TAIWAN COOPERATIVE BANK SINCE 1946 ANNUAL REPORT. Proactive Agile Innovative TAIWAN COOPERATIVE BANK. Stock No: 5854

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1 Stock No: 5854 ANNUAL REPORT 2009 TAIWAN COOPERATIVE Proactive Agile Innovative BANK SINCE 1946 TAIWAN COOPERATIVE BANK 77, KUANCHIEN ROAD, TAIPEI TAIWAN, REPUBLIC OF CHINA TEL: FAX:

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3 Contents Letter to Shareholders Financial Highlights Organization Chart & Bank's Subsidiaries Chart Board of Directors & Supervisors & Executive Officers Bank Profile Main Business Plans for 2010 Market Analysis Risk Management Statement of Internal Control Supervisors' Report Financial Statements Consolidated Financial Statements Designated Foreign Exchange Banks Head Office & Overseas Units & Subsidiaries

4 TAIWAN COOPEERATIVE BANK Since

5 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK Letter to Shareholders In the aftermath of financial tsunami, global major countries remained stuck in an economic recession in the first half year of 2009 which resulted in the shrinkage of foreign trade volume and the continuous increase in unemployment rate. As for s economic situation, in terms of the decline in exports and rising unemployment rate, the Central Bank cut discount rate successively to a record low of 1.25% in Jan. and Feb However, thanks to a continual recovery of global economy, some economic indicators, such as the import and export growth, industrial production, and private consumption expenditure, have been improved and turned up gradually to the level before the financial tsunami happened. According to the forecast announced in Feb.2010 by the Directorate-General of Budget, Accounting and Statistics (DGBAS), the economic growth rate is -1.87% in Even the external environment was severe in 2009, Cooperative Bank (hereinafter referred to as TCB) still delivered outstanding operating performance based on the solid business foundation and hard-working employees, and therefore generated a pre-tax profit of NT$ billion and after-tax EPS of NT$ 1.28, outperforming most of peer banks in. Besides, TCB keeps occupying leading positions ions in both deposit and loan businesses in banking industry. Furthermore, in the end of Dec. 2009, the non-performing loan (NPL) ratio was 1.43%, a slight drop of 0.09% compared with 1.52% of last year; and the coverage ratio was 65.78%, a huge increase of 8.28% compared with 57.50% of last year. Both figures reflected the apparent enhancement of TCB s asset quality. Looking forward to 2010, TCB believes the development of banking business will benefit from the ongoing global economic recovery; however, the unemployment rate stays at a high level, the fiscal deficit deteriorates among US, Japan and Euro zone countries, and sustainability of global economic recovery still remains uncertain. Moreover, after the Memorandum of Understanding (MOU) on Cross-Strait Financial Supervision became effective, the development of domestic banking industry, as a result of facing both opportunity and challenge, has reached a brand new milestone. In addition to the planned capital increase e to 3

6 strengthen TCB s business per se, TCB will devote itself to cultivating client relationship, reducing cost, and enhancing risk control for the sake of bolstering TCB s operational foundation in. By means of the establishment of BNP Paribas Assurance TCB Life Insurance Company and through more than 300 branches in, TCB can offer its integrated banking services and assorted financial products to TCB s clients and boost the synergy stemmed from cross-selling operations. Besides, TCB aims to set up a branch in Sydney Australia so as to extend its overseas network and increase the proportion of profit contribution from overseas markets. With respect to the strategy on developing China s market, TCB will adopt a reliable and appropriate conservative principle to grasp new opportunities derived from the opening up of cross-strait financial sector. Last but not least, TCB will endeavor to create remarkable business performance and mold itself into a top-tier bank in the Asia- Pacific Region in a bid to repay the support and encouragement from all TCB s shareholders. Major Achievements in 2009 TCB won first-place in the Forth Program to Encourage Lending by Domestic Banks to Small and Medium Enterprises ( appraisal period: Jul. 01, 2008 ~ Dec. 31, 2009), which was implemented by Financial Supervisory Commission (FSC). TCB successfully issued 5.5-year subordinated financial debentures for a total amount of NT$ 8.1 billion for the sake of elevating the Capital Adequacy Ratio (CAR). TCB obtained the approval of co-current operation of securities investment consulting business from Financial Supervisory Commission (FSC) in Jul TCB set up Danfong Branch in Taipei County, transformed Jiankang Mini Branch to Jiankang Branch in Taipei City, and closed Guangwu Mini Branch and Magong Branch. Also, TCB moved Dongtoufen Branch in MiaoLi County and Songbei Branch in Taipei City, and changed both name to Jhunan Branch and Nanmen Branch respectively. TCB completed setting up seven appointed foreign-exchange branches (eg. Jhongsin Branch) and another seven appointed mini foreign-exchange branches (eg. Lujhu Branch). TCB inaugurated purchasing and selling Renminbi Bills business in 119 business units. (In the end of Dec. 2009, there were 277 TCB branches engaging in purchasing and selling Renminbi Bills business) TCB s Hong Kong Branch inaugurated online banking searching service, wealth management business and online banking deposit transaction searching service for OBU account to offer diverse wealth management services as well as convenient and sound E-banking services to Cross- Strait Tri-Regional clients. Also, Hong Kong Branch has received the permission from Financial Supervisory Commission (FSC) to engage in the Renminbi business. TCB joined in Factors Chain International (FCI Network), whose business region covers over 20 countries, to tightly meet the business demand of clients. 4

7 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK TCB increased the number of wealth management flagship branches to 7 and grew the number of exclusive wealth management zone to 264, burnishing its professional wealth management image. TCB promoted its Wealth Management Infinite Card, Home-loan Platinum Credit Card, and Business Card in order to attract high-quality customers. Besides, regarding Government Internet Purchasing Card, TCB achieved an outstanding result in the payment amount which was ranked No.1 in Market. TCB engaged in the out-of-court pre-negotiation mechanism under the Consumer Debt Resolution ACT. TCB stepped into consumer loan businesses of NT$ 200 Billion Special Preferential Housing Loan Program appropriated propriated by Ministry of Interior and Winner Personal Consolidated Loan. Operating Performance in Net interest income: NT$ 22,659,445, Net non-interest income: NT$ 9,432,487,000. Bad-debt expense: NT$ 5,229,495,000. Operating expense: NT$ 18,284,546, Earnings before income tax: NT$ 8,577,891,000. 7,891,000. Net income: NT$ 6,874,992,000. Basic earnings per share: NT$ Diluted earnings per share: NT$ President 5

8 Teng-Cheng Liu, Chairperson Chiu-Jung Tsai, President (front: from left to right) Thomas K.T. Ho, E.V.P. & General Auditor Wen-Long Lin, E.V.P. Chung-Dea Hsieh, E.V.P. John S.C. Chou, E.V.P. Chen-Yuan Tu, E.V.P. Hong-Chen Lin, E.V.P. (from left to right) 6

9 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK Operating Strategies for 2010 Continue to expand demand deposits so as to improve deposit structure and lower funding cost effectively. Embrace quantity equals quality principle to develop credit business, strive for acting as the Mandated Lead Arranger in domestic and international syndicated loans, and control loan asset quality effectively. Build up overseas branches vigorously and speed up establishing branches in China so as to increase the proportion of overseas revenue and move forward to become an Asian regional financial institution. Accelerate the establishment of subsidiaries in life insurance, security investment trust business, and securities, strengthen customized products so as to expand the wealth management business and boost the proportion of non-interest income. Reinforce the IT system and equipment, intensify the technique of risk control, and strengthen bank-wide risk discipline as well as safety management so as to promote business performance and asset quality. Fortify talent recruitment and incubation so as to meet the challenges of international banking industry in the gradually complicated and fiercely competitive environment. Carry through the implementation and management of budget targets, follow out the cost allocation system continuously, and make flexible use of treasury management strategies so as to upgrade overall business performance. Business Targets for 2010 Deposits: NT$ 2,017 billion (not including interbank deposits) Loans: NT$ 1, billion Foreign Exchange Transactions: USD 78 billion Investment: NT$ billion Trust Business: NT$ 120 billion with custodial banking accounting for NT$ 80 billion Wealth Management Business: Insurance fee income amounts to NT$ billion Securities: NT$ 280 billion E-banking: NT$ 250 billion in online banking transactions Credit Card Business: Card transactions amounts to NT$ 18.5 billion and the trade volume of credit card acquiring business amounts to NT$ 48.5 billion 7

10 Financial Highlights Condensed Balance Sheet NT$, CASH,CASH EQUIVALENTS AND DUE FROM THE CENTRAL BANK AND CALL LOANS TO OTHER BANKS FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS SECURITIES PURCHASED UNDER RESELL AGREEMENTS 578,730, ,355, ,860, ,274, ,225,498 25,025,499 31,259,237 41,748,515 47,521,600 22,114, ,173 AVAILABLE-FOR-SALE FINANCIAL ASSETS 49,771,450 64,785,297 60,247,280 61,907,516 55,670,846 DISCOUNTS AND LOANS, NET 1,797,418,534 1,832,644,545 1,729,746,205 1,713,813,847 1,274,665,865 RECEIVABLES, NET 12,833,055 20,385,892 27,872,714 27,439,825 27,096,034 HELD-TO-MATURITY FINANCIAL ASSETS 8,366,968 8,171,079 7,527,062 3,163,176 3,281,479 EQUITY INVESTMENTS UNDER THE EQUITY METHOD 7,102,083 5,628,867 5,776,283 4,908,188 1,145,541 PROPERTIES, NET 33,871,628 34,030,468 33,866,474 33,591,776 26,690,671 INTANGIBLE ASSETS 3,703,584 3,624,616 3,434,078 3,494,158 - OTHER FINANCIAL ASSETS, NET 46,396,845 56,149,881 47,387,263 41,071,681 31,358,683 OTHER ASSETS, NET 5,312,729 6,096,156 7,078,466 9,229,352 9,474,080 TOTAL ASSETS 2,568,532,872 2,487,131,681 2,421,544,644 2,373,415,224 1,965,942,674 DUE TO THE CENTRAL BANK AND OTHER BANKS 194,092, ,656, ,816, ,411, ,060,945 DEPOSITS AND REMITTANCES 2,065,393,420 1,983,480,938 1,885,247,837 1,823,373,039 1,533,042,886 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS SECURITIES SOLD UNDER REPURCHASE AGREEMENTS FUNDS BORROWED FROM THE CENTRAL BANK, BANK DEBENTURES 4,826,571 4,525,836 2,650,154 3,403, ,277 54,241,801 55,961,852 43,247,160 57,157,571 39,305,020 84,420,000 77,771,000 84,321,000 77,864,000 36,044,300 ACCRUED PENSION COSTS 1,906,142 1,763,570 1,645,063 1,293, ,014 OTHER FINANCIAL LIABILITIES 3,764,909 4,554,131 4,608,630 4,942,175 3,434,269 OTHER LIABILITIES 49,626,818 49,215,324 42,569,710 53,238,451 40,468,046 TOTAL LIABILITIES 2,458,271,919 2,379,929,489 2,319,105,918 2,275,682,974 1,902,013,757 CAPITAL STOCK 54,855,000 54,855,000 47,700,000 45,000,000 25,398,304 RESERVE FOR CAPITALIZATION ,539,830 CAPITAL SURPLUS-PAID-IN CAPITAL IN EXCESS OF PAR VALUE 32,242,401 32,207,944 32,207,944 34,907,944 23,696,319 RETAINED EARNINGS 19,153,442 16,586,850 18,732,715 12,720,380 8,176,723 REVALUATION INCREMENTS ON PROPERTIES 4,333,796 4,420,439 4,419,580 4,024,155 4,025,113 UNREALIZED GAINS ON FINANCIAL INSTRUMENTS 1,379, ,133 (896,081) 902,595 - CUMULATIVE TRANSLATION ADJUSTMENTS 195, , , ,176 92,628 TREASURY STOCK - 100,000 THOUSAND SHARES (1,898,154) (1,898,154) TOTAL STOCKHOLDERS' EQUITY 110,260, ,202, ,438,726 97,732,250 63,928,917 8

11 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK Condensed Statement of Income NT$, NET INTEREST 22,659,445 27,356,107 24,349,684 21,287,921 16,429,931 NET REVENUES AND GAINS OTHER THAN INTEREST 9,432,487 6,912,973 10,214,607 12,060,593 8,062,913 ALLOWANCE FOR BAD-DEBT EXPENSES 5,229,495 6,248,668 4,678,962 6,987,444 - BAD-DEBT EXPENSES FOR LOANS ,389,910 OPERATING EXPENSES 18,284,546 18,512,537 17,943,915 15,970,732 16,299,069 INCOME BEFORE INCOME TAX 8,577,891 9,507,875 11,941,414 10,390,338 2,803,865 INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 6,874,992 7,530,778 9,740,373 9,135,146 2,634,351 CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES ,062 - NET INCOME 6,874,992 7,530,778 9,740,373 9,175,208 2,634,351 Key Ratios % STABILITY RATIOS DEBT RATIO(TOTAL LIABILITIES/TOTAL ASSETS) 95.69% 95.67% 95.75% 95.86% 96.73% FIXED ASSETS/NET WORTH 30.72% 31.74% 33.06% 34.37% 41.75% LIQUIDITY RESERVE RATIO PROFITABILITY RATIOS RETURN ON TOTAL ASSETS 0.27% 0.31% 0.41% 0.42% 0.13% RETURN ON EQUITY 6.32% 7.18% 9.73% 11.30% 4.23% NET INCOME RATIO 21.42% 21.98% 28.18% 27.39% 10.76% EARNINGS PER SHARE Credit Rating Credit Rating Rating Agency Global Long Term Global Short Term National Long Term National Short Term Outlook Release Date S&P/TRC BBB+ A-2 twaa twa-1+ Stable Fitch BBB+ F2 AA-(twn) F1(twn) Stable Domestic Ranking Assets 2 Loans 2 Deposits 2 9 Branches 1

12 Organization Chart General Auditor Auditing Division, Board of Directors Secretariat, Board of Directors Business Management Department Personal Banking Department Loan Assets Management Department Corporate Banking Department Credit Management Department Wealth Management Department Centralized Operation Center Regional Credit Management Center Regional NPL Management Center Trust Department Securities Department Electronic Banking Department Credit Card Department International Banking Department Domestic Branches Overseas Branches Representative Office Offshore Banking Branch Shareholders' Meeting Board of Directors Chairperson President Executive Vice Presidents Treasury Department Administrative Management Division Accounting Division Information Technology Division Supervisors Credit Analysis and Research Division Risk Management Division Human Resource Division Training Center Legal Affairs Division 10

13 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK Bank s Subsidiaries Chart Shareholding % Co-operative Asset Management Co., Ltd. Shareholding % Cooperative I Asset Management Corporation Shareholding % Cooperative Insurance Brokers Co., Ltd. Cooperative Bank Shareholding 80.00% United Bank Shareholding 79.67% Cooperative Bills Finance Corporation 11

14 Board of Directors & Supervisors & Executive Officers Board of Directors Executive Officers Chairperson Teng-Cheng Liu Managing Directors Chiu-Jung Tsai Shui-Yuan Wu Chuan-Chung Liu Tse-Ching Huang Directors Dai-Ming Fann Ting-Jeng Chan Kuo-Tay Chen Pei-Chih Chang Chuang-Chang Chang Chin-chien Chen Che-Hui Huang Chih-Hsing Chang E-Dawn Chen Yen-Shu Tsai Jung-Ching Su Chih-Yung Chen Sing-Lon Lin Chih-Ching Lian E. V. P. & General Auditor Thomas K.T. Ho President Chiu-Jung Tsai Executive Vice Presidents John S.C. Chou Chung-Dea Hsieh Chen-Yuan Tu Hong-Chen Lin Wen-Long Lin S.V.P. & G.M., Business Management Department Wu-Lieh Tsai S.V.P. & G.M., Corporate Banking Department Cheng-Hsiu Chen S.V.P. & G.M., Credit Management Department Dah-Wei Wu S.V.P. & G.M., Treasury Department Pe-Chu Wu V.P. & G.M., International Banking Department Meng-Yung Chang S.V.P. & G.M., Personal Banking Department Mao Liao S.V.P. & G.M., Wealth Management Department Shih-Hong Chao S.V.P. & G.M., Trust Department Fei-Ling Hu 12

15 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK Board of Supervisors Resident Supervisor Shou-Tzuoo Huang Supervisors Jen-Poo Chen Len-E Chen Kwo-Chun Lee Ching-Yu Cheng Executive Officers S.V.P.& G.M., Securities Department Shih-Chih Tsai S.V.P. & G.M., Electronic Banking Department Chun-Lung Chuo S.V.P. & G.M., Credit Card Department Wen-Jenq Wu S.V.P. & G.M., Loan Assets Management Department Cheng-Kang Chen S.V.P. & G.M., Administrative Management Department Hsueh-Tao Wu S.V.P. & G.M., Accounting Division Chen-Tsai Chou S.V.P. & G.M., Information Technology Division Hsiang Hu S.V.P. & G.M., Credit Analysis and Research Division Michael M.J. Chang S.V.P. & G.M., Risk Management Division Shiaw-Yen Lun S.V.P. & G.M., Human Resource Division Sue-Chuan Wang S.V.P. & G.M., Legal Affairs Division Chih-Cheng Peng 13

16 Bank Profile Date of establishment : Oct. 5, History TCB was established in 1946 through the reorganization of the Industry Bank amid the Japanese colonial era. Provincial Government along with cooperative groups, farmers associations, fishermen s associations, and irrigation associations contributed capital to TCB in total amount of 25 million Old Dollar. TCB has constantly expanded its operating scale thanks to the efforts of the entire staff over the past 60 years, and at the end of 2009 its capitalization stood at NT$ billion. Under the provisions of Article 52 of the Banking Act, TCB achieved corporate status in May 1985 and was reorganized as Cooperative Bank Co., Ltd. in Jan TCB went public in Jun and was listed on the stock market in Nov In Feb. 2006, TCB changed its Chinese name, remaining its English name unchanged, and merged with The Farmers Bank of China in May of the same year. As of the end of 2009, TCB has a total of 306 domestic and overseas branches (including the Manila Branch, Los Angeles Branch, Seattle Branch, Hong Kong Branch and Beijing Representative Office, Siahan Office in ), owning the most extensive branch network among all local banks, and holds the leadership position in terms of deposits and loans. According to the Banker Magazine July 2009, TCB was ranked 160 by asset size in the top 1000 banks in the world, second only to Bank of in its home country. In Dec. 1992, TCB, Bank of, Land Bank of, and Business Bank, jointly established United Bank (UTB) in Belgium, and TCB obtained a 70% equity stake in UTB. In Oct. 2009, TCB acquired a 10% stake of UTB from Business Bank, worth NT$ 127 million, leading to hold 80% of total shares of UTB. In addition, TCB established and wholly-owned Co-operative Asset Management Corp. in Oct and boosted its capital to a total of NT$3.5billion in Mar Co-operative Asset Management Corp. established solely with an investment of NT$ 500 million in Cooperative Asset Management Corp. in Nov In Nov. 2005, TCB established and wholly owned Cooperative Insurance Brokerage Co., Ltd. with an investment of NT$10 million. In Dec. 2007, TCB established Cooperative Bills Finance Corp. with an investment of NT$529.5 million via Debt-for-Equity Swap, taking a 50.56% stake. Moreover, to meet the minimum capital requirements ruled by the competent authority, TCB increased its shareholding in that bills finance company to 79.67%, total worth NT$ 2,029.5 million, by a cash increment of NT$ 1,500 million. In Jan. 2009, TCB and BNP Paribas Assurance signed a joint venture agreement to set up BNP Paribas Assurance TCB Life Insurance Company. TCB possesses 51% of equities, worth NT$ 1,020 million, and BNP Paribas Assurance holds 49% of shares in the new insurance company. Under its Articles of Incorporation, TCB aims to engage in banking business, developing national economic construction, and providing financial adjustment for cooperative businesses, agriculture industry, and fishery industry. In addition to providing financing and development assistance for cooperative enterprises, farming and fishery industries, and small and medium enterprises, TCB also offers deposit, loan, and foreign exchange services for business enterprises in general to facilitate funds utilization and promote the overall economic development. Therefore, TCB is a consolidated international bank providing agriculture, fishery, and cooperative financing, as well as industrial and commercial corporate financing. 14

17 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK Main Business Plans for 2010 Operational Management The integrated marketing function will be fulfilled, and the growth of demand deposits business will be stimulated by TCB s dominant market position in credit business. In addition, customers cash flow will be fully supervised (e.g. through EDI, B2B, etc.) so that TCB could serve as the main bank for its customers. The increase of demand deposits will be achieved by actively striving for providing services including payroll transfer for enterprises and groups, treasury deposits in all levels of government, payment of compensation on behalf of county or city governments, acting as the custodian bank for security investment trust funds, collection of equity payments for capital increases by public listed companies, agency service for paying out cash dividend, collection and payment for security settlements, and tax payment by direct debit. The substitution of demand deposits for time deposits as loan collateral will be completely carried out to lower funding costs and heighten the proportion of demand deposits. Corporate Banking The quantity equals quality principle and profit-chasing mindset will be both espoused, and the credit business will be expanded diligently. The development of the real trade-based loan business will be strengthened so as to control the quality of loan assets effectively. The Policy Based Loans and SME Credit Guarantee Fund will be wisely adopted to continuously promote SME loan business. TCB will vigorously strive for acting as the Mandated Lead Arranger in domestic and international syndicated loan markets. Retail Banking The risk management will be strengthened, and Personal Secured Home Mortgage Loans by Region and Grade Measures and Personal Credit Loan Scoring System mechanisms will be employed to control loan quality. The monitoring and control of loan quality and write-offs of overdue loans will be reinforced so as to prevent non-performing loans. 15 The out-of-court pre-negotiation mechanism under the Consumer Debt Resolution ACT will be fully utilized to lower TCB s non-performing loans, to improve TCB s asset quality, and to reduce TCB's loss on bad debts.

18 Treasury Management The Funds Transfer Pricing (FTP) system will be established to meet bank-wide business development, and the strategy based on the adjustment of interbank offered rate will be carried out, so as to perform flexible funding allocation and reinforce overall business performance. Investment targets with growth potential will be chosen diligently in light of the domestic and international economic recovery; on top of that, strategies in regard to adjustment of duration and utilization of Interest Rate Swap (IRS) transaction will be applied to the investment of fixed income securities so as to avoid the risk derived from the rise of interest rate in the future. As regards the foreign exchange transaction, a trend following approach, based on the relationship between the change of price and demand in the commodity market and foreign exchange rate of commodity currency, will be taken to earn the foreign exchange rate variance gain. The derivative financial products will be continuously invented to meet the market trend and demand for customers. Moreover, the tailor-made customized products will be developed to the utmost so as to enlarge TCB s source of profits.. The preparatory tasks for the establishment of Suzhou Branch in China will be conducted actively so as to grab business opportunities for serving ese businessmen. The security brokerage and underwriting business will be continuously developed, the establishment of the security subsidiary will be planned actively, and then TCB s scope of business will be broadened. Wealth Management The wealth management specialist team in TCB branches will be built up, the proficient financial personnel will be actively trained, and TCB s professional image will be enhanced. The number of wealth management flagship branch will be increased, the various kinds of financial products will be offered to customers, the customers will be assisted to perform asset allocation, and a win-win situation which benefits both TCB and its customers will be created. The multimedia advertisements and marketing activities will be planned, and the internet sales platforms, client wealth management seminars, as well as community wealth management conferences will be employed, so as to expand TCB s client base. The domestic and foreign fund products, structured products, and fixed-income bond products will be carefully selected, diverse range of products will be provided to customers, and the sales volume of wealth management will be expanded, so as to increase the related fee income, client number, and market share. 16

19 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK Market Analysis Areas of Service TCB, as a comprehensive bank, provides an array of financial services in the fields of corporate banking, retail banking, as well as wealth management, and owns a substantial branch network across. In the end of 2009, TCB has a total of 301 domestic business units (including Siahan Office). If grouped by counties, Taipei City leads the drive with 70 branches, followed by Taipei County with 40 branches and Taichung City with 30 branches. TCB also has 4 overseas branches in Manila, Seattle, Los Angeles, and Hong Kong, plus 1 representative office in Beijing. Future Demand and Supply in the Market, and Growth Potential On the supply side, the pressure of excessive competition among domestic financial institutions continues to exist. In 2009, the Central Deposit Insurance Corporation (CDID) auctioned off Chinfon Bank assets to three domestic financial holding companies and banks separately. While domestic financial holding companies have reinforced their banking, life insurance, and securities territories, foreign banks have constantly merged local banks to increase their footholds in, further expand their business, and enhance their competitiveness. Furthermore, credit to global economic recovery and MOU on cross-strait financial supervision to come into effect, domestic banks will focus on the financial services between and among, China, and Hong-Kong, showing the co-opetition relationships. Meanwhile, in the wake of the situation that China banks come to set up local branches, banking environment enters a new era, and how to deepen the mutually-beneficial cooperation between both sides will be the next huge challenge for local bank players. On the demand side, under the impact of global financial tsunami, the domestic economy has declined sharply and the capital demand from enterprises also has fallen down. The 2009 total outstanding loan amount of banking industry posts a 0.72 percent growth year-on-year, hitting a five-year low. In the third quarter of 2009, the loan-deposit interest rate spread of local banks is 1.18%, fully reflecting the difficulty of reducing idle funds. However, with the gradual recovery of global and local economies, local businesses will start to strengthen their investment willingness. Besides, thanks to the improved cross-strait relationship, the signing of MOU on cross-strait financial supervision and aggressive negotiations on Economic Cooperation Framework Agreement (ECFA), the cross-strait economy and trade as well as investment exchanges will become more broadened so as to create new demand for funds expectedly, then driving future banking business growth. 17

20 Competitive Niches Counted as a benchmark bank with solid foundation and outstanding reputation Since established in 1946, TCB has continued to deeply cultivate the domestic market, and has had a leading position among local banks in terms of market shares of deposits and loans, asset scales, and syndication loans. Especially, TCB has headed the list of successful local banks in SME loan business. More important, in early 2010, TCB, as the lead arranger, successfully organized an international syndication loan raised by Japan s leading financial service group, Nomura Holdings Inc., to further promote TCB's international brand recognition. Employing complete marketing channels to offer a full range of financial services TCB has over 300 local branches and plenty of financial specialists in a bid to offer the most complete and professional services. For the sake of strengthening competitive advantages, TCB has gradually moved towards a financial holding company, jointly with BNP Paribas Bank Group to set up "BNP Paribas Assurance TCB Life Insurance Co., Ltd" (BNPPA TCB Life) and BNP Paribas TCB Asset Management Co., Ltd (BNPP TCB AM). Combining TCB s abundant experience and resources in all kinds of banking businesses, such as local syndication, foreign exchange, SME loans, wealth management, and electronic banking, with BNP Paribas Bank s asset management skills and competencies in 45 countries, TCB will rapidly tap into the local markets of bancassurance and asset management to realize the cross-industry synergies. Obtaining a well established and strong client base TCB s 60-year steady and dependable business philosophy has been highly trusted and praised by its more than 62 million clients. Not complacent about its previous achievements, TCB will continue to consolidate its core businesses, including deposits, loans, as well as foreign exchange, and reinforce the innovation of integrated marketing in trust, wealth management, electronic banking, and credit card businesses, to provide clients with complete financial products and convenient financial services. By doing so, TCB could build its unique competitiveness and brand image of one-stop-shopping with achievement of a win-win outcome for itself and its clients. Aggressively planning for overseas deployment to tie in with local management Although the financial turmoil erupted, Hong Kong Branch of TCB has been the first ese bank to obtain the permission license to do wealth management business in Hong Kong in order to provide a full spectrum of financial-planning and investment-consulting services in, Hong Kong, and China. Meanwhile, to cope with the opening-up of cross-strait financial sectors and the increasing demand from ese companies in China, TCB maps out to set up a branch in Suzhou, and will 18

21 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK actively proceed on cooperation with China banks in all kinds of businesses, including Renminbi inter-bank borrowing, the exchange of credit investigation information, and co-organizing syndication loans to ese companies. Besides the China market, TCB speeds up the establishment of Sydney Branch. Therefore, TCB is currently moving steadily towards becoming a high-quality Asia-Pacific regional bank. Favorable and Unfavorable Factors in Future Development, and Countermeasures Favorable Factors IHS Global Insight predicted that global GDP will grow 2.8% in 2010 with 11.3% and 11.4% growth in export and import volume respectively. Hence, local and global trade momentums will recover and related economies are expected to continuously improve so as to enhance business capital needs. In the wake of signing MOU on cross-strait financial supervision, s banks could expand their service locations in China and broaden their business scopes TCB will aggressively set up branches in China to enhance the services for ese companies and grab huge business opportunities. To grasp competitive advantages after the financial tsunami, TCB will energetically enlarge its business territory with the set-ups of "BNPPA TCB Life" and BNPP TCB AM in succession. In addition, TCB will take advantage of its over-300-branch channels for cross-selling to strengthen its competitiveness. After the competent authority, Financial Supervisory Commission has passed a set of regulations governing structured products; therefore, the development of wealth management market will be prone to be solid and mature, enabling to rebuild confidence of people and promote wealth management business well. Unfavorable Factors After MOU on cross-strait financial supervision took effect from Jan. 2010, China banks will come to for setting up local branches, and thus sharpen the competitive pressure of banking market. The domestic unemployment rate in 2009 is 5.85%, at a record high;the real average monthly salary of 2009 is NT$ 42,509, a decrease of 4.31% year-on-year. Above indications are unbeneficial for TCB to expand retail banking businesses, such as mortgage loans. 19

22 The loan-deposit interest rate spread of local banks stays at its low of 1.31% in the forth quarter of 2009, and will not be improved easily under the circumstance that the structure factor of fierce market competition still can not be eliminated. The fact that degrees of recovery in various countries are divergent and the timing for each government exiting is also different will aggravate the fluctuation of interest and foreign exchange rates and therefore increase the risk of economic uncertainty. Countermeasures To enhance the robustness of capital structure, TCB draws up to increase capital by earnings recapitalization and capital surplus transferred to common stock, from NT$ 54.8 billion to NT$ 60.0 billion, the minimum capital threshold of financial holding company. Furthermore, TCB plans to increase capital by cash or non-cumulative perpetual subordinated debts so as to improve Tier 1 capital structure. In line with the development of business and the advance of implementation efficiency, TCB adopts the disintegration model of five major business groups: risk management, business development, administrative resources, financial marketing, and wealth management, with the aim of proceeding the promotion and collaboration of tasks. To utilize electronic channels and to constantly increase demand deposits ratio in order to lower funding cost. To monitor the industrial changes on global and local macro-economies aspects, to implement the risk management thoroughly, and to enhance the quality of TCB s investment and loan assets for preventing bad debts from occurring. While the domestic economy gradually turns up and the demand for capital of giant enterprises follows to rebound strongly, TCB will continue to stretch the market share of syndication loan business. Furthermore, TCB will provide integrated financial services and diversified wealth management products through BNPPA TCB Life and BNPP TCB AM so as to raise fee income of wealth management and trust products. TCB will grasp the chance of cross-strait financial liberalization, through measurement of different conditions in terms of localities, and active and steady proceedings of the configuration in China, in order to deeply cultivate the great China market. Furthermore, TCB will establish Sydney Branch to step up expanding overseas footprints and strengthen OBU business so as to increase the weight on overseas earnings. 20

23 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK Risk Management Credit Risk Management System Credit Risk Strategies, Goals, Policies, and Procedures The TCB s credit-risk strategies are established in accordance with overall risk management targets, and are with the use of an effective risk management mechanism to identify, measure, monitor, and control different items of risk to fulfill the requirements of Basel II Accord. The Bank implements investigation and follow-up management, and makes judgments in accordance with information provided by the Joint Credit Information Center and Clearing House and Credit Rating Agencies. Risk management is also carried out in the consideration of trends in industrial growth and the needs of regional development, and on the basis of five principles: safety, liquidity, social benefit, profitability, and growth potential. To establish an objective credit investigation mechanism,the Bank is implementing the credit-risk scoring and rating tools that will use systematic and objective models to quantify risk and keep it within bearable limits. Organization and Framework of Credit Risk Management The Board of Directors is the Bank s highest policymaking body for credit risk management, and bears ultimate responsibility for the Bank s credit risk. The Risk Management Committee operates the credit risk management mechanism in accordance with credit risk decisions approved by the Board of Directors, reviews credit risk regulations, provides interdepartmental coordination on matters regarding credit risk management, and continuously monitors the performance of implementation. The Risk Management Division carries out the planning, establishing and coordinating of the Bank's credit risk management practices, monitors the overall credit risk management, regularly summarizes information related to the Bank's credit risk management for the reviews by Board of Directors and Risk Management Committee, and also carries out risk capital requirement calculation and risk information disclosure in accordance with the authorities' regulation. The headquarters and branches have established Credit Management Committees to review loan cases,and to approve or reject loan applications in accordance with their level of loan authorization. The Auditing Division of the Board of Directors carries out its auditing business in a spirit of independence, with at least one inspection per year of businesses related to credit risk and the provision of suggestions for improvement whenever necessary. 21

24 A Loan Assets Management Committee has been set up to review the disposition and writing off of non-performing loans and loans for collection, and the writing off of losses from the disposition of assumed collateral, so as to strengthen the management of NPLs and loans for collection. The Corporate Banking Department is responsible for loan review work and for supervising the business units in post-loan review and follow-up management. In case of irregularity in the operation of business units or in important loan cases, special reviews will be carried out as necessary, the causes of the irregularities will be investigated, and criticisms will be raised. Scope and Characteristics of the Credit Risk Reporting and Measuring System The Bank submits a regular Credit Risk Information Report (including information on risk positions, asset quality, limits utilization, and exceptional incidents) to high management levels (the Risk Management Committee) and the Board of Directors to serve as a reference in decision-making. Hedging Policy, and Strategies and Procedures for Monitoring the Continuing Effectiveness of Risk- Hedging Tools The TCB has established a Loan and Investment Policy and Credit Risk Management Criteria, and has set up rules for the concentration of different kinds of credit risk and for dealings with materially interested parties so as to manage credit risk effectively and reinforce the Bank s credit risk management mechanism. The Bank observes the limit regulations established by the competent agencies in its loan and investment businesses. The Bank sets limits for the same enterprise, business group, industry, country, and type of collateral, and monitors the limits constantly. It also readjusts the limits on regular and irregular bases so as to avoid the excessive concentration of risk and assure the Bank s stable operation. To reduce risk, the Bank carries out its loans or investment business by soliciting suitable collateral or guarantees in accordance with the credit situation of loan clients. Operational Risk Management System Strategies and Procedures The Bank s strategy for dealing with operational risk is to evaluate the severity and probability of the occurrence of exposure to potential operational risks that have been identified, and then adopt risk hedging, transfer or mitigation, reduction, assumption, or other countermeasures to maintain operational safety and a healthy operating structure that will reduce losses from operational risk. 22

25 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK The process of operational risk management includes identification, measuring, monitoring, and reporting. A healthy operational risk management mechanism is used to identify such internal and external factors as business characteristics, personnel, systems, and operating environment; risk is then measured with regard to causes, results, incidence, and impact, and indexes such as operational procedures, personnel, systems, and external incidents are monitored regularly. Organization and Framework The Board of Directors is the Bank s highest policymaking body for operational risk management, and the Risk Management Committee monitors the performance of management and implementation in accordance with the policies of the Board of Directors. The Risk Management Division formulates bank-wide strategies and procedures for operational risk management, designs and introduces operational risk management mechanisms and tools, establishes and manages the bank-wide loss databank, and reports on operational risk incidents and gives suggestions to the Risk Management Committee and Board of Directors on a regular basis. Units and personnel at all levels of the Bank observe the Bank s operational rules, taking care of any operational risks that arise and reporting them immediately. Headquarters units manage and supervise the performance of units throughout the bank in carrying out risk management. The Auditing Office of the Board of Directors carries out an inspection of the risk management mechanism and loss incident reporting of each unit at least once a year. Scope and Characteristics of the Operational Risk Reporting and Measurement System To effectively identify, measure, monitor, and report on all kinds of potential operational risks in everyday business activities and management procedures, the bank has established and centralized a database for the bank-wide management of operational risk incidents, including recording and following up on the causes for the occurrence of risk incidents, amount of losses, disposition process, and impact. Beginning in 2007, analytical reports on bank-wide operational risk information and status of management are submitted regularly to Risk Management Committee and Board of Directors. Risk Hedging and Risk Mitigation Policies, and Monitoring of Strategies and Procedures for the Continuing Effectiveness of Hedging and Mitigation Tools Operational rules have been established and implemented in everyday operations; a reporting mechanism for incidents causing losses has been set up, together with self-assessment by the different units and the auditing work of Bank headquarters; and reports are compiled and submitted with the purpose of preventing, and reducing, operational risk. 23

26 In its operational risk mitigation policy the Bank uses insurance or outsourcing to transfer or mitigate operational risk. It takes out comprehensive banking insurance (including coverage for disloyal behavior by employees, business venues and goods during shipment, counterfeiting of bills and securities, counterfeiting of money, and negligent loss), and fire. Operational risk in outsourcing is prevented by following the rules of the Criteria for the Outsourcing of Operations by the Cooperative Bank. Market Risk Management System Strategies and Procedures The Bank bases its market risk management policies on its overall risk management goals and product characteristics, sets investment authorization limits and stop-loss rules, and regularly evaluates and collates management information reports so as to effectively control market risks. Organization and Framework The Board of Directors is the Bank s highest policymaking body for market risk management, and bears ultimate responsibility for the Bank s market risk. The Bank s Risk Management Committee operates the market risk management mechanism in accordance with management decisions approved by the Board of Directors, reviews the limits for different kinds of market risk as well as limits at the sectoral level, and reviews changes in business strategies and market conditions on a scheduled basis or whenever necessary. The Bank s Risk Management Division carries out the work of overall market risk management bank-wide, playing the role of a centralized middle office. The mid-office personnel of the different trading units follow the Bank s market risk management regulations in managing everyday operations in real time, monitor different limits actively, and submit regular reports to the Risk Management Division. The Auditing Division of the Board of Directors carries out its auditing business in a spirit of independence, with at least one inspection per year of businesses related to market risk and the provision of suggestions for improvement whenever necessary. Scope and Characteristics of the Market Risk Reporting and Measurement System The TCB s market risk management procedures include identification, assessment, measuring, monitoring, and reporting. Risk management personnel of the different units analyze market risk positions within the scope of their responsibilities; assessment and measurement methods include statistical basic measurement methods, sensitivity analysis, and scenario analysis. Monitoring is 24

27 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK used to determine whether trading units as well as the overall and individual trading procedures for financial products, including changes in position, changes in profit and loss, trading models, and trading instruments, conform to the rules, and whether they are carried out within limits and scope of authorization. The different trading units report trading information to their superior units on a real-time, daily, or scheduled basis, and assure the accuracy and validity of the information. The Risk Management Division submits regular reports and suggestions to the Risk Management Committee and the Board of Directors on the bank-wide implementation of market risk management, including such factors as market risk positions, risk levels, profit and loss, limits utilization, and the status of compliance with market risk management regulations. Hedging and Mitigation Policy, and Monitoring of the Continuing Effectiveness of Hedging and Risk Mitigation Policies and Procedures The Bank s current risk-avoidance activity is used primarily to avoid the risk of foreign exchange and interest rate changes when investing in foreign-currency capital and securities, and hedging tools are confined mainly to derivative swaps. To assess changes in profit and loss from hedging activities, derivatives traded in hedging transactions are evaluated at least twice a month as to their market value and are combined with the evaluation of profit and loss on hedged products in reports that are submitted to the Bank s risk management officials. In addition, reports are submitted to the Board of Directors monthly, and, on a seasonal basis, to the Risk Management Committee. 25

28 Statement of Internal Control Cooperative Bank Statement of Internal Control On behalf of the Cooperative Bank we declare that during the period of Jan. 1, 2009 through Dec. 31, 2009 the Cooperative Bank did conform to the provisions of the Implementation Rules for Banks Internal Control and Auditing Systems by establishing an internal control system, carrying out risk management, and having audits carried out by an impartial and independent auditing unit, with reports submitted on a regular basis to the Boards of Directors and Supervisors. In its operation of the securities business, the Bank assessed the effectiveness of the establishment and implementation of its internal control system in accordance with the items for judgment of the effectiveness of internal control system as contained in the Regulations Governing the Establishment of Internal Control System by Service Enterprises in Securities and Futures Markets promulgated by the Securities and Futures Bureau of the Financial Supervisory Commission. Careful assessment shows that the Bank s units did effectively carry out internal control and regulatory compliance during this year. This Statement will become a major part of the Bank s annual report and its public announcements, and will be made public. Any fraudulent statements, undisclosed items, or other illegality will incur legal responsibility under Articles 20, 32, 171, and 174 of the Securities and Exchange Act. Submitted to the Financial Supervisory Commission, Executive Yuan Attestor Chairperson: President: General Auditor: Compliance Officer: Jan. 29,

29 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK Supervisors Report We have examined, in accordance with Article 219 of the Company Law, the financial statements and consolidated financial statements, proposed distribution of profit, and business reports as certified by Wang, Hsiao - Hui and Hung-husiang Tsai of Deloitte & Touche, and have found no discrepancies. Cooperative Bank Resident Supervisor: Supervisor: Supervisor: Supervisor: Supervisor: Mar. 23,

30 Financial Statement INDEPENDENT AUDITORS' REPORT The Board of Directors and the Stockholders Cooperative Bank, Ltd. We have audited the accompanying balance sheets of Cooperative Bank, Ltd. as of December 31, 2009 and 2008, and the related statements of income, changes in stockholders equity and cash flows for the years then ended. These financial statements are the responsibility of the Bank s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements of Financial Institutions by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the financial position of Cooperative Bank, Ltd. as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Public Banks, Guidelines Governing the Preparation of Financial Reports by Futures Commission Merchants, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China. As stated in Note 3 to the financial statements, under an explanation issued by the Accounting Research and Development Foundation of the Republic of China, Cooperative Bank, Ltd. should recognize bonus to employees and remuneration to directors and supervisors as compensation expenses effective January 1, These bonuses and remunerations were previously recorded as appropriations from earnings. As stated in Notes 3 and 31 to the financial statements, Cooperative Bank, Ltd. reclassified its financial assets in accordance with the newly amended Statement of Financial Accounting Standards No Financial Instruments: Recognition and Measurement. 28

31 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK We have also audited the consolidated financial statements of Cooperative Bank, Ltd. and its subsidiaries as of and for the years ended December 31, 2009 and 2008, on which we have issued an unqualified opinion and a modified unqualified opinion thereon, respectively, in our report dated February 25, 2010 (not presented herewith). February 25, 2010 Notice to Readers The accompanying fi nancial statements are intended only to present the fi nancial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors report and the accompanying fi nancial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors report and financial statements shall prevail. 29

32 TAIWAN COOPERATIVE BANK, LTD. BALANCE SHEETS DECEMBER 31, 2009 AND 2008 (In Thousands of New Dollars, Except Par Value) Percentage Increase (Decrease) ASSETS Amount Amount % CASH AND CASH EQUIVALENTS $ 45,170,092 $ 40,592, DUE FROM THE CENTRAL BANK AND CALL LOANS TO OTHER BANKS 533,560, ,763, FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 25,025,499 31,259,237 ( 20 ) RECEIVABLES, NET 12,833,055 20,385,892 ( 37 ) DISCOUNTS AND LOANS, NET 1,797,418,534 1,832,644,545 ( 2 ) AVAILABLE-FOR-SALE FINANCIAL ASSETS, NET 49,771,450 64,785,297 ( 23 ) HELD-TO-MATURITY FINANCIAL ASSETS 8,366,968 8,171,079 2 EQUITY INVESTMENTS UNDER THE EQUITY METHOD 7,102,083 5,628, OTHER FINANCIAL ASSETS, NET 46,396,845 56,149,881 ( 17 ) PROPERTIES Land (including revaluation increments) 22,484,953 22,481,984 - Buildings 13,338,972 13,098,990 2 Machinery and equipment 5,454,612 5,208,396 5 Transportation equipment 700, ,117 2 Other equipment 1,318,329 1,299,766 1 Leasehold improvements 715, , ,013,406 43,417,461 1 Less: Accumulated depreciation 10,263,523 9,428,473 9 Less: Accumulated impairment 6,574 1, ,743,309 33,987,874 ( 1 ) Construction in progress 67,555 24, Prepayment for equipment 60,764 18, Properties, net 33,871,628 34,030,468 - INTANGIBLE ASSETS 3,703,584 3,624,616 2 OTHER ASSETS, NET Nonoperating assets, net 3,774,850 3,834,123 ( 2 ) Prepaid expenses 748, , Refundable deposits 664, ,879 ( 33 ) Operating deposits and settlement funds 111,962 96, Collaterals assumed, net - 741,948 ( 100 ) Others 13,328 1, Other assets, net 5,312,729 6,096,156 ( 13 ) TOTAL $ 2,568,532,872 $ 2,487,131,

33 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK Percentage Increase (Decrease) LIABILITIES AND STOCKHOLDERS EQUITY Amount Amount % DUE TO THE CENTRAL BANK AND OTHER BANKS $ 194,092,258 $ 202,656,838 ( 4 ) FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS 4,826,571 4,525,836 7 SECURITIES SOLD UNDER REPURCHASE AGREEMENTS 54,241,801 55,961,852 ( 3 ) PAYABLES 46,303,278 45,943,097 1 DEPOSITS AND REMITTANCES 2,065,393,420 1,983,480,938 4 BANK DEBENTURES 84,420,000 77,771,000 9 ACCRUED PENSION COST 1,906,142 1,763,570 8 OTHER FINANCIAL LIABILITIES 3,764,909 4,554,131 ( 17 ) OTHER LIABILITIES 3,323,540 3,272,227 2 CAPITAL Total liabilities 2,458,271,919 2,379,929,489 3 Common stock - NT$10.00 par value; authorized 6,000,000 thousand shares; issued and outstanding 5,485,500 thousand shares CAPITAL SURPLUS 54,855,000 54,855,000 - Additional paid-in capital from share issuance in excess of par value 32,207,944 32,207,944 - Other 34, Total capital surplus 32,242,401 32,207,944 - RETAINED EARNINGS Legal reserve 11,253,095 8,993, Unappropriated earnings 7,900,347 7,592,988 4 Total retained earnings 19,153,442 16,586, OTHER EQUITY Unrealized revaluation increments 4,333,796 4,420,439 ( 2 ) Cumulative translation adjustments 195, , Unrealized gain on financial instruments 1,379, , Treasury stock - 100,000 thousand shares ( 1,898,154 ) ( 1,898,154 ) - Total other equity 4,010,110 3,552, Total stockholders' equity 110,260, ,202,192 3 CONTINGENCIES AND COMMITMENTS 31 TOTAL $ 2,568,532,872 $ 2,487,131,681 3

34 TAIWAN COOPERATIVE BANK, LTD. STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Dollars, Except Per Share Amounts) Percentage Increase (Decrease) Amount Amount % INTEREST REVENUE $ 42,980,512 $ 71,779,904 ( 40 ) INTEREST EXPENSE ( 20,321,067 ) ( 44,423,797 ) ( 54 ) NET INTEREST 22,659,445 27,356,107 ( 17 ) NET REVENUE AND GAIN (LOSS) OTHER THAN INTEREST Service fee income, net 3,313,233 3,467,406 ( 4 ) Gain (loss) on financial assets and liabilities at fair value through profit or loss 7,617,390 ( 4,689,947 ) 262 Realized gain on available-for-sale financial assets 290, , Realized loss on held-to-maturity financial assets - ( 140,354 ) 100 Loss from equity investments under the equity method, net ( 91,355 ) ( 96,152 ) ( 5 ) Foreign exchange gain, net ( 4,496,740 ) 5,314,865 ( 185 ) Impairment loss on assets ( 510,368 ) ( 686,006 ) ( 26 ) Gain on financial assets carried at cost 286, ,939 ( 30 ) Gain on disposal of properties and nonoperating assets 241, ,495 ( 19 ) Recovery of bad debts written off and overdue accounts 2,405,930 2,537,842 ( 5 ) Other noninterest gain, net 375, , Total net revenue and gain (loss) other than interest 9,432,487 6,912, TOTAL NET REVENUE 32,091,932 34,269,080 ( 6 ) ALLOWANCE FOR BAD-DEBT EXPENSES ( 5,229,495 ) ( 6,248,668 ) ( 16 ) OPERATING EXPENSES Personnel ( 12,497,823 ) ( 12,338,982 ) 1 Depreciation and amortization ( 1,146,351 ) ( 1,105,344 ) 4 General and administrative ( 4,640,372 ) ( 5,068,211 ) ( 8 ) Total operating expenses ( 18,284,546 ) ( 18,512,537 ) ( 1 ) (Continued) 32

35 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK TAIWAN COOPERATIVE BANK, LTD. STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Dollars, Except Per Share Amounts) Percentage Increase (Decrease) Amount Amount % INCOME BEFORE INCOME TAX $ 8,577,891 $ 9,507,875 ( 10 ) INCOME TAX EXPENSE ( 1,702,899 ) ( 1,977,097 ) ( 14 ) NET INCOME $ 6,874,992 $ 7,530,778 ( 9 ) Before Income Tax After Income Tax Before Income Tax After Income Tax EARNINGS PER SHARE Basic earnings per share $ 1.59 $ 1.28 $ 1.74 $ 1.38 Diluted earnings per share $ 1.58 $ 1.27 $ 1.73 $ 1.37 (Concluded) 33

36 TAIWAN COOPERATIVE BANK, LTD. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Dollars) Other Equity Issued and Outstanding Capital Stock Capital Surplus Retained Earnings Total Stockholders' Equity Treasury Stock Unrealized Gain (Loss) on Financial Instruments Cumulative Translation Adjustments Unrealized Revaluation Increments Unappropriated Earnings Common Stock Legal Reserve Shares (In Thousands) BALANCE, JANUARY 1, ,770,000 $ 47,700,000 $ 32,207,944 $ 6,071,750 $ 12,660,965 $ 4,419,580 $ 274,568 ( $ 896,081 ) $ - $ 102,438,726 Appropriation of the 2007 earnings Legal reserve ,922,112 ( 2,922,112 ) Cash dividends ( 1,908,000 ) ( 1,908,000 ) Stock dividends 715,500 7,155, ( 7,155,000 ) Remuneration to directors and supervisors ( 68,182 ) ( 68,182 ) Bonus to employees ( 545,461 ) ( 545,461 ) Balance after appropriation 5,485,500 54,855,000 32,207,944 8,993,862 62,210 4,419, ,568 ( 896,081 ) - 99,917,083 Net income in ,530, ,530,778 Change in unrealized revaluation increments Change in cumulative translation adjustments ( 111,588 ) - - ( 111,588 ) Change in unrealized gain on financial instruments ,763,214-1,763,214 Acquisition of treasury stock - 100,000 thousand shares ( 1,898,154 ) ( 1,898,154 ) BALANCE, DECEMBER 31, ,485,500 54,855,000 32,207,944 8,993,862 7,592,988 4,420, , ,133 ( 1,898,154 ) 107,202,192 Appropriation of the 2008 earnings (Note) Legal reserve ,259,233 ( 2,259,233 ) Cash dividends ( 4,308,400 ) ( 4,308,400 ) Balance after appropriation 5,485,500 54,855,000 32,207,944 11,253,095 1,025,355 4,420, , ,133 ( 1,898,154 ) 102,893,792 Net income in ,874, ,874,992 Adjustment arising from changes in percentage of ownership in investees , ,457 Change in unrealized revaluation increments ( 86,643 ) ( 86,643 ) Change in cumulative translation adjustments , ,467 Change in unrealized gain on financial instruments , ,888 BALANCE, DECEMBER 31, ,485,500 $ 54,855,000 $ 32,242,401 $ 11,253,095 $ 7,900,347 $ 4,333,796 $ 195,447 $ 1,379,021 ( $ 1,898,154 ) $ 110,260,953 Note: The remuneration to directors and supervisors of $57,929 thousand and bonus to employees of $463,433 thousand were deducted from the income statements. 34

37 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK TAIWAN COOPERATIVE BANK, LTD. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 6,874,992 $ 7,530,778 Loss (gain) on valuation of financial instruments 876,323 ( 824,507 ) Gain on the sale of available-for-sale financial assets ( 267,480 ) ( 156,358 ) Loss from equity investments under the equity method, net of cash dividends received 190, ,363 Impairment loss on assets 510, ,006 Depreciation and amortization expenses 1,146,351 1,105,344 Gain on disposal of properties, nonoperating assets and collaterals assumed, net ( 249,558 ) ( 382,485 ) Allowance for bad-debt expenses 5,229,495 6,248,668 Other provisions 38,003 27,274 Amortization of premium or discount on bonds 490, ,401 Provision for pension costs 142, ,507 Deferred income tax ( 30,795 ) 1,021,161 Loss on the sale of held-to-maturity financial assets - 140,354 Gain on the sale of financial assets carried at cost - ( 173,599 ) Others ( 49,385 ) 29,668 Net changes in operating assets and liabilities Held-for-trading financial assets 7,681,977 10,809,207 Receivables 4,800,345 1,036,064 Other assets ( 321,825 ) ( 183,491 ) Held-for-trading financial liabilities ( 5,219,971 ) ( 930,668 ) Payables 360,181 6,812,759 Other liabilities 78,034 ( 279,268 ) Net cash provided by operating activities 22,280,662 33,417, CASH FLOWS FROM INVESTING ACTIVITIES Decrease (increase) in due from the Central Bank and call loans to other banks ( 149,797,290 ) 40,596,679 Acquisition of financial assets designated at fair value through profit or loss - ( 182,581 ) Proceeds of the sale of financial assets designated at fair value through profit or loss 3,256,114 2,148,775 Decrease (increase) in discounts and loans 30,439,261 ( 111,839,726 ) Acquisition of available-for-sale financial assets ( 11,469,383 ) ( 79,841,482 ) Proceeds of the sale of available-for-sale financial assets 26,950,442 77,612,595 Increase in investments accounted for under the equity method ( 1,627,279 ) - Acquisition of held-to-maturity financial assets ( 1,442,568 ) ( 6,051,969 ) Proceeds of the sale of and return of principal on held-to-maturity financial assets 1,164,917 5,526,187 Acquisition of debt instruments with no active market ( 3,320,405 ) ( 19,043,506 ) Proceeds of the sale of and return of principal on debt instruments with no active market 13,139,466 9,148,657 Proceeds of the sale of financial assets carried at cost - 385,684 Increase in other financial assets ( 130,529 ) ( 365,033 ) Acquisition of properties, intangible assets and nonoperating assets ( 921,995 ) ( 1,518,547 ) (Continued)

38 TAIWAN COOPERATIVE BANK, LTD. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Dollars) Proceeds of the sale of properties, nonoperating assets and collaterals assumed $ 377,759 $ 952,515 Decrease (increase) in other assets 303,425 ( 157,590 ) Proceeds of the sale of nonperforming loans 2,480,230 9,364,024 Net cash used in investing activities ( 90,597,835 ) ( 73,265,318 ) CASH FLOWS FROM FINANCING ACTIVITIES Decrease in due to the Central Bank and other banks ( 8,564,580 ) ( 52,159,526 ) Increase (decrease) in securities sold under repurchase agreements ( 1,720,051 ) 12,714,692 Increase in deposits and remittances 81,912,482 98,233,101 Repayment of bank debentures ( 1,451,000 ) ( 16,540,000 ) Issuance of bank debentures 8,100,000 10,000,000 Decrease in other financial liabilities ( 789,222 ) ( 54,499 ) Decrease in other liabilities ( 696 ) ( 41,992 ) Cash dividends ( 4,308,400 ) ( 1,903,204 ) Bonus to employees and remuneration to directors and supervisors - ( 613,643 ) Acquisition of treasury stock - ( 1,898,154 ) Net cash provided by financing activities 73,178,533 47,736,775 EFFECTS OF EXCHANGE RATE CHANGES ( 283,796 ) 203,383 INCREASE IN CASH AND CASH EQUIVALENTS 4,577,564 8,092,018 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 40,592,528 32,500,510 CASH AND CASH EQUIVALENTS, END OF YEAR $ 45,170,092 $ 40,592,528 SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 24,372,073 $ 44,750,799 Income tax paid $ 774,592 $ 1,354,397 PART-CASH INVESTING ACTIVITIES Sale of nonperforming loans - current year $ - $ 3,103,990 Receivables from the sale of nonperforming loans - ( 2,483,192 ) Proceeds of the sale of nonperforming loans - previous year 2,480,230 8,743,226 Proceeds of the sale of nonperforming loans $ 2,480,230 $ 9,364,024 Notice to Readers The notes to financial statements are published separately. If you have a need of it, please contact International Banking Department (Tel: #331) or Business Management Department (Tel: #392). (Concluded) 36

39 Proactive Agile I nnovative

40 Consolidated Financial Statements INDEPENDENT AUDITORS' REPORT The Board of Directors and the Stockholders Cooperative Bank, Ltd. We have audited the accompanying consolidated balance sheets of Cooperative Bank, Ltd. and subsidiaries (collectively, the Company ) as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in stockholders equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements of Financial Institutions by Certified Public Accountants, the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cooperative Bank, Ltd. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Public Banks, Guidelines Governing the Preparation of Financial Reports by Futures Commission Merchants, and accounting principles generally accepted in the Republic of China. As stated in Note 3 to the consolidated financial statements, under an explanation issued by the Accounting Research and Development Foundation of the Republic of China, Cooperative Bank, Ltd. and subsidiaries should recognize bonus to employees and remuneration to directors and supervisors as compensation expenses effective January 1, These bonuses and remunerations were previously recorded as appropriations from earnings. 38

41 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK As stated in Notes 3 and 32 to the consolidated financial statements, Cooperative Bank, Ltd. and subsidiaries reclassified their financial assets in accordance with the newly amended Statement of Financial Accounting Standards No.34- Financial Instruments: Recognition and Measurement. February 25, 2010 Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors report and consolidated financial statements shall prevail. 39

42 TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2009 AND 2008 (In Thousands of New Dollars, Except Par Value) ASSETS Percentage Increase (Decrease) Amount Amount % CASH AND CASH EQUIVALENTS $ 45,364,214 $ 40,844, DUE FROM THE CENTRAL BANK AND CALL LOANS TO OTHER BANKS 528,019, ,585, FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 33,297,426 36,440,703 ( 9 ) RECEIVABLES, NET 23,094,880 32,594,209 ( 29 ) DISCOUNTS AND LOANS, NET 1,801,113,000 1,838,147,297 ( 2 ) AVAILABLE-FOR-SALE FINANCIAL ASSETS, NET 54,959,574 68,483,509 ( 20 ) HELD-TO-MATURITY FINANCIAL ASSETS 8,466,968 8,271,079 2 EQUITY INVESTMENTS UNDER THE EQUITY METHOD 81,585 76,596 7 OTHER FINANCIAL ASSETS, NET 51,432,901 62,253,128 ( 17 ) PROPERTIES Land (including revaluation increments) 22,489,680 22,486,712 - Buildings 13,343,356 13,103,374 2 Machinery and equipment 5,470,655 5,224,189 5 Transportation equipment 706, ,981 2 Other equipment 1,334,303 1,315,991 1 Leasehold improvements 723, , ,068,415 43,472,309 1 Less: Accumulated depreciation 10,299,958 9,461,828 9 Less: Accumulated impairment 6,574 1, ,761,883 34,009,367 ( 1 ) Construction in progress 67,555 24, Prepayment for equipment 60,764 22, Properties, net 33,890,202 34,055,861 - INTANGIBLE ASSETS 3,710,918 3,626,396 2 OTHER ASSETS, NET Nonoperating assets, net 4,032,075 4,076,970 ( 1 ) Prepaid expense 754, , Refundable deposits 704,594 1,008,849 ( 30 ) Operating deposits and settlement funds 283, , Collaterals assumed, net 129, ,341 ( 85 ) Others 15,567 7, Other assets, net 5,919,504 6,636,601 ( 11 ) TOTAL $ 2,589,350,865 $ 2,507,014,

43 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK LIABILITIES AND STOCKHOLDERS EQUITY Percentage Increase (Decrease) Amount Amount % DUE TO THE CENTRAL BANK AND OTHER BANKS $ 195,272,747 $ 204,503,066 ( 5 ) COMMERCIAL PAPER ISSUED, NET 2,376,721 1,559, FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS 4,826,571 4,525,836 7 SECURITIES SOLD UNDER REPURCHASE AGREEMENTS 65,525,148 63,308,291 4 PAYABLES 46,376,132 46,130,268 1 DEPOSITS AND REMITTANCES 2,065,065,718 1,983,233,481 4 BANK DEBENTURES 84,420,000 77,771,000 9 ACCRUED PENSION COST 1,906,142 1,763,570 8 OTHER FINANCIAL LIABILITIES 8,195,331 11,759,532 ( 30 ) OTHER LIABILITIES 4,378,882 4,256,881 3 Total liabilities 2,478,343,392 2,398,811,307 3 STOCKHOLDERS' EQUITY OF PARENT COMPANY Capital stock Common stock - NT$10.00 par value; authorized 6,000,000 thousand shares; issued and outstanding 5,485,500 thousand shares Capital surplus 54,855,000 54,855,000 - Additional paid-in capital from share issuance in excess of par value 32,207,944 32,207,944 - Other 34, Total capital surplus 32,242,401 32,207,944 - Retained earnings Legal reserve 11,253,095 8,993, Unappropriated earnings 7,900,347 7,592,988 4 Total retained earnings 19,153,442 16,586, Other equity Unrealized revaluation increments 4,333,796 4,420,439 ( 2 ) Cumulative translation adjustments 195, , Unrealized gain on financial instruments 1,379, , Treasury stock - 100,000 thousand shares ( 1,898,154 ) ( 1,898,154 ) - Total other equity 4,010,110 3,552, Total stockholders' equity of parent company 110,260, ,202,192 3 MINORITY INTEREST 746,520 1,001,364 ( 25 ) Total stockholders' equity 111,007, ,203,556 3 CONTINGENCIES AND COMMITMENTS TOTAL $ 2,589,350,865 $ 2,507,014,

44 TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Dollars, Except Per Share Amounts) Percentage Increase (Decrease) Amount Amount % INTEREST REVENUE $ 43,212,687 $ 72,050,647 ( 40 ) INTEREST EXPENSE ( 20,438,942 ) ( 44,765,178 ) ( 54 ) NET INTEREST 22,773,745 27,285,469 ( 17 ) NET REVENUE AND GAIN (LOSS) OTHER THAN INTEREST Service fee income, net 3,503,959 3,645,096 ( 4 ) Gain (loss) on financial assets and liabilities at fair value through profit or loss 7,635,477 ( 4,589,553 ) 266 Realized gain on available-for-sale financial assets 320, , Realized loss on held-to-maturity financial assets - ( 140,354 ) 100 Income from equity investments under the equity method, net 9,427 10,115 ( 7 ) Foreign exchange gain, net ( 4,498,914 ) 5,325,375 ( 184 ) Impairment loss on assets ( 510,368 ) ( 984,134 ) ( 48 ) Gains on financial assets carried at cost 287, ,543 ( 30 ) Gains on the sale of nonperforming loans 533, ,919 ( 33 ) Gains on disposal of properties and nonoperating assets 242, ,495 ( 19 ) Recovery of bad debts written off and overdue accounts 2,405,930 2,537,842 ( 5 ) Other noninterest gain, net 285, , Total net revenue and gain (loss) other than interest 10,215,530 7,591, TOTAL NET REVENUE 32,989,275 34,877,403 ( 5 ) ALLOWANCE FOR BAD-DEBT EXPENSES ( 5,839,693 ) ( 6,572,902 ) ( 11 ) OPERATING EXPENSES Personnel ( 12,661,986 ) ( 12,515,542 ) 1 Depreciation and amortization ( 1,154,570 ) ( 1,111,587 ) 4 General and administrative ( 4,732,571 ) ( 5,177,999 ) ( 9 ) Total operating expenses ( 18,549,127 ) ( 18,805,128 ) ( 1 ) (Continued) 42

45 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK Percentage Increase (Decrease) Amount Amount % CONSOLIDATED INCOME BEFORE INCOME TAX $ 8,600,455 $ 9,499,373 ( 9 ) INCOME TAX EXPENSE ( 1,786,807 ) ( 2,097,858 ) ( 15 ) CONSOLIDATED NET INCOME $ 6,813,648 $ 7,401,515 ( 8 ) ATTRIBUTABLE TO: Parent company $ 6,874,992 $ 7,530,778 ( 9 ) Minority interest ( 61,344 ) ( 129,263 ) ( 53 ) $ 6,813,648 $ 7,401,515 ( 8 ) 2009 Before Income Tax 2009 After Income Tax 2008 Before Income Tax 2008 After Income Tax EARNINGS PER SHARE Basic earnings per share $ 1.59 $ 1.28 $ 1.74 $ 1.38 Diluted earnings per share $ 1.58 $ 1.27 $ 1.73 $ 1.37 (Concluded) 43

46 TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Dollars) Stockholders' Equity of Parent Company Total Stockholders' Equity Retained Earnings Other Equity Minority Interest Issued and Outstanding Capital Stock Treasury Stock Unrealized Gain (Loss) on Financial Instruments Cumulative Translation Adjustments Unrealized Revaluation Increments Unappropriated Earnings Capital Surplus Legal Reserve Common Stock Shares (In Thousands) BALANCE, JANUARY 1, ,770,000 $ 47,700,000 $ 32,207,944 $ 6,071,750 $ 12,660,965 $ 4,419,580 $ 274,568 ( $ 896,081 ) $ - $ 1,116,110 $ 103,554,836 Appropriation of the 2007 earnings - Legal reserve ,922,112 ( 2,922,112 ) Cash dividends ( 1,908,000 ) ( 1,908,000 ) Stock dividends 715,500 7,155, ( 7,155,000 ) Remuneration to directors and supervisors ( 68,182 ) ( 68,182 ) Bonus to employees ( 545,461 ) ( 545,461 ) Balance after appropriation 5,485,500 54,855,000 32,207,944 8,993,862 62,210 4,419, ,568 ( 896,081 ) - 1,116, ,033,193 Consolidated net income in ,530, ( 129,263 ) 7,401,515 Change in unrealized revaluation increments Change in cumulative translation adjustments ( 111,588 ) - - ( 19,839 ) ( 131,427 ) Change in unrealized gain on financial instruments ,763,214-34,356 1,797, ( 1,898,154 ) - ( 1,898,154 ) Acquisition of treasury stock - 100,000 thousand shares BALANCE, DECEMBER 31, ,485,500 54,855,000 32,207,944 8,993,862 7,592,988 4,420, , ,133 ( 1,898,154 ) 1,001, ,203,556 Appropriation of the 2008 earnings (Note) Legal reserve ,259,233 ( 2,259,233 ) Cash dividends ( 4,308,400 ) ( 4,308,400 ) Balance after appropriation 5,485,500 54,855,000 32,207,944 11,253,095 1,025,355 4,420, , ,133 ( 1,898,154 ) 1,001, ,895,156 Consolidated net income in ,874, ( 61,344 ) 6,813, , ,457 Adjustment arising from changes in percentage of ownership in investees Change in unrealized revaluation increments ( 86,643 ) ( 86,643 ) Change in cumulative translation adjustments , ,467 Change in unrealized gain on financial instruments , ,888 Change in minority interest ( 193,500 ) ( 193,500 ) BALANCE, DECEMBER 31, ,485,500 $ 54,855,000 $ 32,242,401 $ 11,253,095 $ 7,900,347 $ 4,333,796 $ 195,447 $ 1,379,021 ( $ 1,898,154 ) $ 746,520 $ 111,007,473 Note: The remuneration to directors and supervisors of $57,929 thousand and bonus to employees of $463,433 thousand were deducted from the consolidated income statements. 44

47 2009 ANNUAL REPORT TAIWAN COOPEERATIVE BANK TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Consolidated net income $ 6,813,648 $ 7,401,515 Loss (gain) on valuation of financial instruments 877,022 ( 825,229 ) Gain on the sale of available-for-sale financial assets ( 298,040 ) ( 175,732 ) Income from equity investments under the equity method, net of cash dividends received ( 5,127 ) ( 7,190 ) Impairment loss on assets 510, ,134 Depreciation and amortization expenses 1,154,570 1,111,587 Gain on disposal of properties, nonoperating assets and collaterals assumed, net ( 250,178 ) ( 382,485 ) Allowance for bad-debt expenses 5,839,693 6,572,902 Other provisions 40,708 29,517 Recovery of credits written off 26,466 2,843 Amortization of premium or discount on bonds 600, ,062 Provision for pension costs 142, ,507 Deferred income tax ( 15,750 ) 1,003,094 Loss on the sale of held-to-maturity financial assets - 140,354 Gain on the sale of financial assets carried at cost - ( 173,599 ) Loss on the sale of debt instruments with no active market 16, ,313 Others - ( 61,010 ) Net changes in operating assets and liabilities Held-for-trading financial assets 4,590,817 7,971,241 Receivables 6,591,289 3,170,650 Other assets ( 321,075 ) ( 163,303 ) Held-for-trading financial liabilities ( 5,219,971 ) ( 930,668 ) Payables 245,863 6,859,189 Other liabilities 82,853 ( 282,828 ) Net cash provided by operating activities 21,422,303 33,338, CASH FLOWS FROM INVESTING ACTIVITIES Decrease (increase) in due from the Central Bank and call loans to other banks ( 152,434,521 ) 40,144,612 Acquisition of financial assets designated at fair value through profit or loss - ( 182,581 ) Proceeds of the sale of financial assets designated at fair value through profit or loss 3,256,114 2,148,775 Decrease (increase) in discounts and loans 31,823,416 ( 112,359,730 ) Acquisition of available-for-sale financial assets ( 17,983,633 ) ( 117,249,614 ) Proceeds of the sale of available-for-sale financial assets 31,860, ,566,902 Acquisition of held-to-maturity financial assets ( 1,442,568 ) ( 6,051,969 ) Proceeds of the sale of and return of principal on held-to-maturity financial assets 1,164,917 5,526,187 Acquisition of debt instruments with no active market ( 3,320,405 ) ( 19,043,506 ) (Continued)

48 TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Dollars) Proceeds of the sale of and return of principal on debt instruments with no active market $ 14,011,146 $ 10,136,135 Proceeds of the sale of financial assets carried at cost - 385,684 Increase in other financial assets ( 130,529 ) ( 365,033 ) Acquisition of properties, intangible assets and nonoperating assets ( 947,759 ) ( 1,546,225 ) Proceeds of the sale of properties, nonoperating assets and collaterals assumed 382, ,615 Decrease (increase) in other assets 266,606 ( 165,963 ) Proceeds of the sale of nonperforming loans 2,480, ,798 Net cash used in investing activities ( 91,013,475 ) ( 85,482,913 ) CASH FLOWS FROM FINANCING ACTIVITIES Decrease in due to the Central Bank and other banks ( 9,230,319 ) ( 53,205,947 ) Increase in commercial paper issued 817,339 1,159,808 Increase in securities sold under repurchase agreements 2,216,857 20,057,221 Increase in deposits and remittances 81,832,237 98,375,447 Repayment of bank debentures ( 1,451,000 ) ( 16,540,000 ) Issuance of bank debentures 8,100,000 10,000,000 Increase (decrease) in other financial liabilities ( 3,564,201 ) 4,699,534 Decrease in other liabilities ( 8,862 ) ( 39,611 ) Cash dividends ( 4,308,400 ) ( 1,903,204 ) Bonus to employees and remuneration to directors and supervisors - ( 613,643 ) Acquisition of treasury stock - ( 1,898,154 ) Changes in minority interest ( 137,635 ) - Net cash provided by financing activities 74,266,016 60,091,451 EFFECTS OF EXCHANGE RATE CHANGES ( 154,942 ) 147,712 INCREASE IN CASH AND CASH EQUIVALENTS 4,519,902 8,095,114 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 40,844,312 32,749,198 CASH AND CASH EQUIVALENTS, END OF YEAR $ 45,364,214 $ 40,844,312 SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 24,498,954 $ 45,089,096 Income tax paid $ 956,422 $ 1,469,275 PART-CASH INVESTING ACTIVITIES Sale of nonperforming loans - current year $ - $ 3,103,990 Receivables from the sale of nonperforming loans - ( 2,483,192 ) Proceeds of the sale of nonperforming loans - previous year 2,480,230 - Proceeds of the sale of nonperforming loans $ 2,480,230 $ 620,798 (Concluded)

49