Taishin Financial Holding Co., Ltd. and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017 and Independent Auditors Report
INDEPENDENT AUDITORS REPORT The Board of Directors and Stockholders Taishin Financial Holding Co., Ltd. Opinion We have audited the accompanying financial statements of Taishin Financial Holding Co., Ltd. ( Taishin Financial Holding ) and its subsidiaries (collectively referred to as the Group ), which comprise the consolidated balance sheets as of December 31, 2018 and 2017, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended 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 Futures Commission Merchants, Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. Basis for Opinion We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants, Rules Governing the Audit of Financial Statements of Financial Institutions by Certified Public Accountants, and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2018. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. - 1 -
The following were the key audit matters in the audit of the consolidated financial statements of the Group for the year ended December 31, 2018: Impairment of Loans Commercial lending is the core business of the Group. Loans are mainly recorded in Taishin International Bank Co., Ltd. ( Taishin Bank ), a subsidiary of Taishin Financial Holdings, and represent the Group s significant accounts, which reached around 57% of the Group s total assets as of December 31, 2018. The Group assesses the impairment of loans of Taishin Bank in accordance with IFRS 9 Financial Instruments. See Notes 5 and 14 to the consolidated financial statements for the relevant and additional information. The Group management s judgement and the assumptions used have significant impact on the impairment assessments. Therefore, we consider the impairment of loans as a key audit matter. Refer to Note 6 to the consolidated financial statements for the relevant and additional information. Our audit procedures on the impairment of loans included testing of the design and operating effectiveness of controls and procedures for identifying loans and advances exposed to impairment and for ensuring that provisions against those assets were made. We identified loans and receivables and checked from public information to see whether the borrowers were possibly problematic companies, or have already been included in the companies under evaluation for lifetime expected credit losses (ECLs). We evaluated the assumptions used in the Group s impairment assessment model of ECLs to assess whether the ECLs of loans would be assessed in groups based on the nature of the products, borrowers credit ratings and collateral, and we also checked the Group s compliance with regulations on assessment of impairment and its compliance with IFRS 9. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the 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, the Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants, Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including audit committee, are responsible for overseeing the Group s financial reporting process. - 2 -
Auditors Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with the auditing standards generally accepted in the ROC, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s internal control. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Group to cease to continue as a going concern. 5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. - 3 -
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements for the year ended December 31, 2018 and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partners on the audit resulting in this independent auditors report are Tza-Li Gung and Kwan-Chung Lai. Deloitte & Touche Taipei, Taiwan Republic of China February 21, 2019 Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance 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 applied in the Republic of China. For the convenience of readers, the independent auditors 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 auditors report and consolidated financial statements shall prevail. - 4 -
TAISHIN FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) 2018 2017 ASSETS Amount % Amount % Cash and cash equivalents (Notes 5 and 7) $ 22,590,750 1 $ 22,034,918 1 Due from the Central Bank and call loans to banks (Note 8) 55,875,912 3 56,832,392 4 Financial assets at fair value through profit or loss (FVTPL) (Notes 5 and 9) 115,782,595 7 106,153,738 6 Financial assets at fair value through other comprehensive income (FVTOCI) (Notes 5 and 10) 336,400,248 19 - - Available-for-sale financial assets, net (Notes 5 and 11) - - 307,885,507 18 Financial assets at amortized cost (Notes 5 and 12) 3,081,240 - - - Securities purchased under resale agreements (Note 5) 2,416,641-7,615,565 1 Receivables, net (Notes 5, 13 and 14) 144,763,489 8 135,089,033 8 Current tax assets (Notes 5 and 41) 354,251-357,417 - Loans, net (Notes 5, 6 and 14) 1,018,505,146 57 959,618,741 57 Held-to-maturity financial assets, net (Notes 5 and 15) - - 6,095 - Investments accounted for using the equity method, net (Notes 5 and 16) 40,100,981 2 38,521,283 2 OTHER FINANCIAL ASSETS, NET Financial assets carried at cost, net (Notes 5 and 17) - - 3,006,159 - Other miscellaneous financial assets, net (Notes 5, 14 and 18) 9,866,430 1 8,712,552 1 Other financial assets, net 9,866,430 1 11,718,711 1 Investment property, net (Notes 5 and 19) 907,311-769,694 - Property and equipment, net (Notes 5 and 20) 18,895,823 1 19,143,108 1 Intangible assets, net (Notes 5 and 21) 2,275,459-2,283,808 - Deferred tax assets (Notes 5 and 41) 3,360,316-2,480,967 - Other assets, net (Note 22) 11,716,925 1 7,009,339 1 TOTAL $ 1,786,893,517 100 $ 1,677,520,316 100 LIABILITIES AND EQUITY Due to the Central Bank and banks (Note 23) $ 57,441,338 3 $ 64,252,429 4 Funds borrowed from the Central Bank and other banks 1,536,650 - - - Financial liabilities at FVTPL (Notes 5 and 9) 29,502,674 2 18,467,718 1 Securities sold under repurchase agreements (Note 5) 83,045,834 5 76,695,065 5 Commercial paper issued, net (Note 24) 12,215,597 1 15,298,649 1 Payables (Note 25) 28,783,190 2 29,096,110 2 Current tax liabilities (Notes 5 and 41) 2,306,439-1,464,131 - Deposits and remittances (Note 26) 1,259,675,424 70 1,194,493,789 71 Bonds payable (Note 27) 61,700,000 3 64,400,000 4 Other borrowings (Note 28) 11,545,384 1 10,315,076 1 Provisions (Notes 5 and 29) 1,721,335-1,485,384 - Other financial liabilities (Note 30) 59,083,447 3 41,388,865 2 Deferred tax liabilities (Notes 5 and 41) 108,838-96,839 - Other liabilities (Note 31) 3,709,414-4,744,152 - Total liabilities 1,612,375,564 90 1,522,198,207 91 EQUITY ATTRIBUTABLE TO OWNERS OF PARENT (Note 33) Capital stock Common stock 104,362,071 6 99,842,620 6 Preferred stock 10,175,410 1 7,900,547 - Advance receipts for capital stock 3,996-14,422 - Capital surplus 37,805,713 2 26,453,556 2 Retained earnings Legal reserve 9,115,012-7,838,803 - Special reserve 572,115-502,815 - Unappropriated earnings 12,421,251 1 12,762,094 1 Other equity (71,042) - (126,592) - Equity attributable to owners of parent 174,384,526 10 155,188,265 9 NON-CONTROLLING INTERESTS 133,427-133,844 - Total equity 174,517,953 10 155,322,109 9 TOTAL $ 1,786,893,517 100 $ 1,677,520,316 100 The accompanying notes are an integral part of the consolidated financial statements. - 5 -
TAISHIN FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2018 2017 Amount % Amount % INTEREST INCOME (Notes 5 and 34) $ 34,485,001 87 $ 30,621,256 81 INTEREST EXPENSES (Note 34) (14,893,700) (38) (11,886,687) (31) NET INTEREST INCOME (Note 34) 19,591,301 49 18,734,569 50 NET INCOME OTHER THAN NET INTEREST INCOME Net service fee and commissions income (Note 35) 12,012,226 30 11,510,076 30 Gain on financial assets and liabilities at FVTPL (Note 36) 3,125,283 8 3,219,009 9 Realized gain on financial assets at FVTOCI (Note 37) 388,455 1 - - Realized gain on available-for-sale financial assets (Note 38) - - 458,002 1 Foreign exchange gains (losses) 1,074,385 3 399,465 1 Impairment (loss) gain on assets (Notes 10, 12 and 17) (900) - (38,939) - Share of profit (loss) of associates accounted for using equity method (Note 16) 2,875,227 7 2,764,943 7 Net other non-interest income Gain from bargain purchase (Note 44) - - 106,747 - Net other miscellaneous income 682,346 2 648,029 2 Net income other than net interest income 20,157,022 51 19,067,332 50 NET REVENUE AND GAINS 39,748,323 100 37,801,901 100 PROVISIONS FOR ALLOWANCE FOR BAD DEBT EXPENSES, COMMITMENTS AND GUARANTEES LIABILITIES (Notes 5 and 14) (3,340,539) (8) (1,851,058) (5) OPERATING EXPENSES Employee benefits expenses (Notes 5 and 39) (12,374,008) (31) (12,163,656) (32) Depreciation and amortization expenses (Note 40) (1,194,980) (3) (1,067,232) (3) Other general and administrative expenses (8,602,413) (22) (7,910,326) (21) Total operating expenses (22,171,401) (56) (21,141,214) (56) INCOME BEFORE INCOME TAX 14,236,383 36 14,809,629 39 INCOME TAX EXPENSE (Notes 5 and 41) (1,306,250) (3) (1,739,463) (5) NET INCOME 12,930,133 33 13,070,166 34 (Continued) - 6 -
TAISHIN FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2018 2017 Amount % Amount % OTHER COMPREHENSIVE INCOME (LOSS) Items that will not be reclassified subsequently to profit or loss Gain (losses) on remeasurements of defined benefit plans $ (80,908) - $ (191,918) - Share of other comprehensive income of associates accounted for using the equity method (103,813) - (78,779) - Changes in the fair value attributable to changes in the credit risk of financial liabilities designated as at FVTPL 544 - - - Unrealized gain on investments in equity instruments designated as at FVTOCI 115,368 - - - Income tax relating to items that will not be reclassified subsequently to profit or loss 42,920-32,223 - Items that will be reclassified subsequently to profit or loss Exchange differences on translation of foreign financial statements (55,051) - (12,373) - Unrealized gain on available-for-sale financial assets - - 295,094 1 Share of other comprehensive loss of associate accounted for using the equity method 136,550 - (126,615) (1) Unrealized loss on investment in debt instruments at FVTOCI (401,998) (1) - - Impairment loss on investment in debt instruments at FVTOCI 146 - - - Income tax relating to items that will be reclassified subsequently to profit or loss 25,574 - (24,856) - Other comprehensive income (loss), net of tax (320,668) (1) (107,224) - TOTAL COMPREHENSIVE INCOME $ 12,609,465 32 $ 12,962,942 34 NET INCOME ATTRIBUTABLE TO: Owners of parent $ 12,930,583 33 $ 13,060,662 34 Non-controlling interests (450) - 9,504 - $ 12,930,133 33 $ 13,070,166 34 (Continued) - 7 -
TAISHIN FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2018 2017 Amount % Amount % TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of parent $ 12,609,882 32 $ 12,953,592 34 Non-controlling interests (417) - 9,350 - $ 12,609,465 32 $ 12,962,942 34 EARNINGS PER SHARE (Note 42) Basic $ 1.09 $ 1.10 Diluted $ 1.09 $ 1.10 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) - 8 -
TAISHIN FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) Equity Attributable to Owners of Parent Other Equity Changes in Fair Value Attributable to Exchange Changes in the Capital Stock Capital Surplus Differences on Unrealized Gains Unrealized Gains Credit Risk of Advanced Additional Retained Earnings Translation of (Losses) on on Financial Receipts for Paid-in Capital Treasury Stock Stock-based Unappropriated Foreign Financial Financial Assets Available-for-sale Liabilities at Non-controlling Common Stock Preferred Stock Capital Stock in Excess of Par Transactions Compensation Legal Reserve Special Reserve Earnings Statements FVTOCI Financial Assets FVTPL Interests Total Equity BALANCE AT JANUARY 1, 2017 $ 95,130,986 $ 8,625,684 $ 68,402 $ 24,776,589 $ 2,075,475 $ 280,521 $ 6,755,788 $ 465,368 $ 10,830,150 $ (168,382 ) $ - $ (89,441 ) $ - $ 124,494 $ 148,875,634 Appropriation of 2016 earnings Legal reserve - - - - - - 1,083,015 - (1,083,015) - - - - - - Cash dividends on common stock - - - - - - - - (5,026,874) - - - - - (5,026,874) Cash dividends on preferred stock - - - - - - - - (569,918) - - - - - (569,918) Stock dividends 4,112,896 - - - - - - - (4,112,896) - - - - - - Special reserve under Order No. 1010012865 issued by the FSC - - - - - - - 37,447 (37,447) - - - - - - Net income for the year ended December 31, 2017 - - - - - - - - 13,060,662 - - - - 9,504 13,070,166 Other comprehensive income for the year ended December 31, 2017, net of tax - - - - - - - - (238,301) (295,164) - 426,414 (19) (154) (107,224) Total comprehensive income for the year ended December 31, 2017 - - - - - - - - 12,822,361 (295,164) - 426,414 (19) 9,350 12,962,942 Redemption of preferred stock D - (725,137 ) - (614,596 ) - - - - (60,267 ) - - - - - (1,400,000 ) Share-based payments 598,738 - (53,980 ) 44,880 - (109,313 ) - - - - - - - - 480,325 BALANCE AT DECEMBER 31, 2017 99,842,620 7,900,547 14,422 24,206,873 2,075,475 171,208 7,838,803 502,815 12,762,094 (463,546 ) - 336,973 (19 ) 133,844 155,322,109 Effect of retrospective application and retrospective restatement - - - - - - - - (249,170) - 513,329 (336,973) - - (72,814) BALANCE AT JANUARY 1, 2018 AS RESTATED 99,842,620 7,900,547 14,422 24,206,873 2,075,475 171,208 7,838,803 502,815 12,512,924 (463,546 ) 513,329 - (19 ) 133,844 155,249,295 Appropriation of 2017 earnings Legal reserve - - - - - - 1,276,209 - (1,276,209) - - - - - - Special reserve under order No. 10310006310 issued by FSC - - - - - - - 106,747 (106,747) - - - - - - Cash dividends on common stock - - - - - - - - (5,414,689) - - - - - (5,414,689) Cash dividends on preferred stock - - - - - - - - (1,571,695) - - - - - (1,571,695) Stock dividends 4,430,201 - - - - - - - (4,430,201) - - - - - - Special reserve reversed under order No. 1010012865 issued by the FSC - - - - - - - (37,447) 37,447 - - - - - - Net income for the year ended December 31, 2018 - - - - - - - - 12,930,583 - - - - (450 ) 12,930,133 Other comprehensive income for the year ended December 31, 2018, net of tax - - - - - - - - (88,357) 90,683 (323,777) - 750 33 (320,668) Total comprehensive income for the year ended December 31, 2018 - - - - - - - - 12,842,226 90,683 (323,777) - 750 (417) 12,609,465 Disposals of investments in equity instruments designated as at FVTOCI - - - - - - - - (111,538) - 111,538 - - - - Preferred stock E issued - 3,000,000-11,987,061 - - - - - - - - - - 14,987,061 Redemption of preferred stock D - (725,137 ) - (614,596 ) - - - - (60,267 ) - - - - - (1,400,000 ) Share-based payments 89,250 - (10,426 ) 23,324 - (43,632 ) - - - - - - - - 58,516 BALANCE AT DECEMBER 31, 2018 $ 104,362,071 $ 10,175,410 $ 3,996 $ 35,602,662 $ 2,075,475 $ 127,576 $ 9,115,012 $ 572,115 $ 12,421,251 $ (372,863 ) $ 301,090 $ - $ 731 $ 133,427 $ 174,517,953 The accompanying notes are an integral part of the consolidated financial statements. - 9 -
TAISHIN FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) 2018 2017 CASH FLOWS FROM OPERATING ACTIVITIES Net income before income tax $ 14,236,383 $ 14,809,629 Adjustments: Adjustments to reconcile profit or loss Depreciation expenses 932,139 841,683 Amortization expenses 262,841 225,549 Provisions for allowance for bad debts expenses, commitments and guarantee liabilities 3,340,539 1,851,058 Net gain on financial assets and liabilities at FVTPL (3,125,283) (3,219,009) Interest expenses 14,893,700 11,886,687 Interest income (34,485,001) (30,621,256) Dividend income (244,334) (273,558) Stock-based payments 73,709 118,939 Share of profit of associates accounted for using the equity method (2,875,227) (2,764,943) Gain on disposal of investments (144,121) (338,423) Impairment loss on financial assets 900 38,939 Gains from bargain purchase - (106,747) Other adjustments 1,104,056 1,956,521 Total adjustments (20,266,082) (20,404,560) Changes in operating assets and liabilities (Increase) decrease in due from the Central Bank (11,361,498) 6,271,959 (Increase) decrease in financial assets at FVTPL 24,370,144 6,475,461 (Increase) decrease in financial assets at FVTOCI (38,161,569) - (Increase) decrease in financial assets at amortized cost (3,073,300) - (Increase) decrease in available-for-sale financial assets - (6,799,659) (Increase) decrease in securities purchased under resale agreements - 1,048,507 (Increase) decrease in receivables (11,548,087) (18,548,807) (Increase) decrease in loans (59,476,488) (82,613,975) (Increase) decrease in other financial assets (1,514,552) 2,843,947 (Increase) decrease in other assets (4,715,843) 9,623,221 Increase (decrease) in due to the Central Bank and banks (673,790) (1,738,265) Increase (decrease) in financial liabilities at FVTPL (12,377,805) (34,578,154) Increase (decrease) in securities sold under repurchase agreements 6,350,769 4,082,202 Increase (decrease) in payables (807,148) (3,651,098) Increase (decrease) in deposits and remittances 65,181,635 90,354,700 Increase (decrease) in provisions (33,942) (69,024) Increase (decrease) in other financial liabilities 17,694,582 (2,911,702) Increase (decrease) in other liabilities (1,083,577) 1,336,859 Cash generated from (used in) operations (37,260,168) (34,468,759) Interest received 35,245,326 31,096,412 Dividends received 1,407,516 1,223,972 Interest paid (14,543,034) (11,806,271) (Continued) - 10 -
TAISHIN FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) 2018 2017 Income taxes returned $ 19 $ 192,763 Income taxes paid (1,258,861) (961,832) Net cash generated from (used in) operating activities (16,409,202) (14,723,715) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from capital reduction of financial assets at FVTOCI 23,091 - Acquisition of financial assets carried at cost (3,070) - Acquisition of financial assets at cost - (222,586) Proceeds from disposal of financial assets at cost - 5,570 Proceeds from capital reduction of financial assets carried at cost - 38,751 Acquisition of property and equipment (695,201) (1,240,533) Proceeds from disposal of property and equipment 134 7,475 Acquisition of intangible assets (237,751) (308,444) Acquisition of investment properties (139,113) - Proceeds from disposal of investment property - 128,412 Cash outflows from business combination - (3,212,533) Net cash generated from (used in) investing activities (1,051,910) (4,803,888) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in due to the Central Bank and banks (4,600,651) 19,024,233 Increase (decrease) in commercial paper payable (3,085,000) 6,092,901 Corporate bond issued 7,000,000 8,000,000 Corporate bond repayment (9,700,000) (5,300,000) Bank debenture repayments - (13,300,000) Increase (decrease) in other borrowings 1,504,427 2,863,145 Increase (decrease) in financial liabilities designated as at FVTPL 3,050,000 - Preferred stock E issued 14,987,061 - Cash dividends distributed (6,986,384) (5,596,792) Exercise of employee stock options 58,516 480,114 Redemption of preferred stock D (1,400,000) (1,400,000) Net cash generated from (used in) financing activities 827,969 10,863,601 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (327,927) (45,559) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (16,961,070) (8,709,561) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 43,616,998 52,326,559 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 26,655,928 $ 43,616,998 (Continued) - 11 -
TAISHIN FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) Reconciliation of cash and cash equivalents: 2018 2017 Cash and cash equivalents in consolidated balance sheets $ 22,590,750 $ 22,034,918 Call loans to banks qualifying as cash and cash equivalents under the definition of IAS 7 permitted by the Financial Supervisory Commission 1,648,537 13,966,515 Securities purchased under resell agreements qualifying as cash and cash equivalents under the definition of IAS 7 permitted by the Financial Supervisory Commission 2,416,641 7,615,565 Cash and cash equivalents at the end of the year $ 26,655,928 $ 43,616,998 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) - 12 -
TAISHIN FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. GENERAL INFORMATION Taishin Financial Holding Co., Ltd. ( Taishin Financial Holding or the Company ) 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 stock 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 stock swap. In forming the holding company, Taishin Bank merged with Dah An Bank, with Taishin Bank as the surviving 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 stock 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 record date of the merger was January 22, 2011. Taishin Bank acquired total assets and assumed all liabilities and operations of Taishin Bills Finance. Taishin Bank started its business operations on March 23, 1992. Taishin Bank provides customers with (a) general commercial banking services according to the Banking Act of the Republic of China. 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 the acquisition, evaluation, auction, and management of delinquent loans. 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 Holdings Insurance Brokers operations include property insurance broker service and life insurance broker service. In order to integrating group resources and effectively utilizing operational capital to advance operational performance, the Company conducted group internal restructure. The Company intended to have Taishin Bank merge Taishin Holdings Insurance Brokers. Therefore, on October 29, 2015, the board of Taishin Bank (acting as stockholders of Taishin Bank) resolved that the surviving company is Taishin Bank and the dissolved company is Taishin Holdings Insurance Brokers. On December 30, 2015, the merger was endorsed by the Financial Supervisory Commission ( FSC ). The merging base date is April 24, 2016. The consideration of Taishin Holding Insurance Brokers is its audited net value on the merging base date. Taishin Bank pays in cash and bears the overall assets, liabilities and operation of Taishin Holding Insurance Brokers. Taishin Venture Capital Co., Ltd. ( Taishin Venture Capital ) was approved for establishment on December 25, 2002. Its operations include engagement in investment start-ups. 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. - 13 -
Taishin Securities Investment Advisory was established in March 1989, and its operations include accepting mandates from customers, 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. Taishin Securities Investment Trust approved by the Securities and Futures Bureau, was established on May 31, 2004. Its operations include offering securities investment trust funds, issuing beneficial interest certificates and investing in or trading securities, securities-related products or other items approved by the FSC. In addition, Taishin Securities Investment Trust was approved to operate a full fiduciary discretionary investment business in 2005. Taishin Securities Co., Ltd. ( Taishin Securities B ) (originally named Donshin Securities Co., Ltd.) was incorporated on January 15, 1990, and its operations include services dealing with futures, securities underwriting, brokerage, margin lending and security transfer services. Taishin Financial Holding acquired 100% equity interest of Taishin Securities B by cash investments on April 6, 2010. Taishin Securities B became a subsidiary of Taishin Financial Holding. Taishin Securities B acquired 100% equity interest in Tachong Securities Co., Ltd. ( Tachong Securities ) via cash merger and assumed the net assets and operation of Tachong Venture Capital Co., Ltd. ( Tachong Venture Capital ), originally the subsidiary of Tachong Securities, on August 28, 2017. After completing the aforementioned cash merger, the surviving company was Taishin Securities B, and Tachong Securities was dissolved accordingly. Refer to Note 44. Taishin Real-Estate Management Co., Ltd. ( Taishin Real-Estate ) was established in August 1995, and its operations include audit and consultation of construction plans, contract witness, assessments and trades of real estate, etc. Taishin Insurance Agency Co., Ltd. ( Taishin Insurance Agency ) was established in September 1996 and changed the Company name as Xiang An Life Insurance Agency Co., Ltd. ( Xiang An Insurance Agency ) on August 18, 2016, which provide life insurance agent service. Taishin Insurance Agency owned 100% equity interest of Taishin Insurance Brokers Co., Ltd. ( Taishin Insurance Brokers ). Taishin Insurance Brokers had dissolved in July 2015, and audited in March 2016. Taishin D.A. Finance was established in October 1997. Its operations include the lease, wholesale and retail sale of machinery, precision machinery, motor vehicles, aircrafts and vessels and their components. Tachong Venture Capital was established in February 2013 and changed its company name to Taishin Securities Venture Capital Co., Ltd. ( Taishin Securities Venture Capital ) on October 2, 2017. It mainly engages in making investments in start-up entities and in providing consultancy services. Taishin Financial Leasing (China) Co., Ltd. ( Taishin Financial Leasing (China) ) was approved for establishment on July 12, 2011 so as to provide financial leasing services. Taishin Financial Leasing (Tianjin) Co., Ltd. ( Taishin Financial Leasing (Tianjin) ) was approved for establishment on March 1, 2012 so as to provide financial leasing services. Within these consolidated financial statements, Taishin Financial Holding and its subsidiaries mentioned above are collectively called the Group. - 14 -
In the year ended December 31, 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 was converted into 1,400,000 thousand shares of common stock. Chang Hwa Bank held the election of its board of directors on December 8, 2014, whereby Taishin Financial Holding did not obtain more than half of the seats of Chang Hwa Bank s board of directors. Therefore, Taishin Financial Holding lost its control over Chang Hwa Bank and afterwards did not account for Chang Hwa Bank as its subsidiary in accordance with the Financial Holding Company Act. The ownership interest with voting rights in Chang Hwa Bank held by Taishin Financial Holding and subsidiaries was 22.81% as of December 31, 2018. 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 Futures Commission Merchants, Regulations Governing the Preparation of Financial Reports by Securities Issuers, and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) (collectively, the IFRSs ) endorsed and issued into effect by the Financial Supervisory Commission ( FSC ). 3. APPROVAL OF FINANCIAL STATEMENTS The consolidated financial statements of Taishin Financial Holding and its subsidiaries were approved by the Company s board of directors and authorized for issue on February 21, 2019. 4. APPLICATION OF NEW AND REVISED STANDARDS, AMENDMENTS AND INTERPRETATIONS a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports 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 Futures Commission Merchants, Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC) and Interpretations of IAS (SIC) (collectively, the IFRSs ) endorsed and issued into effect by the FSC Except for the following, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports and the IFRSs endorsed and issued into effect by the FSC did not have any material impact on the Group s accounting policies: IFRS 9 Financial Instruments and related amendments IFRS 9 supersedes IAS 39 Financial Instruments: Recognition and Measurement, with consequential amendments to IFRS 7 Financial Instruments: Disclosures and other standards. IFRS 9 sets out the requirements for the classification, measurement and impairment of financial assets and for hedge accounting. Refer to Note 5 for information relating to the relevant accounting policies. - 15 -
The requirements for the classification, measurement and impairment of financial assets have been applied retrospectively starting from January 1, 2018, and the requirements for hedge accounting have been applied prospectively. IFRS 9 is not applicable to items that have already been derecognized as of December 31, 2017. On the basis of the facts and circumstances of financial instruments that existed as of January 1, 2018, the Group has performed an assessment of the classification of recognized financial assets and has elected not to restate its consolidated financial statements of previous reporting periods. The following table shows the original measurement categories and carrying amount under IAS 39 and the new measurement categories and carrying amount under IFRS 9 for each class of the Group s financial assets and financial liabilities as of January 1, 2018. Carrying Amount Measurement Category Classification IAS 39 IFRS 9 Financial assets At fair value through profit or loss Financial assets at FVTPL $ 106,153,738 $ 117,906,966 (FVTPL) At fair value through other Financial assets at FVTOCI - 299,468,032 comprehensive income (FVTOCI) Available-for-sale financial assets 307,885,507 - At amortized cost Cash and cash equivalents 22,034,918 22,034,918 Due from the Central Bank and call loans to banks 56,832,392 56,832,392 Securities purchased under resale agreements 7,615,565 7,615,565 Receivables 135,089,033 135,097,413 Loans 959,618,741 959,760,018 Held-to-maturity financial assets 6,095 - Other miscellaneous financial assets 8,712,552 8,712,552 Other assets (refundable deposits) 4,611,073 4,611,073 Other assets (operating guarantee deposits and 227,653 227,653 settlement funds) Financial assets at amortized cost - 6,095 At cost Financial assets carried at cost 3,006,159 - Financial liabilities At FVTPL Financial liabilities at FVTPL 18,467,718 18,467,718 Amortized cost Due to the Central Bank and banks 64,252,429 64,252,429 Securities sold under repurchase agreements 76,695,065 76,695,065 Commercial paper issued 15,298,649 15,298,649 Payables 29,096,110 29,096,110 Deposits and remittances 1,194,493,789 1,194,493,789 Bonds payable 64,400,000 64,400,000 Other borrowings 10,315,076 10,315,076 Other financial liabilities 41,388,865 41,388,865 Others (Note) Provisions (guarantee liabilities) 210,775 210,775 Provisions (loan commitment provisions) - 204,636 Note: Under IAS 39, the amount of provisions is measured at the higher of the amount determined in accordance with IAS 37 and the amount initially recognized less accumulated amortization in accordance with IAS 18; under IFRS 9, the amount of provisions is measured at the higher of the loss allowance and the amount initially recognized less cumulative revenue in accordance with IFRS 15. - 16 -
The requirements for the measurement categories of investments in financial instruments have been applied retrospectively starting from January 1, 2018, and the effects of investments in financial instruments were as follows: IAS 39 Carrying Amount Reclassifications Remeasurements IFRS 9 Carrying Amount Retained Earnings Effect Other Equity FVTPL $ 106,153,738 Available-for-sale financial assets from IAS 39 (Notes 1 and 2) $ 10,414,968 $ - $ 3,538 $ (3,538) Financial assets carried at cost from IAS 39 (Note 1) 1,469,929 (131,669) (131,669) - 106,153,738 11,884,897 (131,669) $ 117,906,966 (128,131) (3,538) FVTOCI - Available-for-sale financial assets from IAS 39 (Notes 3, 4 and 6) 297,470,539 - (25,696) 25,696 Financial assets carried at cost from IAS 39 (Note 3) 1,536,230 461,263 38,175 423,088-299,006,769 461,263 299,468,032 12,479 448,784 Debt instruments at amortized cost - Held-to-maturity financial assets from IAS 39 (Note 5) 6,095-6,095 - - Available-for-sale financial assets 307,885,507 To FVTPL (Notes 1 and 2) (10,414,968) - - - To FVTOCI (Notes 3 and 4) (297,470,539) - - - 307,885,507 (307,885,507) - - - - Held-to-maturity financial assets 6,095 To debt instruments at amortized cost (6,095) - - - 6,095 (6,095) - - - - Financial assets at cost 3,006,159 To FVTPL (Note 1) (1,469,929) - - - To FVTOCI (Note 3) (1,536,230) - - - 3,006,159 (3,006,159) - - - - $ 417,051,499 $ - $ 329,594 $ 417,381,093 $ (115,652 ) $ 445,246 Note 1: Equity instruments and mutual funds previously classified as available-for-sale or at cost under IAS 39 were classified as at FVTPL under IFRS 9, because the contractual cash flows are not solely for repayments of principal and interest on the principal outstanding. Note 2: Debt instruments previously classified as available-for-sale under IAS 39 were classified as at FVTPL because the contractual cash flows are solely for repayments of principal and interest on the principal outstanding. Note 3: Equity instruments previously classified as available-for-sale or at cost under IAS 39 were classified as at FVTOCI under IFRS 9, because the purpose of holding such equity instruments is for long-term investment holding and not for trading purposes, which is reasonably reflected in the operating performance. Note 4: Debt investments previously classified as available-for-sale under IAS 39 were classified as at FVTOCI under IFRS 9, because the contractual cash flows are solely for repayments of principal and interest on the principal outstanding and these investments are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets. - 17 -
Note 5: Debt investments previously classified as held-to-maturity under IAS 39 debt instruments will be classified as at amortized cost under IFRS 9, because the contractual cash flows are solely for repayments of principal and interest on the principal outstanding and these investments are held within a business model whose objective is to collect contractual cash flows. Note 6: The amount is the difference in the amount of impairment loss on investments in debt instruments classified as at FVTOCI from the transition from using the loss model under IAS 39 to the expected credit losses (ECLs) model under IFRS 9. The requirements for the measurement categories of other financial assets have been applied retrospectively starting from January 1, 2018, and the effects of investments in financial instruments were as follows: IAS 39 Carrying Amount Remeasurements IFRS 9 Carrying Amount Retained Earnings Effect Loans $ 959,618,741 $ 141,277 $ 959,760,018 $ 141,277 Receivables 135,089,033 8,380 135,097,413 8,380 Guarantee liabilities (210,775) - (210,775) - Loan commitment provisions - (204,636) (204,636) (204,636) $ (54,979) $ (54,979) As a result of retrospective application, the related adjustments were comprised of an increase in deferred tax assets of $790 thousand, a decrease in retained earnings of $790 thousand, a decrease in investments accounted for using the equity method of $348,219 thousand, a decrease in retained earnings of $79,329 thousand and a decrease in other equity of $268,890 thousand on January 1, 2018. b. The Regulations Governing the Preparation of Financial Reports by Financial Holding Companies and the IFRSs endorsed by the FSC for application starting from 2019 The following IFRSs endorsed by Rule No. 1070324857 issued by the FSC will be effective for application starting from 2019: New IFRSs Effective Date Announced by IASB (Note 1) Annual Improvements to IFRSs 2015-2017 Cycle January 1, 2019 Amendments to IFRS 9 Prepayment Features with Negative January 1, 2019 (Note 2) Compensation IFRS 16 Leases January 1, 2019 Amendments to IAS 19 Plan Amendment, Curtailment or January 1, 2019 (Note 3) Settlement Amendments to IAS 28 Long-term Interests in Associates and Joint January 1, 2019 Ventures IFRIC 23 Uncertainty over Income Tax Treatments January 1, 2019 Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates. Note 2: The FSC permits the election for early adoption of the amendments starting from 2018. Note 3: The Group shall apply these amendments to plan amendments, curtailments or settlements occurring on or after January 1, 2019. - 18 -
Rule No. 10702734370 issued by the FSC stipulated that the Group should apply the amendments to the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies starting from January 1, 2019. The initial application of the above New IFRSs and related amendments to the standards and interpretations would not have any material impact on the Group s accounting policies, except for the following: 1) IFRS 16 Leases IFRS 16 sets out the accounting standards for leases. It will supersede IAS 17 Leases, IFRIC 4 Determining Whether An Arrangement Contains A Lease and a number of related interpretations. Definition of a lease Upon initial application of IFRS 16, the Group will reassess whether a contract is, or contains, a lease in accordance with the definition of a lease under IFRS 16. Several contracts, which are currently identified as containing a lease under IAS 17 and IFRIC 4, will not meet the definition of a lease under IFRS 16 and will be accounted for in accordance with other standards because the customers do not have the right to direct the use of the identified assets. Contracts that are reassessed as containing a lease will be accounted for in accordance with the transitional provisions under IFRS 16. The Group as lessee Upon initial application of IFRS 16, the Group will recognize right-of-use assets, or investment properties if the right-of-use assets meet the definition of investment properties, and lease liabilities for all leases on the consolidated balance sheets except for those whose payments under low-value asset and short-term leases will be recognized as expenses. On the consolidated statements of comprehensive income, the Group will present the depreciation expense charged on right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed using the effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of lease liabilities will be classified within financing activities; cash payments for the interest portion will be classified within operating activities. The Group anticipates applying IFRS 16 retrospectively with the cumulative effect of the initial application of this standard recognized on January 1, 2019. Comparative information will not be restated. Lease liabilities are recognized on January 1, 2019 for leases previously classified as operating leases with the application of IAS 17. Lease liabilities will be measured at the present value of the remaining lease payments, discounted using the lessee s incremental borrowing rate on January 1, 2019. Right-of-use assets are measured at an amount equal to the lease liabilities, adjusted by the amount of any prepaid or accrued lease payments. The Group applies IAS 36 to all right-of-use assets. The Group expects to apply the following practical expedients: a) The Group excludes initial direct costs from the measurement of right-of-use assets on January 1, 2019. b) The Group uses hindsight, such as in determining lease terms, to measure lease liabilities. For leases previously classified as finance leases under IAS 17, the carrying amount of right-of-use assets and lease liabilities on January 1, 2019 are determined as the carrying amount of the respective leased assets and finance lease payables as of December 31, 2018. - 19 -