or liabilities take place with sufficient frequency and volume to provide pricing information. The stock of listed company and the beneficiary certificates the Group had are Level 1 inputs. B. Level 2 inputs Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e. derived from 67

70 prices). The government bond, corporate bonds, financial debentures, convertible corporate bonds and derivative instruments, including financial debentures the bank issued are Level 2 inputs. C. Level 3 inputs Level 3 inputs are unobservable inputs for the asset or liability in market. Unobservable inputs like: Option pricing model using the historical volatility. Because the historical volatility cannot represent the future volatility expected value of whole market participants. The equity instruments with no active market which the Group invested are Level 3 inputs. (3) Based on fair value measurement A. The fair value hierarchy of information The financial instruments which are record as fair value measure on an ongoing basis, the fair value hierarchy of information were as follows: December 31, 2015 Assets and Liabilities Instruments measured at fair value on a recurring basis Non-derivative financial assets: Total Quoted prices in active markets for identical financial instruments Level 1 Significant quoted prices that are observable inputs Level 2 Significant quoted prices that are unobservable inputs Level 3 Financial assets at fair value through profit or loss Financial assets held for trading Security Investment $ 133, , Other 500, , ,896 - Financial assets measured at fair value on initial recognition 970, ,043 - Available-for-Sale Financial Assets Security Investment 2,145,418 2,145, Bond Investment 23,523,367-23,523,367 - Derivative financial assets and liabilities Assets: Financial assets at fair value through profit or loss $ 478,615 27, ,291 - Liabilities: Financial liabilities at fair value through profit or loss 219, , Taiwan Business Bank Annual Report 2015

71 December 31, 2014 Assets and Liabilities Instruments measured at fair value on a recurring basis Total Quoted prices in active markets for identical financial instruments Level 1 Significant quoted prices that are observable inputs Level 2 Significant quoted prices that are unobservable inputs Level 3 Non-derivative financial assets Financial assets at fair value through profit or loss Financial assets held for trading Other $ 79,949-79,949 - Financial assets measured at fair value on initial recognition Available-for-Sale Financial Assets 1,892,245-1,892,245 - Security Investment 1,764,897 1,764, FINANCIAL STATEMENTS Bond Investment 14,278,642-14,278,642 - Derivative financial assets and liabilities Assets: Financial assets at fair value through profit or loss $638,513 27, ,228 - Liabilities: Financial liabilities at fair value through profit or loss 303, ,213 - B. Valuation techniques used in estimating the fair values of financial instruments If the financial instruments has quoted price in an active market, the quoted price is regarded as its fair value. If the financial instruments of quoted price, which are from the Stock Exchange, Brokers, Pricing service agencies or Government institutions, are timely and frequently, and reflects the actual price, then the financial instruments has a quoted price in an active market. If the above conditions are not fulfilled, the market is inactive. Except for the above financial instruments of quoted price in an active market, there is no quoted price in an active market for the financial asset, its fair value is estimated on the basis of the result of a valuation technique that refers to quoted prices considered the identical financial instrument with same characteristics and essential terms of transaction, Discounted-Cash-Flow model and other valuation techniques including the model using market information to be made of the calculation at the balance sheet date(eg Taipei Exchange reference yield curve, Reuters quoted the average commercial paper rate, the Taipei Financial industry call loan rate fixing TAIBOR). The financial asset's fair value is estimated on the basis of the result of a valuation technique, the Group adopted that refers to quoted prices provided by financial institutions. Ask (bid) is used to evaluate the selling (buying) position by the Bank if the quoted price include ask and bid price. If there is not a quoted price for the financial asset, transaction price close to the balance sheet date is the fair value. 69

72 Fair value of financial derivatives are the amount of cash to be paid or to be received by the Bank, assuming that the contract will be terminated on the balance sheet date. The Bank adopts mark-to-model prices which are usually adopted among the banking industry, such as Discounted-Cash-Flow model and Black-Scholes model. The Bank adopts the price data from Reuters and Bloomberg to calculate the fair value of the holding position. The aforesaid price data is based upon the middle price and used consistently by the Bank. Furthermore, the fair value of the embedded financial derivatives are calculated based upon the quote from the counterparty, and separately calculated in accordance with the contracts. C. Adjustment for fair value a. The restraint of evaluation model and uncertain inputs The estimates of output-based value using the evaluation model, which may not reflect the Group's all related factors. Therefore the estimated value of the evaluation model will be appropriately adjusted according to the extra parameters such as model risk or liquidity risk. Information and price parameters used in the evaluation process after careful assessment, and appropriately adjusted according to the current market situation. b. Credit risk value adjustment The Group's credit risk value adjustment of OTC transaction derivative instruments can be divided to Credit value adjustments (CVA) and debit value adjustments (DVA). To reflect the fair value of the Group's counterparty or the Group likely to default, and the Group may not be received or paid full market value of trading possibilities. The Group would calculate credit valuation adjustment (CVA) by assessing probability of default (PD) and loss given default (LGD) of the counterparty before multiplying exposure at default (EAD) of the counterparty. On the contrary, debit valuation adjustment (DVA). The Group assess the probability of default on the assumption of 60%, but at the risk of the nature and circumstances of available data, we may use other loss given default assumptions. (4) Not based on fair value measurement A. Fair value information The following chart presents the financial instruments not based on fair value measurement, the Group have. Except those items, others' fair value are reasonably approximate value, the Group does not disclosure their fair value. December 31, 2015 Book value Fair value Held-to-maturity financial assets net $ 206,277, ,473,302 December 31, 2014 Book value Fair value Held-to-maturity financial assets net $ 194,541, ,577, Taiwan Business Bank Annual Report 2015

73 B. The fair value hierarchy of information Assets and Liabilities Held-to -maturity financial assets-net Total Quoted prices in active markets for identical financial instrumentslevel 1 December 31, 2015 Significant quoted prices that are observable inputslevel 2 Significant quoted prices that are unobservable inputslevel 3 $ 206,473, ,473,302 - Assets and Liabilities Held-to -maturity financial assets-net Total C. Valuation techniques Quoted prices in active markets for identical financial instrumentslevel 1 December 31, 2014 Significant quoted prices that are observable inputslevel 2 Significant quoted prices that are unobservable inputslevel 3 $ 194,577, ,577,231 - Methods and assumptions used by the Group for fair value evaluation of financial instruments were as follows: FINANCIAL STATEMENTS a. Cash and cash equivalents, due from Central Bank and call loans to banks, securities purchased under resell agreements, receivables, non-accrual loans transferred from non-loan financial assets, guarantee deposits paid, temporary payments and suspense accounts, deposits from Central Bank and other banks, securities sold under repurchase agreements, payables, other financial liabilities and guarantee deposits received: since these instruments have short maturities, the book value is adopted as a reasonable basis in estimating the fair value. b. Discounts and loans(including non-performing loans): the interest rate of bank loans, dependent on the benchmark interest rate which plus or minus the input value(ie motorized interest rate), said market rates, therefore, the book value of financial assets is equivalent to their fair value. Among the case of fixed interest rate, the estimated fair value of long-term loans using the discounted value of its expected cash flows, but this is minority, so the book value of financial assets is equivalent to their fair value. c. Hold-to-maturity financial assets: the quoted price is regarded as its fair value. If there is no quoted price in an active market for the financial asset, its fair value is estimated on the basis of the result of a valuation technique. 1) Central Government Securities(NTD): using the comment of "Bonds a fair price for each of times" from Taipei Exchange. 2) Corporate bonds and financial bonds(ntd): the present value or fair price of Taipei Exchange determined using the future cash flow of yield curve discounting evaluation. d. Deposits and remittance: to determine the fair value, considered Banking industry characteristics, the market interest rates (ie market price) is the fair value. And deposits are mostly due within one year, the carrying amounts is the fair value of reasonable basis. The fixed interest rate of long-term deposits should be estimated by the discounted value of its expected cash flows at fair value, and its maturity date no longer than three years, so its estimated fair value of the carrying amount is considered reasonable. 71

74 e. Bank debentures payable: The bank debentures payable the bank issueed, whose stated rate was equal the effective rate, using discounted cash flow projections to estimate the fair value, equivalent to its book value. f. Other financial assets debt investment without active market: If there is some dealing price, using the price to evaluate the fair value. If there is not market value, using evaluation model to estimate the fair value. g. Other financial assets the financial assets using cost method: Because there is without active price and estimated fair value's variation material or the variation estimates cannot be reasonable assessment, the fair value cannot be reliably measured, the Group does not disclose their fair value. (AJ) Financial Risk Information (a) General description The goal of the financial risk management of the Bank is to effectively diversify, transfer and avoid risks by taking customer service, financial business operating target, overall risk tolerance and external limitation of laws into consideration and provide benefit to customers, shareholders and employees. The Bank's Financial Risk Management policy is to establish a risk management mechanism in terms of risk identification, risk measurement, risk monitoring, and risk control and to construct the overall risk management system. It is to facilitate the business model with appropriate risk management and to control the rationality between risks and rewards under the premise of legal capital ration in order to achieve operating targets and increase the value of the Bank for the shareholders. The scope covers the management of credit risk, market risk, operation risk, banking book interest rate risk, capital liquidity risk, and capital adequacy. (b) Risk management organization structure Board of directors President General manager Vice president Risk management center Risk Management Committee Assets and liabilities Management Committee Credit Examination Committee Overdue Loans Clearing Committee (1) Risk Management Committee The chairperson of the Risk Management Committee is appointed by the president. The chairpersons include general manager, deputy general manager of the non-regulatory compliance in head office and department directors of head office (excluding the director of audit department in the Board). This Committee is set up for the purpose of establishing a sound risk management system, strengthening risk management and the implementation of the Bank's risk management and monitoring. The meeting will be held once a month in principle. The meeting can be held by the chairman of the Committee when necessary. The duties are as follows: 72 Taiwan Business Bank Annual Report 2015

75 A. Conduct Analysis and response project when significant domestic and foreign economic, financial and industrial risk management occur. B. Risk management report of various risk exposure and agenda processing. C. The processing of examination of the risk management relevant policy of the Bank and limitations, management indices and the response project when the risk exceeds the limitations. D. Supervise the Bank's capital adequacy management. E. Conduct or supervise other risk management related issues. Risk Management Department is the assistant unit of the Risk Management Committee. The responsibility of the Risk Management Department is to execute preparing sittings agenda, convening sittings, agenda proccessing, taking meeting minutes and tracking resolution and regularly report the important resolution and various risk exposure to the board of (executive) directors. (2) Assets and Liabilities Management Committee The chairperson of the Assets and Liabilities Management Committee is the general manager, and the members are formed by the vice assistant general manager and the department heads of deposit, loan, financial transaction, capital deployment and risk management units. The responsibility of the Assets and Liabilities Management Committee is to monitor and manage the banking book interest rate risk and capital liquidity risk and convenes meetings regularly, to approve the analyzing and measurement methods of the capital liquidity risk and banking book interest rate risk exposure, to examine the capital liquidity risk and banking book interest rate risk management policy as well as the relevant limitations and management indices, to receive interest rate risk and capital liquidity risk exposure reports and adjust the assets and liabilities interest rate duration structure and capital maturity structure. FINANCIAL STATEMENTS (3) Credit Examination Committee The convener of the Credit Examination Committee is the assistant general manager supervising Risk Management Center. The Committee in principle convenes weekly to examine the modification and establishment of the regulations (including main points, measures and procedures) for significant loans, foreign exchange and guarantee cases. (4) Overdue Loans Clearing Committee The convener of the Overdue Loans Clearing Committee is the supervising vice president and the executive secretary is the manager of the Creditor's Right Management Department. The convener holds meetings based on the necessity to clear the non-performing loans and non-accrual loans and bad debts in order to improve the quality of the credit assets of the Bank and its subsidiaries. (c) Credit risk (1) Source and definition of credit risk Credit risk refers to the default risk resulted from the inability to fulfill the contract obligations due to deteriorating financial status of trade counterparties, pessimistic external economic situation or other factors. The primary source of the credit risk of the Bank is the loan business, such as loans of various terms, guarantees and letters of credit, loan commitments, etc., in addition, other sources of credit risk include call loans from banks, securities investments, derivative financial instrument transactions, etc. 73

76 (2) Credit risk management policy In order to control the credit risk to a tolerable scope, the Bank continuously conduct below operations: A. Fully understand the credit status and ratings of loan customers and trade counterparties as well as the purposes and payments of loans. B. Prudently evaluates the credit risk status of loan customers and trade counterparties and consider the adequacy of collaterals and guarantees to assess risk and profit. C. Establish credit rating mechanism for loan customers or apply the ratings from outside credit rating institutions as the reference for undertaking credit cases or interest rate determination. D. Modify relevant regulations to control the credit risk to a tolerable extent for the Bank. The credit risk management procedure and measurement methods of the Bank's major business are as follows: A. Credit Business (Including loan commitments and guarantees) The categorization and credit quality rating of credit assets are as follows: a. Categorization of credit assets The credit assets are classified into 5 categories. Except for normal credit assets which are classified as the first category, others are classified, based on the assurance status and the time overdued, as second category (need attention), third category (possible to recover), fourth category (difficult to retrieve) and the fifth category (unable to retrieve). In order to manage creditor's rights, the Bank established "Regulations Governing the Procedures to Evaluate Assets and Deal with Non-performing/Non-accrual Loans", "Regulations Governing the Reconciliation of Non-performing/Non-accrual Loans" and its operating procedure "Operating procedure Governing the Collection of Non-performing/Non-accrual Loans" and "Code of Conduct to Deal With Non-Performing Loans" to serve as the guidelines for dealing with non-performing credit and overdue loans collection. b. Categorization of credit quality Based on historical default data, the Bank established internal credit rating model and completed internal rating system to serve as a reference to credit risk control. In order to develop an appropriate credit rating model for the Bank to evaluate the credit risk for corporate banking customers and private banking customers, it applied statistical methods, professional expert judgments and relevant customer information to fulfill the requirements. The Bank examined whether the internal credit rating model is in conformity with the actual scenario based on practical default data quarterly and adjusted all parameters to optimize the estimated results. B. Due from other banks and call loans to banks The Bank evaluates the credit status of counterparties before transaction and takes the rating information from domestic and foreign credit rating institutions into consideration to determine various credit risk facilities for the counterparties. C. Debt instrument investments and derivative financial instruments The Bank manages credit risk of debt instruments through credit rating data of external institutions, credit quality of bonds, geographic situations and counterparties' risk so as to identify credit risk. 74 Taiwan Business Bank Annual Report 2015

77 The financial institutions which the Bank conducts derivative instruments are mostly investment quality and are controlled based on the trade amount (including loans at call). Counterparties which do not have credit rating or which are of low quality shall be examined individually. For counterparties which are general customers, the Bank controls the credit risk exposure based on the derivative instrument risk facilities and conditions approved by general credit procedures. (3) Credit risk hedging or diminishing. A. Collaterals The Bank adopts a series of policies and procedures to mitigate credit risk and enhance credit risk tolerance. The method applied most is to request customers to provide collaterals. The Bank established collateral accreditation code of conduct in terms of collateral management and total loan amount to regulate the scope of collaterals and the accreditation method and regularly inspects the collaterals. When the collaterals devaluate or the concern of devaluation occurs, the Bank shall increase collaterals or retrieve part of the loans to ensure the creditor's right is intact. B. Limit of credit risk and the control of credit risk concentration a. In order to avoid the situation that the credit risk of single customer being too high, the credit limit of an individual, a related party or a related enterprise shall be in conformity with "Authorization method for subsection 3 of Article 33 of the Banking Act of the Republic of China" and the credit limit authorization steps are regulated in the Key Points of Credit Engagement Authorization and the Key Points of Credit Engagement Authorization for Overseas Branches of the Bank. FINANCIAL STATEMENTS b. To enhance the risk concentration management, the Bank established regulations in terms of countries, financial institutions, industries and group enterprises. The relevant limits are reviewed and approved annually and the usage of the credit is monitored on a daily basis. In addition, the results are reported regularly. C. General agreement of net amount settlement The transactions of the Bank are mostly settled with gross amount. Part of the transactions agreed on net amount settlement. When a default occurs, the Bank terminates all the transactions with the counterparty and settles by net amount to further lower credit risk. D. Enhancement of other credit The assessment of credit business apply to credit 5P principles, credit risk is offset by dividing self-liquidating loan commitments as the main, and set the accounts to master the repayment of cash flow. Also in terms of the credit agreement stipulates the offset.(ie all kinds of deposits, except prohibition of low or the parties agreement, the Group can set off all the debts), thus to reduce the loan amount, shorter loan repayment period or are considered part or all of expiration of acceleration clauses. To strengthen the protection of creditor and reduce credit risk, using qualified and effective enhancement, such as the requirement of real property, personal property, demand deposits, time deposits, securities and the guarantee of financial institution or the credit guarantee mechanism approved by government.(ig R.O.C SMEG, Agricultural Credit Guarantee Fund, Overseas Credit Guarantee Fund) (4) Maximum credit risk exposure of the Bank. The maximum credit exposure of the assets in the consolidated financial statement is approximately the book value when not considering collaterals or other credit enhancement instruments. The maximum credit exposure off the consolidated balance sheet (when not considering collaterals or other credit enhancement instruments and not revocable) is as follows: 75

78 Off balance sheet items Maximum credit risk exposure December 31, 2015 December 31, 2014 Loan commitment signed and irrevacable $ 100,771,521 39,694,378 Signed but not used L/C credit amount 8,030,146 12,391,611 Various guarantee proceeds 9,129,331 9,073,990 Total $ 117,930,998 61,159,979 The Management of the Bank evaluated the credit risk exposure and believed that the Bank is able to continuously control and minimize the off-balance-sheet credit risk exposure due to its strict appraisal process and regular subsequent examination. (5) Credit risk concentration of the Bank The Bank and its subsidiaries do not conduct significant transaction with single customer or single trade counterparty. The total amount of discounts and loans, overdue loans in terms of individual customer or individual trade counterparty is not significant. The information of credit risk concentration of the Bank's discounts and loans and overdue loans are divided by industries, geographic areas and collaterals and listed as follows: A. Industry Distribution of discounts and loans, overdue loans based on industries. (In NT thousands) Industry December 31, 2015 December 31, 2014 Amount % Amount % Private business $ 544,785, % 519,917, % Public business 29,127, % 22,129, % Government institution 138,480, % 172,109, % Non profit organization 3,679, % 3,701, % Individual 265,399, % 254,629, % Foreign financial institution 3,214, % 2,884, % Foreign non-financial institution 34,288, % 37,063, % Total $ 1,018,975, % 1,012,434, % B. Geographic area Distribution of discounts and loans, overdue loans based on geographic area. (In NT thousands) Area December 31, 2015 December 31, 2014 Amount % Amount % Domestic $ 981,757, % 972,601, % Foreign 37,217, % 39,832, % Total $ 1,018,975, % 1,012,434, % 76 Taiwan Business Bank Annual Report 2015

79 C. Collateral Distribution of discounts and loans, overdue loans based on collateral. (In NT thousands) December 31, 2015 December 31, 2014 Collateral Amount % Amount % Unsecured $ 323,627, % 351,363, % Stock 9,307, % 10,299, % Bond 5,849, % 4,643, % Real estate 546,080, % 503,600, % Chattel 10,265, % 14,688, % Notes receivable 1,380, % 1,212, % Guarantee 116,442, % 121,726, % Other 6,022, % 4,900, % Total $ 1,018,975, % 1,012,434, % FINANCIAL STATEMENTS Note: Secured credit are categorized in its respective item per the type of the collaterals. Non secured credit (no collateral provided) is classified in fiduciary credit. If the credit amount is higher than the accreditation value, the credit amount within the accreditation is classified in the respective item, the credit amount exceeds the accreditation value is classified in fiduciary credit. The accreditation value is the value calculated per the accreditation regulations of the Bank, not the discounted value of the signed contract. (6) Credit quality and overdue impairment loss of financial assets of the Bank Part of the financial assets, such as cash and cash equivalent, due from the Central Bank and call loans to banks, financial assets at fair value through profit or loss, bills and bonds purchased under resell agreement, guarantee deposits paid and operation guarantee deposits and settlement funds are considered of minimum credit risk due to the good credit ratings of the trade counterparties. Except for the abovementioned items, the credit quality analyses of the rest of the financial assets are as follows: A. Credit quality analysis of discounts and loans as well as receivables Not overdue and not impairment amount Loss provided (D) December 31, 2015 Excellent Good Medium Acceptable Under standard No rating Subtotal (A) Overdue but not impaired (B) Impaired amount (C) Total (A)+(B)+ (C) With objective evidence of impairment Without objective evidence of impairment Net Amount (A)+(B)+ (C)-(D) Receivable -Credit card $ 403, , ,456 82,916 12, ,041 1,308,855 9,777-1,318,632-3,888 1,314,744 -Other 333,578 1,508, ,492 11,501 3,943 3,317,109 5,411, ,323 5,539,715 61,101 24,645 5,453,969 Discounts and loans 172,504, ,480, ,063,228 44,927,496 45,282, ,807,637 1,000,066,329 3,000,061 15,908,751 1,018,975,141 3,435,569 7,906,024 1,007,633,548 Other financial assets ,842 72,145 20, ,845 Total $ 173,242, ,262, ,582,176 45,021,913 45,298, ,378,869 1,006,787,356 3,010,361 16,107,916 1,025,905,633 3,516,955 7,934,572 1,014,454,106 77

80 Not overdue and not impairment amount Loss provided (D) December 31, 2014 Excellent Good Medium Acceptable Under standard No rating Subtotal (A) Overdue but not impaired (B) Impaired Total (A)+(B)+ amount (C) (C) With objective evidence of impairment Without objective evidence of impairment Net Amount (A)+(B)+ (C)-(D) Receivable -Credit $ 493, , , ,817 12, ,921 1,420,624 9,290-1,429, ,429,171 -Other 382,271 1,599, ,831 10,977 2,364 2,667,323 4,906,515 12, ,409 5,103,619 77,163 38,229 4,988,227 Discounts and loans 199,265, ,697, ,552,757 42,970,688 5,784, ,733, ,004,157 2,681,036 16,749,497 1,012,434,690 4,316,306 6,617,355 1,001,501,029 Other financial assets , , , ,098 Total $ 200,141, ,531, ,074,257 43,137,482 5,799, ,647, ,332,043 2,703,496 17,267,111 1,019,302,650 4,666,786 6,656,339 1,007,979,525 The abovementioned "Excellent" refers to the position which belongs to level 1 to level 4 of the Bank's internal credit rating system, "Good" refers to the position belongs to level 5 to level 9, "Medium" refers to the position belongs to level 10 to level 17, "Acceptable" refers to the position belongs to level 18 to level 23, "under standard" refers to the position belongs to level 24 to level 26 and "No rating" refers to the position which possesses no credit rating in the Bank's internal rating system. B. Credit quality analysis based on internal credit rating criteria of the not overdue and not impaired discounts and loans and expressed by customer types December 31, 2015 Excellent Good Medium Acceptable Under standard No rating Total Private banking Secured $ 77,364,965 67,967,149 70,469,211 16,430,699 3,776,645 7,672, ,681,415 Non-secured 1,536,573 4,562,469 9,169,406 1,250, ,573 1,653,922 18,366,590 Corporate banking Government and public institution - 27,000, ,127, ,461, ,589,212 Financial institution - 2,721, , , ,800 4,043,141 Margin loans receivable ,717,363 1,717,363 Large Enterprise- credit and guarantee fund 5, ,245 5, , ,627 Large Enterprise-secured 6,977,631 9,457,158 1,507,565 3,027,538 35,473,646-56,443,538 Large Enterprise-unsecured 17,666,315 37,054,388 8,404,114 2,686, ,030 3,924,910 70,216,857 Medium and small enterprises-credit and guarantee fund 7,244,085 30,699,103 44,447,272 3,710, , ,635 87,374,680 Medium and small enterprises-secured 45,835, ,527,619 78,223,109 11,106,153 1,743,649 8,677, ,113,563 Medium and small enterprises-unsecured 15,874,702 34,341,603 14,008,408 6,551,779 1,165,177 18,407,674 90,349,343 Total $ 172,504, ,480, ,063,228 44,927,496 45,282, ,807,637 1,000,066, Taiwan Business Bank Annual Report 2015

81 December 31, 2014 Excellent Good Medium Acceptable Under standard No rating Total Private banking Secured $ 81,739,872 69,296,413 69,057,498 5,472,372 2,850,363 2,109, ,525,556 Non-secured 1,270,197 4,491,422 11,194,693 2,116, ,326 1,737,775 20,927,372 Corporate banking Government and public institution - 19,750,098-2,379, ,088, ,218,022 Financial institution 316,700 2,567,325 31, ,915,683 Margin loans receivable ,221,662 2,221,662 Large Enterprise- credit and guarantee fund - 133,544 42, ,333 Large Enterprise-secured 40,342,076 11,752,148 1,236,654 1,120,471 63,241-54,514,590 Large Enterprise-unsecured 13,501,801 43,579,860 6,931, , ,801 3,569,752 68,330,743 Medium and small enterprises-credit and guarantee fund Medium and small enterprises-secured Medium and small enterprises-unsecured 8,246,900 29,427,389 48,891,682 4,192, ,682 63,142 91,165,570 44,206,738 98,888,749 68,036,479 19,300,369 1,364,718 9,421, ,218,120 9,640,879 34,810,959 16,129,499 7,981, ,152 17,522,203 86,790,506 Total $ 199,265, ,697, ,552,757 42,970,688 5,784, ,733, ,004,157 FINANCIAL STATEMENTS December 31, 2015 Financial assets at fair value through profit or loss - net C. Credit quality analysis of security investments Investment Not overdue and impaired position Sub investment High risk No rating Subtotal (A) Overdue but not impaired position (B) Impairment position (C) Total (A)+(B)+(C) Loss provided (D) Net amount (A)+(B)+ (C)-(D) -Overseas bonds $328, , , , ,043 Available-for-sale financial assets-net -Overseas bonds 6,423, ,606 6,943, ,943,965-6,943,965 -'NT bonds 16,579, ,579, ,579,402-16,579,402 Hold-to-maturity financial assets-net -Overseas bonds 18,130, , ,623, ,623,791-18,623,791 -'NT bonds 22,538, ,538, ,538,688-22,538,688 December 31, 2014 Financial assets at fair value through profit or loss - net Investment Not overdue and impaired position Sub investment High risk No rating Subtotal (A) Overdue but not impaired position (B) Impairment position (C) Total (A)+(B)+(C) Loss provided (D) Net amount (A)+(B)+ (C)-(D) -Overseas bonds $948, ,914 1,892, ,892,245-1,892,245 Available-for-sale financial assets-net -Overseas bonds 4,535, ,812 5,071, ,071,057-5,071,057 -'NT bonds 9,207, ,207, ,207,585-9,207,585 Hold-to-maturity financial assets-net -Overseas bonds 10,743, ,743, ,743,505-10,743,505 -'NT bonds 12,098, ,098, ,098,066-12,098,066 79

82 For the investment ratings of above tables, investment grade refers to AAA to BBB-, Sub investment grade refers to BB+ ~B-, high risk refers to CCC+ and below (including no rating). No rating refers to the bonds not graded by credit rating institution. (7) Aging analysis of financial assets which are overdue but not impaired Operation process delay of loan borrowers and other administrative factors may cause financial assets to be overdue but not impaired. According to the internal risk management regulations of the Bank and its subsidiaries, financial assets overdue within 90 days are not considered impaired unless there are other evidence indicates otherwise. December 31, 2015 within 1month 1~3 months over 3 months Total Account receivables -Credit card $ 6,219 3,558-9,777 Discounts and loans Private banking -Secured 1,559, ,781-2,089,899 -Unsecured 123,500 17, ,128 Corporatre banking -Government and public institution Large enterprise unsecured 33, ,713 -Medium and small enterprises- credit and guarantee 272,496 73, ,050 fund -Medium and small enterprises- secured 305,710 1, ,072 -Medium and small enterprises-unsecured 69,021 13,178-82,199 Other financial assets - Exchange bills negotiated Total $ 2,370, ,061-3,010,361 December 31, 2014 within 1month 1~3 months over 3 months Total Account receivables -Credit card $ 6,479 2,811-9,290 -Other 12, ,695 Discounts and loans Private banking -Secured 1,432, ,830-1,868,928 -Unsecured 107,956 9, ,801 Corporatre banking -Large enterprise unsecured 22, ,046 -Medium and small enterprises- credit and guarantee 207,663 40, ,879 fund -Medium and small enterprises- secured 173,679 25, ,715 -Medium and small enterprises-unsecured 225, ,667 Other financial assets - Exchange bills negotiated Total $ 2,188, ,750-2,703, Taiwan Business Bank Annual Report 2015

83 (8) Impairment loss analysis of the financial assets of the Bank A. Discounts and loans December 31, 2015 Item Discounts and loans Allowance for bad debts With objective evidence of impairment Individual assessment $ 11,287,196 1,838,436 Collective assessment Large enterprise-secured 27,927 12,173 Large enterprise-unsecured 18,481 15,226 Medium and small enterprises-credit and guarantee fund 2,019, ,118 Medium and small enterprises-secured 509, ,753 Medium and small enterprises-unsecured 155, ,941 Private banking-secured 1,711, ,784 Private banking-unsecured 178, ,481 FINANCIAL STATEMENTS Preliminary negotiation projects 1, Subtotal 15,908,751 3,435,569 Without objective evidence of impairment Collective assessment Government and public institution 167,589, ,271 Financial institution 3,714,536 3,065 Margin loans receivables 1,717,363 1,417 Large Enterprise- credit and guarantee fund 170,627 8,540 Large enterprise secured 56,477, ,564 Large enterprise-unsecured 70,545,462 1,551,049 Medium and small enterprises-credit guarantee fund 87,720,731 1,821,217 Medium and small enterprises-secured 260,409, ,283 Medium and small enterprises-unsecured 90,431,541 1,619,055 Private banking-secured 245,782, ,058 Private banking-unsecured 18,507, ,505 Subtotal 1,003,066,390 7,906,024 Total $ 1,018,975,141 11,341,593 81

84 December 31, 2014 Item Discounts and loans Allowance for bad debts With objective evidence of impairment Individual assessment $ 12,256,533 2,659,096 Collective assessment Medium and small enterprises-credit and guarantee fund 1,900, ,184 Medium and small enterprises-secured 514, ,227 Medium and small enterprises-unsecured 172, ,697 Private banking-secured 1,712, ,585 Private banking-unsecured 191, ,573 Preliminary negotiation projects 1, Subtotal 16,749,497 4,316,306 Without objective evidence of impairment Collective assessment Government and public institution 194,218,021 89,160 Financial institution 2,915,683 1,339 Margin loans receivables 2,221,662 1,019 Large Enterprise- credit and guarantee fund 176,333 6,126 Large enterprise secured 54,514,590 1,532,853 Large enterprise-unsecured 68,352,788 1,234,735 Medium and small enterprises-credit guarantee fund 91,413,449 1,171,881 Medium and small enterprises-secured 241,416, ,212 Medium and small enterprises-unsecured 87,016,175 1,244,456 Private banking-secured 232,394, ,510 Private banking-unsecured 21,045,173 72,064 Subtotal 995,685,193 6,617,355 Total $ 1,012,434,690 10,933,661 B. Receivables December 31, 2015 Item Receivables Allowance for bad debts With objective evidence of impairment Individual assessment $ 102,837 51,252 Collective assessment 25,486 9,849 Subtotal 128,323 61,101 Without objective evidence of impairment Collective assessment Credit card proceeds receivable 1,318,632 3,888 Accounts receivable 546,753 - Installment accounts receivable and rents receivable 864,652 - Other receivables 198,331 4,591 Acceptances receivable 1,264,956 12,650 Interest receivable 2,408,377 7,404 Subtotal 6,601,701 28,533 Total $ 6,730,024 89, Taiwan Business Bank Annual Report 2015

85 December 31, 2014 Item Receivables Allowance for bad debts With objective evidence of impairment Individual assessment $ 161,145 67,318 Collective assessment 23,264 9,845 Subtotal 184,409 77,163 Without objective evidence of impairment Collective assessment Credit card proceeds receivable 1,429, Accounts receivable 125,124 - Installment accounts receivable and rents receivable 532,905 - Other receivables 323,248 9,481 Acceptances receivable 1,608,642 16,544 Interest receivable 2,329,291 12,204 Subtotal 6,349,124 38,972 Total $ 6,533, ,135 C. Other financial assets FINANCIAL STATEMENTS December 31, 2015 Item Other financial assets Allowance for bad debts With objective evidence of impairment Individual assessment $ 1,712 1,510 Collective assessment Guarantee, acceptance and other advances 3,631 7,837 Credit card 65,499 10,938 Subtotal 70,842 20,285 Without objective evidence of impairment Collective assessment Bills negotiated 1, Total $ 72,145 20,300 December 31, 2014 Item Other financial assets Allowance for bad debts With objective evidence of impairment Individual assessment $ 225, ,631 Collective assessment Guarantee, acceptance and other advances 26,195 24,650 Credit card 81,142 36,036 Subtotal 333, ,317 Without objective evidence of impairment Collective assessment Bills negotiated 1, Total $ 334, ,329 83

86 (9) Collateral management policy A. Collaterals are recognized under the account of other assets per the rules of "Regulations Governing the Preparation of Financial Reports by Public Banks". B. Details are as follows: Other assets December 31, 2015 December 31, 2014 Collaterals (stocks) $ - 2,509 Collaterals refer to the collaterals provided by clients as guarantee which are undertaken through public auction when the debtor is not able to fulfill its obligation. The collaterals assumed are recognized using the prices undertaken per the rules of "Regulations Governing the Preparation of Financial Reports by Public Banks" and measured by the book value or the fair value deducted by cost of sale, whichever is lower, at the end of the period. Collaterals will be sold when they are available to be sold and the proceeds received will be used to reduce the book amount of collaterals. (10) Disclosure required under "Regulations Governing the Preparation of Financial Reports by Public Held Banks " A. Loan quality: Month/Year December 31, 2015 Unit In Thousands of New Taiwan Dollars, % Items Non-performing loans Total loans Non-performing loan ratio Allowance for credit losses Coverage ratio Corporate finance Secured 3,295, ,332, % 7,321, % Unsecured 1,004, ,722, % 2,322, % Residence mortgages(note 4) 357, ,910, % 1,195, % Cash cards % % Consumer finance Small sum credit loans(note 5) 2, , % 2, % Others (Note 6) Secured 185, ,802, % 372, % Unsecured 59,797 17,635, % 126, % total loan business 4,905,008 1,018,975, % 11,341, % Overdue loans Total receivables Overdue ratio Allowance for doubtful accounts Ratio of allowance to overdue loans Credit cards business 951 1,384, % 14,826 1,558.99% Account receivable factoring-without recourse - - -% - -% 84 Taiwan Business Bank Annual Report 2015

87 Corporate finance Consumer finance Month/Year December 31, 2014 Items Non-performing loans Total loans Unit In Thousands of New Taiwan Dollars, % Non-performing loan ratio Allowance for credit losses Coverage ratio Secured 2,533, ,172, % 5,422, % Unsecured 1,545, ,967, % 3,796, % Residence mortgages(note 4) 301, ,986, % 1,240, % Cash cards % % Small sum credit loans(note 5) 2, , % 2, % Others (Note 6) Secured 204,301 96,456, % 411, % Unsecured 29,959 20,510, % 60, % total loan business 4,617,553 1,012,434, % 10,933, % Overdue loans Total receivables Overdue ratio Allowance for doubtful accounts Ratio of allowance to overdue loans Credit cards business 3,614 1,511, % 36,779 1,017.68% Account receivable factoring-without recourse - - -% - -% Note 1 Non performing loans represent the amount of overdue loans as reported in accordance with the "Regulations on the Procedures for Banking Institutions to Evaluate Assets and Deal with Past Due/Non performing Loans". The credit card overdue loans represent the amount of overdue loans as reported in accordance with Jin Kuan Yin (4) Zi No , dated July 6, Note 2 Non performing loan ratio = Non performing loans total loans; Credit card delinquency ratio = Overdue receivables balance of receivables Note 3 Coverage ratio for loans = allowance for credit losses non performing loans; Coverage ratio for credit card business = allowance for credit losses overdue receivables. Note 4 For residential mortgage loans, a borrower provides his/her (or spouse s or minor child s) house as collateral in full and pledges it to the financial institution for the purpose of obtaining funds to purchase property and to construct or repair a house. Note 5 Microcredit loans are defined by Jin Kuan Yin (4) Zi No , dated December 19, 2005, and do not include credit cards or cash cards. Note 6 Others in consumer finance are secured and unsecured consumer loans other than residential mortgage loans, cash card loans, and microcredit loans, and do not include credit cards. Note 7 In accordance with Jin Kuan Yin (5) Zi No , dated July 19, 2005, the amounts of without recourse factoring will be classified as overdue receivables within three months from the date that suppliers or insurance companies resolve not to compensate the loss. FINANCIAL STATEMENTS B. Overdue loans and receivables exempted from reporting (In NTD thousands) December 31, 2015 December 31, 2014 Loans may be exempted Receivables may be Loans may be exempted Receivables may be from reporting as a non-performing loan exempted from reporting as overdue receivables from reporting as a non-performing loan exempted from reporting as overdue receivables Pursuant to a contract under a debt negotiation plan 4,587 10,749 7,115 15,184 Pursuant to a contract under a debt liquidation plan and a debt relief plan 90, , ,360 62,491 Total 95,028 68, ,475 77,675 Note A: In accordance with Jin Kuan Yin (1) Zi No , dated April 25, 2006, a bank is required to make supplemental disclosure of credit information which was approved under the debt coordination mechanism of unsecured consumer debts by the Bankers Association of the R.O.C. Note B: In accordance with Jin Kuan Yin (1) Zi No , dated September 15, 2008, a bank is required to make supplemental disclosure of credit information once debtors apply for pre negotiation, relief and liquidation under the Consumer Debt Clearance Act. 85

88 C. Concentration of credit extensions Unit In Thousands of New Taiwan dollars, % December 31, 2015 Ranking Group enterprise Credit amount Credit amount to equity ratio (%) 1 A company. (Railway transportation) 35,037, % 2 B group. (Petroleum and chemical material manufacturing) 8,801, % 3 C group. (Steel rolling and extruding) 7,345, % 4 D company. (Real estate development) 6,145, % 5 E company. (Computer manufacturing) 6,004, % 6 F group. (Real estate development) 4,803, % 7 G group. (Petroleum and chemical material manufacturing) 4,606, % 8 H group. ( Liquid crystal panel and components manufacturing) 3,844, % 9 I group. ( Steel smelting) 3,576, % 10 J group. (Computer manufacturing) 3,487, % December 31, 2014 Unit In Thousands of New Taiwan dollars, % Ranking Group enterprise Credit amount Credit amount to equity ratio (%) 1 A company. (Railway transportation) 35,441, % 2 B group. (Petroleum and chemical material manufacturing) 9,972, % 3 C group. (Steel rolling and extruding) 6,558, % 4 E group. (Computer manufacturing) 6,053, % 5 D company. (Real estate development) 5,803, % 6 F group. (Real estate development) 5,528, % 7 G group. (Petroleum and chemical material manufacturing) 4,436, % 8 K group. (Investment and consulting) 3,957, % 9 I group. (Liquid crystal panel and components manufacturing) 3,831, % 10 H group. (Liquid crystal panel and components manufacturing) 3,138, % Note 1 The top ten enterprise groups other than government or stated owned enterprises are ranked according to their total outstanding credit amount. If the borrowers belong to an enterprise group, the aggregate credit balance of the enterprise should be calculated and disclosed as a code number for each such borrower together with an indication of the borrowers line of business. In addition, if the borrowers are enterprise groups, the enterprise group s industry sector with the maximum exposure to credit risk in its main industry sector should be disclosed, along with the class of the industry, in compliance with the Standard Industrial Classification System of the R.O.C. posted by the Directorate General of Budget, Accounting and Statistics, Executive Yuan, R.O.C. Note 2 Enterprise group is as defined in Article 6 of the Supplementary Provisions to the Taiwan Stock Exchange Corporation Rules for Review of Securities Listings. Note 3 Consists of loans (foreign currency imports financing, foreign currency export financing, notes discounted, customer overdrafts, short term unsecured loans, short term secured loans, receivables from securities lending, medium term unsecured loans, medium term secured loans, long term unsecured loans loan term secured loans, non performing loans), foreign currency long positions, accounts receivable factoring discount, bankers acceptance receivable, guarantees receivable. Note 4 In the calculation of Credit amount to equity ratio, the domestic bank should be calculated in the net value of head office. The Foreign bank should be calculated in the net value of Taiwan branch. 86 Taiwan Business Bank Annual Report 2015

89 (d) Liquidity risk (1) The origin and definition of liquidity risk Liquidity risk refers to the potential financial loss results from the inability to liquidate assets or obtain finance to fulfill the financial obligation which is going to mature with sufficient fund, such as early rescind of time deposits, the channels and terms to call loan from other bank are deteriorated due to the influence of specific markets and the default of loan customers worsen and it is harder for the Bank to receive payments and liquidate financial instruments. The abovementioned situations may diminish the source of cash for the Bank to undertake loan business, trades and investment activities. Under some extreme circumstances, the lack of liquidity may increase the potential possibility of reduction of the overall position of consolidated financial statement, sale of assets and inability to fulfill loan obligation. Liquidity risk is an inherent risk of bank operations and is influenced by specific or overall events in various markets. Those events include but not limited to : Credit event, merger or buyout, systematic strike and natural disaster. (2) The management policy, process and measurement of liquidity risk A. Policy a. In accordance with the target and limit for liquidity risk management approved by the board of directors and monitor all liquidity risk positions. FINANCIAL STATEMENTS b. Established "Directions Governing the Capital Liquidity Risk Management of Taiwan Business Bank" and "Remarks Governing the Capital Liquidity Risk Management of Taiwan Business Bank" to serve as guidance to effectively control capital liquidity risk. c. Overseas branches shall regulate the code of conduct for liquidity risk management based on business characteristics and the regulations of local authorities. After being approved by the general manager, the Risk Management Department will be in charge of monitoring liquidity risk. B. Process a. Finance Department is in charge of daily capital deployment to ensure that the capital is sufficient to cope with various demands for capital. b. Risk Management Department is in charge of the identification, measurement, supervision and control of capital liquidity risk to establish a firm operation process and structure. c. Risk Management Department reports the result of capital liquidity risk measurement to the Assets and Liabilities Management Committee on a monthly basis and reports the results of capital liquidity risk and pressure test to Risk Management Committee and the board of directors quarterly. C. Measurement a. Maturity gap: To place the inflows and outflows of capital into various time zones accordingly based on the remaining days to maturity and calculate the gap of capital of each time zone in order to measure the capital deficiency of each time zone. b. Loan-deposit ratio: To calculate the deposits the Bank received which are used to conduct loan business. In other words, the percentage of the total loan amount accounts for the total deposit amount. 87

90 c. Capital concentration and stability: In order to prevent the Bank from over-relying on single trade counterparty, product or market, the Bank observes several aspects such as the changes in large time deposit customers, the percentage of demand deposits and the continuity of deposits. d. Pressure test: Except for monitoring the capital demand under normal circumstances, the Bank conducts pressure test regularly in order to evaluate the capital liquidity under abnormal circumstances and ensure that the Bank is equipped with sufficient capital. (3) Financial assets possessed for managing liquidity risk and maturity analysis for non-derivative financial liability A. Financial assets possessed for managing liquidity risk The Bank possesses cash and other high liquidity interest yielding assets to cope with payment obligations and potential emergent capital demands in the market. The assets possessed for managing liquidity risk include cash and cash equivalent, due from the Central Bank and call loans to banks, financial assets at fair value through profit or loss, discounts and loans, available-for-sale financial assets, held-to-maturity financial assets, debts investment without active market. B. Maturity analysis for non-derivative financial liabilities The table below shows the cash outflows from the non-derivative financial liabilities which are possessed by the Bank based on the remaining days from the consolidated financial statement date to the contract maturity date. The amount disclosed is based on the cash flows of the contracts and thus part of the amount disclosed may not correspond to the amount disclosed in the consolidated financial statement. December 31, days days 91 days-1 year 1-5 years Over 5 years Total Major matured cash outflow $ 790,522, ,524, ,076,340 66,722,424 10,924,123 1,373,769,572 Deposits from the Central Bank and banks 420, ,608 Overdrafts on banks 870, ,323 Call loans from banks 26,911,653 9,925,836 2,008, ,845,766 Bills and bond sold under repurchase agreement 3,283, , , ,163,147 Interest payable 423, , ,145 57, ,677,603 Deposits transferred from Chunghwa Post Co., Ltd. 843,570 18,931,583 17,945, ,720,840 Demand deposits 650,175, ,175,296 Time deposits 107,088, ,052, ,869,993 33,632,791 2, ,646,160 Remittance 499, ,229 Financial debentures ,550,000 27,050,000 5,000,000 45,600,000 Appropriated loan fund 7,000 2, ,080 5,981,920 5,921,440 12,150, Taiwan Business Bank Annual Report 2015

91 December 31, days days 91 days-1 year 1-5 years Over 5 years Total Major matured cash outflow $ 739,355, ,649, ,772,228 43,727,203 35,380,274 1,295,885,179 Deposits from the Central Bank and banks 388, ,548 Overdrafts on banks 1,274, ,274,988 Call loans from banks 25,837,595 11,811,378 2,237, ,886,823 Bills and bond sold under repurchase agreement 1,666,432 2,081, , ,895,308 Interest payable 244, , ,948 49,141-1,738,931 Deposits transferred from Chunghwa Post Co., Ltd. 1,229,890 19,672,559 18,142, ,044,713 Demand deposits 591,084, ,084,342 Time deposits 117,187, ,619, ,930,362 27,900,802 1, ,638,950 Remittance 433, ,706 Financial debentures - - 6,200,000 8,600,000 27,000,000 41,800,000 FINANCIAL STATEMENTS Appropriated loan fund 8, ,090 7,177,260 8,378,770 15,698,870 Derivative financial liabilities at fair value through profit or loss (4) Derivative financial liability maturity analysis A. Derivative financial instruments settled by net amount The derivative instruments of the Bank's possession which are settled by net amount include foreign derivative instruments, such as non-delivery forward contracts, foreign exchange options settled by net amount. After evaluation the Bank concluded that the maturity date is the basic element to comprehend all the derivative financial instruments listed in the consolidated financial statement. The amount disclosed is based on the cash flows of the contracts and thus part of the amount disclosed may not correspond to the amount disclosed in the consolidated financial statement. The maturity analysis of derivative financial liabilities settled by net amount is as follows: December 31, days days days 181 days to 1 year Over1 year Total Foreign exchange derivative instrument $ Derivative financial liabilities at fair value through profit or loss December 31, days days days 181 days to 1 year Over1 year Total Foreign exchange derivative instrument $ ,086 89

92 B. Derivative financial instruments settled by gross amount The derivative instruments of the Bank's possession settled by gross amount include the following : a. Foreign exchange derivative financial instrument: Foreign exchange options settled by gross amount, foreign exchange forward contracts and currency swap contracts. b. Interest rate derivative financial instruments: interest rate swap contracts. The table below shows the derivative financial instruments of the Bank's possession which are settled by gross amount based on the remaining days from the consolidated financial statement date to the contract maturity date. The amount disclosed is based on the cash flow of the contracts and thus part of the amount disclosed may not correspond to the amount disclosed in the consolidated financial statement. The maturity analysis for derivative financial liabilities settled by gross amount is as follows: December 31, days days days 181 days to 1 year Over 1 year Total Derivative financial instruments at fair value through profit or loss Foreign exchange derivative instrument Cash outflow $ 22,660,960 12,542,840 2,515, ,038-38,561,362 Cash inflow 22,748,215 12,784,232 2,521, ,631-38,947,080 Total cash outflow 22,660,960 12,542,840 2,515, ,038-38,561,362 Total cash inflow 22,748,215 12,784,232 2,521, ,631-38,947,080 Net cash flow $ ( 87,255 ) ( 241,392 ) ( 5,478 ) ( 51,593 ) - ( 385,718 ) December 31, days days days 181 days to 1 year Over 1 year Total Derivative financial instruments at fair value through profit or loss Foreign exchange derivative instrument Cash outflow $ 20,903,693 17,985,172 2,002, ,141-41,862,712 Cash inflow 20,720,398 17,841,479 1,986, ,159-41,518,902 Interest rate derivative instrument Cash outflow 3,560 7,791 11,372 16,544 5,248 44,515 Cash inflow 1,312 3,301 4,611 9,820 4,802 23,846 Total cash outflow 20,907,253 17,992,963 2,014, ,685 5,248 41,907,227 Total cash inflow 20,721,710 17,844,780 1,991, ,979 4,802 41,542,748 Net cash flow $ 185, ,183 22,601 7, ,479 (5) Maturity analysis of off balance sheet items The table below shows the maturity analysis of the off-balance-sheet items of the Bank based on the remaining days from the consolidated financial statement date to the contract maturity date. For the financial guarantee contracts issued, the maximum amount of the guarantee is listed in the earliest time zone that the guarantee may be executed. The amount disclosed is based on the cash flows of the contracts and thus part of the amount disclosed may not correspond to the amount disclosed in the consolidated financial statement. 90 Taiwan Business Bank Annual Report 2015

93 December 31, days days days 181 days to 1 year Over 1 year Total Issued and irrevocable loan commitment Issued but not yet executed letter of credit $ 6,390,851 15,955,553 1,577,133 30,860,170 45,987, ,771,521 2,731,882 4,245, , ,792 28,054 8,030,146 Miscellaneous guarantee 9,129, ,129,331 Total $ 18,252,064 20,201,181 2,335,923 31,125,962 46,015, ,930,998 December 31, days days days 181 days to 1 year Over 1 year Total Issued and irrevocable loan commitment Issued but not yet executed letter of credit $ 494, , ,155 25,818,962 12,292,682 39,694,378 4,561,517 6,233,718 1,280, ,900 36,708 12,391,611 Miscellaneous guarantee 9,073, ,073,990 Total $ 14,130,409 6,660,395 1,941,923 26,097,862 12,329,390 61,159,979 (6) Maturity analysis of lease contract commitments FINANCIAL STATEMENTS Operating lease commitment refers to, when the Bank is the lessor or lessee and under the irrevocable operating lease conditions, the minimum total future rent payment. Below tables show the maturity analysis of the Bank's operating lease contract commitments: December 31, 2015 Below 1 year 1-5 years Over 5 years Total Operating lease expense (lessee) $ 79, , ,706 Operating lease income (lessor) 1, ,620 December 31, 2014 Below 1 year 1-5 years Over 5 years Total Operating lease expense (lessee) $ 80, , ,600 Operating lease income (lessor) 1, ,743 The capital expenditure commitment of the Bank refers to the contract signed to obtain buildings and equipments. The maturity analysis of the capital expenditure commitment of the Bank is as follows: December 31, 2015 Below 1 year 1-5 years Over 5 years Total Buildings and constructions $ 54, ,518 Machinery and equipments 593,308 13, ,488 Communication and transportation equipments 2, ,698 Lease property 9,287 36, ,037 Miscellaneous equipments 4, ,399 Total $ 664,210 49, ,140 December 31, 2014 Below 1 year 1-5 years Over 5 years Total Machinery and equipments $ 292,321 68, ,402 Lease property 9,599 36,368 7,707 53,674 Total $ 301, ,449 7, ,076 91

94 (7) Disclosures required by "Regulations Governing the Preparation of Financial Reports by Public Banks" A. Maturity analysis in New Taiwan dollars In NTD thousands, % Amount during the maturity period from the balance sheet date to due date Total 0-10days 11-30days 31-90days days 181days-1year Over 1 year Major maturity capital inflow Major maturity capital outflow $ 1,272,950, ,497, ,607, ,154, ,934, ,183, ,573,422 1,635,584,929 43,476,796 81,759, ,703, ,925, ,623, ,096,493 Gap (362,634,049) 86,020,959 95,848,389 (48,549,195) (31,990,779) (159,440,352) (304,523,071) Note: Listed amounts are denominated in New Taiwan dollars (i.e., excluding foreign currency amounts) of the head office and domestic branches, including commitment of credit agreement and estimates to outflow $358,629,707. In NTD thousands, % December 31, 2014 Amount during the maturity period from the balance sheet date to due date Total 0-10days 11-30days 31-90days days 181days-1year Over 1 year Major maturity capital inflow Major maturity capital outflow $ 1,202,044, ,107, ,420, ,373, ,515, ,381, ,245,630 1,571,454,900 61,084,104 82,111, ,806, ,012, ,223, ,216,228 Gap (369,410,198) 45,023,878 71,308,891 (63,433,012) (9,497,110) (136,842,247) (275,970,598) Note: Listed amounts are denominated in New Taiwan dollars (i.e., excluding foreign currency amounts) of the head office and domestic branches, including commitment of credit agreement and estimates to outflow $369,998,301. B. Maturity analysis in U.S. dollars US dollars in thousands, % December 31, 2015 Amount during the maturity period from the balance sheet date to due date Total 0-30days 31-90days days 181days-1year Over 1 year Major maturity capital inflow Major maturity capital outflow $ 7,029,595 2,279,080 1,462, ,629 1,032,682 1,472,837 8,246,927 2,495,283 1,317, , ,002 3,233,032 Gap (1,217,332) (216,203) 144, , ,680 (1,760,195) Note: Including commitment of credit agreement and estimates to outflow US$1,269,182. December 31, 2014 US dollars in thousands, % Amount during the maturity period from the balance sheet date to due date Total 0-30days 31-90days days 181days-1year Over 1 year Major maturity capital inflow Major maturity capital outflow $ 6,342,931 1,873,581 1,404, , ,131 1,543,687 7,271,176 2,082,382 1,668, , ,163 2,319,480 Gap (928,245) (208,801) (264,369) 240,750 79,968 (775,793) Note: Including commitment of credit agreement and estimates to outflow US$1,098, Taiwan Business Bank Annual Report 2015

95 (e) Market risk (1) Definition of market risk Market risk refers to the possible loss of the Bank's business in or off the balance sheet results from the disadvantageous fluctuation in market price in terms of interest rates, stock prices, foreign exchange rates and commodity prices. (2) Policies and procedures of market risk management A. Strategy a. To carry out market risk management, achieve operation target and maintain healthy capital adequacy by following "Directions Governing the Market Risk Management of Taiwan Business Bank" and other relevant regulations. b. Under the risk tolerance approved by the board of directors, the Bank applies various risk control mechanism to effectively deploy and manage capital in order to maintain the market risk exposure within the tolerable extent and achieve earning target. B. Policies and procedures FINANCIAL STATEMENTS In order to establish the market risk management mechanism and ensure that the market risk is within the tolerable extent, the Bank set up directions governing the market risk management, remarks governing the limit of market risk and financial product valuation procedures as the primary management guidance. Other than what is stated above, the Bank also established limit control mechanism in terms of trade positions, stop-limit, suspensions and lines of alert based on the operation notices and procedures of different financial products (including fix income products, equity securities, foreign exchange transaction and derivative financial products). (3) Process for market risk management A. Risk identification In accordance with the rules of "Directions Governing the Market Risk Management of Taiwan Business Bank", the Bank shall conduct appropriate market risk evaluation and document the process for later review before financial products are promoted. The content of evaluation includes risk factors identification, evaluation methods, cost-benefit analysis, market liquidity, risk strategy, adequacy of risk management mechanism and the influence on the Bank for undertaking market risk. B. Risk measurement a. Annually based on the business development of transaction units and submit to the board of directors for approval. For the units which the positions and limits remain unchanged after evaluation, they can put the positions and limits into practice after receiving the approval from the general manager. b. The risk measurements (or evaluations) of the financial products of the Bank are conducted through different information systems. For the market data and parameters of the models applied for evaluation, they shall be inspected regularly to determine the rationality. C. Risk monitoring a. Valuation reports of various financial products are prepared regularly for high rank supervisors to review and serve as the guidance for daily risk management operation. 93

96 b. All financial transactions are equipped with different regulations in terms of limit of loss and stop-limit. Provided that the valuation loss amount is over the limit, a stop-limit, suspension and subsequent risk control will be executed. D. Risk report Risk management units report current market risk management status of the Bank to directors (executive directors) and high rank management to facilitate the directors and management to control the risk exposure status and adjust management procedures properly. (4) Scope and method of market risk management A. Foreign exchange risk management a. Definition of foreign exchange risk management Foreign exchange risk refers to the potential profit or loss of the foreign currency financial instruments which results from the transition among fluctuating currencies. b. Applicable scope All the financial instruments which apply to trading book position and banking book position and involve in foreign currencies. c. Purpose for foreign exchange risk management To avoid loss of earnings or deterioration of financial status due to intensive fluctuation of foreign exchange and to increase capital deployment efficiency and business operation integrity. d. Procedures of foreign exchange risk management 1) In order to control foreign exchange transaction risk, the Bank established trade position authorization standard for financial transaction operations, trade units and traders in current regulations. In addition, for non-commercial business foreign exchange operation, all trade units submit the required amounts of position annually based on operation status. Risk management units will evaluated the requirement and submit to the board of directors' (executive directors) for approval. The demand will be executed after the board of directors approved. For the units which the positions remain unchanged after evaluation, they can put the positions into practice after receiving the approval from the general manager. 2) The trade units conduct various foreign financial product business, they shall fully understand the content of commodities, the risk tolerance and trade purpose. Trade units shall establish financial products trading strategies based on market status in the meeting every morning and submit the risk-benefit evaluation in the meeting minutes for the department heads to review. The trading shall follow the relevant authorization rules of the Bank and the stop-limit of all trade positions shall be executed reliably. e. Process of foreign exchange risk management 1) Identification and measurement A) Risk Management unit established risk factor chart based on different financial transactions to effectively identify risk factors and market risk resources. In addition, the financial transactions which the Bank conducts deal with simple type financial products. For complex financial products, the Bank conducts back-to-back hedge covering to effectively avoid market risk. 94 Taiwan Business Bank Annual Report 2015

97 B) Positions of the trading book shall be evaluated daily where the positions of the banking book shall be evaluated monthly. When there are public quotes for financial instruments, the quotes shall be the prior evaluation prices. If the financial instruments are evaluated by models, then they shall be evaluated by mathematic models prudently and the assumptions and parameters of the models shall be reviewed regularly. 2) Monitoring and report A) When the evaluation loss of non-commercial foreign exchange transactions is over the limit, the trade units shall execute a stop-limit per the regulations. If the loss amount reaches the suspension warning line or suspension limit of the financial transaction, risk management units shall report to the general manager. Provided that the loss amount reaches the annual suspension line, risk management units shall report to the board of directors (executive directors). B) Reports of operation results shall be prepared and submitted to the department heads for approval on a daily basis. B. Equity security risk management a. Definition of equity security risk FINANCIAL STATEMENTS The market risks of the equity securities possessed by the Bank include the individual risk results from the market price fluctuation of individual equity security and the general market risk results from overall market price fluctuation. b. Applicable scope Financial instruments similar to equity security in all trading books. c. Purpose of equity security risk management To avoid loss of earnings or deterioration of financial status due to intensive fluctuation of equity securities and to increase capital deployment efficiency and business operation integrity. d. Procedures of equity security risk management 1) All trade units submit the required amounts of position annually base on operation status. Risk management units will evaluate the requirement and submit to the board of directors' (executive directors) for approval. The demand will be executed after the board of directors approved. For the units which the positions remain unchanged after evaluation, they can put the positions into practice after receiving the approval from the general manager. 2) The trade units shall predict the possible trend of domestic stock market based on the information of foreign and domestic security markets so as to set up the operation strategies and directions. The traders shall pay close attention to the market trend when the market opens so as to conduct security transactions and the operations as well as the meeting minutes shall be submitted to the department heads to review. e. Process of equity security risk management 1) Identification and measurement A) The risk management units apply Value at Risk models to measure the market risk of equity security investment. Furthermore, base on the trade units operation demand and the risk limit established by the Bank's risk tolerance, the risk management units effectively control the variation of risk factors under an acceptable extent. 95

98 B) Trading book position shall be evaluated daily. When there is a public quote in the market, the quote shall be adopted as the prior evaluation price (If the transaction is in secondary market and the liquidity is high, the closing price can be adopted as the evaluation price) ; If the financial instruments are evaluated by models, then they shall be evaluated by mathematic models prudently and the assumptions and parameters of the models shall be reviewed regularly. 2) Monitoring and report A) When the evaluation loss of equity security investment is over the limit, the trade units shall execute a stop-limit per regulations. If the loss amount reaches the suspension warning line or suspension limit of the financial transaction, risk management units shall report to the general manager. Provided that the loss amount reaches the annual suspension line, risk management units shall report to the board of directors (executive directors). B) Transaction reports shall be prepared and submitted to the department heads for approval on a daily basis. C. Interest rate risk management a. Definition of interest rate risk Interest rate risk refers to the price decline of the Bank's financial products which contain interest risk factors due to the disadvantageous changes in interest rate. b. Applicable scope Financial instruments which contain interest rate factors in all trading books. c. Purpose of interest rate risk management To avoid loss of earnings or deterioration of financial status due to intensive fluctuation of interest rate and to increase capital deployment efficiency and business operation integrity. d. Procedures of interest rate risk management 1) In order to control interest rate risk, the Bank established trade position authorization standard for financial transaction operations, trade units and trade counterparties in current regulations. In addition, for the positions held for trading, all trade units submit the required amounts of position annually based on operation status. Risk management units will evaluated the requirement and submit to the board of directors' (executive directors) for approval. The demand will be executed after the board of directors approved. For the units which the positions remain unchanged after evaluation, they can put the positions into practice after receiving the approval from the general manager. 2) The trade units shall consider safety, liquidity and profitability and gather market information to assess the potential risk and benefit. In additional, the trade units shall choose investment target prudently through analyzing the issuers' credit, financial status, country risks and interest rate trends. e. Process of interest rate risk management 1) Identification and measurement A) The risk management units establish risk factor charts base on different financial transaction to effectively identify risk factors and market risk resources. In addition, the 96 Taiwan Business Bank Annual Report 2015

99 financial transactions which the Bank conducts deal with simple type financial products. For complex financial products, the Bank conducts back-to-back hedge covering to effectively avoid market risk. B). Position of the trading book shall be evaluated daily. When there are public quotes for financial instruments, the quotes shall be the prior evaluation prices. If the financial instruments are evaluated by models, then they shall be evaluated by mathematic models prudently and the assumptions and parameters of the models shall be reviewed regularly. 2) Monitoring and report A) The risk management units apply DV01 to measure to what extent the trading book bond positions are influenced by the interest rate risk and set up interest rate sensitivity limit base on the requirements of the trade units and the risk tolerance of the Bank annually. B) The trade units shall prepare the income assessment tables of trade positions and traders for the department heads to review. In addition, When the evaluation loss of the position is over the limit, the trade units shall execute a stop-limit per the regulations. If the loss amount reaches the suspension warning line or suspension limit of the financial transaction, risk management units shall report to the general manager. Provided that the loss amount reaches the annual suspension line, risk management units shall report to the board of directors (executive directors). FINANCIAL STATEMENTS D. Concentration management a. The trade counterparties of the Bank are mostly financial institutions. To avoid the risk being over concentrated and enhance credit risk management, the Bank established financial institution credit risk limit based on the world ranking of tier 1 capital and credit ratings from The Banker. The trade units shall also pay attention to the changes of the credit status of individual financial institution as well as the changes of the national credit rating to conduct the transaction prudently. b. Except for the limit of credit risk for individual country and individual financial institution, the Bank set up limits for the corporate bonds and commercial papers purchased without the guarantee from financial institutions. c. For equity security investments, the Bank set up limits for single institution and single related party. (5) Interest rate risk management of the banking book A. The definition and management purpose for the interest rate risk of the banking book a. The interest rate risk of the banking book refers to the negative effect towards the the future net interest income or economic value of equity results from the fluctuation of interest rate. Net Interest Income (hereafter NII) is the total amount of interest revenue deducted by the total amount of interest expense; Economic Value of Equity (hereafter EVE) is the total discounted future cash inflow from assets deducted by the total discounted future cash outflow from liabilities. b. The management purpose of the interest rate risk management of the banking book is to control the negative effect from the interest rate risk fluctuation towards NII or EVE within the approved limit extent. 97

100 B. The process for the interest rate risk management of the banking book a. Identification and measurement When the Bank conducts interest rate related products, it identifies the repricing risk, yield curve risk, basis risk and option characteristic risk and measures the possible influence on the earnings and economic value results from interest rate fluctuation. b. Monitoring and report The Bank established limits of the ratio between interest-rate-sensitivity assets and interest-rate-sensitivity liabilities, the effect to NII in 1 year when the market interest rate parallel changes 1 BP and the effect to EVE when the market interest rate parallel changes 200 BP to control the banking book interest rate risk. The results of interest rate risk measurement are reported to the Assets and Liabilities Management Committee monthly and to the board of directors (executive directors) quarterly. When the measurement result is over the limit, relevant units shall be convened to establish responding plan and the plan shall be submitted to the Assets and Liabilities Management Committee for discussion. After the plan is approved by the general manager, it shall be executed by the relevant business units and report to the board of directors (executive directors). (6) Value at Risk A. Description of Value at Risk Value at Risk (VaR) is a statistical amount used to evaluate the maximum possible loss of portfolio results from the changes of market risk factors within a certain period of time and a fixed confidence interval. B. Value at Risk models and assumptions In order to enhance the market risk control operation, the Bank established quantified indices of market risk for the equity security position of the trading book. Based on the historical information of the last 1 year and applies Histocal Simulation Method (with the confidence interval being 99% and the duration of possession being 1 day), the Bank calculates and monitors the trend of Value at Risk. C. The limit of Value at Risk model Value at Risk is a tool to measure market risk under normal circumstance. The limits of the model are listed below: a. Value at Risk can not reflect the losses result from other type of risks, such as credit risk and liquidity risk. b. Value at Risk measures the possible loss of the position on hand at the end of the transaction day, but it can not reflect the distribution of the part which actual loss exceeds Value at Risk c. Value at Risk model is based on historical data to evaluate the amount, and therefore it may not be able to predict the future changes of risk factors, especially for those exceptions result from significant market fluctuation. (7) Foreign exchange risk disclosure and sensitivity analysis A. Foreign exchange risk exposure a. Significant net positions of foreign currencies (Market risk) 98 Taiwan Business Bank Annual Report 2015

101 December 31, 2015 Currency Foreign currency amount NT$ amount USD $ 240,196 7,897,644 AUD 15, ,152 ZAR 76, ,181 EUR 2,576 92,530 GBP ,954 December 31, 2014 Currency Foreign currency amount NT$ amount USD $ 114,665 3,631,441 AUD 15, ,974 HKD 31, ,999 JPY 271,978 72,237 EUR 1,654 63,745 FINANCIAL STATEMENTS Note 1 Main foreign currencies are the top five foreign currencies ranked in NTD value. Note 2 Net foreign currency is the absolute value of the net value of each foreign currency. b. Assets and liabilities of foreign currency December 31, 2015 Currency Monetary Financial assets Foreign currency amount (in thousands) Spot rate NTD amount Monetary Financial liabilities Foreign currency amount (in thousands) Spot rate NTD amount USD $ 6,273, ,288,364 5,965, ,148,862 HKD 7,830, ,216,383 7,760, ,918,607 AUD 1,369, ,844,431 1,335, ,025,925 CNY 5,948, ,701,679 5,951, ,716,783 ZAR 6,298, ,352,983 6,300, ,356,083 EUR 211, ,586, , ,415,540 JPY 14,652, ,000,105 14,874, ,060,817 CAD 40, ,409 41, ,592 GBP 13, ,321 13, ,368 NZD 27, ,320 27, ,930 Other (Note) , ,752 Non-monetary Financial assets Non-monetary Financial liabilities USD 1, , EUR 3, , JPY 159, , CNY 2, ,

102 December 31, 2014 Currency Monetary Financial assets Foreign currency amount (in thousands) Spot rate NTD amount Monetary Financial liabilities Foreign currency amount (in thousands) Spot rate NTD amount USD $ 5,525, ,991,698 5,363, ,849,092 CNY 8,727, ,499,529 8,729, ,510,716 HKD 10,894, ,471,451 10,885, ,435,921 AUD 1,263, ,887,714 1,233, ,111,050 ZAR 7,370, ,194,485 7,372, ,200,277 EUR 244, ,412, , ,116,136 JPY 27,983, ,432,348 27,979, ,431,310 NZD 35, ,273 35, ,353 CAD 38, ,065,207 39, ,071,490 GBP 14, ,059 14, ,362 CHF , ,522 Note: Consolidated disclosure is applied for other currencies not over NT$100,000. B. Foreign exchange risk sensitivity analysis (Change by 1%) Foreign exchange risk sensitivity analysis is the analysis that given other conditions remain the same, the influence on profit or loss and equity when each respective currency depreciate or appreciate by 1% December 31, 2015 Depreciate by 1% Appreciate by 1% Currency Income Equity Income Equity USD $ 63,352 ( 61,796 ) ( 63,352 ) 61,796 AUD 8,436 ( 13,119 ) ( 8,436 ) 13,119 HKD 3,347 ( 5,134 ) ( 3,347 ) 5,134 CAD 85 - ( 85 ) - GBP 83 - ( 83 ) - SGD 39 - ( 39 ) - ZAR 27 - ( 27 ) - SEK (17) CHF 66 - ( 66 ) - JPY 90 - ( 90 ) - THB ( 159 ) - EUR ( 111 ) - NZD 26 - ( 26 ) - CNY ( 25,335 ) - 25,335 - Total $ 50,469 ( 80,049 ) ( 50,469 ) 80, Taiwan Business Bank Annual Report 2015

103 December 31, 2014 Depreciate by 1% Appreciate by 1% Currency Income Equity Income Equity USD $ 26,507 ( 42,133 ) ( 26,507 ) 42,133 AUD 9,204 ( 13,190 ) ( 9,204 ) 13,190 HKD 3,221 ( 2,821 ) ( 3,221 ) 2,821 CAD 70 - ( 70 ) - GBP ( 76 ) SGD 45 - ( 45 ) - ZAR 54 - ( 54 ) - SEK ( 4 ) CHF 42 - ( 42 ) - JPY ( 10 ) THB 22 - ( 22 ) - EUR ( 144 ) - NZD ( 9 ) CNY ( 329 ) Total $ 38,881 ( 58,144 ) ( 38,881 ) 58,144 FINANCIAL STATEMENTS (8) Interest rate risk disclosure and sensitivity analysis A. Interest rate sensitivity analysis The assumption of interest rate sensitivity analysis is, under the circumstance that other conditions remain the same, the yield of the market increase or decrease by 1 basis point (1 bp). December 31, 2015 Interest rate increases by 1 bp Interest rate decreases by 1 bp Currency Income Equity Income Equity trading book TWD $ ( 61 ) ( 5,557 ) 61 5,557 banking book TWD - ( 12,155 ) - 12,155 USD ( 8 ) ( 2,423 ) 8 2,423 AUD - ( 82 ) - 82 ZAR - ( 196 ) HKD - ( 300 ) CNY - ( 701 ) Total $ ( 69 ) ( 21,414 ) 69 21,414 December 31, 2014 Interest rate increases by 1 bp Interest rate decreases by 1 bp Currency Income Equity Income Equity trading book TWD $ ( 58 ) ( 3,638 ) 58 3,638 banking book TWD - ( 5,824 ) - 5,824 USD ( 25 ) ( 95 ) AUD - ( 75 ) - 75 HKD - ( 379 ) CNY - ( 176 ) Total $ ( 83 ) ( 10,187 ) 83 10,

104 B. Sensitivity analysis of expected net revenue/sensitivity of equity in terms of interest rate fluctuation December 31, 2015 Effect on NII in 1 year Effect on EVE in 1 year TWD USD TWD USD Scenario Interest rate increases by 100 bp 2,995,305 ( 11,765 ) 2,538,545 ( 8,657 ) Interest rate decreases by 100 bp ( 5,625,249 ) ( 3,688 ) ( 2,260,172 ) 8,400 December 31, 2014 Effect on NII in 1 year Effect on EVE in 1 year TWD USD TWD USD Scenario Interest rate increases by 100 bp 3,079,541 ( 9,879 ) 1,834,336 ( 3,178 ) Interest rate decreases by 100 bp ( 5,353,320 ) ( 94 ) ( 1,820,770 ) 1,652 (9) Equity security risk disclosure and sensitivity analysis A. Equity security sensitivity analysis (Changes by 1%) The assumption of equity security sensitivity analysis is, under the circumstance that other conditions remain the same, the price of equity security increased or decreased by 1%. December 31, 2015 Change Currency Income Equity Equity security price increases by 1 % TWD 2,100 15,083 USD 16 - EUR 30 - JPY 1,600 - CNY 21 - Equity security price decreases by 1 % TWD ( 2,100 ) ( 15,083 ) USD ( 16 ) - EUR ( 30 ) - JPY ( 1,600 ) - CNY ( 21 ) - December 31, 2014 Change Currency Income Equity Equity security price increases by 1 % TWD - 15,031 Equity security price decreases by 1 % TWD - ( 15,031 ) Form January 1, 2015 to December 31, 2015 Value at Risk Average Maximum Minimum Equity security risk 48,134 74,035 33, Taiwan Business Bank Annual Report 2015

105 Form January 1, 2014 to December 31, 2014 Value at Risk Average Maximum Minimum Equity security risk 23,815 47,242 11,679 (10) Disclosures required by "Regulations Governing the Preparation of Financial Reports by Public Banks" A. analysis of interest rate-sensitive assets and liabilities (New Taiwan dollars) In NTD thousands, % December 31, 2015 Item 1~90 days 91~180 days 181days~1year over 1 year total Interest rate-sensitive assets $ 1,101,376,273 5,738,484 11,848,870 56,178,825 1,175,142,452 Interest rate-sensitive liabilities 924,046,571 79,743,585 92,180,763 34,296,117 1,130,267,036 Interest rate sensitivity gap 177,329,702 ( 74,005,101 ) ( 80,331,893 ) 21,882,708 44,875,416 Net amount 67,659,129 Ratio of interest rate-sensitive assets to debt (%) Ratio of interest rate-sensitive gap to net worth (%) FINANCIAL STATEMENTS In NTD thousands, % December 31, 2014 Item 1~90 days 91~180 days 181days~1year over 1 year total Interest rate-sensitive assets $ 1,077,922,594 6,450,645 15,830,328 35,730,574 1,135,934,141 Interest rate-sensitive liabilities 897,131,135 66,144,274 79,635,462 25,369,017 1,068,279,888 Interest rate sensitivity gap 180,791,459 ( 59,693,629 ) ( 63,805,134 ) 10,361,557 67,654,253 Net amount 62,737,917 Ratio of interest rate-sensitive assets to debt (%) Ratio of interest rate-sensitive gap to net worth (%) Note 1 Listed amounts are denominated in N.T. dollars of the head office and domestic branches, offshore banking unit, overseas branches. (i.e., excluding foreign currency amounts). Note 2 Interest rate sensitive assets and liabilities refer to revenue or cost of interest yielding assets and interest bearing liabilities, which are affected by interest rate fluctuations. 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 (New Taiwan dollars interest rate sensitive assets and New Taiwan dollars interest rate sensitive liabilities). B. Analysis of the interest-sensitive assets and liabilities (U.S. dollars) US dollars in thousands, % December 31, 2015 Item 1~90 days 91~180 days 181days~1year over 1 year total Interest rate-sensitive assets $ 3,632, ,654 80, ,089 4,471,754 Interest rate-sensitive liabilities 4,128, , ,353-4,779,373 Interest rate sensitivity gap ( 496,121 ) ( 21,089 ) ( 103,498 ) 313,089 ( 307,619 ) Net amount 2,057,759 Ratio of interest rate-sensitive assets to debt (%) Ratio of interest rate-sensitive gap to net worth (%) ( ) 103

106 December 31, 2014 US dollars in thousands, % Item 1~90 days 91~180 days 181days~1year over 1 year total Interest rate-sensitive assets $ 2,993, ,025 64,999 49,817 3,653,882 Interest rate-sensitive liabilities 3,641, , ,855-4,038,454 Interest rate sensitivity gap ( 648,947 ) 315,414 ( 100,856 ) 49,817 ( 384,572 ) Net amount 1,980,989 Ratio of interest rate-sensitive assets to debt (%) Ratio of interest rate-sensitive gap to net worth (%) ( ) Note 1 Listed amounts are in U.S. dollars (i.e., excluding contingent assets and contingent liabilities) of the head office and domestic branches, offshore banking unit, overseas branches. Note 2 Interest rate sensitive assets and interest rate sensitive liabilities refer to the interest yielding assets and interest paying liabilities which the revenue and cost are affected by interest rate fluctuation. 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 (U.S. dollars interest rate sensitive assets and U.S. dollars interest rate sensitive liabilities). (f) Transferred financial assets that are not fully derecognized The transactions, relating to transferred financial assets not qualifying for full derecognition, the Group conduct during daily operation mostly involve securities lending in accordance to repurchase agreements. Since the right to receive contractual cash flow has been transferred to others and the Group's obligation to repurchase the transferred assets for a fixed price at a future date is recognized under liability, for these transactions, the Group can not use, sell or pledge those transferred financial assets in availability period, the Group have interest rate risk and credit risk, the said transferred assets are not fully derecognized. The chart as below are financial assets that are not fully derecognized and related financial liabilities: Carrying amount of associated financial liabilities December 31, 2015 Fair value of associated financial liabilities Types of financial assets Carrying amount of transferred financial assets Fair value of transferred financial assets Net fair value Available-for-sale financial assets Repurchase agreement $ 1,329,694 1,249,798 1,329,694 1,249,798 79,896 (g) Offsetting financial assets and financial liabilities The Group have an exercisable master netting arrangement or similar agreement in place with counterparties. When both parties reach a consensus regarding net settlement, the aforesaid exercisable master netting arrangement or similar agreement can be net settled by offsetting financial assets and financial liabilities. If not, the transaction can be settled at total amount. In the event of default involving one of the parties, the other party can have the transaction net settled. The chart as below present the aforementioned offsetting financial assets and financial liabilities: December 31, 2015 Financial assets that are offset, have an exercisable master netting arrangement or similar agreement Amounts not set off in the balance sheet(d) Gross amounts of recognized financial assets(a) Gross amounts of financial liabilities offset in the balance sheet(b) Net amount of financial assets presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral pledged Net amount (e)=(c)-(d) Derivative financial instruments $131, ,745-37,367 94, Taiwan Business Bank Annual Report 2015

107 December 31, 2015 Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts of recognized financial liabilities(a) Gross amounts of financial assets offset in the balance sheet(b) Net amount of financial liabilities presented in the balance sheet (c)=(a)-(b) Amounts not set off in the balance sheet(d) Financial instruments (Note) Cash collateral pledged Net amount (e)=(c)-(d) Derivative financial instruments $72,202-72, ,202 Note: Master netting arrangements and non cash financial collaterals are included. (AK) Capital Management (a) The Bank takes business development and risk control into consideration and calculates capital adequacy per "Regulations Governing the Capital Adequacy Ratio and Capital Category of Banks" and "Calculation Methods and Forms of Proprietary Capital and Risk Capital of Banks". The ratio between proprietary capital and risk capital shall remain above the regulated minimum ratio. FINANCIAL STATEMENTS (b) In order to maintain adequate capital and reach a balance between risk control and business development, the Bank established "Directions Governing Capital Adequacy" as the guidance for controlling capital adequacy. The scope of the directions include, except for the least capital requirements for credit risk, market risk and operation risk, significant risk such as banking book interest rate risk, liquidity risk and concentration risk. In addition, in order to link business strategies, capital and risk management, the Bank sets up capital management plan annually for the president's approval and reports to Risk Management Committee and the board of directors quarterly about relevant risks and capital control status. (c) The Bank identifies, measures, monitors and reports various risks based on the directions, notices and relevant rules of competent authority regarding credit risk, market risk, operation risk, legal and compliance risk, interest rate risk of the banking book, liquidity risk and concentration risk so as to be familiar with current business environment and monitors and adjusts capital adequacy effectively. (d) To cope with the implementation of new Basel Accord, the Bank set up complete risk management system, risk management operation tracking procedures to provide the management with appropriate risk management information for making decisions. Therefore, the Bank is able to maintain adequate capital within the tolerable extent and to ensure the provision of proprietary capital of the Bank corresponds with the overall operating risk characteristics of the Bank. (1) Tier 1 capital A. Common stock equity: The item includes common stock deducted by treasury stock, goodwill and other intangible assets, deferred tax assets based on future profit status of the Bank, unrealized gain on available-for-sale financial assets, operating reserve and deficiency of allowance for bad debts, real estate retained earning increment arising from applying the fair value or the revaluation reserve as the deemed cost when first adopting IFRSs, and 25% of the investment on financial related business which is classified in banking book. B. Other tier 1 capital: Twenty-five percent of the perpetual non-accumulated subordinated financial debentures deducted by the investment on financial related business which is classified in banking book. 105

108 (2) Tier 2 capital The item includes perpetual accumulated subordinated financial debentures, long term subordinated debenture, real estate retained earning increment arising from applying the fair value or the revaluation reserve as the deemed cost when first adopting IFRSs, 45% of unrealized gain on available-for-sale financial assets, and 50% of the investment on financial related business which is classified in banking book. Item December 31, 2015 December 31, 2014 Common stock equity 65,662,491 60,731,181 Eligible capital Other tier 1 capital 7,057,157 2,532,896 Tier 2 captial 19,689,051 18,043,384 Eligible Capital 92,408,699 81,307,461 Credit Standardized approach 770,946, ,103,364 risk Internal ratings-based approach - - Securitization - - Operational Basic indicator approach - 32,959,913 Risk- weighted risk Standardized approach/selective 32,741,848 - assets standardized approach Advanced measurement approach - - Market Standardized approach 18,682,350 12,022,600 risk Internal model approach - - Total risk-weighted assets 822,370, ,085,877 Capital adequacy ratio 11.24% 10.54% Common stock equity/ Risk-weighted assets ratio 7.98% 7.88% Tier 1 capital / Risk-weighted assets ratio 8.84% 8.20% Leverage ratio 4.69% 3.41% The formulas of the table are listed as follows: A. The eligible capital, risk-weighted assets and exposure are calculated per "Regulations Governing the Capital Adequacy and Capital Category of Banks" and "The Calculation and Forms of Eligible Capital and Risk Assets of Banks". B. The Bank shall shall fill out the capital adequacy of this period and last period for this period and last period, For the semi-annual report, the Bank shall disclose the capital adequacy of the previous period ended December 31 except the capital adequacy of this period and last period. C. Note 1. Eligible Capital = Common stock equity Other Tier 1 Capital Tier 2 Capital Note 2. Total risk-weighted assets = Credit risk weighted asset (operational risk charge market risk charge) 12.5 Note 3. Capital adequacy ratio= Eligible Capital Risk weighted asset. Note 4. Common stock equity / Risk-weighted assets ratio= Common stock equity / total risk weighted assets Note 5. Tier 1 capital / Risk-weighted assets ratio = (Common stock equity other tier 1 capital)/ Risk-weighted assets Note 6. Leverage ratio = Net Tier 1 capital / Total risk exposure. D. Above table is not required to be disclosed when preparing the financial reports of the first quarter and third quarter. 106 Taiwan Business Bank Annual Report 2015

109 7. RELATED PARTY TRANSACTIONS (A) Names of related parties and relationship with the bank Name of related party Bank of Taiwan Ministry of Finance, R.O.C Land Bank of Taiwan Other Corporate director of the Bank Corporate director of the Bank Corporate director of the Bank (B) Significant related party transactions (a) Due from other Banks Relationship with the Bank and its subsidiaries Major shareholders, directors(includes independent directors), president, executive vice president, managers and their second tier of kinship. December 31, 2015 Amount % Bank of Taiwan $ 171, Land Bank of Taiwan 1, Total $ 172, December 31, 2014 Amount % Bank of Taiwan $ 98, Land Bank of Taiwan Total $ 99, FINANCIAL STATEMENTS Interest rates are the same as those with regular clients. (b) Deposits from other banks December 31, 2015 Amount % Land Bank of Taiwan $ December 31, 2014 Amount % Land Bank of Taiwan $ Interest rates are the same as those with regular clients. (c) Call loans to banks Maximum balance December 31, 2015 Interest income Annual interest rate Bank of Taiwan $ 129, % Land Bank of Taiwan 1,149, ,800 1, %~4.3% Total $ 1,279, ,800 1,178 Maximum balance December 31, 2014 Interest income Annual interest rate Bank of Taiwan $ 5,576,020-1, %~1.35% Land Bank of Taiwan 3,167, ,050 2, %~1.4% Total $ 8,743, ,050 4,043 Interest rates are the same as those with regular clients. 107

110 (d) Call loans from banks Maximum balance December 31, 2015 Interest expense Annual interest rate Bank of Taiwan $ 6,491,130 1,350,520 9, %~15% Land Bank of Taiwan 11,300,729 2,506,730 15, %~3.8% Total $ 17,791,859 3,857,250 25,410 Maximum balance December 31, 2014 Interest expense Annual interest rate Bank of Taiwan $ 11,212, ,750 12, %~1.6% Land Bank of Taiwan 7,366,670 2,308,120 14, %~1.7% Total $ 18,578,740 3,099,870 26,530 Interest rates are the same as those with regular clients. (e) Deposits December 31, 2015 Amount % Bank of Taiwan $ 3,267 - Others 1,397, Total $ 1,401, December 31, 2014 Amount % Bank of Taiwan $ 3,262 - Others 2,640, Total $ 2,643, Interest rates are the same as those with regular clients. (f) Credit December 31, 2015 Category Number of clients or name of related Maximum party balance Ending balance Performing situations Performing loan Non-performing Loans Collaterals Transaction terms are the same as those with regular clients Employee consumer loans Self-use residence collateral loans , , ,995 - none none , , ,071 - real estate none Others Du 2,323 2,323 2,323 - real estate none Chen 3,531 2,932 2,932 - real estate none Chian 3,981 1,812 1,812 - real estate none Hung 1,379 2,326 2,326 - real estate none Hsiao real estate none Lu 1, real estate none Cho real estate none 108 Taiwan Business Bank Annual Report 2015

111 December 31, 2014 Category Number of clients or name of related party Maximum balance Ending balance Performing situations Performing loan Non-performing Loans Collaterals Transaction terms are the same as those with regular clients Employee consumer loans Self-use residence collateral loans , , ,784 - none none , , ,982 - real estate none Others Hung 2,127 2,127 2,127 - real estate none Lu real estate none Lin 1,967 1,357 1,357 - real estate none Cho real estate none Hsiao real estate none (g) Guarantees of credit: None. (h) Rental revenue: None. FINANCIAL STATEMENTS (i) Derivatives financial instrument transactions: None. (j) Sales of Non Performing Loans Transactions: None. (C) Major management salary information For the year ended December 31, Salary and other short-term employee benefit $ 104,713 98,469 Retirement Benefit 1,529 1,202 Total $ 106,242 99, PLEDGED ASSETS : Please refer to note 6(H) for more details. 9. COMMITMENTS AND CONTINGENCIES (A) Significant commitments and contingencies were as follows: December 31, 2015 December 31, 2014 Marketable securities held for custody $ 14,792,705 4,469,561 Bills collected for others 57,060,916 63,775,749 Bills lent for others 21,966,839 20,118,912 Guarantees and letters of credit 17,159,477 21,465,601 Collaterals received Trust liabilities 127,155, ,849,691 Travelers' check in custody for sale 126, ,009 Items held for custody 4,253,437 6,730,929 Registered government bonds for sale 17,208,500 9,110,200 Registered short-term bills for sale 3,713,900 5,407,300 Guarantee notes payable 26,726,100 30,508,

112 (B) As of December 31, 2015 and 2014, major constructions in progress and purchases amounted to $672,851 and $397,034 respectively, of which $467,391 and $316,965 respectively, remained unpaid. (C) The Bank s trust department plans, manages, and operates trust services in accordance with the Banking Law and Trust Law. Special purpose funds are used to invest in marketable securities and the Bank also manages trust funds. The trust information as of December 31, 2015 and 2014 is as follows: Trust Balance Sheet Trust Assets December 31, 2015 December 31, 2014 Cash in Bank $ 2,260,436 3,465,392 Common stock 202, ,620 Funds 52,456,093 55,692,251 Receivables Prepayment 2 4 Real estate 11,115,380 7,138,995 Securities custody 61,120,731 60,297,362 Total trust assets $ 127,155, ,849,691 Trust Liabilities December 31, 2015 December 31, 2014 Payables $ Securities held for custody 61,120,731 60,297,361 Trust capital 66,023,908 66,529,150 Reserves and accumulated loss ( 1,527,014 ) ( 1,756,434 ) Net income 1,537,748 1,779,446 Total trust liabilities $ 127,155, ,849,691 Trust Property Accounts Investment in December 31, 2015 December 31, 2014 Cash in bank $ 2,260,436 3,465,392 Common stock 202, ,620 Funds 52,456,093 55,692,251 Receivables Prepayment 2 4 Real estate 110 Taiwan Business Bank Annual Report 2015

113 Investment in December 31, 2015 December 31, 2014 Land 10,493,581 7,096,192 Buildings 51,100 32,323 Construction in progress 570,699 10,480 Securities in custody 61,120,731 60,297,362 Total $ 127,155, ,849,691 Note: As of December 31, 2015 and 2014, the amounts above included OBU transaction on foreign currency designated trust funds investment in foreign negotiable securities business amounting to $873,807 and $832,748, respectively. Trust Income Statement For the year ended December 31, Investment in Trust Revenue FINANCIAL STATEMENTS Interest income $ 13,065 13,823 Realized capital gain-stock 1,440 1,392 Cash dividend income of common stock 1,540,375 1,340,443 Gains on property transaction 1,434,819 1,434,320 Other revenue Sub-total 2,989,924 2,790,214 Trust Expense Administrative expenses 55,972 69,705 Custody expenses Postage and phone/fax expense 1 - Realized capital loss-fund 933 2,696 Realized capital loss-stock 19 - Losses on property transaction 1,393, ,612 Other expense Sub-total 1,451,282 1,009,742 Net income before tax 1,538,642 1,780,472 Income tax expense ( 894 ) ( 1,026 ) Net income after tax $ 1,537,748 1,779,

114 (D) (a) In 1996, the Bank's World Trade Center Branch was sued for handling a letter of credit export collection from Chin Seen Industrial Co., which allegedly used a forged export document and failed to ship the goods to the importer, the International Comagnie de Commercialization et d'invertissement (I.C.C.I.) of the Republic of Zaire, suffered a loss thereon. In November 1998, I.C.C.I. initiated a case with the Court of Commerce of Brussels in Belgium, requested the L/C opening bank (Banque Bruxelles Lambert, or BBL) and the Bank to jointly pay compensation of US$7,830 thousands plus interest, losses, and expenses for the L/C. On August 31, 2005, the Court of Commerce of Brussels rendered its judgment which the Bank has to make compensation of US$7,674 thousands plus interest to I.C.C.I.. The Bank has engaged a local attorney in Belgium to formally file an appeal. In February 2011, Court of Appeal in Brussels had made an intermediate adjudication which I.C.C.I and the Bank are both responsible for the offense. Furthermore, on November 16, 2011, the judgment of the court indicated that the Bank should be responsible for 90% of the negligence proportion. In terms of the judgment of the court of the second instance, the Bank has filed an appeal on November 3, On February 6, 2013, the court overruled the Bank's appeal and the Bank lost the case. As of December 31, 2015, the Bank has accrued the compensation of NT$135,815 thousands and EUR$8,000,000. Please refer to Note 6(S) for relevant provision. (b) In December, 2007, Jin-ye Industry Corporation (JIC) was a checking account client of the Bank's Tai Ping Branch. The JIC's accountant falsified the seal to write checks and steal the deposit from the company. JIC filed a lawsuit with Taichung District Court according to the claim right of consumption deposit which required the Bank to return the deposit of $61,751 thousands plus the interest. Taiwan High Court Taichung branch ruled that the Bank lost the case in November 2011 and should return $61,751 thousands and the interest with annual rate of 5% from April 1, 2008 to the settlement date. The Bank filed an appeal. On January 16, 2013 Taiwan Supreme Court overruled the appeal and the Bank lost the case. The Bank settled with the counterparty with $62,677 thousands on May 15, 2014 and paid the proceeds to the counterparty on May 29, The case is closed. The estimated liability reserve was written off and the relevant decreased amount is referred to Note 6 (S). (c) In July 2008, Hua Nan Bank, which purchased secured and unsecured non-performing loans receivable of Wei Lei Food Corporation (WLF), argued that the Bank should allocate the payment that it received from Ge Riu Wei Assets Management Corporation (GWAM) which resulted from the auction of the real estate mortgaged to the Bank by Wei Lei Food Corporation on For this reason, Kang-Cheng Corp. filed a lawsuit to Shihlin District Court to oblige the Bank to pay Kang-Cheng Corp. $15,594 thousands plus the interest. The Bank lost the first trial and appealed. Taiwan High Court ruled that the Bank lost the lawsuit in December, 2010 and should pay Hua Nan Bank $10,250 thousands plus the interest with annual rate of 5% from July 18, 2008 to the settlement date. The Bank has filed an appeal. Taiwan Supreme Court ruled that the original verdict was abandoned and the case was sent back to remand in September, Taiwan High Court ruled that the Bank lost the lawsuit on October 23, 2013 and should pay Hua Nan Bank $249 thousands plus the interest with annual rate of 5% from July 18, 2008 to the settlement date. The counterparty has filed an appeal and Taiwan Supreme Court overruled the appeal On February 11, The case is closed. 10. LOSSES DUE TO MAJOR DISASTERS: None. 11. SUBSEQUENT EVENTS: None. 112 Taiwan Business Bank Annual Report 2015

115 12. OTHER (A) Employee benefits, depreciation, depletion and amortization expenses were as follows: For the year ended December 31, Nature Operating expense Operating expense Employee benefit expenses Salary expense $ 5,636,070 5,578,887 Labor and health insurance expenses 401, ,191 Pension expenses 320, ,282 Other employee benefit 798, ,793 Total employee benefit 7,157,141 7,034,153 Depreciation expenses 303, ,023 Amortization expenses 76,489 84,064 Total $ 7,537,195 7,442,240 The employee numbers amounted to 4,983 and 4,839 people for the year ended December 31, 2015 and 2014, respectively. FINANCIAL STATEMENTS (B) Profitability Unit : % Item December 31, 2015 December 31, 2014 The ratio of return on assets Before income tax After income tax The ratio of return on equity Before income tax After income tax Net income ratio Note 1 The ratio of return on assets = Income before (after) income tax expense average assets Note 2 The ratio of return on equity = Income before (after) income tax expense average equity Note 3 Net income ratio = Gain or loss after income tax expense Net revenue Note 4 Income before (after) income tax expense refers to income accumulated from January of the current year to the current period. 13. OTHER DISCLOSURES (A) Information on significant transactions: (a) Cumulative purchase or sale of the same investee's capital stock up to $300,000 or 10% of paid-in capital Name of Company Category and name of security Account name Name of counter-party Relationship with the Company Beginning balance Purchases Sales Shares/ Units Amount Shares/ Units Amount Shares/ Units Amount Cost Disposal gain or loss Ending balances (Note) Shares/ Amount Units TBB (Cambodia) Microfinance Institution Plc Private placement Investment under equity method Not applicable Subsidiary company ,130 (USD10,000) ,130 (USD10,000) Note: Original investment (b) Acquisition of real estate amounting to over $300,000 or 10% of paid-in capital: None. (c) Disposition of real estate amounting to over $300,000 or 10% of paid-in capital: None. (d) Discount of commissions and handling fees with related parties amounting to over $5,000: None. (e) Receivables from related parties amounting to over $300,000 or 10% of paid-in capital: None. 113

116 (f) Sale of non-performing loans information: None. (g) Types of securitization goods and related information approved by financial assets securitization rules or real estate securitization rules: None. (h) Business relationship and significant transactions with the subsidiaries: Transaction in For the year ended December 31, 2015 No Trader Counterparty Relationship Account Amount Terms Percentage accounted for consolidated net revenue or total assets 0 TAIWAN BUSINESS BANK, LTD. Taiwan Business Bank Insurance Agency Co., Ltd. 1 Account Receivables 80,392 No difference with non-related parties 0.01% 0 TAIWAN BUSINESS BANK, LTD. Taiwan Business Bank Insurance Agency Co., Ltd. 1 Deposits and remittances 149,727 No difference with non-related parties 0.01% 0 TAIWAN BUSINESS BANK, LTD. Taiwan Business Bank Insurance Agency Co., Ltd. 1 Service revenue 1,575,159 No difference with non-related parties 7.81% 0 TAIWAN BUSINESS BANK, LTD. Taiwan Business Bank Insurance Agency Co., Ltd. 1 Other 1,127 No difference with non-related parties -% 0 TAIWAN BUSINESS BANK, LTD. Taiwan Business Bank Property Insurance Agency Co., Ltd. 1 Account Receivables 3,827 No difference with non-related parties -% 0 TAIWAN BUSINESS BANK, LTD. Taiwan Business Bank Property Insurance Agency Co., Ltd. 1 Deposits and remittances 8,292 No difference with non-related parties -% 0 TAIWAN BUSINESS BANK, LTD. Taiwan Business Bank Property Insurance Agency Co., Ltd. 1 Service revenue 44,098 No difference with non-related parties 0.22% 0 TAIWAN BUSINESS BANK, LTD. Taiwan Business Bank Property Insurance Agency Co., Ltd. 1 Other 211 No difference with non-related parties -% 0 TAIWAN BUSINESS BANK, LTD. Taiwan Business Bank International Leasing Co., Ltd. 1 Deposits and remittances 570,205 No difference with non-related parties 0.04% 0 TAIWAN BUSINESS BANK, LTD. Taiwan Business Bank International Leasing Co., Ltd. 1 Other 691 No difference with non-related parties -% 114 Taiwan Business Bank Annual Report 2015

117 Transaction in For the year ended December 31, 2014 No Trader Counterparty Relationship 0 TAIWAN BUSINESS BANK, LTD. 0 TAIWAN BUSINESS BANK, LTD. 0 TAIWAN BUSINESS BANK, LTD. 0 TAIWAN BUSINESS BANK, LTD. Taiwan Business Bank Insurance Agency Co., Ltd. Taiwan Business Bank Insurance Agency Co., Ltd. Taiwan Business Bank Insurance Agency Co., Ltd. Taiwan Business Bank Insurance Agency Co., Ltd. 1 Account Receivables 1 Deposits and remittances 1 Service revenue Account Amount Terms 73,920 No difference with non-related parties 85,247 No difference with non-related parties 960,597 No difference with non-related parties 1 Other 838 No difference with non-related parties Percentage accounted for consolidated net revenue or total assets 0.01% 0.01% 5.06% -% FINANCIAL STATEMENTS 0 TAIWAN BUSINESS BANK, LTD. Taiwan Business Bank Property Insurance Agency Co., Ltd. 1 Account Receivables 3,665 No difference with non-related parties -% 0 TAIWAN BUSINESS BANK, LTD. Taiwan Business Bank Property Insurance Agency Co., Ltd. 1 Deposits and remittances 6,484 No difference with non-related parties -% 0 TAIWAN BUSINESS BANK, LTD. Taiwan Business Bank Property Insurance Agency Co., Ltd. 1 Service revenue 44,064 No difference with non-related parties 0.23% 0 TAIWAN BUSINESS BANK, LTD. Taiwan Business Bank Property Insurance Agency Co., Ltd. 1 Other 419 No difference with non-related parties -% 0 TAIWAN BUSINESS BANK, LTD. Taiwan Business Bank International Leasing Co., Ltd. 1 Deposits and remittances 118,495 No difference with non-related parties 0.01% 0 TAIWAN BUSINESS BANK, LTD. Taiwan Business Bank International Leasing Co., Ltd. 1 Other 691 No difference with non-related parties -% Note: The meaning of the number is as follows. 1. Zero stands for the parent company 2. Subsidiaries are coded from No 1 per respective companies. (i) Other significant transactions that might have influence over the decision making process of the financial statements users: None. 115

118 (B) Information of investee company: (a) Names, locations, and related information of investees on which the company exercises significant influence (excluding investment in mainland China) : (In NTD thousands thousand shares) Name of investee company Taiwan Business Bank Insurance Agency Co., Ltd. Taiwan Business Bank Property Insurance Agency Co., Ltd. Taiwan Business Bank International Leasing Co., Ltd. TBB (Cambodia) Microfinance Institution Plc Address 2F, No.158, Songjiang Rd Taipei City 2F, No.158, Songjiang Rd Taipei City 5F., No.151, Sec. 4, Nanjing E. Rd.,Taipei City Kampuchea Main business scope Agent of personal insurance Agent of property insurance Leasing business Financial company Shareholding ratio Book value Investment gain or loss recognized by the Company The cross holding of the Bank and its related parties Number of shares Number of profoma shares Number of shares Total Shareholding ratio % 109,927 99, % Already written-off when preparing the consolidated financial statements % 7,881 3, % % 1,437,174 (53,701) 150, , % % 325,537 (USD 10,000) Note (3,227) % (b) Loans to others: None (c) Endorsements and guarantee for others: None (d) Acquisition of securities: Company acquired Taiwan Business Bank International Financing leasing Co., Ltd. Type and name of the security Not public Relationship with the security issuer The investee under the equity method of the subsidiary Taiwan Business Bank International Leasing Co., Ltd. Account Investment under equity method Number of shares At the end of the period Share Carrying amount proportion (Note 2) - 858,299 (CNY170 million) (In NTD thousands) Market price (Note 1) Note % 858,299 The transaction has been written off when preparing the consolidated financial statements. Note 1: Listed companies apply the market price to calculate the net amount of the shares possessed. Not listed companies and companies that are not in the over the counter market apply the share proportion to calculate the net amount of the shares possessed. The net amount of preferred stock is calculated based on the settlement. Note 2: The share proportion of the preferred stock is calculated based on the shares the Company possessed divided by the shares issued. (e) Accumulative purchases or sales of the same investee companies amounting to over $300,000 or 10% of paid-in capital: 116 Taiwan Business Bank Annual Report 2015

119 Company Taipei Financial Center Corp. Taiwan High Speed Rail Corporation type and name of the security Not public Account Financial assets carried at cost Availablefor-sale financial assets Trade counter-party Relation-ship Beginning of the period Purchase Sale End of the period Shares Amount Shares Amount Shares Amount Carrying Disposition gains or Shares amount losses Amount Not applicable Not applicable , , , , , , , ,000 (f) Acquisition of real estate amounting to over $300,000 or 10% of paid-in capital: None. (g) Disposition of real estate amounting to over $300,000 or 10% of paid-in capital: None. (h) Discount of commissions and handling fees with related parties amounting to over $5,000: None. (i) Receivables from related parties amounting to over $300,000 or 10% of paid-in capital: None. (j) Transactions of financial derivatives: None. (k) Sale of non-performing loans information: None. FINANCIAL STATEMENTS (l) Types of securitization goods and related information approved by financial assets securitization rules or real estate securitization rules: None. (m) Other significant transactions that might have influence over the decision making process of the financial statements users: None. (C) Information on investment in mainland China: (a) Name and major business item of the investee in China Name of investee company Major business item Taiwan Banking Business Bank business, Ltd. Shanghai branch Taiwan Banking Business Bank business, Ltd. Wuhan branch Paid-in capital 3,910,537 (CNY800 million) (Operating capital) 2,552,375 (CNY500 million) (Operating capital) Investment method Accumulated amount transferred from Taiwan, beginning of the period (e) 2,371,237 (CNY500 million)) Investment transferred out or recovered Transferred out 1,539,300 (CNY300 million) (e) - 2,552,375 (CNY500 million) Recovered Accumulated amount transferred from Taiwan, end of the period - 3,910,537 (CNY800 million) - 2,552,375 (CNY500 million) The current profit or loss of the investee Shares directly or indirectly possessed by the Bank - Shanghai branch of the Bank, not an investee company - Wuhan branch of the Bank, not an investee company (In NTD thousands) Profit or loss recognized Ending book value of investment Investment profit transferred in - 4,356,448 None - 2,585,546 " Taiwan Leasing Business Bank business International Financing leasing Co., Ltd. 838,305 (CNY170 million) (Operating capital) (d) 838,305 (CNY170 million) ,305 (CNY170 million) 10, % 10, ,299 " Investment method is divided into 5 categories and are listed as follows: (a) Invest in a Chinese Company through remittance from the third party. (b) Establish a company in the third party and use the company to invest in a Chinese Company. (c) Reinvest in the existing company in the third party and use the company to invest in a Chinese company. (d) Directly invest in a Chinese company. (e) Other: establish a foreign branch. 117

120 (b) Limit of investment in China (In NTD thousands) Name of Company Accumulated amount transferred from Taiwan, end of the period Investment amount approved by Ministry of Finance Limit of investment regulated by Investment Audit Committee of Ministry of Finance. Taiwan Business Bank Co., Ltd.(Note) 7,301,217 (CNY 1,470 million) 7,301,217 (CNY 1,470 million) 40,595,477 Note: The investment amount in China of the subsidiary Taiwan Business Bank International Leasing Co, Ltd is included. 14. SEGMENT INFORMATION (A) General information The chief operating decision maker is the general manager of the Bank who is in charge of all major projects approval, budget review and performance measurement. In order to express operating activities legitimately, the reportable segments of the Bank are Bank segment and others (including securities department and trust department). The major operating activities of securities department are securities brokerage, financing transaction and future auxiliary transaction. It is to provide customer a platform for securities investment. The trust department mainly provides customers relevant financial services, including securities review and approval, custodian bank service, new type trust business and specific trust funds investing in domestic or foreign securities. The profit or loss of the operating segments of the Bank is measured by net income before tax. The reported amount is consistent with the data which was provided to the chief operating decision maker in order to use it as the base of resource allocation and performance measurement. (B) Segment information For the year ended December 31, 2015 Bank Department Other-securities and trust Inter-department adjustment Total segment Net interest income $ 15,178, ,237-15,469,015 Other net non-interest income 3,984, ,571 ( 48,347 ) 4,692,869 Net revenue 19,163,423 1,046,808 ( 48,347 ) 20,161,884 Bad debt expenses ( 2,332,061 ) ( 77,128 ) - ( 2,409,189 ) Operating expense ( 11,052,134 ) ( 506,427 ) 2,030 ( 11,556,531 ) Net income before tax $ 5,779, ,253 ( 46,317 ) 6,196,164 Total assets $ 1,454,594,712 23,593,212 ( 2,296,329 ) 1,475,891,595 Total liabilities $ 1,389,654,273 18,994,003 ( 415,810 ) 1,408,232,466 For the year ended December 31, 2014 Bank Department Other-securities and trust Inter-department adjustment Total segment Net interest income $ 14,548, ,350-14,790,257 Other net non-interest income 3,597, ,980 ( 41,440 ) 4,204,068 Net revenue 18,146, ,330 ( 41,440 ) 18,994,325 Bad debt expenses ( 2,488,352 ) ( 50,235 ) - ( 2,538,587 ) Operating expense ( 10,489,846 ) ( 482,121 ) 1,945 ( 10,970,022 ) Net income before tax $ 5,168, ,974 ( 39,495 ) 5,485,716 Total assets $ 1,377,074,733 17,172,016 ( 1,856,182 ) 1,392,390,567 Total liabilities $ 1,316,842,415 13,088,854 ( 278,619 ) 1,329,652, Taiwan Business Bank Annual Report 2015

121 (C) Geographic information: The Bank and its subsidiaries, based on the geographic location of foreign operating segments, to disclose the information as below: Net income before tax: For the year ended December 31, Area Taiwan $ 5,470,517 5,007,309 USA 267, ,740 Hong Kong 227,902 37,109 Australia 153,363 58,443 China 76,823 89,115 Total $ 6,196,164 5,485,716 Non-current assets: Area December 31, 2015 December 31, 2014 FINANCIAL STATEMENTS Taiwan $ 19,165,869 18,834,327 USA 1,187 1,067 Hong Kong 20,125 24,257 Australia 13,230 16,659 China 17,062 17,730 Total $ 19,217,473 18,894,040 (D) Significant client information: No single customer represents 10% or more of the Bank and its subsidiaries' operating revenue. Therefore, no disclosure of major customer information is required. 119

122 VII Corporate Social Responsibility 120 Taiwan Business Bank Annual Report 2015

123 The fulfillment of CSR has always been one of the Bank's four major operating principles. Besides pursuing business performance, the upgrading of employee value-added, and an emphasis on shareholders' interests in its business operations, the Bank uses concrete action to fulfill its CSR by showing care for disadvantaged groups, carrying through with the principle of care for society, and participating actively in public-benefit activities. 1. Fulfillment of Responsibilities as an SME Bank (1) Active Guidance of SMEs and Deep-rooting of the Core SME Business A. Holding of activities in celebration of the Bank's 100 th anniversary a. A "Love at 100 Happy Carnival Garden Party" was held under the theme of "A Century of Care, Heart to Heart," with a garden party, performances, charity donations, and live demos used to provide corporate consultation services, deepen customer friendship, and illustrate the Bank's care for SMEs, thereby burnishing its image as a specialized SME bank. b. A "Startup Forum" was held at the Regent Taipei, with "Takeoff of a Dream Starting a Life" as the topic of discussion. Successful entrepreneurs were invited to share their own startup experiences, with government representatives, bankers, and new entrepreneurs engaging in a three-way dialogue to providing key innovative startup methods in response to the government's policy of strong support for young entrepreneurs. c. A "Love at 100 Sharing of Care "SME seminar tour was organized on two major topics: easy loans for cultural/creative industries, and SME financing. Issues discussed included industry trends and prospects, bank financing assistance, and sharing of experiences by enterprise owners. CORPORATE SOCIAL RESPONSIBILITY B. Support was provided for creative/cultural industries, with loans extended to help with the filming of the Taiwanese movies "Lion Dancing 2" and "Where the Wind Settles" and box-office sponsorship provided by booking whole theaters and inviting clients to view the films. C. A "Cultural Industries Consultation Interchange Meeting" was held to provide ideas on financing for cultural/ creative industries to serve as a reference for strategic directions and for implementation of current cultural policy. D. A "Cultural/Creative ICE: Recycling of Old Houses in Old Towns" activity was held to help fulfill the government's policy of optimizing the startup environment and provide bank financing consultation and support services that can help with the development of startups. E. In coordination with the Small and Medium Enterprise Credit Guarantee Fund, the Bank held an "SME Financing and Credit Guarantee Seminar," "Credit Guarantee Heritage Lecture," and "Corporate Operation and Social Care Forum" to introduce the bank financing business and provide SMEs with bank financing consultation services. F. The Bank organized the 2015 "Care and Service for SMEs and Upgrading of Financial Competitiveness" seminar together with the Taiwan Small Business Integrated Assistance Center to carry through with the government's policy of vigorous assistance for SMEs and reinforce their financial management so that they can procure financing needed and strengthen their competitive advantage. G. The "2015 Service Industry Innovation Research" seminar was held to introduce SME innovation development loans and related bank financial services. H. The results of the Bank's assistance for SMEs was expounded through radio interviews and the broadcast of loan ads to industrial zones, cultural/creative industries, and small and micro-businesses, publicizing successful cases of the Bank's assistance to help businesses weather difficult periods and to provide 121

124 innovative and creative enterprises and entrepreneurs with information about how best to procure bank financing. (2) Assistance for Startups, Boosting Employment, and Receipt of Awards The Bank achieved first place nationally in extending "Young Entrepreneur and Start-up Capital Loans" and "Phoenix Micro Start-up Loans." (3) Loan Policy In carrying out the "Equator Principles," the Bank places key emphasis in its loan evaluation on its loan customers' food safety and labor safety, environmental protection responsibility, and social responsibility. (4) In accordance with the provisions of Article 13 of the Act for the Development of Small and Medium Enterprises, the Bank donated, with approval from its Board of Directors, to the Small and Medium Enterprise Credit Guarantee Fund. 2. Customer Care (1) A diverse range of innovative financial products to satisfy the capital needs throughout all stages of the human life cycle A. The Bank inaugurated childbirth consumer loans to encourage the bearing of children by providing capital needed for birth, thereby lightening the burden of family life and satisfying the financial needs of childbirth for more people. B. "Youth Overseas Life Experience Loans" were inaugurated and "Youth Overseas Travel Loans" were provided to help young people realize their dreams of living overseas and expand their international vision, thereby providing early career and job cultivation and helping carry out career plans. C. To take care of young people and disadvantaged groups, the Bank inaugurated the Ministry of Finance's "Young Couples' Preferential Home Loans (Second Program)" and the Ministry of the Interior's "Housing Subsidy and Home Improvement Loan" program. D. To guide young entrepreneurs in starting businesses and increase job opportunities for young people, as well as promote the development of national economic construction, the Bank inaugurated "Young Entrepreneur and Start-up Capital Loans." E. The Bank introduced "Capital Preference Loans" to help SMEs procure operating capital, and "Industrial Zone Preferential Loans" designed specifically for enterprises in industrial zones. F. To give strong support to cultural/creative industries, the Bank vigorously promoted cultural/creative financing to help creative enterprise with development potential and provide the most professional financing so as to encourage more creative people to join the field, promote economic production, and stimulate new values for the domestic economy. G. "Phoenix Micro Start-up Loans" were inaugurated to help female and middle aged/elderly entrepreneurs, and to stimulate employment. H. The Bank handled retirement trust funds to help enterprises deal with employee resignations, severance, occupational accident compensation, death compensation, and other benefits; in addition, the Bank's pension fund is managed and used to boost the economic security of employees after they retire or resign. I. To cope with the aging and low fertility of Taiwan's population, the Bank continuously introduces related trust products including nursing care trust, disabilities trust, and insurance trust, and has planned out a trust 122 Taiwan Business Bank Annual Report 2015

125 model that encompasses both asset management and nursing care, adding greater assurance and peace of mind to customers' economic security. J. Under the principles of care and sharing, the Bank provides customized financial and asset planning services that allow its customers to satisfy their need for wealth creation, preservation, and inheritance, thereby helping customers create a high quality of life with carefree economic stability for their golden years. (2) Protection of customer rights A. The Bank has set up a Product Review Committee to assure the suitability for financial consumers of its products and services, and has established a differentiated prior screening mechanism to assure customers' rights by screening different products and services in regard to their legality, marketability, profitability, fees collected, and other relevant matters. B. To protect consumer rights, the Bank has established a "Consumer Protection Policy" and "Consumer Protection Operating Procedure," clearly stipulating measures for the implementation of the protection policy and designating a unit to monitor the effectiveness of the consumer protection mechanism. The Auditing Department is responsible for checking the status of implementation to assure that consumers are protected. C. The Bank has established a "Consumer Dispute Resolution System" to strengthen emphasis on consumer dispute resolution, upgrade the effectiveness and quality of consumer dispute resolution, and protect the rights of consumers. D. The Bank has established "Main Points for the Handling of Customer Complaints" and an "Operating Procedure for the Handling of Credit Card Disputes," and has set up a free customer service hotline. It has also posted relevant information in business units and on ATMs, with designated personnel to take complaints and resolve them promptly. CORPORATE SOCIAL RESPONSIBILITY E. The Bank has formulated "Handling Procedures for Trust Business Disputes" to resolve questions or disputes about such matters as trust products or services provided by the Bank. In addition to written submission, clients can submit complaints by telephone or the "customer service mail box" on the Bank's website. F. To comply with the provisions of the Personal Information Protection Act, protect the interests of consumers, and fulfill its responsibility to protect personal information, the Bank has introduced the international norms of the British Standards Institute's BS10012:2009 Personal Information Management System, and has acquired the relevant certification, in order to root deeply a consciousness of personal information protection and related regulations in the Bank's corporate culture so as to provide customers with a financial services environment of guaranteed safety. G. To continue strengthening security of its information operations, the Bank carried out new adaptation in accordance with the criteria of the new version of ISO (2013 version) and passed the British Standards Institute's review and recertification in June of H. The Bank established specifications and plans in accordance with the Bankers Association's "Regulations Governing Computer System Information Security Assessment by Financial Institutions," and commissioned a professional organization to carry out the Type 1 computer system information security assessment. I. To follow through with consumer protection and comply with the regulations of the competent authority, business units handling medium- and long-term loans secured by housing or loans secured by other kinds of real estate and the real purpose of which is to procure housing have strengthened their oral explanation of "Special Items for Attention in Regard to Housing Loans" so that customers will clearly understand the interest rate risk connected with their loans. 123

126 J. The Wealth Management customer rights protection manual, standard contracts for different types of business, fees for financial services, settlement procedures for trust-business disputes, and information on fund channel returns are disclosed on the TBB website. (3) Wealth management lectures were held, with investment experts invited to give talks and provide analysis on fundamentals, industrial, and technical aspects so as to provide customers with reference information on investment strategy and risk control. (4) A lecture on ETF stock and futures hedging was held together with Jih Sun Futures to provide customers with reference information on futures transaction strategies, risk control and hedging. (5) To bring financial services even closer to the disabled, the Bank has been steadily building an obstacle-free environment for financial transactions. Obstacle-free ATMs accounted for 8.84% of the Bank's total at the end of December 2015; with the installation of 27 more obstacle-free ATMs procured in 2015, the ratio of the Bank's obstacle-free ATMs will reach 15.12%. (6) To carry through with measures to provide a friendly financial service environment for the hearing-impaired, teller counters at the Bank's branches offer assistance to such customers in credit card activation and loss reporting. The Online banking also provides online credit card activation and loss reporting services. (7) To carry through with implementation of a conversion mechanism for long-term users of revolving credit, the Bank took the initiative in inviting customers by phone to convert to credit-card installment payment as a means of achieving the target that the competent authority's target of a conversion ratio in excess of 25% by the end of (8) In line with the inauguration by the Financial Supervisory Commission of the "Unsecured Consumer Loan Extension Program for Economically Disadvantaged Debtors with Loan-repayment Difficulties" and "2006 Bankers Association Program of Consistent Debt Negotiation/Separate Negotiation of Breached Former Negotiation Agreements" negotiating mechanisms, the Bank set up a negotiation application window and provided a debt negotiation channel and re-negotiation mechanism to help debtors in economic difficulty to lighten their debt load. 3. Environmental Protection (1) Implementation of the energy-conservation, carbon-reduction policy to promote environmentally sustainable development A. LED Energy Label lighting is used in office premises bank-wide, with more than 28,000 lights installed, greatly reducing the electricity used for lighting at business premises. About 3.54 million kilowatt-hours are saved annually, reducing carbon dioxide emissions by 1,845 metric tons equivalent to the planting of 168,000 trees a year, enough to develop 4.7 Da'an Forest Parks. In this way, the Bank contributes to energy conservation and carbon reduction, and to protection of the environment. B. The Bank implemented its "Measures for Water and Electricity Conservation," with scheduled follow-up on the status of water and electricity conservation by different units and inclusion of the results in business performance assessments. Various energy-conservation improvement programs were forcefully carried out in order to enhance the energy efficiency of equipment and save on electricity costs. C. The Bank's headquarters carried out the renewal of a 500-ton VSD chiller and installed an energymanagement system as well as LED lighting for public areas. Third-party verification showed that these improvements boosted the energy efficiency of equipment by more than 37.2%, saving about 273, Taiwan Business Bank Annual Report 2015

127 kilowatt-hours per year, reducing carbon dioxide emissions by 167 metric tons, and saving NT$1.55 million in electricity costs annually. The electricity contract capacity of the Bank's headquarters was cut from 1,150 kilowatts to 950 kilowatts over the past three years and has been further reduced to 750 kilowatts. D. The main source of the Bank s energy use is electrical power, which causes indirect greenhouse gas emission. According to statistics, the electricity used in office premises bank-wide in 2015 was 22,050,149 kilowatt-hours, resulting in approximately 11,488 metric tons of carbon dioxide emissions. In the past 3 years, the Bank has reduced carbon dioxide emissions by 365 metric tons. E. Energy conservation and environmental protection were emphasized in the design of the new Ta Fa Branch premises, including air conditioning, illumination, elevation design, and landscaping. Green-building concepts were used throughout, and a solar power generation system was installed on the roof. F. In coordination with the "Low-energy-use Residential and Commercial Energy-conservation and Carbonreduction Technology Integration and Demonstration/Application Plan" conducted by the Bureau of Energy, Ministry of Economic Affairs, the Bank provided information on electricity use for the establishment of a domestic energy database. The Bank also participated in the low-carbon management cloud alliance plan of the New Taipei City Government, installing smart electric meters and informatized electricity-use management systems in the Chongnan Building, Linkou generator room, and other energy-consuming structures. (2) Superior performance record A. The Bank participated in the "Voluntary Energy Conservation Plan for Financial Groups" conducted by the Bureau of Energy, Ministry of Economic Affairs, and reached the target of 10% energy saving within three years. As a result, it received an Energy-saving Enterprise Award. CORPORATE SOCIAL RESPONSIBILITY B. The Bank held a learning demonstration of successful energy conservation cases in its headquarters in coordination with the Bureau of Energy, Ministry of Economic Affairs. C. The Bank received "Outstanding Green Procurement" citations from the Executive Yuan's Environmental Protection Administration and the Taipei City Government's Department of Environmental Protection for the fourth year in a row. D. The Bank's headquarters office won an "Outstanding Electricity Conservation" award, and a prize of NT$200,000, in the Taiwan Power Company's SME electricity-conservation contest. E. In coordination with the industrial energy conservation program of the Department of Economic Development of Taipei City Government, the Bank's headquarters building acquired ISO energy management system certification. (3) Special-purpose financing The Bank has worked hard to nourish low-energy-consumption and pollution-reducing environmentally sustainable enterprises. Besides taking the fulfillment of environmental responsibility into account when evaluating corporate loan applications, the Bank has continuously promoted such project loans as "Low-interest Loans to Private Enterprises for Pollution-reduction Equipment," "Preferential Loans for the Procurement of Energy-saving Equipment," "Preferential Loans for the Procurement of Renewal-energy Equipment," and "Export Loans for Green Energy and Industrial Equipment" in order to nourish green enterprises by guiding domestic businesses in expanding the procurement and export of green energy and industrial equipment, and in improving production equipment and processes. 125

128 4. Social-benefit and Community Participation (1) The Bank participated actively in community public-benefit activities to carry through with the principle of caring for society, and appealed to its domestic branches to manifest the spirit of "sending warmth in the cold winter" and develop community visits. The branches donated to 40 disadvantaged groups within their jurisdictions. (2) The Bank initiated the collection of uniform invoices and old batteries. On the occasion of its 100 th anniversary garden party it presented the uniform invoices to the Genesis Social Welfare Foundation and the proceeds from the sale of recycled batteries is given to the Children Are Us Foundation. (3) The Bank, together with the National Taxation Bureau of Taipei Ministry of finance, organized the 2015 Uniform Invoice Race to expand publicity about asking for invoices when making purchases and donating them to disadvantaged groups, and to encourage healthy sports activities. (4) For many years the Bank has sponsored the cost of healthy breakfasts for primary schools in Shuanglong, Nanfeng, Saijia, Duona, and other remote mountain areas. (5) The Bank donated to the Nantou Senior Citizens' Home, the Kaohsiung Christian Mountain Children's Home (Liugui Children's Home), and Hsiangyuan Memorial Reform School. (6) Sponsorship was provided for the "Food Bank" project of the Taiwan Futures Exchange to help disadvantaged families in remote areas that have encountered economic difficulties and emergency situations. (7) The Bank participated in the "2015 Care for Society Through Financial Services" garden party organized by the Taiwan Financial Services Roundtable, responding to the call for charity and propagating financial know-how. (8) Sponsorship was provided for the anti-tuberculosis commemorative stamp of the Taiwan Anti-Tuberculosis Association. (9) Sponsorship was provided for the "Yongle Borough Year-end Giving Warmth in Winter" activity organized by the Yongle Borough Office. (10) The Bank devoted efforts to financial know-how publicity on campuses and in communities, using the imparting of correct money-management concepts and education in preventing financial fraud to lay down a deep foundation of financial education. For these efforts, the Bank received "going into the campus" and "community financial know-how propagation" awards from the Banking Bureau of the Financial Supervisory Commission. (11) Holding to the spirit of "when others are hungry I am hungry; when others are drowning I am drowning," the Bank made donations to those in extremis because of the Formosa Fun Coast dust explosion and established personal loan repayment mitigation measures to help victims of the disaster and their dependents weather their difficulties. (12) The Bank provided a summer student work quota for economically disadvantaged youth so as to strengthen care for students from disadvantaged families by offering them work opportunities. (13) Trust businesses were introduced in line with government policy and social issues: senior citizen care trust, disabled care trust, superficies property trust, and gift certificate advance payment trust. (14) The Bank handled urban renewal trust to help with implementation of the government's urban-renewal policy and promote the goals of urban renewal and cityscape beautification by establishing a foundation for two-party mutual trust. (15) To boost media exposure of charity groups such as the Children Are Us Foundation, Genesis Social Welfare Foundation, and Waker Welfare Action Association, the Bank enclosed fund-raising information with credit-card bills. 126 Taiwan Business Bank Annual Report 2015

129 5. Support for Academic, Cultural, and Sports Activities (1) To celebrate its 100 th anniversary the Bank held a "Love at 100 Sharing and Caring" concert, to which outstanding clients were invited to participate for an easy-to-understand dissection of financial market trends and an intimate experience of classical music. (2) To elevate the quality of artistic and cultural life nation-wide, the Bank provided sponsorship for the "Portrayals from a Brush Divine: A Special Exhibition on the Tricentennial of Giuseppe Castiglione's Arrival in China and Opening of the Southern Branch of the National Palace Museum" and "A History of the World in 100 Objects" in celebration of the 90 th anniversary of the National Palace Museum. (3) The Bank spared no effort to support creative/cultural industries, sponsoring an exhibition by master sculptor Kang Mu-Xiang. Kang's work "Taiwan Ruyi Infinite Life" is installed at the ZKM Center for Art and Media in Karlsruhe, Germany; the sculpture has become a new landmark for the city, and helps enhance Taiwan's people-to-people diplomacy. (4) The Bank supported the documentary film One Journey, One Mission, directed by Lin Cheng-sheng, by booking a room for its opening celebration and giving tickets to Hsing Wu University and the Juren Senior High School in Beigang, allowing students to experience the feeling of building a dream. (5) The Bank purchased VIP tickets for a Jurassic dinosaur exhibition mounted by the Shi-shang company, giving them to elementary school children in remote areas. (6) The Bank joined vigorously in cultural activities to upgrade the level of culture in society, inviting wealthmanagement clients to participate in the VIP Night of the "Portrayals from a Brush Divine: A Special Exhibition on the Tricentennial of Giuseppe Castiglione's Arrival in China" and enjoy a richer and greater diversity of art. CORPORATE SOCIAL RESPONSIBILITY (7) The Bank operated a "Ministry of Science and Technology Subsidy Program for Industry-University Collaboration Projects for the Production and Broadcasting of Products of Popular Science" trust to stimulate cooperation between colleges, universities, and research institutions and domestic and overseas media operators in the production, broadcasting, and promotion of high-quality popular science products, and to expand the dissemination of popular science knowledge, thereby upgrading the scientific literacy of Taiwan's people. (8) The Hsinchu County Government was sponsored in organizing the 2015 Taiwan International Festival of Hakka Culture. (9) The Chinese Taipei Baseball Association was provided sponsorship in organizing the Third Hsu Sheng-ming Cup National Little League Championship to memorialize Hsu's contributions to baseball and promote the popularity of baseball in Taiwan. (10) Sponsorship was provided for the costs of promoting the business of the Longshan Elementary School in Kaohsiung City's Meinong District and of sports promotion, and of sports uniforms for Meinong Elementary School. (11) The Bank sponsored the cost of training by the Chinese Taipei Volleyball Association, and the 24 th Keelung City New Park Cup Basketball Championship. (12) The Bank donated to help cover the costs of school anniversary celebrations and provide scholarships for the National Kaohsiung University of Applied Sciences. (13) A donation was made to National Ilan University for scholarships and the endowment fund. 127

130 6. Employee Care (1) Employees are a company's assets, and the Bank never spares any effort to take care of its employees. In addition to establishing work rules and human resources management rules in accordance with the Labor Standards Act and other relevant labor regulations, the Bank also complies with the law in providing labor insurance, national health insurance, and allocations for retirement funds. Employee health exams are carried out on a regular basis, and group medical care and accident insurance are offered on preferential terms in order to protect the living of employees so that they can fully express their professional skills at work. (2) To strengthen the competitiveness of employees and upgrade their professional knowledge, the Bank holds training classes focused on different businesses in accordance with its annual manpower training plans, and provides a rich diversity of courses on its digital learning website along with video lectures and professional speeches by prominent speakers on an irregular basis. (3) The Bank has a complete salaries/rewards system and promotion channels as well as diversified training and welfare measures designed to recruit and retain outstanding personnel who will work hard in concert with the Bank. (4) The Bank places utmost emphasis on employee rights and regularly calls labor-management meetings where the two sides can fully communicate and negotiate on employee rights and welfare issues, and sign group agreements, thereby maintaining harmonious labor-management relations. (5) In compliance with the Sexual Harassment Prevention Act and laws governing gender equality in the workplace, the Bank has established regulations for sexual harassment measures, complaints, and punishments so that employees will have a work environment free of sexual harassment. (6) The Bank provides its employees with a safe and healthy workplace, with central air conditioning systems, abundant lighting, and comfortable work space in office premises, along with emergency evacuation routes and exits. Elevators are maintained on a regular basis, firefighting equipment is available, and regular fire drills are held. Workplaces are disinfected and cleansed regularly, and access is controlled. (7) To upgrade the safety of the Bank's work environment, whenever unexpected construction anomalies occur, the contractor is notified via a "Contractor Operating Environment and Hazard Factors Notice" so as to reduce occupational accidents. The Bank also organizes general worker safety and health training periodically to provide employees with proper concepts of safety and health. (8) To provide employees with a safe and healthy work environment including necessary health and first-aid equipment, reduce factors that are hazardous to worker safety and health, and prevent occupational accidents, the Bank has formulated "Work Rules for Occupational Safety and Health," and special personnel are designated to carry out safety and health inspections and assure that the related equipment is able to operate normally. This reduces accidents and guarantees the personal safety of Bank employees. (9) To protect the safety and health of its employees, the Bank's Occupation Safety and Health Section is charged with handling occupational safety and health affairs, and temporary doctors and full-time nurses are hired to provide health consultation services for employees. 7. Continuity of Operations and Creation of Shareholder Value The Bank is engaged in a long-term effort to upgrade corporate governance in which no effort is spared, and demonstrates its capacity to act through full-marketing in the pursuit of outstanding operating performance. The TBB works ceaselessly to upgrade asset quality and competitiveness with the aim of reinforcing its operating structure and creating the greatest values for all its shareholders. 128 Taiwan Business Bank Annual Report 2015

131 VIII VIII Directory of Head Office and Branch Units DIRECTORY OF HEAD OFFICE AND BRANCH UNITS 129

132 TBB'S OFFICES ADDRESS TEL NO. SWIFT ADDRESS Head Office 30 Ta Cheng St., Taipei, Taiwan, R.O.C. (02) Banking Department 30 Ta Cheng St., Taipei, Taiwan, R.O.C. (02) Trust Department 15F, 30 Ta Cheng St., Taipei, Taiwan, R.O.C. (02) Securities Department (Banking Broker) 4F, 30 Ta Cheng St., Taipei, Taiwan, R.O.C. (02) International Banking Department 3F, 30 Ta Cheng St., Taipei, Taiwan, R.O.C. (02) MBBTTWTP Chi Lin Branch Chung Ho Branch Po Ai Branch North Taoyuan Branch Nan Ken Branch Si Tuen Branch Chung Min Branch Kinmen Branch Ta Ya Branch Jen Ta Branch Jen Ai Branch Sung Shan Branch Chien Cheng Branch (Banking Broker) Shih Lin Branch Yung Ho Branch Hsin Tien Branch 46, Sec. 2, Minquan E. Rd., Zhongshan Dist., Taipei, Taiwan, R.O.C , Jingping Rd., Zhonghe Dist, New Taipei City, Taiwan, R.O.C. 419, Mingcheng 2nd Rd., Zuoying Dist., Kaohsiung City, Taiwan, R.O.C. 985 Chunri Rd., Taoyuan Dist., Taoyuan City, Taiwan, R.O.C. 381 Zhongzheng Rd., Luzhu Dist., Taoyuan City, Taiwan, R.O.C. 839/847 Sec. 4, Taiwan Blvd., Xitun Dist., Taichung City, Taiwan R.O.C. 301 Zhongming S. Rd., West Dist., Taichung City, Taiwan, R.O.C. 116, Minquan Rd., Jincheng Township, Kinmen County, Taiwan, R.O.C. 161 Daya Rd., Daya Dist., Taichung City, Taiwan, R.O.C 183 Fengnan Rd., Nanzi Dist., Kaohsiung City, Taiwan, R.O.C. 357, Sec. 4, Ren'ai Rd., Da'an Dist., Taipei City, Taiwan, R.O.C. 147, Sec. 4, Nanjing E. Rd., Songshan Dist., Taipei City, Taiwan, R.O.C. 76 Nanjing W. Rd., Datong Dist., Taipei City, Taiwan, R.O.C. 601 Zhongzheng Rd., Shilin Dist., Taipei City, Taiwan, R.O.C 168 Zhulin Rd., Yonghe Dist., New Taipei City, Taiwan, R.O.C. 192, Sec. 2, Zhongxing Rd., Xindian Dist., New Taipei City, Taiwan, R.O.C. (02) MBBTTWTP001 (02) MBBTTWTP002 (07) (03) MBBTTWTP004 (03) MBBTTWTP005 (04) MBBTTWTP006 (04) MBBTTWTP007 (082) MBBTTWTP009 (04) MBBTTWTP011 (07) MBBTTWTP012 (02) MBBTTWTP020 (02) MBBTTWTP021 (02) MBBTTWTP022 (02) MBBTTWTP023 (02) MBBTTWTP024 (02) MBBTTWTP Taiwan Business Bank Annual Report 2015

133 TBB'S OFFICES ADDRESS TEL NO. SWIFT ADDRESS Hsin Chuang Branch 16, Sec. 1, Zhonghua Rd., Xinzhuang Dist., New Taipei City, Taiwan, R.O.C. (02) MBBTTWTP026 Hwa Cheng Branch Sung Kiang Branch 25, Touqian Rd., Xinzhuang Dist., New Taipei City, Taiwan, R.O.C. 158 Songjiang Rd., Zhongshan Dist., Taipei City, Taiwan, R.O.C. (02) MBBTTWTP027 (02) MBBTTWTP040 VIII Taipei Branch (Banking Broker) Wan Hua Branch South Taipei Branch Fu Hsin Branch Chung Shan Branch Chien Kuo Branch Nai Hu Branch Nan King East Road Branch 72, Sec. 1, Chongqing S. Rd., Zhongzheng Dist., Taipei City, Taiwan, R.O.C. 146 Guangzhou St., Wanhua Dist., Taipei City, Taiwan, R.O.C. 93, Sec. 2, Roosevelt Rd., Da'an Dist., Taipei City, Taiwan, R.O.C. 390, Sec. 1, Fuxing S. Rd., Da'an Dist., Taipei City, Taiwan, R.O.C. 17 Changchun Rd., Zhongshan Dist., Taipei City, Taiwan, R.O.C. 4, Sec. 3, Minquan E. Rd., Zhongshan Dist., Taipei CIty, Taiwan, R.O.C. 15, Alley 360, Sec. 1, Naihu Rd., Naihu Dist., Taipei City, Taiwan, R.O.C. 311, Sec. 3, Nanjing E. Rd., Songshan Dist., Taipei City, Taiwan, R.O.C. (02) MBBTTWTP050 (02) MBBTTWTP060 (02) MBBTTWTP061 (02) MBBTTWTP070 (02) MBBTTWTP080 (02) MBBTTWTP081 (02) MBBTTWTP082 (02) MBBTTWTP090 DIRECTORY OF HEAD OFFICE AND BRANCH UNITS Chung Hsiao Branch 267, Sec. 3, Chung Hsiao E. Rd., Taipei City, Taiwan, R.O.C. (02) MBBTTWTP100 East Taipei Branch 135, Sec. 4, Bade Rd., Songshan Dist., Taipei City, Taiwan, R.O.C. (02) MBBTTWTP101 World Trade Center Branch 547 Guangfu S. Rd., Xinyi Dist., Taipei City, Taiwan, R.O.C. (02) MBBTTWTP102 Yung Trin Branch 552, Sec. 5, Chung Hsiao E. Rd., Taipei City, Taiwan, R.O.C. (02) MBBTTWTP103 Nan Kang Branch 19-2 Sanchong Rd., Nangang Dist., Taipei City, Taiwan, R.O.C. (02) MBBTTWTP105 Sung Nan Branch 161, Sec. 1, Keelung Rd., Xinyi Dist., Taipei City, Taiwan, R.O.C. (02) MBBTTWTP110 Dong Hu Branch 152, Sec. 6, Minquan E. Rd., Naihu Dist., Taipei City, Taiwan, R.O.C. (02) MBBTTWTP111 Ta An Branch 92, Sec. 2, Dunhua S. Rd. Da'an Dist., Taipei City, Taiwan, R.O.C. (02) MBBTTWTP120 Shuang Ho Branch 356 Zhonghe Rd., Zhonghe Dist., New Taipei City, Taiwan, R.O.C. (02) MBBTTWTP

134 TBB'S OFFICES ADDRESS TEL NO. SWIFT ADDRESS Jim Ho Branch Wu Ku Branch Lin Kou Branch Pan Chiao Branch Shu Lin Branch Tu Cheng Branch Hwei Long Branch Xi Zhi Branch Kee Lung Branch Pu Chya Branch (Banking Broker) North San Chung Branch South San Chung Branch Lu Chow Branch I Lan Branch Lo Tung Branch Su Aw Branch Yang Mei Branch Hu Kou Branch Taoyuan Branch (Banking Broker) Ta Yuan Branch 403, Sec. 2, Zhongshan Rd., Zhonghe Dist., New Taipei City, Taiwan, R.O.C. 95 Wugong Rd., Wu Ku Industrial Zone, Xinzhuang Dist., New Taipei City, Taiwan, R.O.C. 1F-2, 188 Zhongshan Rd., Linkou Dist., New Taipei City, R.O.C. 2-1 Mingde St., Banqiao Dist., New Taipei City, Taiwan, R.O.C. 217, Sec. 1, Zhongshan Rd., Shulin Dist., New Taipei City, Taiwan, R.O.C. 126, Sec. 2, Zhongyang Rd., Tucheng Dist., New Taipei City, Taiwan, R.O.C. 933 Zhongzheng Rd., Xinzhuang Dist., New Taipei City, Taiwan, R.O.C. 75, Sec. 1, Xintai 5th Rd., Xizhi Dist., New Taipei City, R.O.C. 9 Ai 3rd Rd., Ren'ai Dist., Keelung City, Taiwan, R.O.C. 62-1, Sec. 2, Zhongshan Rd., Banqiao Dist., New Taipei City, Taiwan, R.O.C. 137, Sec. 4, Sanhe Rd., Sanchong Dist., New Taipei City, Taiwan, R.O.C. 232, Sec. 1, Ziqiang Rd., Sanchong Dist., New Taipei City, Taiwan, R.O.C. 42 Yongle St., Luzhou Dist., New Taipei City, Taiwan, R.O.C. 305 Sec. 2,Zhongshan Rd., Yilan City, Yilan County, Taiwan, R.O.C. 15 Zhongzheng N. Rd., Luodong Township, Yilan County, Taiwan, R.O.C. 96-1,Sec. 1, Zhongshan Rd., Su' ao Township, Yilan County, Taiwan, R.O.C. 146 Dacheng Rd., Yangmei Dist., Taoyuan City, Taiwan, R.O.C. 76, Sec. 1, Zhongcheng Rd., Hukou Township, Hsinchu County, Taiwan, R.O.C. 99 Zhonghua Rd. Taoyuan Dist., Taoyuan City, Taiwan, R.O.C. 80 Zhongshan S. Rd., Dayuan Dist., Taoyuan City, Taiwan, R.O.C. (02) MBBTTWTP122 (02) MBBTTWTP130 (02) MBBTTWTP131 (02) MBBTTWTP140 (02) MBBTTWTP141 (02) MBBTTWTP142 (02) MBBTTWTP143 (02) MBBTTWTP144 (02) (02) MBBTTWTP151 (02) MBBTTWTP152 (02) MBBTTWTP153 (02) MBBTTWTP154 (03) MBBTTWTP160 (03) (03) (03) MBBTTWTP290 (03) MBBTTWTP291 (03) MBBTTWTP300 (03) MBBTTWTP Taiwan Business Bank Annual Report 2015

135 TBB'S OFFICES ADDRESS TEL NO. SWIFT ADDRESS Ta Shi Branch 80 Fuxing Rd., Daxi Dist., Taoyuan City, Taiwan, R.O.C. (03) MBBTTWTP302 Chung Li Branch Nei Li Branch 157 Zhongshan Rd., Zhongli Dist., Taoyuan City, Taiwan, R.O.C. 153 Zhongxiao Rd., Zhongli Dist., Taoyuan City, Taiwan, R.O.C. (03) MBBTTWTP310 (03) MBBTTWTP311 VIII Hsin Ming Branch East Taoyuan Branch Hsin Wu Branch 282 Minzu Rd., Zhongli Dist., Taoyuan City, Taiwan, R.O.C. 1223, Sec. 2, Wanshou Rd., Guishan Dist., Taoyuan City, Taiwan, R.O.C. 257 Zhongshan Rd., Xinwu Dist., Taoyuan CIty, Taiwan, R.O.C. (03) MBBTTWTP312 (03) MBBTTWTP313 (03) Hsin Chu Branch 154 Dongmen St., Hsinchu City, Taiwan, R.O.C. (03) MBBTTWTP320 Chu Pei Branch (Banking Broker) Hsinchu Science Based Industrial Park Branch Pa Te Branch Luong Tan Branch 128 Xianzheng 9th Rd., Zhubei City, Hsinchu County, Taiwan, R.O.C. NO.198, Guanxin Rd., Hsinchu City 300, Taiwan, R.O.C. 789, Sec. 1, Jieshou Rd., Bade Dist., Taoyuan City, Taiwan, R.O.C. 64 Longyuan Rd., Longtan Dist., Taoyuan City, Taiwan, R.O.C. (03) MBBTTWTP321 (03) MBBTTWTP322 (03) MBBTTWTP330 (03) MBBTTWTP332 DIRECTORY OF HEAD OFFICE AND BRANCH UNITS Chu Tung Branch Chu Nan Branch Tou Fen Branch 6 Donglin Rd., Zhudong Township, Hsinchu County, Taiwan, R.O.C. 29 Bo'ai St., Zhunan Township, Miaoli County Taiwan, R.O.C. 90 Xinyi Rd., Toufen City, Miaoli County, Taiwan, R.O.C. (03) MBBTTWTP340 (037) MBBTTWTP350 (037) MBBTTWTP351 Maio Li Branch 606 Zhongzheng Rd., Miaoli City, Taiwan, R.O.C. (037) MBBTTWTP360 Feng Yuan Branch (Banking Broker) Houli Branch 1 Sanfeng Rd., Fengyuan Dist., Taichung City, Taiwan, R.O.C. 51 Wenming Rd., Houli Dist., Taichung City, Taiwan, R.O.C. (04) MBBTTWTP460 (04) Tai Ping Branch (Banking Broker) Ta Chia Branch Sha Lu Branch 27 Zhongxing E. Rd., Taiping Dist., Taichung City, Taiwan, R.O.C. 14 Zhenzheng Rd., Dajia Dist., Taichung City, Taiwan, R.O.C Sec. 7, Taiwan Blvd., Shalu Dist., Taichung City, Taiwan R.O.C. (04) MBBTTWTP470 (04) MBBTTWTP480 (04) MBBTTWTP

136 TBB'S OFFICES ADDRESS TEL NO. SWIFT ADDRESS Wu Jih Branch Taichung Branch (Banking Broker) Min Chen Branch Hsing Chung Branch Pei Tuen Branch Nan Tou Branch Tsao Tuen Branch Pu Li Branch Tan Tze Branch Chu Shan Branch Chang Hwa Branch Ho Mei Branch Yuan Lin Branch Pei Tou Branch Erh Lin Branch Tou Liu Branch Pei Kang Branch Hu Wei Branch 616 Zhonghua Rd., Wuri Dist., Taichung City, Taiwan, R.O.C. 400 Sec. 1, Taiwan Blvd., Central Dist., Taichung City, Taiwan R.O.C. 84 Minquan Rd., Central Dist., Taichung City, Taiwan, R.O.C. 136 Taizhong Rd., South Dist., Taichung City, Taiwan, R.O.C. 53 Jinhua N. Rd., Beitun Dist., Taichung City, Taiwan, R.O.C. 139 Fuxing Rd., Nantou City, Nantou County, Taiwan, R.O.C. 604 Zhongzheng Rd., Caotun Township, Nantou County, Taiwan, R.O.C. 434 Zhongzheng Rd., Puli Township, Nantou County, Taiwan, R.O.C. 135, Sec. 2, Zhongshan Rd., Tanzi Dist., Taichung City, Taiwan, R.O.C. 919, Sec. 3, Jishan Rd., Zhushan Township, Nantou County, Taiwan, R.O.C. 61 Guangfu Rd., Changhua City, Changhua County, Taiwan, R.O.C. 8 He'an St., Hemei Township, Changhua County, Taiwan, R.O.C. 16 Minquan St., Yuanlin City, Changhua County, Taiwan, R.O.C. 62 Gongqian St., Beidou Township, Changhua County, Taiwan, R.O.C. 2 Zhongzheng Rd., Erlin Township, Changhua County, Taiwan, R.O.C. 109 Datong Rd., Douliu City, Yunlin County, Taiwan, R.O.C. 65 Wenhua Rd., Beigang Township, Yunlin County, Taiwan, R.O.C. 45 Heping Rd., Huwei Township, Yunlin County, Taiwan, R.O.C. (04) MBBTTWTP483 (04) MBBTTWTP490 (04) MBBTTWTP491 (04) MBBTTWTP500 (04) MBBTTWTP501 (049) MBBTTWTP510 (049) MBBTTWTP511 (049) (04) MBBTTWTP521 (049) MBBTTWTP530 (04) MBBTTWTP540 (04) MBBTTWTP541 (04) MBBTTWTP550 (04) MBBTTWTP560 (04) MBBTTWTP561 (05) MBBTTWTP660 (05) (05) Chia Yi Branch (Banking Broker) 132 Guanghua Rd., Chiayi City, Taiwan, R.O.C. (05) MBBTTWTP680 Ming Hsiung Branch (Banking Broker) 83, Sec. 3, Jianguo Rd., Minxiong Township, Chiayi County, Taiwan, R.O.C. (05) MBBTTWTP Taiwan Business Bank Annual Report 2015

137 TBB'S OFFICES ADDRESS TEL NO. SWIFT ADDRESS Hsin Ying Branch 216 Zhongshan Rd., Xinying Dist., Tainan City, Taiwan, R.O.C. (06) MBBTTWTP690 Kai Yuan Branch Yun Kang Branch 12 Zhonghua Rd., Yongkang Dist., Tainan City, Taiwan, R.O.C. 79 Zhongzheng S. Rd., Yongkang Dist., Tainan City, Taiwan, R.O.C. (06) MBBTTWTP691 (06) MBBTTWTP700 VIII Shiue Chia Branch Shan Hwa Branch Yung Ta Branch Tainan Branch (Banking Broker) Jen Te Branch Cheng Kung Branch East Tainan Branch An Ping Branch 87 Zhongshan Rd., Xuejia Dist., Tainan City, Taiwan, R.O.C. 352 Zhongshan Rd., Shanhua Dist., Tainan City, Taiwan, R.O.C. 1532, Sec. 2, Yongda Rd., Yongkang Dist., Tainan City, Taiwan, R.O.C. 185 Zhongzheng Rd., Tainan City, Taiwan, R.O.C. 339 Zhongshan Rd., Rende Dist., Tainan City, Taiwan, R.O.C. 25 Gongyuan Rd., West Central Dist., Tainan City, Taiwan, R.O.C. 75, Sec. 2, Zhonghua E. Rd., East Dist., Tainan City, R.O.C. 67, Sec. 1, Zhonghua W. Rd., South Dist., Tainan City, R.O.C (06) MBBTTWTP701 (06) MBBTTWTP702 (06) MBBTTWTP703 (06) MBBTTWTP710 (06) MBBTTWTP711 (06) MBBTTWTP720 (06) MBBTTWTP721 (06) MBBTTWTP730 DIRECTORY OF HEAD OFFICE AND BRANCH UNITS Hua Lien Branch 247 Zhongshan Rd., Hualien City, Hualien County, Taiwan, R.O.C. (03) MBBTTWTP760 Taitung Branch 335, Sec. 1, Zhonghua Rd., Taitung City, Taitung County, Taiwan, R.O.C. (089) East Kaohsiung Branch 249 Zhongzheng 1st Rd., Lingya Dist., Kaohsiung City, Taiwan, R.O.C. (07) MBBTTWTP820 Kang Shan Branch (Banking Broker) 412 Gangshan Rd., Gangshan Dist., Kaohsiung City, Taiwan, R.O.C. (07) MBBTTWTP830 North Feng Shan Branch 28, Sec. 3, Jianguo Rd., Fengshan Dist., Kaohsiung City, Taiwan, R.O.C. (07) MBBTTWTP840 Ling Ya Branch 31 Qingnian 1st Rd., Lingya Dist., Kaohsiung City, Taiwan, R.O.C. (07) MBBTTWTP841 Kaohsiung Branch 79 Wufu 3rd Rd., Qianjin Dist., Kaohsiung City, Taiwan, R.O.C. (07) MBBTTWTP850 North Kaohsiung Branch (Banking Broker) 90, Fuxing 1st Rd., Xinxing Dist., Kaohsiung City, Taiwan, R.O.C. (07) MBBTTWTP

138 TBB'S OFFICES ADDRESS TEL NO. SWIFT ADDRESS Ta Chang Branch 116 Dachang 2nd Rd., Sanmin Dist., Kaohsiung City, Taiwan, R.O.C. (07) Chien Chen Branch Minquan 2nd Rd., Qianzhen Dist., Kaohsiung City, Taiwan, R.O.C. (07) MBBTTWTP853 Jeou Ru Branch (Banking Broker) 255 Jiuru 2nd Rd., Sanmin Dist., Kaohsiung City, Taiwan, R.O.C. (07) MBBTTWTP860 San Ming Branch (Banking Broker) 153 Zhongshan 1st Rd., Xinxing Dist., Kaohsiung City, Taiwan, R.O.C. (07) MBBTTWTP870 Feng Shan Branch 157 Zhongshan Rd., Fengshan Dist., Kaohsiung City, Taiwan, R.O.C. (07) Ta Fa Branch No.5-3, Guanghua Rd., Daliao Dist., Kaohsiung City 831, Taiwan, R.O.C. (07) MBBTTWTP881 Ping Tung Branch (Banking Broker) 7 Hankou St., Pingtung City, Pingtung County, Taiwan, R.O.C. (08) Xiao Gang Branch 718 Hongping Rd., Xiaogang Dist., Kaohsiung City, Taiwan, R.O.C. (07) MBBTTWTP891 Chiao Chou Branch 100 Xinsheng Rd., Chaozhou Township, Pingtung County, Taiwan, R.O.C. (08) Offshore Banking Branch 3F, 30 Ta Cheng St., Taipei, Taiwan, R.O.C. (02) MBBTTWTP893 Los Angeles Branch 633, West 5TH St. Suite 2280 LA CA U.S.A MBBTUS6L Hong Kong Branch Suite ,27/F, Tower The Gateway, Harbour City, Kowloon,H.k, MBBTHKHH Sydney Branch Suite 3, Level 24, 363 George Street Sydney, N.S.W.2000 Australia MBBTAU2S Shanghai Branch 38F,Longemont Yes Tower,399 Kaixuan Road, Shanghai China MBBTCNSH Brisbane Branch Suite 903,Level 9,239 George Street, Brisbane, QLD Australia MBBTAU2SBRI Wuhan Branch Floor 17, Building 2, No. 108, Zhongbei Road, Wuchang District, Wuhan, Hubei Province , China MBBTCNSHWUH Yangon Representative Office 422 Strand Road (Corner of Botahtaung Pagoda Road), #04-08, Botahtaung Township, Yangon, Myanmar Taiwan Business Bank Annual Report 2015

139 Taiwan Business Bank, Ltd. Chairman