Taishin Financial Holding Co., Ltd. and Subsidiaries Consolidated Financial Statements for the Three Months Ended March 31, 2013 and and Independent Accountants Review Report
INDEPENDENT ACCOUNTANTS REVIEW REPORT The Board of Directors and Stockholders Taishin Financial Holding Co., Ltd. We have reviewed the accompanying consolidated balance sheets of Taishin Financial Holding Co., Ltd. ( Taishin Financial Holding ) and its subsidiaries (collectively referred to as the Group ) as of March 31, 2013, December 31,, March 31, and January 1, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the three months ended March 31, 2013 and. These consolidated financial statements are the responsibility of Taishin Financial Holding and subsidiaries management. Our responsibility is to issue a report on these consolidated financial statements based on our reviews. We conducted our reviews in accordance with Statement of Auditing Standards No. 36, Engagements to Review Financial Statements, an auditing standard generally accepted in the Republic of China ( ROC ). A review consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the ROC, the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with the Regulations Governing the Preparation of Financial Statements by Financial Holding Companies, Regulations Governing the Preparation of Financial Reports by Public Banks, Regulations Governing the Preparation of Financial Reports by Securities Firms, Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards 1 First-time Adoption of International Financial Reporting Standards and International Accounting Standards 34 Interim Financial Reporting endorsed by the Financial Supervisory Commission of the ROC. May 24, 2013 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 ROC and not those of any other jurisdictions. The standards, procedures and practices to review such consolidated financial statements are those generally accepted and applied in the ROC. For the convenience of readers, the independent accountants review report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the ROC. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent accountants review report and consolidated financial statements shall prevail. - 1 -
TAISHIN FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited) March 31, 2013 December 31, March 31, January 1, March 31, 2013 December 31, March 31, January 1, ASSETS Amount % Amount % Amount % Amount % LIABILITIES AND EQUITY Amount % Amount % Amount % Amount % Cash and cash equivalents (Notes 5 and 7) $ 51,759,098 2 $ 50,617,800 2 $ 48,535,356 2 $ 63,123,985 2 Due to the Central Bank and banks (Note 23) $ 146,646,825 5 $ 152,894,925 6 $ 185,383,194 7 $ 174,583,880 7 Due from the Central Bank and call loans to banks Financial liabilities at fair value through profit or (Note 8) 133,283,640 5 136,641,676 5 107,214,075 4 109,187,193 4 loss (Notes 5 and 9) 13,220,145 1 11,027,012-9,921,755-10,388,922 - Financial assets at fair value through profit or loss Securities sold under repurchase agreements (Note 5) 68,898,188 3 56,534,194 2 58,414,302 2 52,249,552 2 (Notes 5 and 9) 91,931,958 3 86,282,256 3 68,502,780 3 67,813,059 3 Commercial papers issued, net (Note 24) - - 7,000 - - - 267,953 - Available-for-sale financial assets, net (Notes 5, 10 and 33) 258,534,197 10 273,786,476 10 277,125,460 10 250,996,594 10 Payables (Note 25) 51,814,177 2 54,451,474 2 53,146,729 2 55,298,171 2 Derivative financial assets for hedging (Notes 5 Current tax liabilities (Notes 5 and 41) 3,026,173-2,602,123-2,050,372-1,938,721 - and 11) 94,314-105,087-133,835-149,400 - Deposits and remittances (Note 26) 2,141,827,628 78 2,139,646,174 78 2,030,364,789 77 2,024,212,177 77 Securities purchased under resell agreements (Note 5) 11,584,030-4,987,265-5,838,202-9,734,993 - Bonds payable (Note 27) 85,441,365 3 97,151,937 4 97,130,555 4 97,146,086 4 Receivables, net (Notes 5, 12 and 13) 90,986,179 3 106,236,192 4 94,649,131 4 108,616,026 4 Other borrowings (Note 28) 678,586-579,996 - - - 43,000 - Current tax assets (Notes 5 and 41) 1,731,104-1,733,233-1,905,264-2,151,147 - Reserve for liabilities (Notes 5 and 30) 4,392,606-4,575,384-4,031,923-4,086,748 - Loans, net (Notes 5, 6 and 13) 1,800,934,367 66 1,787,298,942 66 1,758,864,356 66 1,723,226,715 66 Other financial liabilities (Note 29) 22,107,209 1 15,035,344 1 15,597,162 1 15,016,995 1 Held-to-maturity financial assets, net (Notes 5 and 14) 188,726,316 7 172,613,773 6 184,929,653 7 182,797,810 7 Deferred tax liabilities (Notes 5 and 41) 7,004,696-6,821,004-6,754,180-7,123,580 - Investments accounted for using the equity method, net (Notes 5 and 15) 258,617-251,142-256,117-252,319 - Other liabilities (Notes 15 and 31) 4,404,147-3,584,238-4,058,093-3,975,353 - OTHER FINANCIAL ASSETS, NET Total liabilities 2,549,461,745 93 2,544,910,805 93 2,466,853,054 93 2,446,331,138 93 Financial assets carried at cost, net (Note 16) 8,202,063 1 7,838,879 1 7,907,404 1 7,919,129 - Debt investments without active market (Note 17) 3,476,423-3,478,999-6,068,853-8,319,929 1 EQUITY ATTRIBUTABLE TO OWNERS OF Other miscellaneous financial assets, net (Notes 13 PARENT (Note 33) and 18) 6,022,769-3,488,306-1,799,742-2,619,624 - Capital stock Common stock 68,914,473 3 68,914,473 3 63,250,473 2 63,250,473 2 Other financial assets, net 17,701,255 1 14,806,184 1 15,775,999 1 18,858,682 1 Preferred stock 7,251,368-7,251,368-11,912,963 1 11,912,963 1 Advance receipts for capital stock 503 - - - - - - - Investment property, net (Notes 5 and 19) 11,610,869-11,614,389-11,250,414-11,246,432 - Capital surplus 9,427,522-9,409,757-19,340,581 1 19,315,132 1 Retained earnings Property and equipment, net (Notes 5 and 20) 41,749,245 2 41,871,558 2 42,330,820 2 42,429,433 2 Legal reserve 2,942,721-2,942,721-1,999,537-1,999,537 - Special reserve 465,368-244,474-268,505-268,505 - Intangible assets, net (Notes 5 and 21) 21,676,298 1 21,729,019 1 21,886,772 1 21,951,779 1 Unappropriated earnings 14,125,483 1 10,164,169 1 12,710,944-9,701,741 - Other equity Deferred tax assets (Notes 5, 6 and 41) 9,548,373-9,798,309-11,269,498-12,271,713 - Exchange differences on translation of foreign financial statements 22,710 - (58,334) - (32,986) - - - Other assets, net 5,281,601-6,992,545-4,747,620-4,314,982 - Unrealized gains (losses) on available-for-sale financial assets 1,894,656-2,458,941-1,438,473-948,726 - Equity attributable to owners of parent 105,044,804 4 101,327,569 4 110,888,490 4 107,397,077 4 NON-CONTROLLING INTERESTS 82,884,912 3 81,127,472 3 77,473,808 3 75,394,047 3 Total equity 187,929,716 7 182,455,041 7 188,362,298 7 182,791,124 7 TOTAL $ 2,737,391,461 100 $ 2,727,365,846 100 $ 2,655,215,352 100 $ 2,629,122,262 100 TOTAL $ 2,737,391,461 100 $ 2,727,365,846 100 $ 2,655,215,352 100 $ 2,629,122,262 100 The accompanying notes are an integral part of the consolidated financial statements. - 2 -
TAISHIN FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Earnings Per Share) (Reviewed, Not Audited) For the Three Months Ended March 31 2013 Amount % Amount % INTEREST INCOME (Notes 5 and 34) $ 12,138,187 89 $ 11,995,683 101 INTEREST EXPENSES (Note 34) (4,648,792) (34) (4,754,924) (40) NET INTEREST INCOME (Note 34) 7,489,395 55 7,240,759 61 NET INCOME OTHER THAN NET INTEREST INCOME (Note 5) Net service fee and commissions income (Note 35) 3,308,573 24 2,816,864 23 Gain on financial assets and liabilities at fair value through profit or loss (Note 36) 3,900,619 28 2,020,715 17 Gain on investment property (Note 37) 47,514-44,584 - Realized gain on available-for-sale financial assets (Note 38) 989,060 7 36,928 - Foreign exchange losses (2,124,686) (15) (502,535) (4) Impairment loss on assets (80,150) - - - Share of profit (loss) of associates and joint ventures accounted for using equity method (Note 15) 7,476 - (13,404) - Net other non-interest income 193,097 1 313,397 3 Net income other than net interest income 6,241,503 45 4,716,549 39 NET REVENUE AND GAINS 13,730,898 100 11,957,308 100 REVERSED ALLOWANCE FOR BAD DEBTS EXPENSES AND GUARANTEE LIABILITY PROVISIONS (Notes 5 and 13) 674,987 5 787,732 7 OPERATING EXPENSES Employee benefits expenses (Note 39) (4,734,696) (34) (4,552,576) (38) Depreciation and amortization expenses (Note 40) (372,846) (3) (405,777) (3) Other general and administrative expenses (2,203,011) (16) (2,209,567) (19) Total operating expenses (7,310,553) (53) (7,167,920) (60) INCOME BEFORE INCOME TAX 7,095,332 52 5,577,120 47 INCOME TAX EXPENSE (Notes 5 and 41) (1,097,119) (8) (830,160) (7) NET INCOME 5,998,213 44 4,746,960 40 (Continued) - 3 -
TAISHIN FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Earnings Per Share) (Reviewed, Not Audited) For the Three Months Ended March 31 2013 Amount % Amount % OTHER COMPREHENSIVE INCOME Exchange differences on translation of foreign financial statements $ 232,850 2 $ (78,892) (1) Unrealized gains (losses) on available-for-sale financial assets (826,419) (6) 920,153 8 Income tax relating to the components of other comprehensive income 51,229 - (42,608) (1) Other comprehensive income, net of tax (542,340) (4) 798,653 6 TOTAL COMPREHENSIVE INCOME $ 5,455,873 40 $ 5,545,613 46 NET INCOME ATTRIBUTABLE TO: Owners of parent $ 4,181,690 31 $ 3,009,203 25 Non-controlling interests 1,816,523 13 1,737,757 15 $ 5,998,213 44 $ 4,746,960 40 TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of parent $ 3,698,449 27 $ 3,465,964 29 Non-controlling interests 1,757,424 13 2,079,649 17 $ 5,455,873 40 $ 5,545,613 46 EARNINGS PER SHARE Basic $0.57 $0.38 Diluted $0.55 $0.38 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) - 4 -
TAISHIN FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited) Equity Attributable to Owners of the Parent Other Equity Exchange Differences on Unrealized Gains Capital Stock Capital Surplus Translation of (Losses) on Advance Additional Retained Earnings Foreign Available- Receipts for Paid-in Capital Treasury Stock Stock-based Other Capital Unappropriated Financial for-sale Non-controlling Common Stock Preferred Stock Capital Stock in Excess of Par Transactions Compensation Surplus Legal Reserve Special Reserve Earnings Statements Financial Assets Interests Total BALANCE, JANUARY 1, $ 63,250,473 $ 11,912,963 $ - $ 17,005,072 $ 2,075,475 $ 230,174 $ 4,411 $ 1,999,537 $ 268,505 $ 9,701,741 $ - $ 948,726 $ 75,394,047 $ 182,791,124 Net income for the three months ended March 31, - - - - - - - - - 3,009,203 - - 1,737,757 4,746,960 Other comprehensive income (net of tax) for the three months ended March 31, - - - - - - - - - - (32,986) 489,747 341,892 798,653 Total comprehensive income for the three months ended March 31, - - - - - - - - - 3,009,203 (32,986) 489,747 2,079,649 5,545,613 Share-based payments - - - - - 25,449 - - - - - - 112 25,561 BALANCE, MARCH 31, $ 63,250,473 $ 11,912,963 $ - $ 17,005,072 $ 2,075,475 $ 255,623 $ 4,411 $ 1,999,537 $ 268,505 $ 12,710,944 $ (32,986) $ 1,438,473 $ 77,473,808 $ 188,362,298 BALANCE, JANUARY 1, 2013 $ 68,914,473 $ 7,251,368 $ - $ 7,005,072 $ 2,075,475 $ 329,210 $ - $ 2,942,721 $ 244,474 $ 10,164,169 $ (58,334 ) $ 2,458,941 $ 81,127,472 $ 182,455,041 Special reserve appropriated under Ref No. Jin-Guan-Zheng-Fa 1010012865 - - - - - - - - 220,376 (220,376) - - - - Special reserve appropriated under Ref No. Jin-Guan-Zheng-Tou 1010045494 - - - - - - - - 518 - - - - 518 Net income for the three months ended March 31, 2013 - - - - - - - - - 4,181,690 - - 1,816,523 5,998,213 Other comprehensive income (net of tax) for the three months ended March 31, 2013 - - - - - - - - - - 81,044 (564,285) (59,099) (542,340) Total comprehensive income for the three months ended March 31, 2013 - - - - - - - - - 4,181,690 81,044 (564,285) 1,757,424 5,455,873 Share-based payments - - 503 230-17,535 - - - - - - 16 18,284 BALANCE, MARCH 31, 2013 $ 68,914,473 $ 7,251,368 $ 503 $ 7,005,302 $ 2,075,475 $ 346,745 $ - $ 2,942,721 $ 465,368 $ 14,125,483 $ 22,710 $ 1,894,656 $ 82,884,912 $ 187,929,716 The accompanying notes are an integral part of the consolidated financial statements. - 5 -
TAISHIN FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited) For the Three Months Ended March 31 2013 CASH FLOWS FROM OPERATING ACTIVITIES Net income before income tax $ 7,095,332 $ 5,577,120 Adjustments: Non-cash (revenues and gains) or expenses and losses Depreciation expenses 293,774 321,325 Amortization expenses 79,072 84,452 Reversed allowance for bad debts expenses and guarantee liability provisions (674,987) (787,732) Net gain on financial assets and liabilities at fair value through profit or loss (3,126,036) (383,193) Interest expenses 4,648,792 4,754,924 Interest income (12,138,187) (11,995,683) Share-based payments 21,671 25,561 Share of (profit) loss of associates and joint ventures accounted for using equity method (7,476) 13,404 Loss on disposal of property and equipment 211 42 Gain on disposal of investments (988,870) (36,803) Impairment loss on financial assets 80,150 - Unrealized foreign exchange losses (gains) 433,248 (610,902) Other adjustments 1,004,693 1,455,878 Total adjustments (10,373,945) (7,158,727) Changes in operating assets and liabilities (Increase) decrease in due from the Central Bank (1,535,551) 1,838,635 Decrease in financial assets at fair value through profit or loss 1,941,030 6,923,698 Decrease (increase) in available-for-sale financial assets 15,927,973 (25,585,620) Increase in securities purchased under resell agreements (8,606,260) (64,726) Decrease in receivables 15,065,953 14,714,474 Increase in loans (14,300,666) (36,349,839) Increase in held-to-maturity financial assets (15,987,289) (2,265,533) (Increase) decrease in other financial assets (2,870,311) 3,097,344 Decrease in other assets 3,199,035 37,218 Increase (decrease) in due to the Central Bank and banks 226,445 (2,700,325) Decrease in financial liabilities at fair value through profit or loss (3,184,003) (5,814,270) Increase in securities sold under repurchase agreements 12,363,994 6,164,750 Decrease in payables (3,086,125) (5,365,346) Increase in deposits and remittances 2,181,454 6,152,612 Decrease in reserve for employee benefits (199,073) (46,147) Decrease in reserve for liabilities (4,794) (8,031) Increase in other financial liabilities 7,071,865 580,167 Increase in other liabilities 71,376 2,556 Cash flows from (used in) generated from operations 4,996,440 (40,269,990) Interest received 12,413,021 12,061,676 (Continued) - 6 -
TAISHIN FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited) For the Three Months Ended March 31 2013 Interest paid $ (4,209,719) $ (3,731,216) Income taxes (paid) refund (186,083) 117,581 Net cash flows from (used in) operating activities 13,013,659 (31,821,949) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment (172,453) (219,871) Proceeds from disposal of property and equipment 3 81 Decrease in operation guarantee 635 7,946 (Increase) decrease in deposits settlement funds (2,503) 6,151 (Increase) decrease in refundable deposits (1,479,541) 196,851 Acquisition of intangible asset (21,322) (2,616) Acquisition of investment property (470) (7,358) Unrealized foreign exchange (gains) losses (1,247) 1,988 Net cash used in investing activities (1,676,898) (16,828) CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in due to the Central Bank and call loans from banks (6,474,545) 13,499,639 Decrease in commercial papers payable (7,000) (267,953) Repayments of bank debentures (11,700,000) - Increase (decrease) in other borrowings 98,590 (43,000) Increase in guarantee deposits received 751,057 44,354 Exercise of employee share options 503 - Net cash (used in) flows from financing activities (17,331,395) 13,233,040 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 232,850 (78,892) NET DECREASE IN CASH AND CASH EQUIVALENTS (5,761,784) (18,684,629) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 107,625,114 99,439,932 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 101,863,330 $ 80,755,303 (Continued) - 7 -
TAISHIN FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited) For the Three Months Ended March 31 2013 RECONCILIATION OF CASH AND CASH EQUIVALENTS Cash and cash equivalents in consolidated balance sheet $ 51,759,098 $ 48,535,356 Call loans to banks qualifying as cash and cash equivalents under the definition of IAS 7 permitted by the Financial Supervisory Commission 47,126,462 26,446,471 Securities purchased under resell agreements qualifying as cash and cash equivalents under the definition of IAS 7 permitted by the Financial Supervisory Commission 2,977,770 5,773,476 Cash and cash equivalents at end of period $ 101,863,330 $ 80,755,303 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) - 8 -
TAISHIN FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) (Reviewed, Not Audited) 1. ORGANIZATION AND CONSOLIDATION POLICY Taishin Financial Holding Co., Ltd. ( Taishin Financial Holding ) was established by Taishin International Bank Co., Ltd. ( Taishin Bank ) and Dah An Commercial Bank Co., Ltd. ( Dah An Bank ) pursuant to the ROC Financial Holding Company Act and related regulations through a share swap on February 18, 2002. Taishin Financial Holding s main business activities are investing and managing its invested financial institutions. Taishin Bank and Dah An Bank established Taishin Financial Holding through a share swap. In forming the holding company, Taishin Bank merged with Dah An Bank, with Taishin Bank as the survivor company. In addition, Taishin Securities Co., Ltd. ( Taishin Securities A ) and Taishin Bills Finance Co., Ltd. ( Taishin Bills Finance ) became wholly-owned subsidiaries of Taishin Financial Holding through a share swap effective on December 31, 2002. In order to integrate corporate resources, Taishin Financial Holding sold all of the equity of Taishin Securities A as of December 19, 2009 and Taishin Bank merged with Taishin Bills Finance, and the base date of merger was January 22, 2011. Taishin Bank acquired total assets, liabilities and operations of Taishin Bills Finance. In the fourth quarter of 2005, Taishin Financial Holding acquired 1,400,000 thousand shares of preferred stock - B issued by Chang Hwa Commercial Bank, Ltd. ( Chang Hwa Bank ) through private placements. The 22.55% ownership interest with voting rights allows Taishin Financial Holding to take over half of the seats in the board of directors of Chang Hwa Bank. Accordingly, Taishin Financial Holding had controlling power over Chang Hwa Bank. On October 3, 2008, this preferred stock - B had been converted into 1,400,000 thousand shares of common stock. The ownership interest with voting rights in Chang Hwa Bank held by Taishin Financial Holding and subsidiaries was 22.81% as of March 31, 2013. Taishin Financial Holding acquired 100% equity interest of Donshin Securities Co., Ltd. ( Donshin Securities ) by cash investments on April 6, 2010. Donshin Securities became a subsidiary of Taishin Financial Holding and changed the company name to Taishin Securities Co., Ltd. ( Taishin Securities B ). Taishin Financial Holding acquired 100% equity interest of Taishin Securities Investment Trust Co., Ltd. ( Taishin Securities Investment Trust ) and 92% equity interest of Taishin Securities Investment Advisory Co., Ltd. ( Taishin Securities Investment Advisory ) by cash investments on July 26, 2010. Taishin Securities Investment Trust and Taishin Securities Investment Advisory became subsidiaries of Taishin Financial Holding. Taishin Financial Holding acquired 100% equity interest of Franklin Insurance Brokers Co., Ltd. ( Franklin Insurance Brokers ) by cash investments on April 27, 2011. Franklin Insurance Brokers became a subsidiary of Taishin Financial Holding and changed the company name to Taishin Holdings Insurance Brokers Co., Ltd. ( Taishin Holdings Insurance Brokers ). Taishin Financial Holding invested in Taishin Holdings Insurance Brokers $29,500 thousand on April 29, 2011. Taishin Bank started its business operations on March 23, 1992. Taishin Bank provides customers with (a) general commercial banking services - commercial lending, foreign exchange transactions, installment and term loans, wire transfers, marketable security investments, receivable factoring, offshore banking business, etc. as well as (b) various financial instruments - letters of credit, bankers acceptances, checking and savings accounts, credit cards, derivative instruments, etc. - 9 -
Taishin Real-Estate Management Co., Ltd. ( Taishin Real-Estate ) was established in August 1995 and its operations include audits and consultations of construction plans, contract witness, and assessments and trades of real estate, etc. Taishin Insurance Agency Co., Ltd. ( Taishin Insurance Agency ) was established in September 1996 and provides life insurance agent service. Taishin Insurance Agency owned 100% equity interest of Taishin Insurance Brokers Co., Ltd. ( Taishin Insurance Brokers ). PayEasy Digital Integration Co., Ltd. ( PayEasy Digital ) was established in April 2000 and its operations include advertising agency and data processing services. Taishin Bank sold its 45% and 15.36% equity in PayEasy Digital in June and July and had lost the ability to control. Thus, PayEasy Digital and its subsidiaries were not included in the consolidated financial statements since June. Chang Hwa Bank was established on March 1, 1947 and got licensed by the Ministry of Economic Affairs in July 1950. It mainly engages in the following businesses: (a) all commercial banking operations allowed by the Banking Act; (b) trust operations; (c) international banking operations; (d) overseas branch operations authorized by the respective foreign governments; and (e) other operations as authorized by the central authority. CHB Life Insurance Agency Co., Ltd. ( CHB Life Insurance Agency ) was established on October 3, 2001 to provide life insurance agent service. CHB Insurance Brokerage Co., Ltd. ( CHB Insurance Brokerage ) was established on April 7, 2003 to provide property insurance broker service. Taishin Securities B originally named Donshin Securities was incorporated on January 15, 1990 and its operations include services dealing with futures, securities underwriting, brokerage, margin lending and security transfer services. Taishin Asset Management Co., Ltd. ( Taishin AMC ) was established on August 14, 2002 in accordance with the Company Law and other related laws. Taishin AMC s operations include acquisition, evaluation, auction, and management of delinquent loans. Taishin Marketing Consultant Co., Ltd. ( Taishin Marketing ) was established on November 20, 1998. Its operations include investment and enterprise consulting, agent services, acquisition of accounts receivable, real estates and leasing. Taishin Financial Holding had approved to dissolve its subsidiary Taishin Marketing in the board meeting on March 21, 2013. Thus, the procedures of dissolution and liquidation had proceeded. Taishin Venture Capital Co., Ltd. ( Taishin Venture Capital ) was approved to establish on December 25, 2002. Its operations include engagement in investment start-up. Taishin Financial Leasing (China) Co., Ltd. ( Taishin Financial Leasing (China) ) was approved to establish on July 12, 2011 to provide financial leasing service. Taishin Financial Leasing (Tianjin) Co., Ltd. ( Taishin Financial Leasing (Tianjin) ) was approved to establish on March 1, to provide financial leasing service. Taishin Securities Investment Advisory was established in March 1989 and its operations include accepting a mandate from a customer and providing analytical opinions or recommendations on securities investment, acting as an agent for investment consultancy of offshore funds, issuing publications or holding lectures about securities investment and other relevant business permitted by the competent authority. - 10 -
Taishin Securities Investment Trust, approved by the Securities and Future Bureau, was established on May 31, 2004. Its operations include offering securities investment trust funds and issuing beneficial interest certificates and investing in or trading securities, securities-related products, or other items approved by the competent authority. In addition, Taishin Securities Investment Trust was approved to operate full fiduciary discretionary investment business. Taishin Holdings Insurance Brokers was originally named Franklin Insurance Brokers; its operations include property insurance broker service and life insurance broker service. As of March 31, 2013, December 31,, March 31, and January 1,, Taishin Financial Holding and its entire controlled subsidiaries (the Group ) had 13,228, 13,468, 13,609 and 13,783 employees, respectively. 2. STATEMENT OF COMPLIANCE The consolidated financial statements were prepared in accordance with the Regulations Governing the Preparation of Financial Statements by Financial Holding Companies, Regulations Governing the Preparation of Financial Reports by Public Banks, Regulations Governing the Preparation of Financial Reports by Securities Firms, Regulations Governing the Preparation of Financial Reports by Securities Issuers, International Financial Reporting Standards 1 First-time Adoption of International Financial Reporting Standards and International Accounting Standards 34 Interim Financial Reporting as endorsed by the Financial Supervisory Commission ( FSC ). Disclosure information included in interim financial report is less than the disclosure information in a full set of annual financial reports required by International Financial Reporting Standards, International Accounting Standards, and Interpretations permitted by the FSC ( FSC-recognized IFRSs ). 3. APPROVAL OF FINANCIAL STATEMENTS The consolidated financial statements were approved by the board of directors and authorized for issue on May 23, 2013. 4. APPLICATION OF NEW AND REVISED STANDARDS, AMENDMENTS AND INTERPRETATIONS The Group adopts IFRSs issued by the IASB when the FSC has announced their effective dates. As of the date of approval of these consolidated financial statements, the FSC has not yet announced the effective dates; thus, the Group has not yet adopted the following new and revised Standards, Amendments and Interpretations. New, Revised Standards, Amendments and Interpretations Effective Date Announced by IASB (Note) Endorsed by the FSC but the effective dates have not yet been determined by the FSC Amendments of IFRSs Improvements of IFRSs - Amendments of IAS 39 (2009) 2009.01.01 or 2010.01.01 Amendments of IFRS 9 (2009) Financial Instruments 2015.01.01 Amendments of IAS 39 Embedded Derivatives Effective for annual periods after 2009.06.30 (Continued) - 11 -
New, Revised Standards, Amendments and Interpretations Effective Date Announced by IASB (Note) Not yet endorsed by the FSC Amendments of IFRS Improvements of IFRSs - Amendments of 2010.07.01 or 2011.01.01 IAS 39 (2010) Amendments of IFRS Annual Improvements of IFRSs 2013.01.01 (2009-2011) Amendments of IFRS 1 IFRS 7 Limited Exemptions for First-time 2010.07.01 Adopter regarding comparative disclosures Amendments of IFRS 1 Government Loans 2013.01.01 Amendments of IFRS 1 Serious Hyperinflation and Removal of First-time Adopters Fixed Date 2011.07.01 Amendments of IFRS 7 Disclosures: Offsetting of Financial 2013.01.01 Assets and Financial Liabilities Amendments of IFRS 9 and IFRS 7 Compulsory Effective Date and Transitional Disclosures 2015.01.01 Amendments of IFRS 7 Disclosures: Transfer of Financial Assets 2011.07.01 Amendments of IFRS 9 Financial Instruments 2015.01.01 IFRS 10 Consolidated Financial Statements 2013.01.01 IFRS 11 Joint Arrangements 2013.01.01 IFRS 12 Disclosure of Interests in Other Entities 2013.01.01 Amendments of IFRS 10, IFRS 11 and IFRS 12 Consolidated Financial Statements, Joint Arrangement and Disclosure of Interests 2013.01.01 in Other Entities: Transitional Guidelines Amendments of IFRS 10 IFRS Investment Entity 2014.01.01 12 and IFRS 27 IFRS 13 Fair Value Measurement 2013.01.01 Amendments of IAS 1 Presentation of Other Comprehensive Income Items.07.01 Amendments of IAS 12 Deferred Income Tax: Recovery of.01.01 Underlying Assets Amendments of IAS 19 Employee Benefits 2013.01.01 Amendments of IAS 27 Separate Financial Statements 2013.01.01 Amendments of IAS 28 Investments in Associates and Joint 2013.01.01 Ventures Amendments of IAS 32 Offsetting of Financial Assets and Financial 2014.01.01 Liabilities Amendments of IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine 2013.01.01 (Concluded) Note: Unless otherwise noted, the above new and revised Standards, Amendments and Interpretations are effective for annual periods beginning on or after the respective effective dates. Except for the following, the initial application of the above new and revised Standards, Amendments and Interpretations had not had any material impact on the Group s accounting policies: a. Initial application of IFRS 9 Financial Instruments With regards to financial assets, IFRS 9 requires all recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement to be subsequently measured at amortized cost or fair value. Specifically, financial assets that are held within a business model by the - 12 -
Group whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. All other financial assets are measured at their fair values at the balance sheet date. As for financial liabilities, the main changes are with regard to the classification and measurement of financial liabilities designated as at fair value through profit or loss. IFRS 9 requires that the amount of change in the fair value of the financial liability, that is attributable to changes in the credit risk of that liability, is presented in other comprehensive income, unless the recognition of the effects of changes in the liability s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability s credit risk are not subsequently reclassified to profit or loss. b. Since the FSC has not announced the effective dates for the above new and revised Standards, Amendments and Interpretations, it is not practicable to provide a reasonable estimate of the impact of the initial application of the Standards, Amendments and Interpretations on the financial position and results of the Group until a detailed review has been completed. 5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES On May 14, 2009, the FSC announced the Framework for the Adoption of IFRSs by Companies in the ROC. In this framework, starting 2013, companies with shares listed on the Taiwan Stock Exchange or traded on the Taiwan GreTai Securities Market or Emerging Stock Market or financial industry regulated by the FSC should prepare their consolidated financial statements in accordance with IFRSs approved by the FSC. The consolidated financial statements of the Group are the first IFRS interim financial statements for part of the period covered by its first IFRS financial statements, the consolidated financial statements for 2013. The date of transition to IFRSs was January 1,. Refer to Note 57 for the impact of IFRS conversion on the consolidated financial statements. Basis of Preparation The consolidated financial statements have been prepared on the historical cost basis except for certain properties and financial instruments that are measured at revalued amounts or fair values, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets. The opening consolidated balance sheet as of the date of transition to IFRSs was prepared in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards. The applicable IFRSs have been applied retrospectively by the Group except for some aspects where other IFRSs prohibit retrospective application and specified areas where IFRS 1 grants limited exemptions from the requirements of other IFRSs. For the exemptions that the Group elected, refer to Note 57. The functional currency of Taishin Financial Holding is New Taiwan dollars. Thus, the consolidated financial statements are presented in New Taiwan dollars. The Group categorized economic activities into operating, investing, and financing activities. The consolidated statements of cash flows reported the change of cash and cash equivalents in the current period based on operating, investing, and financing activities. Please refer to Note 7 for the components of cash and cash equivalents. - 13 -
The cash flow of operating activities was reported by using indirect method. Under the indirect method, profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows. Interest paid and interest and dividends received are classified as operating cash flows. Dividends paid are classified as financing cash flow because they are cost of obtaining financial resources. When preparing the financial statements in accordance with the FSC-recognized IFRSs, the Group has to make certain significant accounting assumptions and estimates based on professional judgements to determine its accounting policies. Change in assumptions may result in significant effects on financial statements. The Group believes that the consolidated financial statements are reported based on appropriate assumptions. For items that required management s most difficult or complex judgements, or assumptions and estimates that significantly affect the financial statements, please refer to Note 6. Classification of Current/Noncurrent Assets and Liabilities Since the banking companies account for a substantial portion of the consolidated statements and because of banking business characteristics, classification of consolidated assets and liabilities according to the nature and the sequence of liquidity can provide more reliable and relevant information. Therefore, those assets and liabilities are not classified as current or noncurrent, but classified according to the nature and sequence of liquidity. In addition, maturity analysis of liabilities was disclosed in Note 46. Basis of Consolidation a. Principles for preparing consolidated financial statements The consolidated financial statements incorporate the financial statements of Taishin Financial Holding and the entities controlled by Taishin Financial Holding. Control is achieved when Taishin Financial Holding has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated statement of profit or loss and other comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by Taishin Financial Holding. All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation. Non-controlling interests are presented in the consolidated balance sheets within equity, separate from the equity of the owners of Taishin Financial Holding. Attribution of total comprehensive income to non-controlling interests Total comprehensive income of subsidiaries is attributed to the owners of Taishin Financial Holding and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. - 14 -
Changes in the Group s ownership interests in existing subsidiaries Changes in the Group s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group s interests and the non-controlling interests should be adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of Taishin Financial Holding. When the Group loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and any investment retained in the former subsidiary at its fair value at the date when control is lost and (ii) the assets (including any goodwill) and liabilities and any non-controlling interests of the former subsidiary at their carrying amounts at the date when control is lost. If the Group loses control of a subsidiary, the Group accounts for all amounts recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required if the Group had directly disposed of the related assets or liabilities (i.e. reclassifies to profit or loss, or transfers directly to retained earnings if required in accordance with other IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement. b. Business combinations Only when business combinations are in conformity with the FSC-recognized IFRS 3 Business Combinations can acquisitions of businesses be accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group and the equity interests issued by the Group, plus other expenses that could be directly attributed to the acquisition. The identifiable assets acquired and the liabilities or contingent liabilities assumed as the result of business combinations are recognized at their fair value at the acquisition-date and it is not necessary to consider non-controlling interests. Goodwill is measured as the excess of the sum of the consideration transferred over the net fair value amounts of the identifiable assets owned by the Group. If the net of the fair value amounts of the identifiable assets owned by the Group exceeds the sum of the consideration transferred, the excess is recognized immediately in profit or loss. When the combinations do not meet the definition of business combinations, the Group will allocate the acquisition costs over separate identifiable assets and liabilities. The recognition bases for assets and liabilities acquired are as follows: 1) Financial assets and liabilities are recognized at acquisition-date fair value, according to the FSC - recognized IFRS 39 Financial Instruments: Recognition and Measurement. 2) The remaining amounts after deducting from the acquisition costs the recognition costs of financial assets and liabilities are allocated to other assets and liabilities based on the relative proportion of the acquisition-date fair value of the other assets and liabilities. - 15 -
c. Subsidiaries included in the consolidated financial statements as of March 31, 2013, December 31,, March 31, and January 1, were as follows: Investor Subsidiary March 31, 2013 Ownership Interest (%) December 31, March 31, January 1, Note Taishin Financial Holding Taishin Bank 100.00 100.00 100.00 100.00 Taishin Financial Holding Taishin Securities B 100.00 100.00 100.00 100.00 Taishin Financial Holding Taishin AMC 100.00 100.00 100.00 100.00 Taishin Financial Holding Taishin Marketing 100.00 100.00 100.00 100.00 Taishin Financial Holding Taishin Venture Capital 100.00 100.00 100.00 100.00 Taishin Financial Holding Chang Hwa Bank 22.55 22.55 22.55 22.55 Taishin Financial Holding Taishin Securities 92.00 92.00 92.00 92.00 Investment Advisory Taishin Financial Holding Taishin Securities 100.00 100.00 100.00 100.00 Investment Trust Taishin Financial Holding Taishin Holdings Insurance 100.00 100.00 100.00 100.00 Brokers Taishin Bank Chang Hwa Bank 0.27 0.27 0.27 0.27 Taishin Bank Taishin Real-Estate 60.00 60.00 60.00 60.00 Taishin Bank Taishin Insurance Agency 87.40 87.40 87.40 87.40 Taishin Bank PayEasy Digital 5.00 5.00 65.36 65.36 Taishin Bank sold its 45% and 15.36% equity in PayEasy Digital in June and July. Thus, PayEasy Digital and its subsidiaries were not included in the consolidated financial statements since June Taishin AMC Taishin Real-Estate 40.00 40.00 40.00 40.00 Taishin Insurance Agency Taishin Insurance Brokers 100.00 100.00 100.00 100.00 Chang Hwa Bank CHB Life Insurance 100.00 100.00 100.00 100.00 Agency Chang Hwa Bank CHB Insurance Brokerage 100.00 100.00 100.00 100.00 Taishin Venture Capital Taishin Financial Leasing 100.00 100.00 100.00 100.00 Taishin Venture Capital (China) Taishin Financial Leasing (Tianjin) 100.00 100.00 - - In, Taishin Venture Capital invested to set up Taishin Financial Leasing (Tianjin), and it was included in consolidated financial statements since May 25,. d. Subsidiaries not included in the consolidated financial statements as of March 31, 2013, December 31,, March 31, and January 1, were as follows: Investor Subsidiary March 31, 2013 Ownership Interest (%) December 31, March 31, January 1, Note Taishin Bank PayEasy Digital PayEasy Digital Taishin Dah An Leasing Co., Ltd. ( Taishin Dah An Leasing ) PayEasy Travel Service Co., Ltd. ( PayEasy Travel ) Contect Digital Integration Co., Ltd. ( Contect Digital Integration ) 100.00 100.00 100.00 100.00 Taishin Dah An Leasing was an equity-method investee of Taishin Bank as of March 31, 2013, December 31,, March 31, and January 1,. Its capital was less than 0.26% of the consolidated capital, and its total assets were less than 0.01% of the consolidated total assets; thus, it was not included in the consolidated financial statements. - - 100.00 100.00 PayEasy Travel was an equity-method investee of PayEasy Digital as of March 31, 2013. However, its capital, total assets and operating income did not reach 0.49% of consolidated capital, of consolidated total assets and of consolidated operating income. In addition, the Group had lost the ability to control since June. Thus, it was not included in the consolidated financial statements. - - 65.75 65.75 Contect Digital Integration was an equity-method investee of PayEasy Digital as of March 31, 2013. However, Contect Digital Integration s capital, total assets and operating income did not reach 0.60% of consolidated capital, of consolidated total assets and consolidated operating income. In addition, the Group had lost the ability to control since June. Therefore, it was not included in the consolidated financial statements. Foreign Currencies In preparing the financial statements of each individual group entity, the currency of the primary economic environment in which the entity operates (the functional currency ) is used. Transactions in currencies other than the entity s functional currency are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. When several exchange rates are available, the rate used is that at which the future cash flows, represented by the transaction amount or balance, could have been settled if those cash flows had occurred at the measurement date. Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. - 16 -
Exchange differences arising from settlement are recognized in profit or loss in the period in which they arise. Exchange differences on monetary items arising from translation are recognized in profit or loss in the period in which they arise except items that qualify as hedging instruments in a cash flow hedge are recognized initially in other comprehensive income to the extent that the hedge is effective. Exchange differences arising on the retranslation of non-monetary assets (such as equity investment) or liabilities measured at fair value are included in profit or loss for the period at the rates prevailing at the end of reporting period except for exchange differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income. The results and financial position of an entity whose functional currency is not the currency of a hyperinflationary economy but different from the presentation currency are translated into the presentation currency using the following procedures: a. Assets and liabilities are translated at the closing rate at the date of the consolidated balance sheets; b. Income and expenses are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used; and c. All resulting exchange differences are recognized in other comprehensive income. Exchange differences arising from the above procedures are recognized as Exchange differences from translation of foreign operation in equity. Exchange differences arising from net investments in foreign operation and hedge of a monetary item regarded as part of the net investments are recognized as other comprehensive income. When the foreign operation or part of the foreign operation is disposed of, exchange differences are recognized initially in other comprehensive income and reclassified from equity to profit or loss. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation are treated as assets and liabilities of the foreign operation. Thus, they are expressed in the functional currency of the foreign operation and translated at the closing rate. Cash and Cash Equivalents Cash and cash equivalents are cash in vault, cash in banks, short-term time deposits and short-term financial instruments that must be readily convertible to a known amount of cash and subject to an insignificant risk of changes in value. For the consolidated statement of cash flows, cash and cash equivalents are cash and cash equivalents on the consolidated balance sheet due from the Central Bank and call loans to banks and securities purchased under resell agreements that are in conformity with the definition of cash and cash equivalents in the FSC-recognized IFRS 7. Investment in Associates An associate is an entity over which the Group has significant influence that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee without having control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in an associate is initially recognized at cost and adjusted thereafter to recognize the Group s share of the profit or loss and other comprehensive income of the associate. The Group also recognizes its share in the changes in the equity of associates. - 17 -