MEGA FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS
FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 2017 AND 2016
------For the convenience of readers and for information purpose only, the auditors’ report and the accompanying financial statem ents have been translated into English from the original Chinese version prepared and used in the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.
WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3 WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3 WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3 WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3 WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3 WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3 WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3 WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3 WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3 MEGA FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Expressed in thousands of New Taiwan dollars, except as otherwise indicated)
June 30, 2017 December 31, 2016 June 30, 2016 January 1, 2016 Assets Notes AMOUNT % AMOUNT % AMOUNT % AMOUNT % Assets 11000 Cash and cash equivalents 6(1) $ 107,157,464 3 $ 98,131,357 3 $ 106,586,601 3 $ 152,871,868 5 11500 Due from the Central Bank and call 6(2) and 11 loans to banks 521,256,557 16 540,011,742 16 528,753,534 16 503,267,079 15 12000 Financial assets at fair value through 6(3) and 12 profit or loss, net 173,126,699 5 186,317,373 6 195,693,955 6 182,036,664 5 12100 Available-for-sale financial assets, net 6(7) and 12 388,446,168 12 354,464,708 11 353,279,633 11 346,461,364 10 12500 Bills and bonds purchased under resale agreements 2,397,332 - 2,855,885 - 9,372,447 - 7,079,210 - 13000 Receivables, net 6(4)(5) 81,941,032 3 86,825,802 3 113,187,092 3 175,747,221 5 13200 Current income tax assets 288,051 - 577,485 - 581,131 - 814,334 - 13500 Bills discounted and loans, net 6(5) and 11 1,689,801,684 50 1,715,278,766 52 1,731,771,623 52 1,773,269,054 52 13700 Reinsurance contract assets, net 6(6)(23) 4,315,597 - 4,261,668 - 4,419,416 - 3,308,814 - 14500 Held-to-maturity financial assets, net 6(8) and 12 346,800,970 10 280,997,362 8 248,402,173 7 201,233,939 6 15000 Equity investments accounted for under 6(9) the equity method, net 3,124,670 - 3,108,470 - 3,195,338 - 2,976,409 - 15500 Other financial assets, net 6(5)(10) and 12 14,521,536 - 14,955,209 - 16,790,664 1 17,189,576 1 18000 Investment property, net 6(11) and 12 1,704,325 - 1,711,561 - 1,539,363 - 1,368,553 - 18500 Property and equipment, net 6(12) and 12 21,890,568 1 21,787,452 1 21,723,663 1 21,834,486 1 19000 Intangible assets, net 358,064 - 270,438 - 279,581 - 299,644 - 19300 Deferred income tax assets 5,686,190 - 5,463,227 - 5,043,049 - 4,716,552 - 19500 Other assets, net 6(13), 11 and 12 4,421,229 - 2,772,911 - 2,828,764 - 2,550,310 - Total Assets $ 3,367,238,136 100 $ 3,319,791,416 100 $ 3,343,448,027 100 $ 3,397,025,077 100
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June 30, 2017 December 31, 2016 June 30, 2016 January 1, 2016 Liabilities and Stockholders' equity Notes AMOUNT % AMOUNT % AMOUNT % AMOUNT % Liabilities 21000 Due to the Central Bank and financial 6(14) and 11 institutions $ 287,085,310 9 $ 401,731,599 12 $ 328,535,805 10 $ 428,405,839 13 21500 Funds borrowed from the Central Bank 6(15) and other banks 31,034,861 1 39,974,427 1 57,846,549 2 45,459,094 1 22000 Financial liabilities at fair value through 6(16) and 11 profit or loss 11,137,173 - 12,105,231 1 22,971,387 1 22,980,692 1 22500 Bills and bonds sold under repurchase 6(17) and 11 agreements 206,005,571 6 231,191,763 7 221,619,337 7 192,936,650 6 22600 Commercial paper payable, net 6(18) and 11 10,336,597 - 11,701,649 - 11,202,982 - 19,945,870 - 23000 Payables 6(19) 85,383,253 3 59,001,999 2 88,727,989 3 63,623,826 2 23200 Current income tax liabilities 9,306,861 - 8,589,599 - 10,501,272 - 9,024,348 - 23500 Deposits and remittances 6(20) and 11 2,349,990,200 70 2,171,287,924 66 2,226,290,470 67 2,230,143,429 66 24000 Bonds payable 6(21) and 11 41,946,917 1 41,924,088 1 41,901,153 1 41,878,505 1 24400 Other loans 6(22) 1,246,466 - 5,954,030 - 2,800,093 - 2,280,000 - 24600 Provisions for liabilities 6(23) 24,999,616 1 25,047,224 1 24,997,726 1 22,917,606 1 25500 Other financial liabilities 6(24) 11,821,172 - 10,849,706 - 13,228,170 - 10,720,861 - 29300 Deferred income tax liabilities 2,256,607 - 2,201,659 - 2,327,638 - 2,195,423 - 29500 Other liabilities 6(25) 5,973,434 - 6,203,075 - 7,143,763 - 11,057,626 - Total Liabilities 3,078,524,038 91 3,027,763,973 91 3,060,094,334 92 3,103,569,769 91 Equity Equity attributable to owners of parent 31100 Share capital 31101 Common stock 6(26) 135,998,240 4 135,998,240 4 135,998,240 4 135,998,240 4 31500 Capital surplus 6(26) 68,194,233 2 68,194,233 2 68,194,233 2 68,194,233 2 Retained earnings 32001 Legal reserve 6(26) 32,682,332 1 30,436,714 1 30,436,714 1 27,494,993 1 32003 Special reserve 6(26) 3,004,318 - 2,545,158 - 2,545,158 - 2,545,158 - 32011 Unappropriated retained earnings 6(27) 49,482,593 2 56,976,974 2 44,430,381 1 58,332,856 2 Other equity interest 6(28) 32500 Other equity interest ( 689,477) - ( 2,165,966) - 1,696,040 - 838,599 - 39500 Non-controlling interests 41,859 - 42,090 - 52,927 - 51,229 - Total Stockholders' Equity 288,714,098 9 292,027,443 9 283,353,693 8 293,455,308 9 TOTAL LIABILITIES AND 3,367,238,136 100 $ 3,319,791,416 100 $ 3,343,448,027 100 $ 3,397,025,077 100 STOCKHOLDERS' EQUITY $
The accompanying notes are an integral part of these consolidated financial statements.
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Three months ended June 30 Six months ended June 30 2017 2016 2017 2016 Items Notes AMOUNT % AMOUNT % AMOUNT % AMOUNT % 41000 Interest income 6(29) and 11 $ 13,805,114 94 $ 13,454,200 139 $ 27,071,595 92 $ 27,278,132 106 51000 Less: interest expense 6(29) and 11 ( 4,940,087 )( 34 )( 3,970,212 )( 41 )( 9,449,261 )( 32 )( 8,550,032 )( 33 ) Interest income, net 8,865,027 60 9,483,988 98 17,622,334 60 18,728,100 73 Revenues other than interest, net 49800 Service fee revenue and commissions, net 6(30) 2,124,011 14 2,738,324 28 4,381,800 15 5,356,177 21 49810 Insurance revenue, net 375,458 3 586,162 6 958,841 3 1,030,789 4 49820 Financial assets and liabilities at fair value through 6(31) and 11 profit or loss 1,545,359 11 1,034,171 11 4,019,965 14 2,535,252 10 49825 Gain on investment property 2,248 - 4,589 - 8,931 - 7,425 - 49830 Realized gain on available-for-sale financial assets, net 6(32) and 11 326,559 2 372,964 4 813,922 3 1,101,198 4 49870 Foreign exchange gain 777,220 5 572,660 6 626,572 2 1,305,862 5 49890 Share of profit of associates and joint ventures 6(9) accounted for under equity method 49,498 - 41,681 - 93,484 - 132,671 1 48000 Other revenue other than interest income 6(34) 521,722 4 640,404 6 806,209 3 1,067,307 4 49999 Net other miscellaneous income (loss) 6(35) 129,403 1 ( 5,652,675 )( 58 ) 240,070 1 ( 5,352,942 )( 21 ) 55000 Loss on asset impairment 6(33) ( 53,076 ) - ( 130,794 )( 1)( 150,014 )( 1)( 229,641 )( 1) Net revenue 14,663,429 100 9,691,474 100 29,422,114 100 25,682,198 100 58100 Bad debts expense and guarantee liability (provisions) 6(4)(5)(6)(10)(23) reserve ( 517,341 )( 3) 227,150 2 ( 981,455 )( 3)( 967,731 )( 4) 58300 Net change in provisions for insurance liabilities 6(23) 50,597 - ( 123,011 )( 1) 27,789 - ( 220,473 )( 1) Operating expenses 58501 Employee benefit expenses 6(36)(37) ( 4,223,506 )( 29 )( 3,784,581 )( 39 )( 8,251,426 )( 28 )( 7,607,151 )( 30 ) 58503 Depreciation and amortization 6(37) ( 189,756 )( 1)( 179,447 )( 2)( 366,941 )( 1)( 353,746 )( 1) 58599 Other business and administrative expenses 6(38) ( 1,844,493 )( 13 )( 1,846,136 )( 19 )( 3,752,647 )( 13 )( 3,725,724 )( 14 ) 61000 Income before income tax 7,938,930 54 3,985,449 41 16,097,434 55 12,807,373 50 61003 Income tax expense ( 825,232 )( 5)( 2,199,782 )( 22 )( 1,580,277 )( 6)( 3,375,600 )( 13 ) 69000 Profit for the period 7,113,698 49 1,785,667 19 14,517,157 49 9,431,773 37
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Three months ended June 30 Six months ended June 30 2017 2016 2017 2016 Items Notes AMOUNT % AMOUNT % AMOUNT % AMOUNT % comprehensive income (after income tax) Potentially reclassifiable to profit or loss subsequently Other comprehensive income 69571 Cumulative translation differences of foreign operations 6(28) $ 282,032 2 $ 55,674 - ($ 1,229,249 )( 4)($ 777,443 )( 3) 69572 Unrealized gain on valuation of available-for-sale 6(28) financial assets 1,091,534 7 178,303 2 2,702,319 9 1,650,408 6 69575 Share of other comprehensive income (loss) of 6(28) associates and joint ventures accounted for under equity method 7,458 - 1,484 - 8,178 - ( 6,617 ) - 69500 Total other comprehensive income (after income tax) 1,381,024 9 235,461 2 1,481,248 5 866,348 3 69700 Total comprehensive income $ 8,494,722 58 $ 2,021,128 21 $ 15,998,405 54 $ 10,298,121 40 Profit attributable to: 69901 Owners of parent $ 7,118,678 49 $ 1,785,664 18 $ 14,522,147 49 $ 9,438,982 37 69903 Non-controlling interests ( 4,980 ) - 3 - ( 4,990 ) - ( 7,209 ) - $ 7,113,698 49 $ 1,785,667 18 $ 14,517,157 49 $ 9,431,773 37 Comprehensive income (loss) attributable to: 69951 Owners of parent $ 8,494,943 58 $ 2,021,125 21 $ 15,998,636 54 $ 10,296,423 40 69953 Non-controlling interests ( 221 ) - 3 - ( 231 ) - 1,698 - $ 8,494,722 58 $ 2,021,128 21 $ 15,998,405 54 $ 10,298,121 40
Earnings per share $ 0.52 $ 0.13 $ 1.07 $ 0.69 70000 Basic and diluted earnings per share (in dollars)
The accompanying notes are an integral part of these consolidated financial statements.
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Equity attributable to owners of the parent Retained Earnings Other equity interest Cumulative Unrealized gain translation or loss on Unappropriated differences of available-for- Non- Share capital – retained foreign sale financial controlling common stock Capital surplus Legal reserve Special reserve earnings operations assets Total interests Total equity
For the six-month period ended June 30, 2016
Balance at January 1, 2016 $135,998,240 $ 68,194,233 $ 27,494,993 $ 2,545,158 $ 58,332,856 $ 427,764 $ 410,835 $293,404,079 $ 51,229 $293,455,308
Earnings distribution for 2015
Legal reserve - - 2,941,721 - ( 2,941,721 ) - ----
Cash dividends - -- - ( 20,399,736 ) - -( 20,399,736) - ( 20,399,736 )
Profit (loss) for the period - -- - 9,438,982 - - 9,438,982 ( 7,209) 9,431,773
Other comprehensive (loss) income for the period - -- - -( 779,722 ) 1,637,163 857,441 8,907 866,348
Balance at June 30, 2016 $135,998,240 $ 68,194,233 $ 30,436,714 $ 2,545,158 $ 44,430,381 ($ 351,958 ) $ 2,047,998 $283,300,766 $ 52,927 $283,353,693
For the six-month period ended June 30, 2017
Balance at January 1, 2017 $135,998,240 $ 68,194,233 $ 30,436,714 $ 2,545,158 $ 56,976,974 ($ 853,382 ) ($ 1,312,584 ) $291,985,353 $ 42,090 $292,027,443
Earnings distribution for 2016
Legal reserve - - 2,245,618 - ( 2,245,618 ) - ----
Cash dividends - -- - ( 19,311,750 ) - -( 19,311,750) - ( 19,311,750 )
Special reserve - -- 459,160 ( 459,160 ) - ----
Profit (loss) for the period - -- - 14,522,147 - - 14,522,147 ( 4,990) 14,517,157
Other comprehensive (loss) income for the period - -- - -( 1,236,135 ) 2,712,624 1,476,489 4,759 1,481,248
Balance at June 30, 2017 $135,998,240 $ 68,194,233 $ 32,682,332 $ 3,004,318 $ 49,482,593 ($ 2,089,517 ) $ 1,400,040 $288,672,239 $ 41,859 $288,714,098
The accompanying notes are an integral part of these consolidated financial statements.
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2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax $ 16,097,434 $ 12,807,373 Adjustments Adjustments to reconcile profit (loss) Depreciation 335,500 322,110 Amortization 31,441 31,636 Bad debts expense and guarantee liability reserve 981,455 967,731 Interest expense 9,604,875 8,899,232 Interest income ( 28,151,549 ) ( 28,406,775 ) Dividend income ( 291,662 ) ( 419,020 ) Net change in provisions for insurance liabilities ( 27,789 ) 220,473 Loss on asset impairment 150,014 229,641 Gain on disposal of property and equipment ( 54 ) ( 21,036 ) Loss on disposal of investment property - 1,202 Share of profit of associates accounted for under equity method ( 93,484 ) ( 132,672 ) Changes in operating assets and liabilities Changes in operating assets Decrease in due from Central Bank and call loans to other banks 99,829,419 84,537,190 Decrease (increase) in financial assets at fair value through profit or loss 13,190,674 ( 13,657,291 ) Increase in available -for -sale financial assets ( 31,374,754 ) ( 5,265,828 ) Decrease in receivables 5,005,838 63,078,717 Decrease in bills discounted and loans 24,414,845 40,301,902 Increase in reinsurance contract assets ( 53,929 ) ( 1,110,602 ) Increase in held -to -maturity financial assets ( 65,803,608 ) ( 47,168,234 ) Decrease in other financial assets 378,540 132,986 Increase in other assets ( 1,637,545 ) ( 278,482 ) Changes in operating liabilities Decrease in due to the Central Bank and financial institutions ( 114,646,289 ) ( 99,870,034 ) Decrease in financial liabilities at fair value through profit or loss ( 968,058 ) ( 9,305 ) (Decrease) increase in bills and bonds purchased under resale agreements ( 25,186,192 ) 28,682,687 Increase in payables 6,927,663 4,906,713 Increase (decrease) in deposits and remittances 178,702,276 ( 3,852,959 ) Increase in other financial liabilities 971,466 2,507,309 (Decrease) increase in liabilities reserve ( 130,662 ) 1,269,389 Decrease in other liabilities ( 886,567 ) ( 3,701,203 ) Cash inflow generated from operations 87,369,298 45,002,850 Interest received 28,217,672 27,892,996 Cash dividend received 380,295 457,396 Interest paid ( 9,469,063 ) ( 9,076,177 ) Income tax paid ( 712,790 ) ( 1,859,755 ) Net cash flows from operating activities 105,785,412 62,417,310
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2017 2016
CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment ($ 461,531 ) ($ 209,445 ) Proceeds from disposal of property and equipment 1,704 21,256 Acquisition of intangible assets ( 164,467 ) ( 5,425 ) Acquisition of investment property - ( 190,208 ) Proceeds from disposal of investment property - 13,014 Net cash flows used in investing activities ( 624,294 ) ( 370,808 ) CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in due to the Central Bank and financial institutions ( 8,939,566 ) 12,387,455 Decrease in commercial papers payable ( 1,365,000 ) ( 8,745,579 ) (Decrease) increase in other loans ( 4,707,564 ) 520,093 Increase in guarantee deposits received 661,360 600,587 Net cash flows (used in) from financing activities ( 14,350,770 ) 4,762,556 Effect of exchange rate changes on cash and cash equivalents ( 1,168,560 ) ( 777,443 ) Net increase in cash and cash equivalents 89,641,788 66,031,615 Cash and cash equivalents at beginning of period 429,341,320 444,732,697 Cash and cash equivalents at end of period $ 518,983,108 $ 510,764,312 The components of cash and cash equivalents Cash and cash equivalents reported in the statement of financial position $ 107,157,464 $ 106,586,601 Due from central bank and call loans to other banks qualified as cash and cash equivalents as defined by IAS 7 409,428,312 394,805,264 Investments in bills and bonds under resale agreements qualified as cash and cash equivalents as defined by IAS 7 2,397,332 9,372,447 Cash and cash equivalents at end of reporting period $ 518,983,108 $ 510,764,312
The accompanying notes are an integral part of these consolidated financial statements.
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MEGA FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2017 AND 2016 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, UNLESS OTHERWISE INDICATED)
1. ORGANIZATION AND OPERATIONS (1) CTB Financial Holding Co., Ltd. was incorporated as a company limited by shares under the provisions of the Company Law of the Republic of China (R.O.C.), and was formed by Chiao Tung Bank Co., Ltd. (“CTB”) and International Securities Co., Ltd. (“IS”) through a share swap on February 4, 2002 pursuant to the Financial Holding Company Act and other related laws. The Company’s shares have been publicly traded on the Taiwan Stock Exchange since February 4, 2002. On August 22, 2002, the Company further acquired Chung Hsing Bills Finance Corporation and Barits Securities Co., Ltd. (“BS”) (which later merged with IS on January 31, 2003, with IS being the surviving entity and was later renamed Barits International Securities Co., Ltd. (“BIS”) as one of the subsidiaries of the Company through a second share swap. On December 31, 2002, the Company also acquired 100% equity stock in both International Commercial Bank of China (“ICBC”), an investee of the Company originally accounted for by the equity method with a 28% equity interest, and Chung Kuo Insurance Co., Ltd. (“CKI”) through a further share swap and changed its name from CTB Financial Holding Co., Ltd. to Mega Financial Holding Co., Ltd. (the “Company”). During the period from 2003 to 2005, the Company had made investments in Mega Asset Management Co., Ltd. (“MAM”), Mega Investment Trust Co., Ltd. (“MITC”), Mega Life Insurance Agency Co., Ltd. (“MLIAC”) and Mega CTB Venture Capital Co., Ltd. (“Mega CTB Venture Capital”). On May 23, 2006, International Investment Trust Co., Ltd. (“IIT”) was acquired by the Company and ICBC through cash injection of capital. (2) In order to expand the economic scale of its business operations, two of the Company’s subsidiaries, CTB and ICBC, entered into a merger agreement, effective from August 21, 2006, which is to be implemented by way of “absorption”, with CTB being the dissolving bank and ICBC, later renamed Mega International Commercial Bank Co., Ltd. being the surviving bank. In addition, IIT and MITC entered into a merger agreement, with MITC as the dissolving company and IIT simultaneously renamed Mega International Investment Trust Co., Ltd., being the surviving company, effective from September 17, 2007. (3) The number of employees of the Company and its subsidiaries (collectively referred herein as the “Group ”) was 8,513 and 8,281 as of June 30, 2017and 2016, respectively. (4) The Company is mainly engaged in investment activities approved by the governing authorities and management of the investee companies. 2. THE DATE OF AUTHORISATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORISATION These consolidated financial statements were reported to the Board of Directors and issued on August 29, 2017.
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3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS (1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”) New standards, interpretations and amendments endorsed by FSC effective from 2017 are as follows: Effective Date by International Accounting New Standards, Interpretations and Amendments Standards Board
Investment entities: applying the consolidation exception (amendments January 1, 2016 to IFRS 10, IFRS 12 and IAS 28)
Accounting for acquisition of interests in joint operations (amendments January 1, 2016 to IFRS 11)
IFRS 14, 'Regulatory deferral accounts' January 1, 2016
Disclosure initiative (amendments to IAS 1) January 1, 2016
Clarification of acceptable methods of depreciation and amortisation January 1, 2016 (amendments to IAS 16 and IAS 38)
Agriculture: bearer plants (amendments to IAS 16 and IAS 41) January 1, 2016
Defined benefit plans: employee contributions (amendments to IAS July 1, 2014 19R)
Equity method in separate financial statements (amendments to IAS January 1, 2016 27)
Recoverable amount disclosures for non-financial assets (amendments January 1, 2014 to IAS 36)
Novation of derivatives and continuation of hedge accounting January 1, 2014 (amendments to IAS 39)
IFRIC 21, ‘Levies’ January 1, 2014
Improvements to IFRSs 2010-2012 July 1, 2014
Improvements to IFRSs 2011-2013 July 1, 2014
Improvements to IFRSs 2012-2014 January 1, 2016
As of the date the consolidated financial statements were issued, the above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment. (2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Group
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New standards, interpretations and amendments endorsed by the FSC effective from 2018 are as follows: Effective Date by International Accounting New Standards, Interpretations and Amendments Standards Board
Classification and measurement of share-based payment transactions January 1, 2018 (amendments to IFRS 2)
Applying IFRS 9 ‘Financial instruments’ with IFRS 4 ‘Insurance January 1, 2018 contracts’ (amendments to IFRS 4)
IFRS 9, ‘Financial instruments' January 1, 2018
IFRS 15, ‘Revenue from contracts with customers' January 1, 2018
Clarifications to IFRS 15, ‘Revenue from contracts with customers' January 1, 2018 (amendments to IFRS 15)
Disclosure initiative (amendments to IAS 7) January 1, 2017
Recognition of deferred tax assets for unrealised losses (amendments to January 1, 2017 IAS 12)
Transfers of investment property (amendments to IAS 40) January 1, 2018
IFRIC 22, ‘Foreign currency transactions and advance consideration’ January 1, 2018
Annual improvements to IFRSs 2014-2016 cycle- Amendments to IFRS January 1, 2018 1, ‘First-time adoption of International Financial Reporting Standards’
Annual improvements to IFRSs 2014-2016 cycle- Amendments to IFRS January 1, 2017 12, ‘Disclosure of interests in other entities’
Annual improvements to IFRSs 2014-2016 cycle- Amendments to IAS January 1, 2018 28, ‘Investments in associates and joint ventures’
Except for the following, the application of the above-mentioned new standards, interpretations and amendments is not likely to result in a material change in the accounting policy of the Group: A. Amendments to IFRS 4, ‘Applying IFRS 9 Financial instruments with IFRS 4 Insurance contracts’ to address the concerns about the different effective dates of IFRS 9, ‘Financial instruments’, and the forthcoming new standard IFRS 4, ‘Insurance contract’, which may result in different bases for measuring assets and liabilities, this amendment allows insurers who meet specific requirements as set out in IFRS 4, ‘Insurance contract’ to adopt temporary exemption from IFRS 9, ‘Financial instruments’, or to use overlay approach under IFRS 9, ‘Financial instruments’ alternatively. B. IFRS 9,‘Financial instruments’ (a) Classification of debt instruments is driven by the entity’s business model and the contractual cash flow characteristics of the financial assets, which would be classified
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as financial asset at fair value through profit or loss, financial asset measured at fair value through other comprehensive income or financial asset measured at amortised cost. Equity instruments would be classified as financial asset at fair value through profit or loss, unless an entity makes an irrevocable election at inception to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument that is not held for trading. (b) The impairment losses of debt instruments are assessed using an ‘expected credit loss’ approach. An entity assesses at each balance sheet date whether there has been a significant increase in credit risk on that instrument since initial recognition to recognise 12-month expected credit losses or lifetime expected credit losses (interest revenue would be calculated on the gross carrying amount of the asset before impairment losses occurred); or if the instrument that has objective evidence of impairment, interest revenue after the impairment would be calculated on the book value of net carrying amount (i.e. net of credit allowance). The Company shall always measure the loss allowance at an amount equal to lifetime expected credit losses for trade receivables that do not contain a significant financing component.
(c) The amended general hedge accounting requirements align hedge accounting more closely with an entity’s risk management strategy. Risk components of non-financial items and a group of items can be designated as hedged items. The standard relaxes the requirements for hedge effectiveness, removing the 80-125% bright line, and introduces the concept of ‘rebalancing’; while its risk management objective remains unchanged, an entity shall rebalance the hedged item or the hedging instrument for the purpose of maintaining the hedge ratio. C. IFRS 15 "Revenue from contracts with customers" IFRS 15 "Revenue from contracts with customers" replaces IAS 11 "Construction contracts", IAS 18 "Revenue" and relevant interpretations. According to IFRS 15, revenue is recognised when a customer obtains control of promised goods or services. A customer obtains control of goods or services when a customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: Step 1: Identify contracts with customer. Step 2: Identify separate performance obligations in the contract(s). Step 3: Determine the transaction price. Step 4: Allocate the transaction price. Step 5: Recognise revenue when the performance obligation is satisfied. Further, IFRS 15 includes a set of comprehensive disclosure requirements that requires an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
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(3) IFRSs issued by IASB but not yet endorsed by the FSC New standards, interpretations and amendments issued by IASB but not yet included in the IFRSs endorsed by the FSC are as follows: Effective Date by International Accounting New Standards, Interpretations and Amendments Standards Board
Sale or contribution of assets between an investor and its associate or To be determined by joint venture (amendments to IFRS 10 and IAS 28) International Accounting Standards Board
IFRS 16, 'Leases' January 1, 2019
IFRS 17, 'Insurance contracts' January 1, 2021
IFRIC 23, ‘Uncertainty over income tax treatments’ January 1, 2019
Except for the following, the application of the above-mentioned new standards, interpretations and amendments is not likely to result in a material change in the accounting policy of the Group: IFRS 16, 'Leases' IFRS 16, 'Leases', replaces IAS 17, 'Leases' and related interpretations and SICs. The standard requires lessees to recognise a 'right-of-use asset' and a lease liability (except for those leases with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in these consolidated financial statements are set out below. These accounting policies set out below have been consistently applied to all the periods presented in consolidated financial statements, unless otherwise stated. (1) Compliance statement The accompanying consolidated financial statements of the Group are prepared in conformity with 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 Publicly Held Bills Finance Companies”, “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 Enterprises Engaging in Insurance”, and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations and IAS 34, “Interim Financial Reporting” as endorsed by the FSC (collectively referred herein as the “IFRSs”). (2) Basis for preparation A. The consolidated financial statements consist of the consolidated balance sheet, consolidated statement of comprehensive income (showing components of profit or loss and components of other comprehensive income.), consolidated statement of changes in equity, consolidated
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statement of cash flows and the related notes. B. Except for financial assets and financial liabilities (including derivative instruments) recognised at fair value, defined benefit liabilities recognised based on the net amount of pension fund assets less present value of defined benefit obligation, and insurance liabilities and reinsurance reserve assets measured based on the laws and regulations of the insurance industry, and these consolidated financial statements have been prepared under the historical cost convention. C. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5. (3) Basis for preparation of consolidated financial statements A. The Group prepares the consolidated financial statements by aggregating the Company’s and its subsidiaries’ assets, liabilities, revenues and gains, and expenses and losses accounts, which have been eliminated versus owners’ equity during the consolidation. In addition, the Group’s financial statements are prepared in the same reporting period. The accounts on the accompanying consolidated financial statements are not categorized into current and non- current items. The related accounts are properly categorized according to the nature of each accounts, and sequenced by their liquidity.
B. The names of the subsidiaries that are included in the consolidated financial statements and the percentage of Company’s ownership in each subsidiary are set forth below:
Ownership (%) Investor Subsidiary June 30, 2017 December 31, 2016 June 30, 2016 Remark Mega International Commercial Bank Co., Ltd The Company 100.00 100.00 100.00 Note 1 (“MICB”) The Company Mega Securities Co., Ltd (“MS”) 100.00 100.00 100.00 Note 2 The Company Mega Bills Finance Co., Ltd (“MBF”) 100.00 100.00 100.00 Note 3 Mega International Investment Trust Co., Ltd The Company 100.00 100.00 100.00 Note 4 (“MITC”) The Company Chung Kuo Insurance Co., Ltd (“CKI”) 100.00 100.00 100.00 Note 5 The Company Mega Asset Management Co., Ltd (“MAM”) 100.00 100.00 100.00 Note 6 The Company Mega Venture Capital 100.00 100.00 100.00 Note 7 The Company Mega Life Insurance Agency Co., Ltd. 100.00 100.00 100.00 Note 8 Mega International Commercial Bank (Canada) MICB 100.00 100.00 100.00 Note 9 (“MICB Canada”) Mega International Commercial Bank Public Co., Ltd MICB 100.00 100.00 100.00 Note 10 (“MICBPC”) MS Mega Securities Holding Co., Ltd (“MHL”) - 100.00 100.00 Note 11 MS Mega Futures Co., Ltd (“MF”) 100.00 100.00 100.00 Note 12 Mega International Securities Investment Consulting MS 100.00 100.00 100.00 Note 13 Co.Ltd. MHL Mega Securities (Hong Kong) Co., Ltd. - - 100.00 Note 14 MICB, MS and Mega I Venture Capital 40.00 40.00 40.00 Note 15 CKI (1) MICB is mainly engaged in extending medium-term and long-term loans, equity and venture capital investments,international banking and trust related business. In line with the government’s economic policy and economic development programs, MICB also assists major industries in developing strategies for improving the industrial infrastructure and promotes industrial development of ROC. (2) Principal activities of MS include underwriting, brokerage and proprietary trading of securities, margin trading of securities and bills, issuance of stock warrants, brokerage of overseas securities, and proprietary trading of futures.
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(3) MBF is mainly engaged in proprietary trading, brokerage and underwriting of short-term notes and bills and financial bonds, provision of guarantees for short-term notes and bills, arrangement of inter-bank call loans, corporate financial consulting and proprietary trading of government bonds and corporate bonds. (4) MITC is primarily engaged in investment trust related businesses. (5) CKI is primarily engaged in general insurance business. (6) MAM is primarily engaged in purchases, evaluations, auctions, and management of financial institutions’ loan assets. (7) Mega Venture Capital is primarily engaged in venture capital investments as well as providing operational, managerial and consulting services. (8) Mega Life Insurance Agency Co., Ltd. is primarily engaged in the business of life insurance agency. (9) MICB Canada is mainly engaged in accepting deposits, extension of credits, negotiation of import/export bills, collections and foreign exchange related businesses. (10) MICBPC is mainly engaged in accepting deposits, negotiation of import/export bills, collections and exchange of foreign currencies and extension of credits. (11) MHL is mainly involved in asset management and venture capital activities. (12) Mega Futures Co., Ltd. (“MF”) is mainly engaged in brokerage of domestic and foreign futures trading, and settlement and consulting services for domestic futures trading. (13) Mega International Securities Investment Consulting Co., Ltd. is 100% owned by MS, and is mainly engaged in investment consulting services. (14) On March 7, 2016, the Board of Directors resolved the subsidiary,MS and the sub-subsidiary,MHL to sell all shares of Mega Securities (Hong Kong) Co., Ltd. The disposal has been approved by FSC on March 24, 2016 and has received the approval letter from Securities & Futures Commission of Hong Kong on July 14, 2016. The settlement has been completed on August 10, 2016. (15) Mega I Venture Capital is 40% owned jointly by MICB, MS and CKI with a total investment amount of $135 million. Mega I Venture Capital is primarily engaged in venture capital activities and it is regarded as a subsidiary in which the Company has control due to the Company’s significant influence over its financial, operational and personnel policies.
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C. Details of the Company’s subsidiaries that are not included in the consolidated financial statements are set forth below: Ownership (%) Investor Subsidiary June 30, 2017 December 31, 2016 June 30, 2016 Business Activities Cathay Investment & International investment and MICB Development Corporation 100.00 100.00 100.00 development activities (Bahamas) MICB Mega Management 100.00 100.00 100.00 Management consulting Consulting Corporation MICB Cathay Investment & 100.00 100.00 100.00 1. Warehousing Warehousing Ltd. 2. Manage and make the investment for the business in foreign trade business. MICB Ramlett Finance 100.00 100.00 100.00 Real estate investments Holdings Inc. MICB Yung Shing Industries Co. 99.56 99.56 99.56 Agency services for industrial and mining related businesses, import and export related businesses, services requested by customers MICB China Products Trading 68.27 68.27 68.27 Transportation and storage of farming Company products and by-products, and investments in the related businesses
Yung Shing Win Card Co., Ltd. 100.00 100.00 100.00 Business administration Industries Co. consulting,advertising,and management of past due accounts receivables Yung Shing ICBC Asset Management & 100.00 100.00 100.00 Investment consulting,corporate Industries Co. Consulting Co., Ltd. management consulting and venture investment management consulting As the individual total assets or operating revenue amounts of the above subsidiaries are immaterial, the accounts of these subsidiaries are not included in the Company’s consolidated financial statements although the Company holds more than 50% equity interest in these subsidiaries. The investments of certain subsidiaries are accounted for under equity method. D. Adjustments for subsidiaries with different balance sheet dates: None. E. Nature and extent of the restrictions on fund remittance from subsidiaries to the parent company: None. F. All subsidiaries are included in the Group’s consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries. G. Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. H. Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. Any difference between the amount by which the non-controlling interests are adjusted and the
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fair value of the consideration paid or received is recognised directly in equity. I. When the Group loses control of a subsidiary, the Group remeasures any investment retained in the former subsidiary at its fair value. Any difference between fair value and carrying amount is recognised in profit or loss. All amounts previously recognised in other comprehensive income in relation to the subsidiary are reclassified to profit or loss, on the same basis as would be required if the related assets or liabilities were disposed of. That is, when the Group loses control of a subsidiary, all gains or losses previously recognised in other comprehensive income in relation to the subsidiary should be reclassified from equity to profit or loss, if such gains or losses would be reclassified to profit or loss when the related assets or liabilities are disposed of. (4) Foreign currency translations A. Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in New Taiwan Dollars, which is the Company’s functional and the Group’s presentation currency. B. Transactions and balances The transactions denominated in foreign currency or to be settled in foreign currency are translated into a functional currency at the spot exchange rate between the functional currency and the underlying foreign currency on the date of the transaction. Foreign currency monetary items should be reported using the closing rate (market exchange rate) at the date of each balance sheet. When multiple exchange rates are available for use, they should be reported using the rate that would be used to settle the future cash flows of the foreign currency transactions or balances at the measurement date. Foreign currency non-monetary items measured at historical cost should be reported using the exchange rate at the date of the transaction. Foreign currency non-monetary items measured at fair value should be reported at the rate that existed when the fair values were determined. Exchange differences arising when foreign currency transactions are settled or when monetary items are translated at rates different from those at which they were translated when initially recognised or in previous financial statements are reported in profit or loss in the period, with one exception. The exception is that exchange differences associated with the gains or losses of the parts of effective hedges of cash flow hedges or hedges of net investments in foreign operations are recognised in other comprehensive income. If a gain or loss on a non-monetary item is recognised in other comprehensive income, any foreign exchange component of that gain or loss is also recognised in other comprehensive income. Conversely, if a gain or loss on a non-monetary item is recognised in profit or loss, any foreign exchange component of that gain or loss is also recognised in profit or loss. C. Entities in consolidated financial statements The operating results and financial position of all the Group’s entities in the consolidated financial statements that have a functional currency (which is not the currency of a hyperinflationary economy) different from the presentation currency are translated into the presentation currency as follows: (a) Assets and liabilities presented are translated at the Group’s closing exchange rate at
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the date of that balance sheet; (b) The profit and loss presented is translated by the average exchange rate in the period (except for the situation that the exchange rate on the trade date shall be adopted when the exchange rate fluctuate rapidly); and (c) All resulting exchange differences are recognised in other comprehensive income. The translation differences arising from above processes are recognised as ‘Exchange differences arising on translation of foreign operations’ under equity items. (5) Cash and cash equivalents “Cash and cash equivalents” in the consolidated balance sheet includes cash on hand, due from other banks, short-term highly liquid investments that are readily convertible to known amount of cash and subject to an insignificant risk of changes in value. In respect of the consolidated statements of cash flows, cash include cash and cash equivalents shown in the consolidated balance sheet, investments in bills and bonds under resale agreements satisfying the definition of cash and cash equivalents in IAS 7 as approved by FSC. (6) Bills and bonds under repurchase or resale agreements The transactions of bills and bonds with a condition of repurchase agreement or resell agreement are accounted for under the financing method. The interest expense and interest income are recognised as incurred at the date of sale and purchase and the agreed period of sale and purchase. The repo trade liabilities, bond liabilities, reverse repo trade bills and bond investments are recognised at the date of sale or purchase. (7) Financial assets or liabilities The financial assets and liabilities of the Group including derivatives are recognised in the consolidated balance sheet and are properly classified in accordance with IFRSs as endorsed by FSC. A. Financial assets IFRSs applies to the entire Group’s financial assets, which are classified into four categories: loans and receivables, financial assets at fair value through profit or loss, available-for-sale financial assets and held-to-maturity financial assets. (a) A regular way purchase or sale Financial assets that are purchased or sold on a regular way purchase or sale basis should be recognised and derecognised using trade date accounting or settlement date accounting. The uniform accounting principles should be applied in the accounting for purchase and sale of financial assets of the same type. All the Group’s financial assets are accounted for using trade date accounting. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. There are two types of loans and receivables: one is originated by the Group; the other is not originated by the Group. Loans and receivables originated by the entity refer to the direct provision by the Group of money, merchandise or services to debtors, and loans and receivables not originated by the Group are loans and receivables other than those originated by the Group.
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Loans and receivables are initially recognised at fair value, which includes the price of transaction, significant costs of transaction, significant handling fees paid or received, discount and premium, etc., and subsequently measured using the effective interest method. However if the effect of discount is insignificant, following the “Regulations Governing the Preparation of Financial Reports by Financial Holding Companies” and “Regulations Governing the Preparation of Financial Reports by Public Banks”, loans and receivables can be measured at initial amount. Interest accruing on loans and receivables is recognised as ‘interest revenue’. An impairment loss is recognised when there is an objective evidence of impairment on loans and receivables. Allowance for impairment is a deduction to carrying amount of loans and receivables, which is under the ‘allowance for bad debts and reserve for guarantee liabilities’ account. (c) Financial assets at fair value through profit or loss Financial assets are classified as financial assets at fair value through profit or loss if they are acquired principally for the purpose of selling or repurchasing or gaining profit in the short-term, or if they are derivative instruments. These financial assets are initially recognised at fair value. Financial assets that meet one of the following criteria are designated as at fair value through profit or loss on initial recognition: i. They eliminate or significantly reduce a measurement or recognition inconsistency such as measurement of financial assets or liabilities or recognition of related gain or loss on different bases; or ii. Their performance is evaluated on a fair value basis; or iii. Hybrid (combined) instruments including embedded derivative instruments. Any changes in fair value of financial assets at fair value through profit or loss and financial assets designated as at fair value through profit or loss on initial recognition are recognised under the ‘gain/loss on financial assets and liabilities at fair value through profit or loss’ account in the consolidated statement of comprehensive income. (d) Held-to-maturity financial assets Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturity date that the Group has the positive intention and ability to hold to maturity other than those that meet the definition of loans and receivables, designated as available-for-sale financial assets and those that are designated as at fair value through profit or loss on initial recognition by subsidiaries. Interest accruing on held-to-maturity financial assets is recognised as ‘interest revenue’. An impairment loss is recognised when there is an objective evidence of impairment on financial assets. Impairment loss is a deduction to carrying amount of financial assets, which is recognised under the ‘impairment loss on financial assets’ account. (e) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are not classified in held-to- maturity financial assets, financial assets at fair value through profit or loss and loans and receivables. Financial assets and liabilities that are attributed to equity and debt investments on initial recognition are assessed at fair value. Transaction costs which are attributable to the acquisition should be capitalised.
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An impairment loss is recognised when there is an objective evidence of impairment. If financial assets have not been derecognised, accumulated impairment loss related to the financial assets that was previously recognised in other comprehensive income shall be reclassified to profit or loss. Impairment loss of an investment in an equity instrument recognised in profit or loss shall not be reversed through profit or loss. Any subsequent increases in fair value of an investment in an equity instrument are recognised in other comprehensive income. If the impairment loss of bond investments decreases with objective evidence indicating that an impairment loss has been incurred after the impairment is recognised, the impairment amount is reversed and recognised in current profit and loss. Equity instruments with no quoted price in an active market are initially recognised at fair value plus acquisition or issuance cost. The fair value can be reasonably estimated when the following criteria are met at the balance sheet date: (A) the variability in the range of reasonable fair value estimate is not significant for that equity instrument; or (B) probabilities of the various estimates within the range can be reasonably assessed and used in estimating fair value. (f) Other financial assets Other financial assets include investments in debt instruments without active market, overdue receivables not from lending, bill of exchange negotiated and financial assets measured at cost. i. Debt investments with no active market Investments in debt instruments without active market are initially recognised at fair value on the trade date plus transaction costs of acquisition or issuance. Disposal gain or loss is recognised when derecognised. Bond investments without active market are measured at amortised cost using the effective interest method. ii. Financial assets carried at cost Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured or derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are presented in ‘financial assets measured at cost’. iii. Purchase of obligor receivable Purchase of obligor receivable refers to the cost of acquisition of creditor’s right that is non-performing loan of financial institutions acquired by the Group but not collected yet less total price and other expenses paid for the acquisition. Related gain or loss on obligor receivable is recognised based on relevant regulations. Purchase of claim receivable is measured at amortised cost using effective interest rate based on intention of holding or at fair value through profit or loss. (g) Margin loans, short sale stock loans and securities borrowed For handling margin trading of securities business, margin loans extended to stock investors are recorded as “marginal receivables” under the “Receivables, net” account and the stocks purchased by the borrowers are held by the Company as collateral. The collateral is recorded in the memorandum account and is returned to the borrowers when the loans are repaid. Guarantee deposits received from stock investors on short sales are recorded as “margin
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deposits on short sales” under the “Payables” account. The proceeds from short sales (less the securities transaction tax, consignment trading service charges, and financing commission) are held as guarantee deposits which are recorded as “payables” on proceeds from short sales” under the “Payables” account. The stocks lent to the customers are recorded in the memorandum account. When the stocks are returned to the Company, the margin deposits and proceeds from the short sales are returned to the customers accordingly. Loans borrowed by the Company from other securities lenders when the Company has insufficient fund to conduct margin trading are recorded as “margin loans from other securities lenders” under the “Payables” account, and the stocks purchased by the borrowers are held as collateral. When the Company has insufficient stocks to conduct short selling, the guarantee deposits and collateral paid for the stocks borrowed from other securities lenders are recorded as “deposits paid to other securities lenders” under the “Receivables, net” account. The proceeds from short sales are then paid to the securities lenders as additional guarantees and are respectively recorded as “payables on proceeds from short sales” under the “Payables” account and “refinancing guarantees receivable” under the “Receivables, net” account. B. Financial liabilities Financial liabilities held by the Group comprise financial liabilities at fair value through profit or loss (including financial liabilities designated as at fair value through profit or loss on initial recognition) and financial liabilities measured at amortized cost. (a) Financial liabilities at fair value through profit or loss This category includes financial liabilities held for trading or financial liabilities designated as at fair value through profit or loss on initial recognition. A financial liability shall be classified as held for trading, if it is incurred principally for the purpose of repurchasing it in the near term; or on initial recognition is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. A derivative is also classified as held for trading, except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument. Financial liability held for trading also includes the obligations of delivery of financial assets borrowed by the seller. Above financial liability is shown as “financial liability at fair value through profit or loss” in the consolidated balance sheet. In relation to financial liabilities at fair value through profit and loss and those designated as financial liabilities at fair value through profit and loss at initial recognition, any change in fair value is recognised as “gain and loss on financial assets and liabilities at fair value through profit and loss” in the statement of comprehensive income. (b) Financial liabilities measured at amortised cost Liabilities not classified as financial liabilities at fair value through profit or loss and financial guarantee contracts are all included in financial liabilities carried at amortised cost.
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C. Derecognition of financial assets The Group derecognises a financial asset when one of the following conditions is met: (a) The contractual rights to receive cash flows from the financial asset expire; (b) The contractual rights to receive cash flows from the financial asset have been transferred and the Group has transferred substantially all risks and rewards of ownership of the financial asset; (c) The contractual rights to receive cash flows from the financial asset have been transferred. A financial liability is derecognised when the obligation under the liability specified in the contract is discharged or cancelled or expires. In case of securities lending or borrowing by the Group or provision of bonds or stocks as security for Repo trading, the Group does not derecognise the financial asset, because substantially all risks and rewards of ownership of the financial asset are still retained in the Group. (8) Offsetting financial instruments Financial assets and liabilities are offset and reported in the net amount in the balance sheet when (A) there is a legally enforceable right to offset the recognised amounts and (B) there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. (9) Loans and receivables-evaluation, provision and reversal of impairment losses A. The Group would presume that a financial asset or a group of financial assets is impaired and recognise the impairment losses only if there is objective evidence that a financial asset or a group of financial assets is impaired as a result of a loss event that occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets. B. The criteria that the Group uses to determine whether there is objective evidence of an impairment loss is as follows: (a) Significant financial difficulty of the issuer or debtor; (b) A breach of contract, such as a default or delinquency in interest or principal payments; (c) The Group, for economic or legal reasons relating to the borrower’s financial difficulty, granted the borrower a concession that a lender would not otherwise consider; (d) It becomes probable that the borrower will enter bankruptcy or other financial reorganisation; (e) The disappearance of an active market for that financial asset because of financial difficulties; (f) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial asset in the group, including adverse changes in the payment status of borrowers in the group or national or local economic conditions that correlate with defaults on the assets in the group; (g) Information about significant changes with an adverse effect that have taken place in
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the technology, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered; (h) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost; and (i) Cases that meet the self-made evaluation items of the Group. C. The assessment methods of impairment on loans and receivables are based on two categories: individual and collective assessments. Individual assessments are classified as different groups based on whether there is objective evidence of significant impairment of the asset or whether the individual asset has to be specially supervised. If no objective evidence of impairment exists for an individually assessed financial asset, the asset will be classified into a group of financial assets with similar credit risk characteristics for collective assessments. D. After assessed impairment of loans and receivables, the Group recognises’ impairment loss measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows of credit enhancement factors discounted at the asset’s original effective interest rate. The credit enhancement factors include financial guarantee and net of collateral. If, in a subsequent period, the amount of the impairment loss decreased and such decrease is objectively related to an event occurred after the impairment was recognised, the amount of impairment loss recognised previously shall be reserved by adjusting allowance for doubtful debts. The reversal shall not cause a carrying amount of the financial asset exceeds the amortised cost of the period before recognition of the impairment loss. The amount of the reversal shall be recognised in profit or loss. E. Above-mentioned assessments on loans and receivables are performed in accordance with “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrual Loans” as issued by the FSC, as well as “Financial- Supervisory-Banks Letter No. 10410001840” issued on April 23, 2015 relating to the strengthening of domestic banks’ risk endurance to management of exposures in China. F. Equity investments carried at cost The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at current market return rate of similar financial asset, and is recognised in profit or loss. Impairment loss recognised for this category shall not be reversed subsequently. Impairment loss is recognised by adjusting the carrying amount of the asset directly. (10) Derivatives Derivatives are initially recognised at fair value at the contract date and subsequently measured by fair value. The fair value includes the public quotation in an active market or the latest trade price (e.g., Exchange-traded options), and evaluation techniques such as cash flow discounting model or option pricing model (e.g., Swap contract and foreign exchange contracts). All derivatives are recognised as assets when the fair value is positive and as liabilities when the fair value is negative. Hybrid contract refers to financial instruments of the embedded derivatives. Economic characteristics and risks of the embedded derivatives and the economic characteristics of the main contract should be examined for the embedded derivatives. If the two are not closely correlated and the main contract is not a financial asset or liability at fair value through profit and loss, the main contract and embedded derivatives should be respectively recognised unless
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the overall hybrid contract is designated as assets or liabilities at fair value through profit and loss. The embedded derivatives are the financial assets or liabilities at fair value through profit and loss. (11) Equity investments accounted for under the equity method A. Associates are all entities over which the Group has significant influence but not control. In general, it is presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 percent or more of the voting power of the investee. Investments in associates are accounted for using the equity method and are initially recognised at cost. B. The Group’s share of its associates’ post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate. C. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been adjusted where necessary to ensure consistency with the policies adopted by the Group. D. When changes in an associate’s equity that are not recognised in profit or loss or other comprehensive income of the associate and such changes not affecting the Group’s ownership percentage of the associate, the Group recognises the Group’s share of change in equity of the associate in ‘capital surplus’ in proportion to its ownership. E. When the Group disposes its investment in an associate, if it loses significant influence over this associate, the amounts previously recognised in other comprehensive income in relation to the associate, are reclassified to profit or loss, on the same basis as would be required if the relevant assets or liabilities were disposed of. If it still retains significant influence over this associate, then the amounts previously recognised in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately in accordance with the aforementioned approach. (12) Property and equipment The property and equipment of the Group are recognised on the basis of the historical cost less accumulated depreciation. Historical cost includes all costs directly attributable to the acquisition of the assets. Such assets are subsequently measured using the cost model. If the future economic benefit generated from subsequent expenses of the asset can be measured reliably and is very likely to flow into the Group, the subsequent expenses of property and equipment may be individually recognised as an asset or included in the carrying amount of the asset. The carrying amount of the replaced part is derecognised. Significant renewals and improvements incurred to increase the future economic benefits of the assets are capitalised. Routine maintenance and repairs are charged to expense as incurred. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each balance sheet date. If expectations for the assets’ residual values and useful lives differ from previous estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have changed significantly, any change is accounted
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for as a change in estimate under IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, from the date of the change. The estimated useful lives of property, plant and equipment are as follows: Item Years Buildings and structures 1~60 Equipment 1~20 Leasehold improvements 1~10 (13) Operating leases Lease income from an operating lease (net of any incentives given to the lessee) is recognised in profit or loss on a straight-line basis over the lease term. (14) Investment property The properties held by the Group, with an intention to obtain long-term rental profit or capital increase or both and not being used by any other enterprises of the consolidated entities, are classified as investment property. Investment property includes the office building and land leased out in a form of operating lease. Part of the property may be held by the Group and the remaining will be used to generate rental income or capital appreciation. If the property held by the Group can be sold individually, then the accounting treatment should be made respectively. IAS 16 as endorsed by the FSC applies to the self-use property, and property used to generate rental income or capital appreciation or both is applicable for investment property set out in IAS 40 as endorsed by the FSC. If each part of the property cannot be sold individually and the self-use proportion is not material, then the property is deemed as investment property in its entirety. When the future economic benefit related to the investment property is highly likely to flow into the Group and the costs can be reliably measured, the investment property shall be recognised as assets. When the future economic benefit generated from subsequent costs is highly likely to flow into the entity and the costs can be reliably measured, the subsequent expenses of the assets shall be capitalised. All maintenance cost are recognised as incurred in the consolidated statement of comprehensive income. Investment property is subsequently measured using the cost model. Depreciated cost is used to calculate depreciation expense after initial measurement. The depreciation method, remaining useful life and residual value should apply the same rules as applicable for property and equipment. (15) Intangible assets Intangible assets of Group, mainly computer software, is stated at cost and amortised on a straight-line basis over their estimated useful lives of 1 to 10 years. (16) Foreclosed properties Foreclosed properties are stated at the lower of its carrying amount or fair value less costs to sell at the end of period. (17) Impairment of non-financial assets The Group assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount
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is the higher of an asset’s fair value less costs to sell or value in use. Except for goodwill, when the circumstances or reasons for recognising impairment loss for an asset in prior years no longer exist or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortised historical cost would have been if the impairment had not been recognised. (18) Provisions for liabilities, contingent liabilities and contingent assets A. When all the following criteria are met, the Group shall recognise a provision (a) A present obligation (legal or constructive) as a result of a past event; (b) It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) The amount of the obligation can be reliably estimated. If there are several similar obligations, the outflow of economic benefit as a result of settlement is determined based on the overall obligation. Provisions for liabilities should be recognised when the outflow of economic benefits is probable in order to settle the obligation as a whole even if the outflow of economic benefits from any one of the obligation is remote. Provisions are measured by the present value of expense which is required for settling the anticipated obligation. The pre-tax discount rate is used with timely adjustment that reflects the current market assessments on the time value of money and the risks specific to the obligation. B. Contingent liability is a possible obligation that arises from past event, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. Or it could be a present obligation as a result of past event but the payment is not probable or the amount cannot be measured reliably. The Group did not recognise any contingent liabilities but made appropriate disclosure in compliance with relevant regulations. C. Contingent asset is a possible obligation that arises from past event, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. The Group did not recognise any contingent assets and made appropriate disclosure in compliance with relevant regulations when the economic inflow is probable. D. Valuation basis for various insurance liabilities Insurance liabilities of subsidiaries are dealt with following the “Regulations Governing the Setting Aside of Various Reserves by Insurance Enterprises”, “Regulations Governing Reserve for Compulsory Automobile Liability Insurance and Related Administration”, “Regulations Governing Various Reserves for Nuclear Power Insurance”, “Regulations Governing Risk Dispersing Mechanism for Residential Earthquake Insurance”, “Regulations Governing Reserves for the Members of the Enhance Residential Earthquake Insurance Joint Institute”, “Regulations Governing Various Reserves for Commercial Earthquake Insurance and Typhoon/flood Insurance” and “Regulations Governing Reserve for Natural Disaster by Property Insurance Industry” of regulatory authorities, and shall be certified by actuary authorised by the Financial Supervisory Commission. Except for special reserve, the provisions for reserves could also apply to assumed reinsurance and ceded reinsurance.
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Except for the provision of reserves for one-year group life accident insurance which is the higher of actual insurance premium or insurance premium calculated based on the Tai-Cai- Bao Letter No. 852367814, other insurance liabilities are provided based on the following bases: (a) Unearned premium reserve Unearned premium reserve is provided based on various risk calculation for effective contracts yet to mature or covered risks yet to terminate in the coverage period, unless otherwise provided by laws or regulations, it is determined by actuary according to various risk characteristics. (b) Claims reserve Claims reserves are provided based on claim experience and expenses of various insurance types and are calculated with methods based on actuarial principles. Reserves are provided for Claims Reported but Not Paid and Claims Incurred but Not Reported. For Reported but Not Paid Claims, a reserve has been provided on a per- policy-claim-report basis for each type of insurance. (c) Special reserve Special reserves for retained businesses include “Significant Peril Special Reserve” and “Risk Variation Special Reserve”. Except for compulsory automobile liability insurance, nuclear power insurance, residential earthquake insurance and commercial earthquake insurance and typhoon/flood insurance that have another regulations requiring reserves for them to be recognised in ‘liabilities’, the additional special reserve provision for each year calculated less income tax is listed as special reserve under equity. The deficiency less income tax for each year shall be written off or recovered using special reserves under equity. (d) Deficiency reserve Potential claims and expenses are estimated for effective contracts yet to mature or covered risks yet to terminate in the coverage period. The estimated amount, including the premium deficiency reserve based on the difference between claim reserves/expenses, and unearned premium reserve and the expected premium income shall be recognised. (e) Liability adequacy reserve In accordance with IFRS 4, ‘Insurance Contracts’ and the regulations of The Actuarial Institute Of The Republic Of China, liability adequacy test is performed using the gross premium valuation based on all contracts of the Company as a whole. At the end of the reporting period, liability adequacy reserve is provided for all deficiency in net carrying amount and recognised in profit or loss, through comparison between the net carrying amounts of insurance liabilities less deferred acquisition cost and related intangible assets and the present value of estimated future cash flows of insurance contracts. (f) Unqualified reinsurance reserve Unqualified reinsurance reserves of received and ceded reinsurance business under ceded reinsurance and other risk assumption mechanism on the ceded date or balance sheet date shall be reserved and disclosed in the notes to the financial statements.
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Among the reserves above, except for unearned premium reserve for long-term fire insurance which was calculated and provided based on the coefficient table of unearned premium reserve for long-term fire insurance, the other reserves were not calculated by discounting. (19) Financial guarantee contracts A financial guarantee contract is a contract that requires the Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. The Group initially recognises financial guarantee contracts at fair value on the date of issuance. The Group charges a service fee when the contract is signed and therefore the service fee income charged is the fair value at the date that the financial guarantee contract is signed. Service fee received in advance is recognised in deferred accounts and amortized through straight-line method during the contract term. Subsequently, the Group should measure the financial guarantee contract issued at the higher of: A. The amount determined in accordance with IAS 37; and B. The amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18, “Revenue”. The best estimate of the liability amount of a financial guarantee contract requires management to exercise their judgment combined with historical loss data based on the similar transaction experiences. The increase in liabilities due to financial guarantee contract is recognised in “bad debts expense and reserve for guarantee liabilities”. The Group assesses the possible loss on credit assets within and off balance sheets in accordance with “Regulations Governing the Procedures for Bills Finance Companies to Evaluate Assets, Set Aside Loss Reserves, and Handle Non-Performing Credit, Non-Accrual Loans, and Bad Debts”, and provides adequate reserve for guarantee liabilities. (20) Employee benefits A. Short-term employee benefits The Group should recognise the undiscounted amount of the short-term benefits expected to be paid in the future as expenses in the period when the employees render service. B. Employee preferential savings The Group provides preferential interest rate for employees, including flat referential savings for current employees and flat preferential saving for retired employees and current employees. The difference gap compared to market interest rate is deemed as employee benefits. According to “Regulation Governing the Preparation of Financial Statements by Public Banks”, the preferential monthly interest paid to current employees is calculated based on accrual basis, and the difference between the preferential interest rate and the market interest rate is recognised under “employee benefit expense”. According to Article 30 of “Regulation Governing the Preparation of Financial Statements by Public Banks”, the excess interest arising from the interest rate upon retirement agreed with the employees in excess of general market interest rate should be recognised in accordance with IAS 19,
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Defined Benefit Plan, as endorsed by FSC. Relevant past service costs will be recognised immediately in the period incurred. However, various parameters should be in compliance with the competent authority if indicated otherwise. Any resulting actuarial gains and losses should be recognised in other comprehensive income in the period incurred. Please refer to Note 6 (23) 2 for more information. C. Termination benefits Termination benefit is paid to the employees who are eligible for retirement and terminated or voluntarily dismiss in exchange of termination benefit. The Group has made promises in the formal detailed employment termination plan which is irrevocable, and shall recognise liabilities when providing termination benefit to employees who voluntarily resign as a result of encouragement. Termination benefit paid 12 months after the financial reporting date should be discounted. D. Post-employment benefit The pension plan of the Group includes both Defined Benefit Plan and Defined Contribution Plan. In addition, defined contribution plan is adopted for employees working overseas according to the local regulations. (a) Defined contribution plans The contributions are recognised as pension expenses when they are due on an accrual basis. Prepaid pension assets are recognised to the extent of a cash refund or a reduction in the future payments. (b) Defined benefit plans i. Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Group in current period or prior periods. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised past service costs. The defined benefit net obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using market yields at the balance sheet date on high-quality corporate bonds with a currency and term consistent with the currency and term of the related pension liability; when there is no deep market in high-quality corporate bonds, the Group uses market yields on government bonds (at the balance sheet date) instead. ii. Actuarial gains and losses arising on defined benefit plans are recognised in other comprehensive income in the period in which they arise. iii. Past service costs are recognised immediately in profit or loss if vested immediately. iv. Pension cost for the interim period is calculated on a year-to-date basis by using the pension cost rate derived from the actuarial valuation at the end of the prior financial year, adjusted for significant market fluctuations since that time and for significant curtailments, settlements, or other significant one-off events. And, the related information is disclosed accordingly.
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E. Employees’ compensation and directors’ and supervisors’ remuneration Employees’ compensation and directors’ and supervisors’ remuneration are recognised as expenses and liabilities, provided that such recognition is required under legal obligation or constructive obligation and those amounts can be reliably estimated. Any difference between the resolved amounts and the subsequently actual distributed amounts is accounted for as changes in estimates. (21) Employee share-based payment For the equity-settled share-based payment arrangements, the employee services received are measured at the fair value of the equity instruments granted at the grant date, and are recognised as compensation cost over the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted shall reflect the impact of market vesting conditions and non-market vesting conditions. Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of the number of equity instruments that are expected to vest under the non-market vesting conditions at each balance sheet date. And ultimately, the amount of compensation cost recognised is based on the number of equity instruments that eventually vest. (22) Revenue and expense Income and expense of the Group are recognised as incurred. Expense consists of employee benefit expense, depreciation and amortisation expense and other business and administration expenses. Dividend revenues are recognised within ‘Revenues other than interest, net’ in the consolidated statement of comprehensive income when the right to receive dividends is assured. A. Other than those classified as financial assets and liabilities at fair value through profit and loss, all the interest income and interest expenses generated from interest-bearing financial assets are calculated by effective interest rate according to relevant regulations and recognised as “interest income” and “interest expense” in the consolidated statement of comprehensive income. B. Service fee income and expense are recognised upon the completion of services of loans or other services; service fee earned from performing significant items shall be recognised upon the completion of the service, such as syndication loan service fee received from sponsor, service fee income and expense of subsequent services of loans are amortized or included in the calculation of effective interest rate of loans and receivables during the service period. When determining whether the agreed rate of interest should be adjusted to effective interest rate for interest-earning loans and receivables, the loans and receivables may be measured by the initial amounts if the effects on discount are insignificant according to the “Regulation Governing the Preparation of Financial Reports by Public Banks” and “Regulations Governing the Preparation of Financial Reports by Financial Holding Companies”. C. Income and expense of insurance business The premiums income derived from underwriting business is recognised in the period when the respective policies are issued. The associated expenses such as commissions, agency cost and service charges are recognised accordingly. Claims of direct coverage are recognised based on claims (including claim expenses) applied and paid during the period. Please refer to Note 4 (23) for related details of provision for liabilities.
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(23) Classification of insurance contracts A. In accordance with IFRS 4, ‘Insurance Contracts’, subsidiaries classify insurance products issued. An insurance contract is a “contract” under which one party (the insurer) accepts significant insurance risk transferred from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. Insurance contract defined above can be applied to original insurance contract and reinsurance contract. For the Group, significant insurance risk refers to the risk that the Group has to pay significant additional compensation when any insured event occurs. B. All direct insurance contracts issued or reinsurance contracts taken by subsidiaries during the financial statement period are insurance contracts. (24) Reinsurance contracts A. Revenues and expenses of inward and outward reinsurance business are recognised on the date the bills are received. Appropriate methods should be adopted in estimating payments and income arising from unrecognised reinsurance expense, such as revenues and expenses of reinsurance commission, revenues or expenses of reinsurance surcharge fee, and amortized claim and payment of reinsurance, etc., should all be recognised. Other relevant profit and loss of reinsurance are not deferrable. B. With the classification of reinsurance contract, the Group assesses the agreements under the deposit accounting given that the objective insurance risks of reinsurance agreements are not transferred to the reinsured. C. The Group evaluates whether privilege of reinsured is impaired or non-collectable on a regular basis and offers specifically the alternatives such as reinsurance reserve assets, reinsurance claims and payment receivables, reinsurance transaction receivables and outward insurance responsibility reserve fund. When objective evidence indicates that such option being exercised after the initial recognition will possibly lead to the Group being unable to collect all receivables on the contract, and the impact of the receivables from reinsured can be reliably measured with regard to the aforementioned event, a provision for accumulated loss will be recognised if the receivables do not exceed reinsurance reserve asset at book value. Recognition should be appropriately made according to the amount for amortisable claim, payment of reinsurance, reinsurance transaction receivables and non- collectable outward reinsurance reserve fund. (25) Income tax A. Current income tax Income tax payable (refundable) is calculated on the basis of the tax laws enacted in the countries where the Group operates and generates taxable income. Except that the transactions or other matters are directly recognised in other comprehensive income or equity, and that related income taxes in the period are recognised in other comprehensive income or directly derecognised from equity, all the others should be recognised as income or expense as recorded as gain and loss in the period. B. Deferred income tax Deferred income tax assets and liabilities are measured based on the tax rate of the anticipated period that the future assets realisation or the liabilities settlement requires, which is based on the effective or existing tax rate at the consolidated balance sheet date.
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The carrying amount and temporary differences of assets and liabilities included in the consolidated balance sheet are calculated through liability method and recognised as deferred income tax. The temporary difference of the Group mainly occurs due to the setting aside and transferring of depreciation of property and equipment, valuation of certain financial instruments (including derivatives), and reserve for pension and other post-employment benefits. Deductible temporary difference within the scope that is probable to offset taxable income is recognised as deferred income tax. Temporary difference related to investment in the subsidiaries, branches and affiliated entities are recognised as deferred income tax liabilities. However, when the Group is capable of controlling the time length required to reverse the temporary difference and the temporary difference is unlikely to reverse in the foreseeable future, the temporary difference is not recognised. The land revaluation appraisal occurring due to the revaluation assessment in line with relevant regulations, deemed as taxable temporary difference, is recognised as deferred income tax liabilities. If the future taxable income is probable to provide as unused loss carry forwards or deferred income tax credit which can be realised in the future, the proportion of realisation is deemed as deferred income tax assets. C. Current income tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are offset on the balance sheet when there is a legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realise the asset and settle the liability simultaneously. D. Certain transactions of the Group are recognised in other comprehensive income, such as change in unrealised gain and loss of available-for-sale financial assets and hedging transaction of cash flow. The tax effects on these kinds of transactions are also recognised in other comprehensive income. E. The interim period income tax expense is recognised based on the estimated average annual effective income tax rate expected for the full financial year applied to the pretax income of the interim period, and the related information is disclosed accordingly. (26) Share capital and dividends Net of incremental costs directly attributable to the issuance of new shares will be removed from equity after related income tax expenses is eliminated. Dividends on ordinary shares are recognised in equity in the period in which they are approved by the stockholders. Cash dividends are recorded as liabilities. Stock dividends are recorded as stock dividends to be distributed and are reclassified to ordinary shares on the effective date of new shares issuance. They are not recognised and only disclosed as subsequent event in the notes if the dividend declaration date is later than the consolidated balance sheet date. (27) Operating segments Information of operating segments of the Group is reported in the same method as the internal management report provided to the Chief Operating Decision-Maker (CODM). The CODM is in charge of allocating resources to operating segments and evaluating their performance.
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5. CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION UNCERTAINTY The preparation of these consolidated financial statements requires management to make critical judgments in applying the Group’s accounting policies and make critical assumptions and estimates concerning future events. These judgments affect the results of the financial reporting. The assumptions and estimates made by the Group are the best assumptions and estimates under the IFRSs. Assumptions and estimates are continually evaluated and adjusted based on historical experience and other factors including projections of the future. Management’s critical judgments in applying the Group’s accounting policies that have significant impact on the consolidated financial statements are outlined below:
(1) Financial instruments (including derivative instruments) valuation If there is no quoted market price available in an active market for financial instruments, a valuation technique will be adopted to measure the fair value. If there are observable data of similar financial instruments in the market, then the fair value of the underlying financial instruments is estimated by reference to the observable data; otherwise, the fair value is estimated using the appropriate pricing models which are commonly used in the market. The assumptions used in the pricing models should refer to the observable data in the market. However, when those data are not observable from the market and/or the assumptions used in the pricing models are more subjective, the fair value of the financial instruments may be estimated based on historical data or other information. The pricing models used by the Group are all evaluated and tested periodically to ensure the outputs may reflect the actual data and market prices.The primary assumptions used in determining the fair values of financial instruments are provided in Note 7. The management believes the pricing models and assumptions used have appropriately determined the fair values of financial instruments.
(2) Loan loss impairment The Group’s impairment evaluations are in compliance with the regulations of regulatory authorities. The Group evaluates cash flows and impairment amounts, through model analysis and individual case assessment, on a monthly basis based on several factors, such as nature of client risk and security coverage. The Group recognises impairment loss whenever there is observable evidence showing that impairment has occurred. This evidence includes repayment status of debtor, event that would cause delinquency in payments, and any significantly unfavorable changes in national or local economic circumstance. Future cash flows are estimated primarily based on the length of overdue time, the status of debtors, security coverage, guarantee of external institution and historical experiences. The incidence of impairment and subsequent collectability rate used in impairment evaluations are estimated based on the types of products and historical data. The Group reviews the assumptions and inputs used in impairment evaluations periodically to ensure they are all reasonable.
(3) Financial assets—impairment of equity investments The Group follows the guidance of IAS 39 to determine whether a financial asset—equity investment is impaired. This determination requires significant judgment. In making this judgement, the Group evaluates, among other factors, the duration and extent to which the fair value of an equity investment is less than its cost and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow. If the decline of the fair value of an individual equity investment below cost was considered
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significant or prolonged, the Group would suffer a loss in its financial statements, being the transfer of the accumulated fair value adjustments recognised in other comprehensive income on the impaired available-for-sale financial assets to profit or loss or being the recognition of the impairment loss on the impaired financial assets measured at cost in profit or loss.
(4) Post-employment benefit The present value of post-employment benefit obligations are estimated based on several assumptions. Any changes in those assumptions will affect the carrying amounts of post- employment benefit obligations. The assumptions used to determine net pension cost (revenue) comprise the discount rate. The Group determines the appropriate discount rate at the end of each year, and uses the discount rate in calculating the present value of future cash out of post-employment benefit obligations. The discount rate is chosen by reference to the rate of high-quality corporate bonds where the currency and maturity date of high-quality corporate bonds are in agreement with those of post-employment benefit obligations.
(5) Insurance liabilities and reinsurance reserve assets The critical accounting estimates and assumptions used for subsidiaries’ primary insurance contracts comprise liabilities of reserve for claims and assets of reserve for claims transferred to reinsurer. Reserve for claims is estimated based on the nature and extent of insurance risks, claim development mode, historical data, etc. and using the actuarial method used worldwide. The actuarial method is included in the insurance specification. The reserve for claims that are reported but not paid is estimated based on each case and the remaining is the reserve for claims not reported. Among the assets of reserve for claims transferred to reinsurer, the refund of claims that are reported but not paid is estimated based on individual reinsurance terms, and the refund of claims that are not reported is estimated based on the difference between the reserve for unpaid claims for original insurance and reinsurance and the reserve for unpaid claims for retained insurance business. 6. DETAILS OF SIGNIFICANT ACCOUNTS (1) Cash and cash equivalents June 30, 2017 December 31, 2016 June 30, 2016 Cash on hand and petty cash $ 15,207,814 $ 15,421,486 $ 15,079,324 Bank deposits 5,786,538 6,451,399 6,781,976 Cash equivalents 1,210,633 1,221,411 1,005,743 Checks for clearance 865,013 763,191 794,406 Due from banks 84,089,708 74,276,076 82,927,380 Subtotal 107,159,706 98,133,563 106,588,829 Less: Allowance for doubtful accounts –due from banks ( 2,242) ( 2,206) ( 2,228) $ 107,157,464 $ 98,131,357 $ 106,586,601 Total
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(2) Due from the Central Bank and call loans to banks June 30, 2017 December 31, 2016 June 30, 2016 January 1, 2016 Reserve for deposits-category A$ 28,990,630 $ 25,765,381 $ 24,698,297 $ 22,045,377 Reserve for deposits-category B 40,166,592 37,590,523 38,093,249 37,720,741 Reserve for deposits- general 288 305 306 312 Reserve for deposits- foreign 686,072 585,654 116,710 729,572 currency Deposits of overseas branches with foreign Central Banks 142,573,807 275,864,933 147,025,325 255,814,519 Interbank settlement fund of Fund Center (Note) 2,207,343 4,895,305 2,473,643 3,970,161 Call loans to banks and bank 302,602,243 188,357,264 309,162,422 174,084,623 overdrafts Import and export loans from banks 1,909,396 140,799 1,593,608 3,121,533 Participate in interbank financing with risk 2,120,186 6,811,578 5,589,974 5,780,241 Total$ 521,256,557 $ 540,011,742 $ 528,753,534 $ 503,267,079
(Note) In accordance with the Bank Law, financial holding companies are required to appropriate an interbank settlement fund and deposit it in the Central Bank for clearing purpose in the financial industry. The interbank settlement fund deposited in a special account in the Central Bank has been reclassified from ‘other prepayments’ to ‘due from the Central Bank and call loans to banks’. As of June 30 and January 1, 2016, the amount has been adjusted from $0 to $2,473,643 and $3,970,161, respectively. 1. As required by relevant laws, the reserves for deposits are calculated at required reserve ratios based on the monthly average balances of various deposit accounts. Reserve for deposits - category B cannot be used except upon the monthly adjustment of the reserve. 2. On June 30, 2017, December 31, 2016 and June 30 2016, reserve for deposits and call loans to banks of the Group that were in accordance to the definition of cash and cash equivalents under IAS 7, which included the total of the above-listed Reserve for deposit-category A, Reserve for deposit-general, Call loans to banks and bank overdrafts, Reserve for deposit- foreign currency and a portion of Deposit of overseas branches with foreign Central Banks that are highly liquid and readily convertible to cash, was $409,428,312 , $328,354,078 and $394,805,264, respectively.
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(3) Financial assets at fair value through profit or loss June 30, 2017 December 31, 2016 June 30, 2016 Financial assets held for trading Stocks $ 7,575,609 $ 4,557,071 $ 4,789,279 Commercial papers 88,362,369 96,877,807 96,136,864 Beneficiary certificates 356,339 233,762 754,164 Bank's acceptance bill 339,360 700,074 - Negotiable certificates of deposit 20,999,932 22,449,487 21,379,219 Bonds 48,228,323 52,763,031 61,394,531 Derivative instruments 3,284,191 4,027,243 5,672,733 Other securities 43,244 23,873 149,561 Subtotal 169,189,367 181,632,348 190,276,351 Financial assets designated as at fair value through profit or loss Convertible corporate bond asset swaps 3,937,332 4,685,025 5,417,604 $ 173,126,699 $ 186,317,373 $ 195,693,955 Total A. Gain or loss on financial assets and liabilities held for trading and financial assets and liabilities designated as at fair value through profit or loss for the six-month periods ended June 30, 2017 and 2016 are provided in Note 6(31). B. Please refer to Note 12 for details of the aforementioned financial assets provided as collaterals as of June 30, 2017, December 31, 2016 and June 30, 2016. C. As of June 30, 2017, December 31, 2016 and June 30, 2016, the above financial assets used as underlying assets for repurchase agreements held by the Group were $80,431,835, $99,978,257 and $105,600,102, respectively.
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(4) Receivables, net June 30, 2017 December 31, 2016 June 30, 2016 Accounts receivable$ 13,228,407 $ 14,353,025 $ 16,238,715 Factoring receivable 27,060,971 36,988,054 31,449,655 Notes receivable 174,517 152,712 151,002 Accrued income and interest 7,448,353 7,540,723 6,638,883 Acceptances receivable 8,239,841 8,240,037 8,607,920 Accounts receivable factoring-D/A - - 280,627 Insurance receivable 726,346 474,635 839,532 Margin loans and securities business money 10,312,140 9,162,663 9,257,657 lending receivable Recovery of accounts receivable 92,000 8,000 2,284,503 Purchase of obligor receivable for acting as 50,709 93,879 72,177 assignee Credit card receivables 5,628,115 4,452,488 5,185,834 Usance outright receivable 994,427 1,879,409 22,961,964 Call loans to the Central Bank receivable - - 3,551,239 Receivable accounts for settlement 7,906,840 4,014,210 6,736,737 Other receivables 1,792,390 1,382,045 491,908 Total 83,655,056 88,741,880 114,748,353 Less: Allowance for bad debts ( 1,714,024) ( 1,916,078) ( 1,561,261) Receivables, net $ 81,941,032 $ 86,825,802 $ 113,187,092 (5) Bills discounted and loans, net June 30, 2017 December 31, 2016 June 30, 2016 Bills and notes discounted$ 11,059 $ 14,859 $ 10,462 Overdrafts 3,068,546 1,977,856 2,117,863 Short-term loans 429,216,507 389,317,574 403,098,867 Medium-term loans 711,282,771 773,175,872 783,753,589 Long-term loans 561,066,804 563,521,555 556,478,429 Import/export bills negotiated 10,272,763 12,512,002 9,202,937 Loans transferred to non-accrual loans 2,740,046 1,453,280 1,706,964 Total 1,717,658,496 1,741,972,998 1,756,369,111 Less: Allowance for bad debts( 27,856,812) ( 26,694,232) ( 24,597,488) Loans, net$ 1,689,801,684 $ 1,715,278,766 $ 1,731,771,623
A. As of June 30, 2017, December 31, 2016 and June 30, 2016, the amounts of reclassified non- performing loans to overdue loans were $2,740,046, $1,453,280 and $1,706,964, including interest receivable of $8,791, $7,916 and $13,484, respectively. B. Movements in allowance for credit losses Information on the evaluations of impairment of the Group’s loans and receivables as of June 30, 2017, December 31, 2016 and June 30, 2016 was as follows:
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(a) Loans: Allowance for credit Loans losses Item June 30, 2017 June 30, 2017 With existing objective Individual evidence of individual $ 15,668,180 $ 2,824,684 assessment impairment Group 877,997 136,710 assessment Without existing objective Group evidence of individual 1,701,112,319 24,895,418 assessment impairment
Item December 31, 2016 December 31, 2016 With existing objective Individual evidence of individual $ 12,627,826 $ 2,938,804 assessment impairment Group 751,171 105,651 assessment Without existing objective Group evidence of individual 1,728,594,001 23,649,777 assessment impairment
Item June 30, 2016 June 30, 2016 With existing objective Individual evidence of individual $ 11,003,207 $ 2,542,313 assessment impairment Group 736,094 103,915 assessment Without existing objective Group evidence of individual 1,744,629,810 21,951,260 assessment impairment (b) Receivables: Allowance for credit Receivables losses Item June 30, 2017 June 30, 2017 With existing objective Individual evidence of individual $ 1,010,068 $ 654,810 assessment impairment Group 247,895 26,025 assessment Without existing objective Group evidence of individual 82,397,093 1,033,189 assessment impairment
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Item December 31, 2016 December 31, 2016 With existing objective Individual evidence of individual $ 932,328 $ 686,484 assessment impairment Group 405,866 34,693 assessment Without existing objective Group evidence of individual 87,403,686 1,194,902 assessment impairment
Item June 30, 2016 June 30, 2016 With existing objective Individual evidence of individual $ 410,888 $ 127,660 assessment impairment Group 262,655 27,291 assessment Without existing objective Group evidence of individual 114,074,810 1,406,310 assessment impairment The Group considers asset quality in respect of accounts receivable, bills discounted and loans, Non-accrual loans transferred from overdue receivables, and import and export loans from banks in the period in order to set aside appropriate allowance for bad debts. For the six-month periods ended June 30, 2017 and 2016, details of recognised allowance for bad debts and relevant movement are as follows: For the six-month period ended June 30, 2017 Non-accrual loans Accounts Bills discounted transferred Remittance receivable and loans from overdue acquired Total Balance at January 1, $ 1,916,078 $ 26,694,232 $ 18,356 $ 155 $ 28,628,821 (Reversal) provision ( 191,974) 1,062,237 462 ( 114) 870,611 Write-off-net ( 24,794) ( 713,625) - - ( 738,419) Recovery of written-off credits 43,086 955,704 ( 108) - 998,682 Effects of exchange rate changes and others ( 28,372) ( 141,736) 14,632 - ( 155,476) Balance at June 30, $ 1,714,024 $ 27,856,812 $ 33,342 $ 41 $ 29,604,219 For the six-month period ended June 30, 2016 Non-accrual loans transferred Accounts Bills discounted from Remittance receivable and loans overdue acquired Total Balance at January 1, $ 2,415,523 $ 23,466,229 $ 18,143 $ 113 $ 25,900,008 Provision (reversal) ( 837,399) 1,195,529 ( 6,496) 39 351,673 Write-off-net ( 92,632) ( 450,250) - - ( 542,882) Recovery of written-off credits 42,492 408,101 ( 43) - 450,550 Effects of exchange rate changes and others 33,277 ( 22,121) - - 11,156 Balance at June 30, $ 1,561,261 $ 24,597,488 $ 11,604 $ 152 $ 26,170,505
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(6) Reinsurance contract assets-net A. Details are as follows: June 30, 2017 December 31, 2016 June 30, 2016 Reinsurance claims and payment receivables$ 377,441 $ 382,882 $ 182,425 Reinsurance transaction receivables 297,380 190,418 210,590 Overdue reinsurance -Claims and payment receivables 83 687 30 -Transaction receivables 37,308 37,552 29,369 Less: Allowance for bad debts( 21,347) ( 19,384) ( 16,468) Subtotal 690,865 592,155 405,946 Reinsurance reserve assets Ceded unearned premium reserve 1,392,601 1,229,560 1,442,170 Ceded claim reserve 2,192,251 2,400,073 2,571,300 Ceded premium deficiency reserve 39,880 39,880 - Subtotal 3,624,732 3,669,513 4,013,470 Total $ 4,315,597 $ 4,261,668 $ 4,419,416 B. Changes in allowance for bad debts of reinsurance contract assets are as follows: For the six-month periods ended June 30, 2017 2016 Balance at January 1, $ 19,384 $ 9,808 Provision 4,801 6,672 Write-off-net ( 2,809) - Foreign currency translation adjustments ( 29) ( 12) Balance at June 30, $ 21,347 $ 16,468 (7) Available-for-sale financial assets, net June 30, 2017 December 31, 2016 June 30, 2016 Stocks $ 16,756,537 $ 15,455,885 $ 16,080,949 Commercial papers 46,088,262 24,623,320 43,652,252 Bonds 320,101,938 308,944,643 281,790,268 Beneficiary certificates 598,118 647,622 1,033,796 Beneficiary securities 511,329 1,028,194 1,078,691 Certificates of deposit 4,826,066 3,658,802 2,718,779 Treasury securities - 997,756 7,852,450 Subtotal 388,882,250 355,356,222 354,207,185 Less: Accumulated impairment( 436,082) ( 891,514) ( 927,552) Total $ 388,446,168 $ 354,464,708 $ 353,279,633 A. The Group has available-for-sale financial assets which consist of bonds and bills sold under repurchase agreements amounting to $124,142,902, $129,613,204 and $114,431,479 as of June 30, 2017, December 31, 2016 and June 30, 2016, respectively. B. The Company issued a second issue of domestic unsecured exchangeable bonds to obtain Taiwan Business Bank Co., Ltd.’s (herein referred to as “Taiwan Business Bank”) common shares. On April 16, 2013, all shares of the aforementioned Taiwan Business Bank common shares were entrusted to Hua Nan Commercial Bank, Ltd. by entering into a trust contract. For information regarding the Company’s issued bonds, please refer to the explanations in Note
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6(21). C. Please refer to Note 12 for details of the aforementioned financial assets provided as collateral as of June 30, 2017, December 31, 2016 and June 30, 2016. (8) Held-to-maturity financial assets, net June 30, 2017 December 31, 2016 June 30, 2016 Central Bank’s certificates of deposit$ 314,665,000 $ 246,125,000 $ 213,425,000 Bank’s certificates of deposit 9,834,271 12,937,145 11,891,250 Financial bonds 15,449,863 14,884,099 14,813,867 Government bonds 3,851,812 3,506,609 4,068,183 Corporate bonds 3,000,024 3,544,509 4,203,873 $ 346,800,970 $ 280,997,362 $ 248,402,173 Total A. Please refer to Note 12 for details of the aforementioned financial assets pledged as collateral as of June 30, 2017, December 31, 2016 and June 30, 2016. B. The Group recognised interest income of $576,776, $503,199, $1,089,740 and $991,503 on holding held-to-maturity financial assets for the three-month and six-month periods ended June 30, 2017 and 2016, respectively. (9) Equity investments accounted for under the equity method, net A. Details of the investments accounted for under the equity method: June 30, 2017 December 31, 2016 June 30, 2016 Percentage of Percentage of Percentage of Individually Immaterial Associates Amount shareholding Amount shareholding Amount shareholding Mega Management Consulting Corporation$ 49,219 100.00 $ 66,316 100.00 $ 75,103 100.00 Cathay Investment & Development Corporation (Bahamas) 57,036 100.00 60,195 100.00 58,101 100.00 Cathay Investment & Warehousing Ltd. 52,412 100.00 55,941 100.00 57,160 100.00 Ramlett Finance Holdings INC. 6,911 100.00 6,931 100.00 6,900 100.00 Yung Shing Industries Co. 660,891 99.56 690,960 99.56 662,158 99.56 China Products Trading Company 27,589 68.27 27,661 68.27 27,705 68.27 An Feng Enterprise Co., Ltd. 12,237 25.00 11,844 25.00 12,271 25.00 Taiwan Bills Finance Corporation 1,641,208 24.55 1,574,082 24.55 1,677,216 24.55 Ever Strong Iron & Foundry & Mfg. Corporation 44,262 22.22 43,457 22.22 42,274 22.22 Mega Growth Venture Capital Co., Ltd. 250,574 20.08 249,449 20.08 251,014 20.08 China Real Estate Management Co., Ltd. 184,051 20.00 183,507 20.00 191,801 20.00 Universal Venture Capital Investment Corporation 138,280 11.84 138,127 11.84 132,271 11.84 IP Funds Even Limited (Note) - - - - 1,364 25.00 Total $ 3,124,670 $ 3,108,470 $ 3,195,338 (Note) The company had been incurring operating losses for a long period of time. As a result, the stockholders at their meeting resolved to liquidate the company and scheduled the liquidation registration in year 2015. The liquidation process had been completed on August 18, 2016. B. The carrying amount of the Group’s interests in all individually immaterial associates and the Group’s share of the operating results are summarised below: For the three-month periods ended June 30, 2017 2016 Profit for the period $ 49,498 $ 41,681 Other comprehensive income (loss) (after income tax) 7,458 1,484 $ 56,956 $ 43,165 Total comprehensive income
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For the six-month periods ended June 30, 2017 2016 Profit for the period $ 93,484 $ 132,671 Other comprehensive income (loss) (after income tax) 8,178 ( 6,617) $ 101,662 $ 126,054 Total comprehensive income C. The shares of individually immaterial associates and joint ventures the Group owns have no quoted market price available in an active market. There is no significant restriction on fund transfers from the associates to their stockholders, i.e. distribution of cash dividends, repayment of loans or money advanced. D. The ownership percentage of MICB’s investment in Universal Venture Capital Investment Corporation is 11.84%. However, due to MICB occupying 2 board seats of Universal Venture Capital Investment Corporation’s total 11 board seats, and MICB being elected as the chairman of the board, MICB has influence over decision-making. Therefore, valuations are accounted for under the equity method. E. The Company’s and its subsidiaries’ investments under the equity method as of June 30, 2017, December 31, 2016 and June 30, 2016 have not been pledged or provided as collateral. (10) Other financial assets, net June 30, 2017 December 31, 2016 June 30, 2016 Remittance purchased $ 3,268 $ 16,908 $ 14,108 Purchase of obligor receivable 5,567 32,666 143,369 Debt investments with no active market 509,932 667,663 970,491 Equity investments carried at cost 12,475,269 12,861,411 13,080,645 Non-accrual loans transferred from accounts other than loans 45,126 36,226 22,944 Pledged time deposits 400,000 419,198 463,933 Customer margin account 2,149,928 1,720,026 1,765,315 Securities lending guarantee deposits 59,076 156,178 228,657 Securities lending refundable deposits 193,429 465,731 485,055 Others 32,821 47,361 974,457 Subtotal 15,874,416 16,423,368 18,148,974 Less: Allowance for bad debts － remittance purchased ( 41) ( 155) ( 152) Allowance for bad debts －non -accrual loans transferred from accounts other than loans ( 33,342) ( 18,356) ( 11,604) Accumulated impairment －equity investments carried at cost ( 1,319,497) ( 1,449,648) ( 1,346,554) Total $ 14,521,536 $ 14,955,209 $ 16,790,664 A. As unlisted shares the Group owns have no quoted market price available in an active market and cannot be measured reliably, they are measured at cost. B. The methods and assumptions used to estimate the fair value of debt instruments with no active market are provided in Note 7(3). C. As of June 30, 2017, December 31, 2016 and June 30, 2016, for the aforesaid financial assets pledged as collaterals, please refer to Note 12.
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D. The company and its subsidiary’s investees have been incurring operating losses for many years. Thus, the Group recognised impairment loss for the six-month periods ended June 30, 2017 and 2016, respectively. Please refer to Note 6(33) for details. E. For information regarding the Group’s profit or loss related to the disposal of their investee or dividend income for the six-month periods ended June 30, 2017 and 2016, please refer to the explanation in Note 6(34). (11) Investment property, net For the six-month periods ended June 30, 2017 and 2016, the movement of the Group’s investment property is as follows: Land and land Buildings and January 1, 2017 improvements structures Total Cost $ 1,240,263 $ 697,932 $ 1,938,195 Accumulated depreciation and impairment ( 28,501) ( 198,133) ( 226,634) 1,211,762 499,799 1,711,561 For the six-month period ended June 30, 2017 Reversal of impairment 21 - 21 Depreciation - ( 7,127) ( 7,127) Foreign exchange differences - ( 130) ( 130) June 30, 2017 $ 1,211,783 $ 492,542 $ 1,704,325
June 30, 2017 Cost $ 1,240,263 $ 697,932 $ 1,938,195 Accumulated depreciation and impairment ( 28,480) ( 205,390) ( 233,870) $ 1,211,783 $ 492,542 $ 1,704,325 Land and land Buildings and January 1, 2016 improvements structures Total Cost $ 1,024,842 $ 510,800 $ 1,535,642 Accumulated depreciation and impairment ( 2,167) ( 164,922) ( 167,089) 1,022,675 345,878 1,368,553 For the six-month period ended June 30, 2016 Additions 102,712 87,496 190,208 Disposals ( 5,808) ( 8,408) ( 14,216) Loss on impairment( 36) - ( 36) Depreciation - ( 5,108) ( 5,108) Foreign exchange differences - ( 38) ( 38) June 30, 2016 $ 1,119,543 $ 419,820 $ 1,539,363
June 30, 2016 Cost $ 1,121,044 $ 587,935 $ 1,708,979 Accumulated depreciation and ( 1,499) ( 168,117) ( 169,616) impairment $ 1,119,545 $ 419,818 $ 1,539,363 A. The fair values of the investment property held by the Group as of June 30, 2017, December 31, 2016 and June 30, 2016 were $5,338,054, 5,370,181 and $ 4,934,083, respectively,
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according to the result of valuation by an independent valuation expert using comprehensive consideration of comparison method, income approach, and cost approach. In addition, a portion of investment property was valued according to the result of internal valuation, which was made by choosing investments in neighboring regions shown in the public website of Department of Land Administration, M.O.I. and calculating the average actual transaction price of the investments at the end of each financial reporting period last year. As of June 30, 2017, December 31, 2016 and June 30, 2016, Level 2 within the fair value hierarchy was $3,728,347, $3,781,772 and $3,586,192, respectively, and Level 3 within the fair value hierarchy was $1,609,707, $1,588,409 and $1,347,891, respectively. B. Rental income from the lease of the investment property for the three-month and six-month periods ended June 30, 2017 and 2016 was $15,423, $16,319, $31,590, and $34,872, respectively. C. For the aforesaid investment property pledged as collaterals as of June 30, 2017, December 31, 2016 and June 30, 2016, please refer to Note 12. (12) Property and equipment, net A. Details of property and equipment are as follows: Land and land Leasehold Prepayments January 1, 2017 improvements Building Equipment improvements for equipment Total Cost$ 14,837,829 $ 12,791,790 $ 6,236,552 $ 250,953 $ 12,342 $ 34,129,466 Accumulated depreciation and impairment ( 184,900) ( 6,719,036) ( 5,213,632) ( 224,446) - ( 12,342,014) Total $ 14,652,929 $ 6,072,754 $ 1,022,920 $ 26,507 $ 12,342 $ 21,787,452 For the six-month period ended 2017
At January 1,$ 14,652,929 $ 6,072,754 $ 1,022,920 $ 26,507 $ 12,342 $ 21,787,452 Additions - 37,917 419,078 529 4,007 461,531 Disposals - ( 195) ( 1,455) - - ( 1,650) Transfers - - 1,750 230 ( 10,504) ( 8,524) Depreciation - ( 126,020) ( 195,743) ( 6,610) - ( 328,373) Reversal of impairment 40 671 - - - 711 Foreign exchange differences ( 1,396) ( 14,692) ( 4,491) - - ( 20,579) $ 14,651,573 $ 5,970,435 $ 1,242,059 $ 20,656 $ 5,845 $ 21,890,568 June 30, 2017 At June 30, Cost$ 14,837,829 $ 12,829,512 $ 6,655,925 $ 251,712 $ 5,845 $ 34,580,823 Accumulated depreciation and impairment ( 186,256) ( 6,859,077) ( 5,413,866) ( 231,056) - ( 12,690,255) Total $ 14,651,573 $ 5,970,435 $ 1,242,059 $ 20,656 $ 5,845 $ 21,890,568
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Land and land Leasehold Prepayments January 1, 2016 improvements Building Equipment improvements for equipment Total Cost$ 14,830,271 $ 12,777,321 $ 6,281,316 $ 270,529 $ 23,937 $ 34,183,374 Accumulated depreciation and impairment ( 254,991) ( 6,576,704) ( 5,289,690) ( 227,503) - ( 12,348,888) Total $ 14,575,280 $ 6,200,617 $ 991,626 $ 43,026 $ 23,937 $ 21,834,486 For the six-month period ended , 2016
At January 1,$ 14,575,280 $ 6,200,617 $ 991,626 $ 43,026 $ 23,937 $ 21,834,486 Additions 10,635 25,652 162,036 288 10,834 209,445 Disposals - - ( 219) - - ( 219) Transfers - - 19,980 - ( 24,004) ( 4,024) Depreciation - ( 124,864) ( 184,377) ( 7,761) - ( 317,002) Reversal of impairment 2,772 265 - - 3,037 Foreign exchange differences 250 ( 1,686) ( 614) ( 10) - ( 2,060) June 30, 2016 $ 14,588,937 $ 6,099,984 $ 988,432 $ 35,543 $ 10,767 $ 21,723,663 At June 30, Cost$ 14,841,156 $ 12,756,178 $ 6,347,956 $ 270,403 $ 10,766 $ 34,226,459 Accumulated depreciation and impairment ( 252,218) ( 6,656,194) ( 5,359,524) ( 234,860) - ( 12,502,796) Total $ 14,588,938 $ 6,099,984 $ 988,432 $ 35,543 $ 10,766 $ 21,723,663 Please refer to Note 12 for details of the property and equipment pledged as collateral as of June 30, 2017, December 31, 2016 and June 30, 2016. (13) Other assets, net June 30, 2017 December 31, 2016 June 30, 2016 January 1, 2016 Prepayments(note) $ 223,489 $ 183,849 $ 374,044 $ 257,088 Refundable deposits 1,892,709 632,677 856,473 569,873 Guarantee deposits held for operation and funds for security settlements 924,199 937,240 977,054 970,100 Temporary payments 1,261,380 788,608 471,704 620,967 Others 119,452 230,537 149,489 132,282 Total $ 4,421,229 $ 2,772,911 $ 2,828,764 $ 2,550,310 (Note) Please refer to Note 6(2) for details of the reclassification of “ other prepayment” to “ due from the Central Bank and call loans to banks”. As of June 30, 2017, December 31, 2016 and June 30, 2016, for details of the other assets pledged as collaterals, please refer to Note 12. (14) Due to the Central Bank and financial institutions June 30, 2017 December 31, 2016 June 30, 2016 Call loans from banks$ 88,794,900 $ 232,381,140 $ 112,140,827 Due to Chunghwa Post 2,860,726 2,818,812 2,745,052 Overdrafts on banks 1,489,078 6,781,442 8,079,026 Due to the financial institutions 45,705,512 44,551,667 29,540,258 Due to the Central Bank 148,235,094 115,198,538 176,030,642 $ 287,085,310 $ 401,731,599 $ 328,535,805 Total
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(15) Funds borrowed from the Central Bank and other banks June 30, 2017 December 31, 2016 June 30, 2016 Funds borrowed from the Central Bank $ 5,214,130 $ 5,909,170 $ 6,149,531 Other funds borrowed from the Central Bank 3,587,908 4,283,398 4,293,772 Call loan from other banks 22,232,823 29,781,859 47,403,246 Total $ 31,034,861 $ 39,974,427 $ 57,846,549
(16) Financial liabilities at fair value through profit or loss June 30, 2017 December 31, 2016 June 30, 2016 Financial liabilities held for trading Derivative instruments $ 2,630,232 $ 3,489,154 $ 4,172,012 Liabilities on sale of borrowed securities 160,806 295,143 505,473 Issuance of call (put) warrants 384,058 121,690 186,309 Bonds purchased under resale agreements - - 200,336 Others 1,615 22,544 5,484 Subtotal 3,176,711 3,928,531 5,069,614 Financial liabilities designated as at fair value through profit or loss Financial bonds 7,960,462 8,176,700 17,901,773 Total $ 11,137,173 $ 12,105,231 $ 22,971,387 A. For information regarding the Group’s recognised profit or loss of financial assets and liabilities held for trading and measured at fair value through profit or loss for the six-month periods ended June 30, 2017 and 2016, please refer to the explanations in Note 6(31). B. Financial bonds issued as follows: Unit ：In thousands of US Dollars Name of bond Interest Total issued (Note) Issuing period rate amount June 30, 2017 December 31, 2016 June 30, 2016 103-3 2014.11.19- Development 2034.11.19 Financial bond 0.00%$ 90,000 $ - $ - $ 90,000 103-4 2014.11.19- Development 2034.11.19 Financial bond 0.00% 30,000 30,000 30,000 30,000 103-5 2014.11.19- Development 2034.11.19 Financial bond 0.00% 130,000 130,000 130,000 130,000 103-6 2014.11.19- Development 2044.11.19 Financial bond 0.00% 175,000 - - 175,000 103-7 2014.11.19- Development 2044.11.19 Financial bond 0.00% 75,000 75,000 75,000 75,000 Total $ 235,000 $ 235,000 $ 500,000 (Note 1) The principals of the bonds were repaid at maturity. (Note 2) Financial liabilities designated at fair value through profit or loss is for the purpose of eliminating recognition inconsistency.
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(17) Bills and bonds sold under repurchase agreements June 30, 2017 December 31, 2016 June 30, 2016 Short-term bills$ 70,098,423 $ 86,699,426 $ 86,197,766 Bonds 135,768,259 144,297,980 135,247,220 Others 138,889 194,357 174,351 Total $ 206,005,571 $ 231,191,763 $ 221,619,337
(18) Commercial papers payable, net June 30, 2017 December 31, 2016 June 30, 2016 Domestic commercial papers$ 10,340,000 $ 11,705,000 $ 11,205,000 Less: Unamortised discount ( 3,403) ( 3,351) ( 2,018) Net $ 10,336,597 $ 11,701,649 $ 11,202,982 As of June 30, 2017, December 31, 2016 and June 30, 2016, none of the aforementioned commercial papers payable was provided for guarantees, and the interest rate ranged from 0.36%~0.60%, 0.45% to 0.85% and 0.32% to 0.71%, respectively. (19) Payables June 30, 2017 December 31, 2016 June 30, 2016 Notes and accounts payable$ 12,130,933 $ 8,565,683 $ 13,440,063 Settlement amounts payable 8,863,498 3,725,090 8,040,617 Accrued expenses 4,620,673 4,342,991 2,876,920 Interest payable 2,554,139 2,441,104 2,421,728 Dividends payable 41,342,512 22,077,713 40,754,921 Acceptances 8,313,218 8,932,976 8,641,684 Collections for others 1,701,786 1,200,111 1,158,355 Commissions payable 77,451 105,470 86,238 Due from other insurers 1,149,064 814,146 1,074,101 Securities financing refundable 776,199 1,123,121 940,133 depositsDeposits payable for securities 897,343 1,254,159 1,034,307 financingAccounts payable to New York State Department of Financial - - 5,673,960 Services (Note) Other payables 2,956,437 4,419,435 2,584,962 Total $ 85,383,253 $ 59,001,999 $ 88,727,989
Note:Details of the penalty paid to New York State Department of Financial Services are provided in Note 6(35).
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(20) Deposits and remittances June 30, 2017 December 31, 2016 June 30, 2016 Checking account deposits$ 30,723,614 $ 37,879,956 $ 31,429,993 Demand deposits 690,115,847 677,561,855 672,245,566 Time deposits 928,579,041 749,748,743 839,298,831 Demand savings deposits 416,183,965 429,888,906 400,495,691 Time savings deposits 267,664,334 268,289,551 271,190,245 Negotiable certificates of deposits 1,495,400 1,544,100 1,894,200 Remittances 15,227,999 6,374,813 9,735,944 Total $ 2,349,990,200 $ 2,171,287,924 $ 2,226,290,470
(21) Bonds payable June 30, 2017 December 31, 2016 June 30, 2016 Unsecured exchangeable corporate bonds$ 5,800,000 $ 5,800,000 $ 5,800,000 Less: Exchangeable corporate bond discount( 53,083) ( 75,912) ( 98,847) Subtotal 5,746,917 5,724,088 5,701,153 Financial bonds, net 36,200,000 36,200,000 36,200,000 Total $ 41,946,917 $ 41,924,088 $ 41,901,153
A. The Company:
Issuing Interest Total issued Name of bond(Note) period rate amount June 30, 2017 December 31, 2016 June 30, 2016 Second issue of domestic 2015.8.25- unsecured exchangeable 2018.8.25 bonds 0%$ 5,800,000 $ 5,746,917 $ 5,724,088 $ 5,701,153 (Note) The primary terms for the bond issuance and the method for the swap arrangement are as follows: (a) Collateralisation status: The exchangeable bonds are unsecured bonds. However, after the issuance of the exchangeable bonds, if the Company reissues or privately issues secured bonds with an identical underlying (Taiwan Business Bank) for exchange in the future, the exchangeable bonds will apply mutatis mutandis to the secured exchangeable bonds’ terms, assigning a commensurate level of claim or commensurate priority of security interest. (b) Term and date of principal payment: Other than bondholders exchanging for Taiwan Business Bank Co., Ltd.’s (herein referred to as “Taiwan Business Bank”) common shares or bonds redeemed in advance by the Company, or the buyback and cancellation of the Company’s bonds through the
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sales office of security dealers, the principal of exchangeable bonds are paid in lump- sum upon maturity at 100% of par value. (c) Underlying of swap arrangement: For explanations on Taiwan Business Bank common stocks held by the Company, please refer to Note 6(7). (d) Exchange period: From the following day (September 26, 2015) of the issuance date to the maturity date (August 25, 2018) of the exchangeable bonds, other than Taiwan Business Bank’s book closure date of stock dividends, book closure date of cash dividends, the period between the date that is 15 business days before the book closure date of a capital increase to the ex-right date, the period between the record date of a capital reduction and the prior day before the commencement of stock trading after stocks are repurchased, and Taiwan Business Bank’s book closures dates of common stocks pursuant to regulations, the bondholder may at any time request to exchange for Taiwan Business Bank’s common stocks. (e) Exchange price and adjustments: The record date for the exchange price of the exchangeable bonds was on August 17, 2015. The basis of the exchange price is determined by one of the simple arithmetic averages of Taiwan Business Bank’s common stock closing price for the one, three or five business days before the record date (non-inclusive), multiplied by 104.94% (rounding the decimals to the nearest tenths or hundredths using the round half up method). If an ex-right or ex-dividend date is encountered before the record date, the sampled closing price for calculating the exchange price should be adjusted to the price of the following day after the ex-right or ex-dividend date; if Taiwan Business Bank encounters an ex-right or ex-dividend date after the exchange price is determined and before the actual issuance date, the exchange price should be adjusted according to the price adjustment formula. According to the aforementioned method, the simple arithmetic average of Taiwan Business Bank’s closing price for the prior business day before the record date is $9.11 per share, and thus the exchange price is $9.56 per share. The exchange price for June 30, 2017 is $8.49. The Company adjusted the share swap price in accordance with the Article 11 of swap method which was set by the Company, due to the target, Taiwan Business Bank, capitalised 2016 retained earnings. The swap share price was adjusted from $ 8.49 to $ 8.24, starting from August 7, 2017. (f) The Company’s right to redeem the exchangeable bonds For the period from the following day after one month of the issuance of the exchangeable bonds (September 26, 2015) to 40 days before its maturity (July 16, 2018), if the closing price of Taiwan Business Bank’s common stock exceeds 30% (inclusive) of the exchange price for 30 consecutive business days, the Company may, pursuant to the exchange terms, redeem its exchangeable bonds at par value in cash. For the period from the following day after one month of the issuance of the exchangeable bonds (September 26, 2015) to 40 days before its maturity (July 16, 2018), if the balance of outstanding exchangeable bonds is below 10% of the original gross issue price, the Company may at any time, pursuant to the exchange terms, redeem its exchangeable bonds at par value in cash.
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(g) As of June 30, 2017, the Company has not redeemed any of its exchangeable bonds from the Taipei Exchange, nor has any bondholder exercised their exchange right. B. Financial bonds issued by MICB were as follows: Issuing Interest Total issued Name of bond (Note) period rate amount June 30, 2017 December 31, 2016 June 30, 2016 99-1 Development 2010.12.24- financial bond 2017.12.24 1.53% $ 10,300,000 $ 10,300,000 $ 10,300,000 $ 10,300,000 100-1 Development 2011.04.15- financial bond 2018.04.15 1.65% 4,700,000 4,700,000 4,700,000 4,700,000 100-2 Development 2011.11.24- financial bond 2018.11.24 1.62% 7,900,000 7,900,000 7,900,000 7,900,000 101-1 Development 2012.05.18- financial bond 2019.05.18 1.48% 1,300,000 1,300,000 1,300,000 1,300,000 103-1 Development 2014.03.28- financial bond 2021.03.28 1.70% 4,900,000 4,900,000 4,900,000 4,900,000 103-2 Development 2014.06.24- financial bond 2021.06.24 1.65% 7,100,000 7,100,000 7,100,000 7,100,000 Total $ 36,200,000 $ 36,200,000 $ 36,200,000 (Note) The interests on the bonds were paid yearly, the principals were repaid at maturity. As of June 30, 2017, December 31, 2016 and June 30, 2016, the unpaid balance of financial bonds issued by the subsidiary, amounted to US$235,000, US$235,000 and US$500,000, and all NT$36,200,000, respectively. The financial bonds are senior bonds of US$235,000, US$235,000 and US$500,000, respectively. The interest rate swaps which are used to hedge the interest rate risk are measured at fair value, and changes in fair value are recognised in profit or loss. In order to eliminate the inconsistency in accounting, the above financial bonds are also designated as financial liabilities at fair value through profit or loss, please refer to the explanations in Note 6(16). (22) Other loans June 30, 2017 December 31, 2016 June 30, 2016 Credit loans$ 1,246,466 $ 5,954,030 $ 2,800,093 As of June 30, 2017, December 31, 2016 and June 30, 2016, the interest rates ranged from 0.69% to 1.79%, 0.69% to 1.65% and 0.7% to 1.16%, respectively. (23) Reserves for liabilities June 30, 2017 December 31, 2016 June 30, 2016 Insurance liabilities $ 8,980,489 $ 8,964,715 $ 9,520,322 Liabilities reserve for employee 9,964,503 10,135,730 9,323,111 benefits Reserve for guarantee liabilities 6,054,624 5,946,779 6,154,293 $ 24,999,616 $ 25,047,224 $ 24,997,726 Total A. Details of reserves for insurance liabilities as of June 30, 2017, December 31, 2016 and June 30, 2016 are as follows:
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June 30, 2017 December 31, 2016 June 30, 2016 Reserve for unearned premiums $ 3,501,895 $ 3,250,510 $ 3,570,562 Reserve for outstanding losses 4,153,887 4,419,457 4,620,465 Reserve for catastrophic losses 1,281,317 1,251,358 1,327,305 Deficiency reserve 43,390 43,390 1,990 Total $ 8,980,489 $ 8,964,715 $ 9,520,322 (a) Changes in unearned premium reserve and ceded unearned premium reserve are as follows: For the six-month period ended June 30, 2017 Total Ceded Net Balance at January 1$ 3,250,510 $ 1,229,560 $ 2,020,950 Provision 3,501,895 1,392,601 2,109,294 Recovery( 3,250,510) ( 1,229,560) ( 2,020,950) Balance at June 30 $ 3,501,895 $ 1,392,601 $ 2,109,294 For the six-month period ended June 30, 2016 Total Ceded Net Balance at January 1 $ 3,273,580 $ 1,232,785 $ 2,040,795 Provision 3,570,562 1,442,170 2,128,392 Recovery ( 3,273,580) ( 1,232,785) ( 2,040,795) Balance at June 30 $ 3,570,562 $ 1,442,170 $ 2,128,392 (b) Details of claims reserve, as well as changes in claims reserve and ceded claims reserve are as follows: i. Details of claims reserve: June 30, 2017 December 31, 2016 June 30, 2016 Claims reported but not paid$ 3,379,085 $ 3,656,131 $ 3,852,946 Claims incurred but not reported 774,802 763,326 767,519 $ 4,153,887 $ 4,419,457 $ 4,620,465
ii. Detail of ceded claim reserve: June 30, 2017 December 31, 2016 June 30, 2016 Claims reported but not paid$ 1,903,459 $ 2,115,377 $ 2,294,601 Claims incurred but not reported 288,792 284,696 276,699 $ 2,192,251 $ 2,400,073 $ 2,571,300
iii. Changes in claims reserve and ceded claims reserve are as follows: For the six-month period ended June 30, 2017 Total Ceded Net Balance at January 1 $ 4,419,457 $ 2,400,073 $ 2,019,384 Provision 4,153,887 2,192,251 1,961,636 Recovery ( 4,419,457) ( 2,400,073) ( 2,019,384) Balance at June 30 $ 4,153,887 $ 2,192,251 $ 1,961,636
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For the six-month period ended June 30, 2016 Total Ceded Net Balance at January 1 $ 3,026,523 $ 1,341,095 $ 1,685,428 Provision 4,620,465 2,571,300 2,049,165 Recovery ( 3,026,523) ( 1,341,095) ( 1,685,428) Balance at June 30 $ 4,620,465 $ 2,571,300 $ 2,049,165 (c) Changes in special reserve are as follows: For the six-month period ended June 30, 2017 Compulsory insurance Others Total Balance at January 1$ 177,357 $ 1,074,001 $ 1,251,358 Provision 29,959 - 29,959 Balance at June 30 $ 207,316 $ 1,074,001 $ 1,281,317 For the six-month period ended June 30, 2016 Compulsory insurance Others Total Balance at January 1$ 168,748 $ 1,301,821 $ 1,470,569 Provision (recovery) 26,736 ( 170,000) ( 143,264) Balance at June 30 $ 195,484 $ 1,131,821 $ 1,327,305 i. In accordance with “Regulations Governing Reserve for Natural Disaster by Property Insurance Industry”, “Regulations Governing Reserves for the Members of the Enhance Residential Earthquake Insurance Joint Institute” and “Regulations Governing Various Reserves for Nuclear Power Insurance”, commencing from January 1, 2013, CKI’s special reserves provisioned under liabilities prior to December 31, 2012 shall cover, in full, the deficiencies of special reserve for catastrophes and special reserves for fluctuation of risks provisioned for commercial earthquake insurances and typhoon/flood insurances. The remainder, after deducting income taxes, in accordance with the requirements in IAS 12, shall be provisioned as special reserve under equity. ii. The impact of the disaster reserve strengthening mechanism, residential earthquake reserve and nuclear insurance reserve applicable or non-applicable to CKI is as follows: For the six-month period ended June 30, 2017 Net income Earnings per share Total liability Equity Applicable amount$ 173,818 $ 0.58 $ 1,281,317 $ 6,229,394 Non-applicable amount 173,818 0.58 207,316 7,120,815 Affected amount $ - $ - $ 1,074,001 ($ 891,421) For the six-month period ended June 30, 2016 Net income Earnings per share Total liability Equity Applicable amount$ 84,570 $ 0.28 $ 11,378,812 $ 6,045,281 Non-applicable amount ( 56,530) ( 0.19) 10,439,399 6,984,694 Affected amount $ 141,100 $ 0.47 $ 939,413 ($ 939,413)
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(d) Changes in deficiency reserve and ceded premium deficiency reserve: For the six-month period ended June 30, 2017 Total Ceded Net Balance at January 1$ 43,390 $ 39,880 $ 3,510 Provision 43,390 39,980 3,410 Recovery ( 43,390) ( 39,980) ( 3,410) Balance at June 30 $ 43,390 $ 39,880 $ 3,510 For the six-month period ended June 30, 2016 Total Ceded Net Balance at January 1$ 1,990 $ - $ 1,990 Provision 1,990 - 1,990 Recovery ( 1,990) - ( 1,990) Balance at June 30 $ 1,990 $ - $ 1,990 B. Liabilities reserve for employee benefits are as follows: June 30, 2017 December 31, 2016 June 30, 2016 Recognised in consolidated balance sheet: - Defined benefit plans $ 6,344,054 $ 6,591,684 $ 6,128,666 - Employee preferential savings plans 3,620,449 3,544,046 3,194,445 Total $ 9,964,503 $ 10,135,730 $ 9,323,111 (a) Defined contribution plans Effective July 1, 2005, the Group has established a funded defined contribution pension plan (the “New Plan”) under the Labor Pension Act (the “Act”). Employees have the option to be covered under the New Plan. Under the New Plan, the Group contributes monthly an amount based on 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. The payment of pension benefits is based on the employees’ individual pension fund accounts and the cumulative profit in such accounts, and the employees can choose to receive such pension benefits monthly or in lump sum. The pension costs under the defined contribution pension plan for the three-month and six-month periods ended June 30, 2017 and 2016 were $47,929, $45,598, $93,201 and $91,285, respectively. Pursuant to relevant government regulations in the country where the entity operates, local staff of the Group’s overseas subsidiaries, recognised pension expenses of $4,800, $4,581, $9,358 and $13,306 applying defined contribution plans for the three-month and six-month periods ended June 30, 2017 and 2016, respectively. (b) Defined benefit plans i. The Company and its domestic subsidiaries have a defined benefit pension plan in accordance with the Labor Standards Law, covering all regular employees’ service years prior to the enforcement of the Labor Pension Act on July 1, 2005 and service years thereafter of employees who chose to continue to be subject to the pension mechanism under the Law. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly salaries and wages of the last 6
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months prior to retirement. The Company contributes monthly an amount equal to 10% of the employees’ monthly salaries and wages to the retirement fund deposited with Bank of Taiwan, the trustee, under the name of the independent retirement fund committee. The pension costs under the defined contribution pension plans of the Group for the three-month and six-month periods ended June 30, 2017 and 2016 were $137,380, $141,615, $276,631 and $283,059, respectively. ii. The Group expects to contribute $453,381 for defined benefit plan in 2018. (c) Subsidiary-MICB’s payment obligations of fixed-amount preferential savings for retired employees and current employees after retirement are based on the internal policy, “Rules Governing Pension Preferential Savings of Staff of Mega International Commercial Banks”. The excess interest arising from the preferential savings interest rate upon retirement agreed with the employees in excess of general market interest rate should be recognised in accordance with IAS 19, 'Employee benefits' on employees’ retirement. Subsidiary – MICB recognised employee benefit expenses of $264,091, $242,427, $521,835 and $479,031 for the three-month and six-month periods ended June 30, 2017 and 2016, respectively. C. Reserve for guarantee liabilities The Group sets aside appropriate reserve for guarantee liabilities based on the guarantee reserve assessed. Changes in provided (reversed) guarantee reserve for the six-month periods ended June 30, 2017 and 2016 are as follows: For the six-month periods ended June 30, 2017 2016 Balance at January 1,$ 5,946,779 $ 5,564,889 Provision 110,844 616,058 Effects of exchange rate changes and others ( 3,000) ( 26,655) $ 6,054,623 $ 6,154,292 Balance at June 30, (24) Other financial liabilities June 30, 2017 December 31, 2016 June 30, 2016 Structured instruments $ 8,211,301 $ 7,607,768 $ 9,745,366 Appropriated loan fund 1,473,662 1,529,903 1,729,400 Futures traders’ equity 2,136,209 1,712,035 1,753,404 $ 11,821,172 $ 10,849,706 $ 13,228,170 Total
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(25) Other liabilities June 30, 2017 December 31, 2016 June 30, 2016 Deposits received $ 2,323,726 $ 1,581,823 $ 2,861,753 Advance receipt 1,599,020 1,831,877 1,856,045 Receipts under custody from - 123,692 - customers’ security subscription Other liabilities to be settled 410,263 431,815 430,962 Temporary receipts and 1,048,036 1,546,031 1,330,223 suspense accounts Others 592,389 687,837 664,780 $ 5,973,434 $ 6,203,075 $ 7,143,763 Total (26) Equity A. Common stock As of June 30, 2017, December 31, 2016 and June 30, 2016, the Company’s authorised capital were all $140 billion. The Company’s issued capital were all $135,998,240, and consisting of all 13,599,824 thousand shares, respectively, with a par value of $10 per share. B. Capital surplus (a) The sources and details of capital surplus of the Company are as follows: June 30, 2017 December 31, 2016 June 30, 2016
Consolidation surplus arising from share conversion $ 43,047,306 $ 43,047,306 $ 43,047,306 Changes in additional paid- in capital of investees accounted for under the equity method 375,908 375,908 375,908 Capital increase by cash – additional paid-in capital 24,161,500 24,161,500 24,161,500 Share-based payment (Note) 609,519 609,519 609,519 $ 68,194,233 $ 68,194,233 $ 68,194,233
(Note) All the subsidiaries’ share-based payments were included. (b) As of June 30, 2017, the capital reserve of the Company provided by undistributed earnings of MICB (formerly CTB and ICBC) before conversion has amounted to $3,265,237, and the portion was not used for cash dividends, capital increase or any other purposes. C. Legal reserve and special reserve (a) Legal reserve The legal reserve is to be used exclusively to offset any deficit or to increase capital by issuing new shares or to distribute cash dividends to original stockholders in proportion to the number of shares being held by each of them and is not to be used for any other purposes. For the legal reserve to be used for issuing new shares or distributing cash dividends, only the portion of the legal reserve exceeding 25% of paid-in capital may be
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capitalised or released. (b) Special reserve Under Article 41-1 of the Securities and Exchange Act, special reserve can be used to recover accumulated deficit and under Article 239 of the R.O.C. Company Act, a company shall not use the capital reserve to recover its capital loss, unless the surplus reserve is insufficient to recover such loss. However, the annual net income after income taxes should first be used to recover accumulated deficits, and the remaining amount should then be set aside as special reserve. The remaining earnings are then distributed to stockholders. In accordance with Gin-Guan-Zheng-Fa letter No. 1010012865 of FSC dated on April 6, 2012, upon the first-time adoption for IFRSs, equivalent amounts of special reserve with regard to the unrealised revaluation increment under the equity and cumulative translation adjustment (gains) transferred to retained earnings should be set aside. For the said special reserve, reversal of distributed earnings shall be based on the proportion of the original ratio of special reserve provision in the subsequent use, disposal or reclassification for the related assets. Such amounts are reversed upon disposal or reclassified if the assets are investment property of land. If the assets are investment property other than land, the amounts are reversed over the use period and should be reversed by amortised balance upon disposal. In accordance with the regulations, the Company shall set aside special reserve from the debit balance on other equity items at the balance sheet date before distributing earnings. When debit balance on other equity items is reversed subsequently, the reversed amount could be included in the distributable earnings. (27) Appropriation of earnings and dividend policy A. According to the Company’s Articles of Incorporation, the current year’s earnings, if any, shall first be used to pay all taxes and offset prior year’s operating loss, and the remaining amount should then be set aside as legal reserve and special reserve in accordance with provisions under the applicable laws and regulations. The remaining earnings plus prior year’s accumulated unappropriated earnings are subject to the Board of Directors’ decision to propose a distribution plan and to be submitted for approval of the stockholders at the stockholders’ meeting. For distribution of dividend, cash dividends shall account for at least 50% of the total dividends distributed and the remainder will be accounted for as stock dividends. B. The Company’s earning distributions for 2016 and 2015 were resolved at the Board meeting dated March 28, 2017 and March 29, 2016, respectively, and were approved by the stockholders at the stockholders’ meeting dated June 16, 2017 and June 24, 2016. Details of the earnings appropriation for 2016 and 2015 are set forth below: Appropriated amount Dividend per share (in dollars) 2016 2015 2016 2015 Dividends - cash $ 19,311,750 $ 20,399,736 $ 1.42 $ 1.50
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(28) Other equity items Exchange differences on Unrealized gain translation of on available-for- foreign financial sale financial statements assets Total At January 1, 2017($ 853,382) ($ 1,312,584) ($ 2,165,966) Available-for-sale financial assets Evaluation adjustment in the period - 3,477,754 3,477,754 Realized gain and loss in the period - ( 780,194) ( 780,194) Translation gain and loss on the financial statements of foreign operating entities in the period( 1,229,249) - ( 1,229,249) Share of the other comprehensive income of associates accounted for under the equity method in the period( 6,886) 15,064 8,178 At June 30, 2017($ 2,089,517) $ 1,400,040 ($ 689,477)
Exchange differences on Unrealized gain translation of on available-for- foreign financial sale financial statements assets Total At January 1, 2016$ 427,764 $ 410,835 $ 838,599 Available-for-sale financial assets Evaluation adjustment in the period - 2,641,077 2,641,077 Realized gain and loss in the period - ( 999,576) ( 999,576) Translation gain and loss on the financial statements of foreign operating entities in the period( 777,443) - ( 777,443) Share of the other comprehensive income of associates accounted for under the equity method in the period( 2,279) ( 4,338) ( 6,617) At June 30, 2016($ 351,958) $ 2,047,998 $ 1,696,040
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(29) Interest Income, net For the three-month periods ended June 30, 2017 2016 Interest income Interest income of bills discounted and loans$ 9,513,121 $ 9,612,137 Interest income of deposits and call loans from the 1,834,277 1,204,412 other banks Interest income of securities investment 2,135,099 2,028,276 Interest income of bills and bonds purchased under 1,467 9,643 resale agreements Interest income of usance outright receivable 4,163 272,438 Credit card interest income 43,248 42,148 Interest income of securities purchased under resale 142,779 138,489 agreements income Interest income of accounts receivable 66,534 57,484 Interest income from buyout of documents - 3,302 against acceptance Other interest income 64,426 85,871 Subtotal 13,805,114 13,454,200 Interest expense Interest expense of deposits( 3,479,981) ( 2,966,144) Interest expense of interbank overdraft and call ( 963,763) ( 595,687) loans Interest expense of issuance of bills and bonds( 163,615) ( 160,358) Interest expense of bonds payable under ( 293,050) ( 207,772) repurchase agreements Other interest expense ( 39,678) ( 40,251) Subtotal ( 4,940,087) ( 3,970,212) Total $ 8,865,027 $ 9,483,988
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For the six-month periods ended June 30, 2017 2016 Interest income Interest income of bills discounted and loans$ 18,962,629 $ 19,475,664 Interest income of deposits and call loans from the 3,330,145 2,341,396 other banks Interest income of securities investment 4,137,930 3,921,681 Interest income of bills and bonds purchased under 6,333 22,343 resale agreements Interest income of usance outright receivable 10,809 811,288 Credit card interest income 85,882 88,893 Interest income of securities purchased under resale 276,372 279,182 agreements income Interest income of accounts receivable 151,622 129,907 Interest income from buyout of documents - 15,401 against acceptance Other interest income 109,873 192,377 Subtotal 27,071,595 27,278,132 Interest expense Interest expense of deposits( 6,650,255) ( 6,332,767) Interest expense of interbank overdraft and call ( 1,804,349) ( 1,401,657) loans Interest expense of issuance of bills and bonds( 330,397) ( 324,832) Interest expense of bonds payable under ( 588,974) ( 411,715) repurchase agreements Other interest expense ( 75,286) ( 79,061) Subtotal ( 9,449,261) ( 8,550,032) Total $ 17,622,334 $ 18,728,100
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(30) Service fee and commission income, net For the three-month periods ended June 30, 2017 2016 Service fee income and commission income Service fee income from export and import business$ 130,740 $ 153,601 T/T service fee income 213,826 251,187 Loans service fee income 305,350 594,021 Guarantee service fee income 366,411 403,084 Brokerage fee income 353,150 295,707 Service fee income of trust and ancillary business 401,880 400,807 Agency service fee income 37,832 324,913 Reinsurance commission income 143,467 121,149 Other commission income 229,078 560,130 Underwriting fee income 79,692 89,070 Other service fee income 413,730 199,837 Subtotal 2,675,156 3,393,506
Service fee expense and commission expense Insurance commission expense( 218,816) ( 230,491) Agency service fee expense( 164,782) ( 158,211) Brokerage handling fee expense( 32,505) ( 28,896) Other commission expense ( 37,709) ( 135,380) Other service fee expense ( 97,333) ( 102,204) Subtotal ( 551,145) ( 655,182) Total $ 2,124,011 $ 2,738,324
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For the six-month periods ended June 30, 2017 2016 Service fee income and commission income Service fee income from export and import business$ 266,756 $ 308,139 T/T service fee income 430,695 495,742 Loans service fee income 654,693 1,150,444 Guarantee service fee income 723,833 792,158 Brokerage fee income 709,114 656,077 Service fee income of trust and ancillary business 764,943 802,513 Agency service fee income 148,066 405,210 Reinsurance commission income 263,991 248,422 Other commission income 576,192 960,874 Underwriting fee income 196,835 181,378 Other service fee income 780,168 593,012 Subtotal 5,515,286 6,593,969
Service fee expense and commission expense Insurance commission expense( 449,501) ( 462,715) Agency service fee expense( 323,828) ( 317,786) Brokerage handling fee expense( 61,587) ( 60,518) Other commission expense( 97,894) ( 192,817) Other service fee expense( 200,676) ( 203,956) Subtotal ( 1,133,486) ( 1,237,792) Total $ 4,381,800 $ 5,356,177
Subsidiary-MICB provides custody, trust, and investment management and consultation service to the third party, and therefore subsidiary-MICB is involved with the exercise of planning, managing and trading decision of financial instruments. In relation to the management and exercise of trust fund and portfolio for brokerage, subsidiary-MICB records and prepares the financial statements independently for internal management purposes, which are not included in the financial statements of subsidiary-MICB.
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(31) Financial assets or financial liabilities at fair value through profit or loss For the three-month periods ended June 30, Gain and loss from disposal of financial assets and liabilities at fair value through profit or loss 2017 2016 Short-term notes and bills$ 125,288 $ 142,174 Bonds 18,747 23,642 Stocks 289,327 ( 115,545) Derivative instruments 1,147,356 369,695 Negotiable certificates of deposit 2,189 1,791 Beneficiary certificates 294 519 Warrant 167,059 ( 69,804) Subtotal 1,750,260 352,472 Valuation gains and losses on financial assets and liabilities at fair value through profit or loss Short-term notes and bills( 2,361) ( 10,187) Bonds ( 165,305) ( 395,168) Stocks 187,126 ( 139,315) Derivative instruments( 468,086) 616,785 Negotiable certificates of deposit 682 ( 570) Beneficiary certificates ( 193) 1,728 Warrant ( 257,395) 173,198 Subtotal ( 705,532) 246,471 Interest income on financial assets at fair value through profit or loss 535,890 552,767 Interest expense on financial liabilities at fair value through profit or loss ( 77,872) ( 173,945) Dividend and bonus from financial assets at fair value through profit or loss 42,613 56,406 Total $ 1,545,359 $ 1,034,171
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For the six-month periods ended June 30, Gain and loss from disposal of financial assets and liabilities at fair value through profit or loss 2017 2016 Short-term notes and bills$ 237,310 $ 297,314 Bonds 15,768 54,567 Stocks 468,128 ( 232,173) Derivative instruments 1,849,541 423,037 Negotiable certificates of deposit 3,897 2,378 Beneficiary certificates 733 1,130 Warrant 505,052 332,508 Subtotal 3,080,429 878,761 Valuation gains and losses on financial assets and liabilities at fair value through profit or loss Short-term notes and bills 18,110 ( 2,038) Bonds 122,385 ( 324,493) Stocks 332,228 66,584 Derivative instruments 82,724 1,250,228 Negotiable certificates of deposit 445 ( 418) Beneficiary certificates ( 856) ( 8,901) Warrant ( 590,625) ( 160,585) Subtotal ( 35,589) 820,377 Interest income on financial assets 1,079,954 1,128,643 at fair value through profit or loss Interest expense on financial liabilities at fair value through ( 155,614) ( 349,200) profit or loss Dividend and bonus from financial assets at fair value through profit or loss 50,785 56,671 Total $ 4,019,965 $ 2,535,252
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(32) Realised gain on available-for-sale financial assets, net For the three-month periods ended June 30, 2017 2016 Income from dividend and bonus$ 33,190 $ 101,472 Bonds 32,711 86,992 Stocks 255,489 183,763 Beneficiary certificates 3,778 ( 1,298) Others 1,391 2,035 Total $ 326,559 $ 372,964 For the six-month periods ended June 30, 2017 2016 Income from dividend and bonus$ 33,728 $ 101,622 Bonds 48,091 519,491 Stocks 724,909 476,432 Beneficiary certificates 4,405 ( 1,298) Others 2,789 4,951 $ 813,922 $ 1,101,198 Total (33) Impairment of assets For the three-month periods ended June 30, 2017 2016 Impairment loss on available-for-sale $ 54,724 $ 134,676 financial assets (Reversal of) impairment loss on property and equipment ( 711) ( 3,038) (Reversal of) impairment loss on available- for-sale financial assets ( 916) ( 880) Impairment loss on investment property( 21) 36 Total $ 53,076 $ 130,794 For the six-month periods ended June 30, 2017 2016 Impairment loss on available-for sale $ 55,133 $ 134,676 financial assets (Reversal of) impairment loss on property and equipment ( 711) ( 3,038) Impairment loss on available- for-sale financial assets 95,613 97,967 Impairment loss on investment property( 21) 36 Total $ 150,014 $ 229,641 For the three-month period ended June 30, 2016, impairment loss on available-for-sale financial assets was on the credit side because of the exchange differences arising from the recognition of the impairment loss on beneficiary securities.
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(34) Revenues other than interest, net For the three-month periods ended June 30, 2017 2016 Gain on financial assets measured at cost, net $ 182,103 $ 259,698 Gain on rental, net 48,892 52,286 Advisory income 173,436 196,805 Gain on sales of property and equipment 55 268 Refund for tax overpayment of THSRC’s - 85,863 compensation for preferred stock Gain on sales of nonperforming loans 117,236 45,484 Total $ 521,722 $ 640,404 For the six-month periods ended June 30, 2017 2016 Gain on financial assets measured at cost, net $ 192,657 $ 247,713 Gain on rental, net 100,517 107,216 Advisory income 355,692 395,265 Gain on sales of property and equipment 54 21,036 Refund for tax overpayment of THSRC’s - 85,863 compensation for preferred stock Gain on sales of nonperforming loans 157,289 210,214 $ 806,209 $ 1,067,307 Total (35) Net other miscellaneous income (loss) For the three-month periods ended June 30, 2017 2016 Penalty paid to New York State Department $ - ($ 5,673,960) of Financial Services (note) Others 129,403 21,285 Total $ 129,403 ($ 5,652,675) For the six-month periods ended June 30, 2017 2016 Penalty paid to New York State Department $ - ($ 5,673,960) of Financial Services (note) Others 240,070 321,018 $ 240,070 ($ 5,352,942) Total (Note) Mega International Commercial Bank (MICB), the subsidiary, and MICB New York Branch (MICB NY Branch) entered into a Consent Order with New York State Department of Financial Services (NYDFS) on August 19, 2016. As per the consent order, NYDFS fined the MICB New York Branch for failure to establish an adequate anti- money laundering compliance program and non-compliance with BSA (Bank Secrecy Act)/AML (Anti-Money Laundering) and paid a penalty of US$180 million. In addition, under the Consent Order issued by NYDFS, MICB engaged a compliance consultant selected by NYDFS, to enhance the compliance of the AML and will retain an
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independent monitor to be selected by NYDFS to keep checking the compliance with relevant regulation of BSA/AML, to assess the effectiveness of the compliance and to review the New York Branch’s U.S dollar clearing transaction activity from January 1, 2012 to December 31, 2014 for determining whether any transactions were in violation of BSA/AML and OFAC (Office of Foreign Assets Control of United States Department of Treasury) Regulations. As of the report date of these financial statements, the independent monitor has not taken any action with regards to the situation. Subsequently, on May 22, 2017, a press release announced by the Taipei District Prosecutors Office (TDPO) with respect to the investigation result of MICB’s suspicious money laundering activities indicated no evidence was found that MICB’s related member and citizen involved in the money laundering. As for Jin-Guan-Jian-Kong-Zi Letter No.1060152046 on February 6, 2017, there was no evidence that is related to suspicious money laundering transaction. As MICB and MICB NY Branch adopted the improvement process, internal member and independent external third party found that some transactions might cause dispute over compliance issues and pay economic resources. As of the reporting date, the definite amount of penalty depends on the adjudicative body. (36) Employee benefit expense For the three-month periods ended June 30, 2017 2016 Wages and salaries $ 3,377,427 $ 2,871,889 Labor and health insurance fees 164,590 235,617 Pension costs 454,201 434,221 Other personnel expenses 227,288 242,854 Total $ 4,223,506 $ 3,784,581 For the six-month periods ended June 30, 2017 2016 Wages and salaries $ 6,446,403 $ 5,760,617 Labor and health insurance fees 420,637 479,048 Pension costs 901,025 866,681 Other personnel expenses 483,361 500,805 $ 8,251,426 $ 7,607,151 Total A. According to the Articles of Incorporation of the Company, employees’ compensation shall account for 0.02%~0.15% of the amount of current year’s profit less accumulated deficit. Directors’ remuneration shall not exceed 0.5% of the amount of current year’s profit less accumulated deficit. B. For the three-month and six-month periods ended June 30, 2017 and 2016, employees’ compensation was accrued at $2,879, $2,568, $5,568 and $5,214, respectively; directors’ remuneration was accrued at $35,798, $39,939, $72,507and $78,030, respectively. The aforementioned amounts were recognised in wages and salaries. Employees’ compensation and directors’ and supervisors’ remuneration of 2016 as resolved at the meeting of Board of Directors were in agreement with those amounts recognised in the 2016 financial statements.
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Information about employees’ compensation and directors’ remuneration of the Company as resolved by the Board of Directors and the stockholders at the stockholders’ meeting will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange. (37) Depreciation and amortisation For the three-month periods ended June 30, 2017 2016 Depreciation $ 173,557 $ 163,366 Amortisation 16,199 16,081 Total $ 189,756 $ 179,447 For the six-month periods ended June 30, 2017 2016 Depreciation $ 335,500 $ 322,110 Amortisation 31,441 31,636 $ 366,941 $ 353,746 Total (38) Other business and administrative expenses For the three-month periods ended June 30, 2017 2016 Rental expenses $ 173,436 $ 202,854 Information technology expenses 144,692 130,075 Tax and official fee 626,582 705,255 Donations 2,223 549 Insurance 88,286 93,032 Office supplies and printing expenses 494,543 502,460 Other operating expenses 314,731 211,911 Total $ 1,844,493 $ 1,846,136 For the six-month periods ended June 30, 2017 2016 Rental expenses $ 355,386 $ 402,376 Information technology expenses 258,266 268,248 Tax and official fee 1,228,277 1,396,307 Donations 147,491 30,782 Insurance 199,630 218,917 Office supplies and printing expenses 958,131 968,794 Other operating expenses 605,466 440,300 Total $ 3,752,647 $ 3,725,724
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(39) Income taxes A. The income taxes comprise the following: For the three-month periods ended June 30, 2017 2016 Current tax Current tax on profits for the period $ 1,305,445 $ 1,494,423 Income tax attributed to adjustments of prior years income tax ( 261,661) 128,300 Separate income tax 41 20 Additional 10% tax on distributed 962 888,662 Totalearnings current tax 1,044,787 2,511,405 Deferred income tax: Origination and reversal of temporary differences ( 219,555) ( 311,623) Income tax expense $ 825,232 $ 2,199,782 For the six-month periods ended June 30, 2017 2016 Current tax Current tax on profits for the period $ 2,331,445 $ 2,684,152 Income tax attributed to adjustments of prior years income tax ( 587,880) ( 5,726) Separate income tax 41 99 Additional 10% tax on distributed 962 888,662 Totalearnings current tax 1,744,568 3,567,187 Deferred income tax: Origination and reversal of temporary differences ( 164,291) ( 191,587) Income tax expense $ 1,580,277 $ 3,375,600
B. As of June 30, 2017, December 31, 2016 and June 30, 2016, the balances of the imputation tax credit account were $8,430,489, $4,972,685 and $8,029,386, respectively. The creditable tax rates was estimated to be 14.60% for 2016 and the actual rate was 13.86% for 2015. C. Unappropriated retained earnings: June 30, 2017 December 31, 2016 June 30, 2016 Earnings generated in and after 1998$ 49,482,593 $ 56,976,974 $ 44,430,381 D. Assessment of income tax returns (a) The Company’s profit-seeking enterprise income tax return through 2011 was assessed by the Tax Authority. (b) MICB’s income tax returns up to 2011 have been assessed by the Tax Authority. MICB does not agree with the assessment for 2009 and the Company has filed an appeal for reinvestigation of 2009 income tax returns on behalf of MICB. (c) MS’s income tax returns up to 2011 have been assessed by the Tax Authority. MS does not agree with the assessment for 2005, 2010 and 2011 and has filed for an administrative remedy to relevant regulations.
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(d) As of June 30, 2017, CKI, MITC, Mega Life Insurance Agency Co., Ltd. and MAMs’ income tax returns through 2011 have been examined by the Tax Authorities. (e) MBF and Mega Venture Capital’s income tax returns through 2011 were assessed by the Tax Authority. MBF and Mega Venture Capital did not agree with the assessment of 2009, 2010 and 2011 and the Company has filed an appeal for reinvestigation of 2009, 2010 and 2011 income tax returns on behalf of MBF and Mega Venture Capital. (40) Earnings per share Basic and diluted earnings per share For the three-month periods ended June 30, 2017 2016 Profit attributable to ordinary stockholders of the Company $ 7,118,678 $ 1,785,664 Weighted-average number of shares outstanding (In thousands of shares) 13,599,824 13,599,824 Basic earnings per share (In dollars) $ 0.52 $ 0.13 For the six-month periods ended June 30, 2017 2016 Profit attributable to ordinary stockholders of the Company $ 14,522,147 $ 9,438,982 Weighted-average number of shares outstanding (In thousands of shares) 13,599,824 13,599,824 $ 1.07 $ 0.69 Basic earnings per share (In dollars) 7. FAIR VALUE AND LEVEL INFORMATION OF FINANCIAL INSTRUMENTS (1) Overview Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial instruments are initially recognised by fair value, which is transaction price in most cases. Subsequent recognitions are measured by fair value except that certain financial instruments are recognised by amortized cost or cost. If the quoted market price of a financial instrument is available in an active market, the quoted price is the fair value. If the market in which financial instruments traded is not active, the Group then adopts valuation technique or takes reference to Bloomberg or the fair value of financial instrument from counterparties. (2) Fair value information of financial instruments Except for those listed in the table below, the carrying amount of some of the Group’s financial instruments (e.g. cash and cash equivalents, due from Central Bank and call loans to other banks, bills and bonds purchased under resale agreement, receivables, loans discounted, refundable deposits, deposits from the Central Bank and banks, due to Central Bank and other banks, bills and bonds sold under repurchase agreements, payables, deposits and remittances, bonds payable, other financial liabilities and guarantee deposits) is approximate to their fair value (please refer to Note 7 (5)). The fair value information of financial instruments measured at fair value is provided in Note 7(6).
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June 30, 2017 Carrying value Fair value Held-to-maturity financial assets, net $ 22,301,699 $ 22,358,191 $ 444,932 $ 449,336 Debt instruments without active market-CKI December 31, 2016 Carrying value Fair value Held-to-maturity financial assets, net $ 21,935,217 $ 21,922,772 Debt instruments without active market-CKI $ 492,825 $ 495,905 June 30, 2016 Carrying value Fair value Held-to-maturity financial assets, net $ 23,085,923 $ 23,156,050 $ 594,602 $ 601,789 Debt instruments without active market-CKI For the above-mentioned held to maturity financial assets-bond investment are considered Level 1 and Level 2 within the fair value hierarchy; investments in debt instruments without an active market are considered Level 2 within the fair value hierarchy. (3) Financial instruments at fair value through profit or loss If the market quotation from a stock exchange, brokers, underwriters, Industrial Trade Unions, pricing service agencies or competent authorities can be frequently obtained on time, and the price represents the actual and frequent transactions at arm’s length, then a financial instrument is deemed to have an active market. If financial instruments do not satisfy the criteria above, they are regarded as not having active market. In general, significant price variance between the purchase price and selling price, or extremely low trading volume are all indicators of an inactive market. If the quoted market price of a financial instrument is available in an active market, the quoted price is the fair value. Usually the fair value is measured using the market price, interest rate, foreign exchange central parity rate shown in Reuters quotation system, partially using the quoted prices from Bloomberg, Taipei Exchange, or counterparties, and the basis for valuation is maintained consistently. If there is no quoted market price for reference, a valuation technique or quoted price offer by the counterparties will be adopted to measure the fair value. Fair value measured by a valuation technique is usually estimated by reference to the fair values of other financial instruments with similar terms and characteristics, or by using cash flows discounting method, or using model calculation based on the market information (such as yield rate curves from the Taipei Exchange, average interest rate of commercial papers from Reuters) available on the balance sheet date. For more complicated financial instruments, such as debt instruments with embedded derivative instruments or securitization products, the Group develops its own valuation models to estimate fair value by reference to the valuation techniques and methods which are extensively used by the same trade. Parts of parameters used in these valuation models are not observable from the market; they must be estimated by using some assumptions. A. NTD Central Government Bond: the yield rates across different contract length and one- hundred price bulletined by Over-The-Counter (hereinafter Taipei Exchange) are used. B. NTD corporate bonds, financial debentures, government bonds, bond-type beneficiary securities and designated financial debentures issued by the Group: the present value of future estimated cash flows is calculated by using the yield rate curve from Taipei Exchange. C. Short-term bills and bill-type beneficiary securities: the present value of future estimated cash flows of NTD and USD short-term bills is calculated by using average interest rate of commercial papers and TAIFX3 central parity rate from Reuters, respectively.
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D. Foreign securities: quoted prices from Bloomberg or counterparties are adopted. E. Listed stock ：The closing price being listed in TSE is adopted. F. Unlisted stock and domestic/foreign partnership-type fund: If the object recently has representative trading, its trading price might be the best estimate of its fair value. If the object has comparable listed trades, its fair value can be estimated by using appropriate market method, such as P/E method, P/B method, EV/EBIT method or EBITDA×EV method, taking into account the operation condition of the comparable listed companies, most recent one month trading information and its liquidity. And if the object has no comparable instruments or its fair value cannot be estimated using market method, other valuation technique, such as net assets method or income approach, is used to estimate its fair value. G. Funds ：Net fund value is adopted. H. Derivative financial instruments: (a) Foreign exchange forward contract, currency swaps, forward rate agreement, interest rate swaps and cross currency swaps: the discounting future cash flow is adopted. (b) Options: Black-Scholes model is mainly adopted for valuation. (c) Some structured derivative financial instruments are valued by using BGM model. (d) Some foreign-currency derivatives are valued by using the quoted prices from Bloomberg or counterparties. (4) Credit risk value adjustment A. Credit risk value adjustments can be primarily classified as either credit value adjustments or debit value adjustments. The definitions are as follows: (a) Credit value adjustments refer to adjustments through fair value, which reflect the possibility that a counterparty may default on repayments and that an entity may not be able to recover, in full, the market value, for transactions in non-centralised markets (i.e. valuation adjustments on derivative contracts traded over-the-counter). (b) Debit value adjustments refer to adjustments through fair value, which reflect the possibility that an entity may default on repayments and that an entity may not be able to pay, in full, the market value, for transactions in non-centralised markets (i.e. valuation adjustments on derivative contracts traded over-the-counter). B. The Consolidated Company has incorporated credit risk value adjustments in the considerations for calculating the fair value of financial instruments in order to respectively reflect the counterparty’s credit risk and the Consolidated Company’s credit quality. (5) Fair value of financial instruments not measured at fair value through profit or loss A. In relation to cash and cash equivalents, bills and bonds purchased under resale agreements, due from the Central Bank and call loans to banks, receivables, restricted assets, refundable deposits, due to the Central Bank and financial institutions, funds borrowed from the Central Bank and other banks, bills and bonds sold under repurchase agreements, payables and refundable deposits, the book value of the financial instruments which have a short maturity period will be considered as their fair value. While the maturities are quite close or the future payment or receipt is close to the carrying amount, the carrying amount at the consolidated balance sheet date is used to estimate the fair value. B. Interest rates of subsidiaries’ bills discounted and loans (including non-performing loans) are generally based on the benchmark interest rate plus or minus certain adjustment to reflect the market interest rate. Thus, their fair values are based on the book value after adjustments of estimated recoverability. Fair values for long-term loans with fixed interest rates shall be estimated using their discounted values of expected future cash flows. However, as such loans account for only a small portion of all loans, book value was used to estimate the fair value.
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C. When there is a quoted market price available in an active market, the fair value of held-to- maturity financial assets is determined using the market price. If there is no quoted market price for reference, a valuation technique or quoted price offer by the counterparties will be adopted to measure the fair value. D. The fair values of deposits and remittances are represented by their book values. E. The coupon rate of convertible bonds and financial bonds issued by the Group is equivalent to market interest rate; therefore, fair value estimated based on the present value of future cash flows is equivalent to book value. F. Other financial assets-other than public pricing information from the Taipei Exchange being the fair value for part of the debt instruments without an active market, governmental bonds refer to the bond fair values of each period, while the remaining bonds refer to the yield/price conversion table of sales offices for bonds. These fair values are considered Level 2. For related disclosures, please refer to Note 7(2). For the remaining investments in debt instruments without an active market and financial assets measured at cost, due to the absence of active market quotes and the differences of evaluating prices being substantial, the fair value cannot be reasonably measured and is thus not disclosed. (6) Level information of financial instruments at fair value A. Three definitions of the Group’s financial instruments at fair value (a) Level 1 (1) Quoted prices (unadjusted) in active markets for identical assets or liabilities that are deemed as level 1. A market is regarded as active when all of the following conditions are met: commodities in the market have identical characteristics; buyers and sellers in the market are readily available for transaction and pricing information is publicly available. The Group’s investments in listed stocks, OTC stocks, beneficiary certificates, active central government bonds and derivatives with quoted prices in an active market are all deemed as Level 1. (b) Level 2 Observable prices other than the quoted prices in an active market comprise direct (e.g. prices) or indirect (e.g. derived from prices) observable inputs obtained from an active market. The Group’s investments in non-popular government bonds, corporate bonds, financial bonds, convertible bonds and most derivative instruments and corporate bonds issued by the Group belong to this category. (c) Level 3 Inputs for assets or liabilities that are not based on observable inputs through the market are deemed as Level 3. A portion of the Group’s derivatives and equity instruments without an active market are deemed as Level 3.
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B. Information of fair value hierarchy of financial instruments June 30, 2017 Recurring fair value measurements Total Level 1 Level 2 Level 3 Non-derivative financial instruments Assets Financial assets held for trading Investment in bills $ 109,701,661 $ - $ 109,701,661 $ - Investment in stocks 7,575,609 7,392,230 177,338 6,041 Investment in bonds 48,228,323 577,246 47,651,077 - Others 399,583 399,583 - - Financial assets designated as at fair value through profit or loss 3,937,332 - 3,937,332 - Available-for-sale financial assets Investment in bills 50,914,328 - 50,914,328 - Investment in stocks 16,320,455 13,546,504 2,773,951 - Investment in bonds 320,101,938 25,239,467 294,862,471 - Others 1,109,447 598,118 511,329 - Liabilities Financial liabilities held for trading ( 546,479) ( 544,865) ( 1,614) - Financial liabilities designated as at fair value through profit or loss ( 7,960,462) - ( 7,960,462) - Derivative financial instruments Assets Financial assets at fair value through profit or loss 3,284,191 151,229 3,132,954 8 Liabilities Financial liabilities at fair value through profit or loss ( 2,630,232) - ( 2,630,064) ( 168)
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Recurring fair value measurements December 31, 2016 Total Level 1 Level 2 Level 3 Non-derivative financial Assetsinstruments Financial assets held for trading Investment in bills $ 120,027,368 $ - $ 120,027,368 $ - Investment in stocks 4,557,071 4,175,257 341,215 40,599 Investment in bonds 52,763,031 1,044,000 51,719,031 - Others 257,635 257,635 - - Financial assets designated as at fair value through profit or loss 4,685,025 5,425 4,679,600 - Available-for-sale financial assets Investment in bills 29,279,878 - 29,279,878 - Investment in stocks 15,019,274 14,156,470 862,804 - Investment in bonds 308,944,643 23,992,846 284,951,797 - Others 1,220,913 647,622 573,291 - Liabilities Financial liabilities held for trading ( 439,377) ( 416,833) ( 22,544) - Financial liabilities designated as at fair value through profit or loss ( 8,176,700) - ( 8,176,700) - Derivative financial instruments Assets Financial assets at fair value through profit or loss 4,027,243 127,227 3,899,221 795 Liabilities Financial liabilities at fair value through profit or loss ( 3,489,154) - ( 3,488,973) ( 181)
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Recurring fair value measurements June 30, 2016 Total Level 1 Level 2 Level 3 Non-derivative financial instruments Assets Financial assets held for trading Investment in bills $ 117,516,083 $ - $ 117,516,083 $ - Investment in stocks 4,789,279 4,471,303 315,055 2,921 Investment in bonds 61,394,531 1,975,555 59,418,976 - Others 903,725 903,725 - - Financial assets designated as at fair value through profit or loss 5,417,604 - 5,417,604 - Available-for-sale financial assets Investment in bills 54,223,481 - 54,223,481 - Investment in stocks 15,608,158 13,649,363 1,958,795 - Investment in bonds 281,790,268 23,258,735 258,531,533 - Others 1,657,726 1,033,796 623,930 - Liabilities Financial liabilities held for trading ( 897,602) ( 892,119) ( 5,483) - Financial liabilities designated as at fair value through profit or loss ( 17,901,773) - ( 17,901,773) - Derivative financial instruments Assets Financial assets at fair value through profit or loss 5,672,733 175,414 5,497,304 15 Liabilities Financial liabilities at fair value through profit or loss ( 4,172,012) - ( 4,171,419) ( 593)
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C. The transfer between Level 1 and Level 2. On June 30, 2017, the balance of MICB’s held 2017 Fiscal Year Order 4 Order 5 Category 1 Central Government Construction Bonds was $4,171,351 and $299,576, respectively. Due to the bonds becoming active securities in the Index, thus the bonds were transferred from Level 2 to Level 1.The balance of MICB’s held 2016 Fiscal Year Order 11 Category 1 Central Government Construction Bonds was $143,811. Due to the bonds becoming inactive securities in the Index, thus the bonds were transferred from Level 1 to Level 2. On December 31, 2016, the balance of MICB’s held 2015 Fiscal Year Order 12 and Order 13 Category 1 Central Government Construction Bonds was $797,688 and $608,634, respectively. Due to the bonds becoming inactive securities in the Index, thus the bonds were transferred from Level 1 to Level 2. On June 30, 2016, the balance of MICB’s held 2015 Fiscal Year Order 12 and Order 13 Category 1 Central Government Construction Bonds was $309,548 and $617,900, respectively. Due to the bonds becoming inactive securities in the Index, thus the bonds were transferred from Level 1 to Level 2. Reason for MS’s transfers between Level 1 and Level 2: Transfers to Level 2 were primarily due to decreases in the volume of transactions, reducing the information of public quotes available in active markets; transfers to Level 1 were primarily due to increases in the volume of transactions, enlarging the information of public quotes available in active markets. D. Movements of financial assets and liabilities classified into Level 3 of fair value are as follows: (a) Movements of financial assets classified into Level 3 of fair value are as follows:
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For the six-month period ended June 30, 2017 Valuation gain or loss Addition Reduction Recognised as Item other January 1, Recognised comprehensive Purchased Transferred Sold, disposed Transferred 2017 as loss income or issued to Level 3 or settled from Level 3 June 30, 2017 Non-derivative financial instruments Financial assets at fair value through profit or loss Financial assets held for trading$ 40,599 ($ 6,460) $ - $ 4,014 $ 8,093 ($ 10,287) ($ 29,918) $ 6,041 Derivative financial instruments Financial assets at fair value 795 ( 328) - 1,098 - ( 1,557) - 8 through profit or loss Total$ 41,394 ($ 6,788) $ - $ 5,112 $ 8,093 ($ 11,844) ($ 29,918) $ 6,049
For the six-month period ended June 30, 2016 Valuation gain or loss Addition Reduction Recognised as Item Recognised other January 1, as profit comprehensive Purchased or Transferred Sold, disposed Transferred 2016 (loss) income issued to Level 3 or settled from Level 3 June 30, 2016 Non-derivative financial instruments Financial assets at fair value through profit or loss Financial assets held for trading$ 23,800 $ 138 $ - $ 48,830 $ 17,724 ($ 51,774) ($ 35,797) $ 2,921 Derivative financial instruments Financial assets at fair value 517 ( 201) - 1,155 - ( 1,456) - 15 through profit or loss Total$ 24,317 ($ 63) $ - $ 49,985 $ 17,724 ($ 53,230) ($ 35,797) $ 2,936
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(b) Movements of financial liabilities classified into Level 3 of fair value are as follows:
For the six-month period ended June 30, 2017 Valuation gain or loss Addition Reduction Recognised as Item other January 1, Recognised as comprehensive Purchased or Transferred Sold, disposed Transferred 2017 profit income issued to Level 3 or settled from Level 3 June 30, 2017 Liabilities Financial liabilities at fair value through profit or ($ 181) $ 32 $ - ($ 1,095) $ - $ 1,076 $ - ($ 168) loss For the six-month period ended June 30, 2016 Valuation gain or loss Addition Reduction Recognised as Item other January 1, Recognised as comprehensive Purchased or Transferred Sold, disposed Transferred June 30, 2016 loss income issued to Level 3 or settled from Level 3 2016 Liabilities Financial liabilities at fair value through profit or ($ 171) ($ 84) $ - ($ 1,365) $ - $ 1,027 $ - ($ 593) loss For the transfers from Level 3, the fair value of financial instruments were measured from observable market prices instead of the fair value from counterparties, therefore, these were transferred to Level 2.
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(c) The measure of fair value for Level 3, the sensitivity analysis for the reasonable alternative hypothesis of the fair value The Group’s fair value measurement of financial instruments was reasonable, if valued using different model or parameters, it would obtain different results. For Level 3, if the parameters of valuation varied up or down by 10%, the effect on profit or loss would be shown as follows: Changes in the fair value recognized in the current June 30, 2017 profit or loss Favorable changes Unfavorable changes The level 3 of financial instruments$ 608 ($ 608) Changes in the fair value recognized in the current December 31, 2016 profit or loss Favorable changes Unfavorable changes The level 3 of financial instruments$ 4,151 ($ 4,147) Changes in the fair value recognized in the current June 30, 2016 profit or loss Favorable changes Unfavorable changes The level 3 of financial instruments$ 296 ($ 296) The favorable changes and unfavorable changes meant the fluctuation of fair value, and the fair value was calculated by the unobservable parameters in different levels, if the fair value of financial instrument was affected by one of the above parameters, the favorable changes and unfavorable changes would not consider the correlation and variability in the table. (d) Quantitative information of fair value measurement of significant unobservable inputs (level 3) Fair value of the subsidiary–MS belongs to level 3 because of the financial assets– emerging stocks that are measured at fair value through profit or loss and derivative instruments – structured products. Fair value of the subsidiary–MS belongs to emerging stocks of level 3 because there is only single significant unobservable input. Derivative instruments–structured products have several significant unobservable inputs. As significant unobservable inputs of derivative instruments – structured products are independent from each other, the inputs have no relation.
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Table below summarises quantitative information of significant unobservable inputs, Range June 30, 2017 Fair Significant unobservable (weighted value Valuation technique input average) Relationship of inputs to fair value Items measured at fair value on a recurring basis Non-derivative financial assets Financial assets measured at fair value through profit or loss Financial assets held for trading Equity investment $ 6,041 Determined using the Lack of liquidity discount 20%~30% The higher of lack of liquidity discount, the Multiple Pricing Model lower the fair value is. Derivative financial assets Structured products 8 Determined using the Price volatility 30% The higher the price volatility, the higher the Option Pricing Model value of options is. Issuance of ELN was verified by the for the purchase of options, thus the higher subsidiary– MS the price volatility, the lower the fair value is. Derivative financial liabilities Structured products ( 168) Determined using the Price volatility 20% The higher the price volatility, the higher the Option Pricing Model value of options is. Issuance of PGN was verified by the for the sale of options, thus the higher the subsidiary – MS price volatility, the higher the fair value is.
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Range December 31, 2016 Significant unobservable (weighted Fair value Valuation technique input average) Relationship of inputs to fair value Items measured at fair value on a recurring basis Non-derivative financial assets Financial assets measured at fair value through profit or loss Financial assets held for trading Equity investment $ 40,599 Determined using the Multiple Lack of liquidity discount 20%~30 The higher of lack of liquidity discount, the lower Pricing Model % the fair value is. Derivative financial assets Structured products 795 Determined using the Option Price volatility 13%~31 The higher the price volatility, the higher the value Pricing Model verified by % of options is. Issuance of ELN was for the the subsidiary – MS purchase of options, thus the higher the price volatility, the lower the fair value is. Derivative financial liabilities Structured products ( 181) Determined using the Price volatility 20% The higher the price volatility, the higher the value Option Pricing Model of options is. Issuance of PGN was for the sale verified by the subsidiary of options, thus the higher the price volatility, – MS the higher the fair value is.
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Range June 30, 2016 Significant unobservable (weighted Fair value Valuation technique input average) Relationship of inputs to fair value Items measured at fair value on a recurring basis Non-derivative financial assets Financial assets measured at fair value through profit or loss Financial assets held for trading Equity investment $ 2,921 Determined using the Multiple Lack of liquidity discount 20%-30% The higher of lack of liquidity discount, the lower Pricing Model the fair value is. Derivative financial assets Structured products 15 Determined using the Option Price volatility 24%~31% The higher the price volatility, the higher the value Pricing Model verified by of options is. Issuance of ELN was for the the subsidiary – MS purchase of options, thus the higher the price volatility, the lower the fair value is. Derivative financial liabilities Structured products ( 593) Determined using the Option Price volatility 20% The higher the price volatility, the higher the value Pricing Model verified by of options is. Issuance of PGN was for the sale the subsidiary – MS of options, thus the higher the price volatility, the higher the fair value is.
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(e) Fair value measurement process for instruments classified in Level 3 The financial instrument assessment team is in charge of valuation procedures for fair value measurements, which is to verify independent fair value of financial instruments. Such assessment is to ensure the valuation results are reasonable by applying independent information to make results close to current market conditions, confirming the resource of information is independent, reliable and in line with other resources and represented as the exercisable price, and frequently calibrating valuation model, performing back-testing, updating inputs used to the valuation model and making any other necessary adjustments to the fair value. 8. THE MANAGEMENT OBJECTIVES AND POLICIES OF FINANCIAL RISKS (1) Overview The Group earns profits mainly from lending, financial instruments trading, investments, brokerage, financial planning, assets management and insurance businesses. The Group is supposed to bear and manage any risks from these business activities. These risks include credit risk, market risk, operating risk, liquidity risk and insurance risk. Among those risks, credit risk, market risk and liquidity risk have greatest impact. The Group regards any potential factors that might negatively affect earnings and reputation as risks. To maintain steady profits and good reputation and avoid losses from incidental events, the Group’s risk management policies focus on prevention and reduction of anticipated business risks and increase of capital in response to future anticipated risks. In order to meet the solid operating requirements by the competent authorities, depositors and other stakeholders for management objectives for risks, business risks are controlled within the tolerable scope. (2) The organisation framework of risk management The Group has established risk management policies and guidelines and whole risk tolerance of the Group. Subsidiaries therefore follow the Company’s instructions in setting risk management organisation, policies, objectives, regulations, internal control procedures, risk monitor mechanism and risk limits, and report to the Company on risk management issues. Therefore, overall risk management structure and reporting systems of the Group is completely established. The Board of Directors is the highest decision-making unit of the Group’s risk management and is responsible for establishment and effective operation of the risk management system. The system includes risk management policies, standards and guidelines, organisation structure, risk preference, internal control system and management of significant business cases. Under the Board of Directors, the risk management committee is established. The risk management committee is responsible for examination and monitor of risk management. The Company and significant subsidiaries all have risk management unit, being a part of the risk management committee and responsible for supervising the establishment of risk management mechanism, risk limits allocation, risk monitor and reporting. Under the management, several committees and other administrative units are established. They are responsible for risk review and control of credits, investments, trading and assets/liabilities management businesses. Administrative unit of each subsidiary is responsible for identifying the possible risks of businesses, establishing internal control procedures and regulations, measuring risk degrees regularly and adopting responding measures for any negative effects. Business units follow operating guidance and report to the management units directly. Risk
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management unit is responsible for monitoring of overall risk positions and concentration, and summarising relevant details before reporting to the management or Board of Directors. Auditing office examines the operations of business and administration units regularly or irregularly to ensure the three risk management defense lines operate normally. The Company has assigned personnel to sit on the Board of Directors of each subsidiary to monitor the governance of each subsidiary. (3) Credit risk A. The source and definition of credit risk Credit risk pertains to the risk of loss that the borrowers, issuers or counterparties might default on contracts due to deterioration in their financial position or other factors. The Group is exposed to credit risk mainly on businesses of corporate and individual loans, guarantees, trade financing, interbank deposits and call loans and securities investments. Credit risk is the primary risk of the Group’s capital expenditure. B. Credit risk management policies The objectives of the Group’s credit risk management are to maintain stable assets allocation strategy, careful lending policy and excellent assets quality to secure assets and earnings. The Group’s risk management department is responsible for supervision of the Group’s credit risk and regularly submits summary report to the Board of Directors and the management. The management mechanism of subsidiaries for credit risk includes, (a) The establishment of assets/liabilities, risk management, lending and investment committees which adopt responding measures to market environment, changes in industry, and capital limits, and review relevant regulations and cases of significant lending and investments. Setting careful prior review procedures for lending and criteria of handling subsequent matters, regular post-lending follow-up, understanding of clients’ operation and capital outflows, and increase in the frequency of review on clients with higher risk. (b) Classifying credit ratings based on clients’ probability of default or behavior scoring with management put in practice. (c) Controlling concentration of credit risk by setting credit limits for individuals, corporate groups, industries, areas, and different types of collaterals. (d) Setting credit risk limits by reference to external ratings and prospects with attention to changes in market credit spread and risk concentration of counterparties. (e) Establishing the pre-warning list of credit and reporting system. (f) Assessing assets quality regularly and setting aside sufficient reserve for losses. (g) Setting the management unit and the audit committee of the creditor’s right for accelerating collection of non-performing loans. i. Credit extensions Classification of credit assets and internal risk ratings are as follows: I. Classification of credit assets (2) Corporate credit risk is measured by using the borrower’s default probability model with logistic regression analysis in which financial and non-financial factors are incorporated, which predicts the default probability of borrower within the next year. Besides, the extent of risk is measured by using credit rating table
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and taking into account the characteristics and scale of business. Lending examination and post management are dealt with based on clients’ credit rating. Individual borrowers are grouped into different risk levels and managed by using application scoring and behavior scoring cards. Back-testing is conducted on internal models regularly; those models are subject to adjustments when necessary. Clients’ credit ratings are reviewed annually and subject to adjustments when there is significant change in their credit ratings. II. Internal risk rating, (3) The internal rating for lending is classified as excellent, satisfactory, fair and weaker, which corresponds to the Standard & Poor rating as follows: Internal risk rating Excellent Satisfactory Fair Weaker No rating Corresponding to S&P AAA~BBB- BB+~ BB- B+ B and below NA ii. Interbank deposits and call loans (4) Before trading with other banks, the Group assesses their credit by reference to their ratings offered by external rating agencies, their assets and scales of owners’ equity and their country risks, and therefore set credit risk limits for each of them. The Group monitors changes in market prices of the financial instruments issued by those banks and CDS quoted prices daily to keep attention to their risk. iii. Bonds and derivative instruments The limits of bonds purchased by the Group are set by considering the credit rating of bond issuers or guarantors (ex. S&P, Moody’s, Fitch, Taiwan ratings or Fitch Taiwan), which needs to meet the minimum rating set by the Board of Directors, and country risk at the application, share price of issuers, changes in CDS quoted prices, earnings, market condition, and capital utilisation status of the applying unit. (5) Subsidiaries have set trading units and overall total risk limit for non-hedging derivative instruments, and use positive trading contract evaluation as the basis for calculating credit risk and add the limit to the total credit risk limit for monitoring. iv. Asset quality (6) The Group has set the minimum requirements and examination procedures for the quality of financial assets of each type, and controls risk concentration of assets portfolios of each type based on the risk limit of each type. The Group also monitors the changes in assets quality regularly during the duration of the assets and takes measures to maintain their quality. According to the policies and regulations, reserve for losses is provided adequately for those assets to actually reflect and safeguard the value of owners’ equity. v. Impairment of financial assets and provision for reserves I. Impairment policy (7) Each subsidiary assesses at each balance sheet date whether a financial asset is impaired. If there is objective evidence that an event that occurred after the initial recognition of the asset has an impact on the future cash flows of the financial asset, the impairment loss on the financial asset should be recognised. II. The objective evidence of an impairment loss is as follows: (I) Significant financial difficulty of the issuer or debtor; (II) The issuer or debtor has breached the contract;
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(III) The Group, for economic or legal reasons relating to the borrower’s financial difficulty, granted the borrower a concession; (IV) It becomes probable that the borrower will enter bankruptcy or other financial reorganisation; (V) The disappearance of an active market for that financial asset because of financial difficulties; or observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial asset in the group, including, (8) (i) Adverse changes in the payment status of borrowers in the group; or (ii) Adverse changes in national or local economic conditions that correlate with defaults on the assets in the group. Financial assets that are not impaired are included in the group of financial assets sharing similar credit risk characteristics for group assessment. Financial assets that are assessed individually with impairment recognised need not be included in the group assessment. The amount of the impairment loss is the difference between the financial assets’ book value and the estimated future cash flow discounted using the original effective interest rate. The present value of estimated future cash flows must reflect the cash flows that might be generated from collaterals less acquisition or selling cost regarding the collateral. (9) Financial assets through group assessment are grouped based on similar credit risk characteristics, such as types of assets, industry and collaterals. Such credit risk characteristics represent the ability of the debtors to pay all the amounts at maturities according to the contract term, which is related to future cash flows of group of financial assets. The future cash flows of group of financial assets for group assessment are estimated based on historical impairment experience, reflecting the change in observable data for each period, and the estimation of the future cash flows should move in the same direction. The Group reviews the assumptions and methods for estimation of the future cash flows regularly. III. Policies of loan loss provision and guarantee reserve (10) For loan loss provision and guarantee reserve, the subsidiaries have established the regulations for assets assessment and loss reserve. According to the regulations of the Financial Supervisory Commission for banks, bills companies and insurance companies, all assets in balance sheets and off balance sheets are classified as five categories. For credit assets on balance sheets and off balance sheets, in addition to normal credit assets which shall be classified as "Category One", the remaining unsound credit assets that required special attention shall be evaluated based on the status of the creditor’s right, loan collaterals and the length of time overdue, and classified as "Category Two". Assets that are substandard shall be classified as "Category Three". Assets that are doubtful shall be classified as "Category Four", and assets for which there is loss shall be classified as "Category Five”. "Category Two" to "Category Five” shall be assessed individually for possible loss and set aside sufficient loss provision.
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And loss provision shall be also set aside for "Category One" proportionately in accordance with regulations by competent authorities. C. Policies of hedging or mitigation of credit risk To reduce credit risk, the Group adopts the following policies. (a) Obtaining collaterals and guarantors (11) Subsidiaries have established regulations on collateral management, mortgage loan line setting, scope of collaterals, collateral valuation, collateral management and disposal. Besides, protection of creditor’s right, collateral terms and offsetting terms are all addressed in the credit extension contract in case of any occurrence of credit event, of which the amount may be deductible, loan repayment schedule may be shortened or deemed as matured, or the debtor’s deposits can be used to offset its liabilities to mitigate credit risks. (b) Loan limit control (12) To avoid extreme credit risk concentration, subsidiaries established policies for control of credit risk concentration and set up credit extension limit for a single individual, a single group, a single industry, a single area/country, and single collateral. (c) Net settlement agreement (13) The Group has net settlement agreements with some counterparties. If the counterparty defaults, all transactions with the counterparty will be terminated and be settled by net amount to further reduce credit risk. (d) Other credit enhancements The Group upon formulation of the credit agreement included an offsetting clause, which clearly stipulated that upon the occurrence of a credit incident, deposits to the Group by the debtor may be offset with the debtor’s liabilities and guarantees from third-parties or financial institutions may be acquired to mitigate the credit risk. D. The maximum exposure to credit risk The maximum exposure to credit risk of financial asset was presented by book amount in the balance sheet, and the guarantee and letters of credit and irrevocable commitments off balance sheet calculated the maximum exposure to credit risk by the credit limit. Off-balance-sheet guarantees and commitments June 30, 2017 December 31, 2016 June 30, 2016 Government organisation $ 85,511,194 $ 84,705,196 $ 85,411,246 Finance, investment and insurance 65,680,586 56,519,710 65,178,568 Corporate and commerce 365,093,920 381,845,072 391,780,846 Personal 56,527,031 56,710,159 57,905,769 Others 2,063,467 1,646,707 1,569,141 Total $ 574,876,198 $ 581,426,844 $ 601,845,570
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(a) Relevant financial information on effect of the Group’s assets exposed to credit risk, net settlement master netting arrangements and other credit improvements is as follows:
Net settlement master Other credit June 30, 2017 Collateral netting arrangements improvements Total On-Balance-Sheet Items Cash and cash equivalents $ 1,210,634 $ - $ - $ 1,210,634 Financial assets at fair value through profit or loss - debt instrument - - 14,284,495 14,284,495 - derivative instrument 1,388,856 1,307,246 - 2,696,102 Available-for-sale financial assets - debt - - 18,211,996 18,211,996 Bills and bonds purchased under resale agreements 2,397,332 - - 2,397,332 Receivables 20,728,406 - - 20,728,406 Bills discounted and loans 1,105,774,603 - 50,446,918 1,156,221,521 Held-to-maturity financial assets - debt instrument - - 3,324,985 3,324,985 Other assets 64,643 - - 64,643 Subtotal 1,131,564,474 1,307,246 86,268,394 1,219,140,114
Off-Balance-Sheet Items Irrevocable commitments 88,960,218 - 1,060,043 90,020,261 Guarantees 138,919,274 - 1,102,253 140,021,527 Letters of credit 12,885,680 - 353,541 13,239,221 Subtotal 240,765,172 - 2,515,837 243,281,009 Total $ 1,372,329,646 $ 1,307,246 $ 88,784,231 $ 1,462,421,123 Net settlement master Other credit December 31, 2016 Collateral netting arrangements improvements Total On-Balance-Sheet Items Cash and cash equivalents $ 1,221,411 $ - $ - $ 1,221,411 Financial assets at fair value through profit or loss - debt instrument - - 17,304,432 17,304,432 - derivative instrument 908,272 1,210,607 - 2,118,879 Available-for-sale financial assets - debt instrument - - 12,351,956 12,351,956 Bills and bonds purchased under resale agreements 2,828,603 - - 2,828,603 Receivables 20,474,854 - - 20,474,854 Bills discounted and loans 1,107,932,816 - 54,229,707 1,162,162,523 Held-to-maturity financial assets - debt instrument - - 3,702,803 3,702,803 Other assets 188,844 - - 188,844 Subtotal 1,133,554,800 1,210,607 87,588,898 1,222,354,305
Off-Balance-Sheet Items Irrevocable commitments 84,165,391 - 1,206,122 85,371,513 Guarantees 141,935,209 - 1,301,032 143,236,241 Letters of credit 15,488,082 - 551,205 16,039,287 Subtotal 241,588,682 - 3,058,359 244,647,041 Total $ 1,375,143,482 $ 1,210,607 $ 90,647,257 $ 1,467,001,346
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Net settlement master Other credit June 30, 2016 Collateral netting arrangements improvements Total On-Balance-Sheet Items Cash and cash equivalents $ 1,005,744 $ - $ - $ 1,005,744 Financial assets at fair value through profit or loss - debt instrument - - 17,778,008 17,778,008 - derivative instrument 2,234,310 813,231 - 3,047,541 Available-for-sale financial assets - debt - - 20,594,746 20,594,746 Bills and bonds purchased under resale agreements 9,369,950 - - 9,369,950 Receivables 24,361,208 - - 24,361,208 Bills discounted and loans 1,091,139,573 - 60,185,696 1,151,325,269 Held-to-maturity financial assets - debt instrument - - 4,009,612 4,009,612 Other assets 409,160 - - 409,160 Subtotal 1,128,519,945 813,231 102,568,062 1,231,901,238
Off-Balance-Sheet Items Irrevocable commitments 81,631,995 - 2,021,067 83,653,062 Guarantees 141,557,633 - 1,553,126 143,110,759 Letters of credit 11,758,712 - 871,030 12,629,742 Subtotal 234,948,340 - 4,445,223 239,393,563 Total $ 1,363,468,285 $ 813,231 $ 107,013,285 $ 1,471,294,801 (Note 1) Collaterals include property, movable property, certification of authorization, securities, certificates of deposits, notes receivable and rights in property. i. Value of collaterals pledged for assets that arise from lending is the lower of collateral value/ market value and maximum exposure amount. If the collateral value cannot be obtained, value of collaterals must be assessed. ii. Value of collaterals pledged for assets that do not arise from lending is the lower of market value and maximum exposure amount. (Note 2) Details of improvement to net settlement master netting arrangements and other credits are provided in Note 8(3) C. (C) and C. (D).
(b) Transfer of financial assets i. Transferred financial assets that are not derecognised in their entirety The Group’s transferred financial assets that do not meet derecognition conditions are mainly debt instruments with purchase agreements or equity securities lent out based on security lending agreements. The financial assets have been transferred when collecting the cash flow of the contract, and related liabilities of transferred financial assets that will be repurchased at a fixed price in the future have been reflected. The Group may not use, sell or pledge the transferred financial assets during the valid period of the transaction. The financial assets were not derecognised as the consolidated company is still exposed to interest rate risk and credit risk. Financial assets that do not meet the derecognition conditions and related financial liabilities are analysed as follows:
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June 30, 2017 Carrying amount of Carrying amount Financial assets category financial assets of associated transferred financial liabilities Bills and bonds purchased under resale agreements Repurchase agreement$ 458,549 $ 430,200 Financial assets measured at fair value through profit or loss Repurchase agreement 71,441,466 71,434,172 Available-for-sale financial assets, net Repurchase agreement 51,396,575 48,349,027 December 31, 2016 Carrying amount of Carrying amount Financial assets category financial assets of associated transferred financial liabilities Bills and bonds purchased under resale agreements Repurchase agreement $ - $ - Financial assets measured at fair value through profit or loss Repurchase agreement 88,313,358 88,328,143 Available-for-sale financial assets, net Repurchase agreement 42,546,689 39,665,854 June 30, 2016 Carrying amount of Carrying amount Financial assets category financial assets of associated transferred financial liabilities Bills and bonds purchased under resale agreements Repurchase agreement $ - $ - Financial assets measured at fair value through profit or loss Repurchase agreement 88,445,764 88,477,778 Available-for-sale financial assets, net Repurchase agreement 31,918,333 30,325,575 ii. Transferred financial assets that are derecognised in their entirety The Group does not have any financial asset securitisation transaction and do not have any derecognised and transferred financial asset. (c) Offsetting financial assets and financial liabilities The Group has financial instruments that meet the offsetting criteria in paragraph 42 of IAS 32, the gross financial liability is set off against the gross financial asset, resulting in the presentation of a net amount presented in the balance sheet.
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The Group’s financial assets and financial liabilities do not meet the offsetting criteria. However, as net settled master netting arrangements or similar agreements are signed with counterparties, transactions are settled on a net basis after offsetting financial assets with financial liabilities if both parties of the transaction choose to use net settlement; otherwise, transactions are settled on a gross basis. However, if one party breaches the contract, the counterparty can choose to use net settlement. The offsetting of financial assets and financial liabilities are set as follows:
June 30, 2017 Financial assets that are offset, or can be settled under agreements of net settlement master netting arrangements or similar arrangements Gross amounts of recognised Net amounts of Gross amounts of financial financial assets recognised Not offset in the balance sheet (d) liabilities offset in presented in the Description financial assets the balance sheet balance sheet Net amount Cash collateral (e)=(c)-(d) (a) (b) (c)=(a)-(b) Financial instruments (Note) received Derivative instruments$ 3,284,840 $ 649 $ 3,284,191 $ 1,821,627 $ 874,476 $ 588,088
Financial liabilities that are offset, or can be settled under agreements of net settlement master netting arrangements or similar arrangements Gross amounts of Gross amounts of recognised Net amounts of recognised financial financial liabilities Not offset in the balance sheet (d) financial assets offset in the presented in the Description liabilities balance sheet balance sheet Net amount Cash collateral (e)=(c)-(d) (a) (b) (c)=(a)-(b) Financial instruments (Note) pledged Derivative instruments$ 2,630,881 $ 649 $ 2,630,232 $ 1,307,246 $ 280,082 $ 1,042,904 Repurchase agreement 19,028,941 - 19,028,941 19,028,941 - - Total$ 21,659,822 $ 649 $ 21,659,173 $ 20,336,187 $ 280,082 $ 1,042,904 December 31, 2016 Financial assets that are offset, or can be settled under agreements of net settlement master netting arrangements or similar arrangements Gross amounts of recognised Net amounts of Gross amounts of financial financial assets recognised Not offset in the balance sheet (d) liabilities offset in presented in the financial assets Description the balance sheet balance sheet Net amount Cash collateral (e)=(c)-(d) (a) (b) (c)=(a)-(b) Financial instruments (Note) received Derivative instruments$ 4,027,464 $ 221 $ 4,027,243 $ 1,252,153 $ 866,726 $ 1,908,364
Financial liabilities that are offset, or can be settled under agreements of net settlement master netting arrangements or similar arrangements Gross amounts of Gross amounts of recognised Net amounts of recognised financial financial liabilities Not offset in the balance sheet (d) financial assets offset in the presented in the Description liabilities balance sheet balance sheet Net amount Cash collateral (e)=(c)-(d) (a) (b) (c)=(a)-(b) Financial instruments (Note) pledged Derivative instruments$ 3,489,375 $ 221 $ 3,489,154 $ 1,210,607 $ 9,250 $ 2,269,297 Repurchase agreement 1,994,313 - 1,994,313 1,994,313 - - Total$ 5,483,688 $ 221 $ 5,483,467 $ 3,204,920 $ 9,250 $ 2,269,297
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June 30, 2016 Financial assets that are offset, or can be settled under agreements of net settlement master netting arrangements or similar arrangements Gross amounts of recognised Net amounts of Gross amounts of financial financial assets recognised Not offset in the balance sheet (d) liabilities offset in presented in the Description financial assets the balance sheet balance sheet Net amount Cash collateral (e)=(c)-(d) (a) (b) (c)=(a)-(b) Financial instruments (Note) received Derivative instruments$ 5,674,677 $ 1,944 $ 5,672,733 $ 813,231 $ 2,234,310 $ 2,625,192
Financial liabilities that are offset, or can be settled under agreements of net settlement master netting arrangements or similar arrangements Gross amounts of Gross amounts of recognised Net amounts of recognised financial financial liabilities Not offset in the balance sheet (d) financial assets offset in the presented in the Description liabilities balance sheet balance sheet Net amount Cash collateral (e)=(c)-(d) (a) (b) (c)=(a)-(b) Financial instruments (Note) pledged Derivative instruments$ 4,173,956 $ 1,944 $ 4,172,012 $ 813,231 $ 10,045 $ 3,348,736 Repurchase agreement 1,450,707 - 1,450,707 1,450,707 - - Total$ 5,624,663 $ 1,944 $ 5,622,719 $ 2,263,938 $ 10,045 $ 3,348,736 (Note) Including net settlement master netting arrangements and non-cash collaterals.
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E. Credit risk concentration Extreme credit risk concentration will enhance risk degree, such as large amount of risk exposure concentrated on one credit product, one client, or minor clients, or a group of clients in same industry or with similar business or in same area or with same risk characteristics. When adverse economic changes occur, a financial institution may incur a significant loss. To avoid extreme credit risk concentration, the Group has regulated credit limit and management rules for single client, single business group and large amount of risk exposure. Subsidiaries have to monitor and control the credit risk concentration within the limit. Status of credit risk concentration must be shown in the regular risk report by industry, area/country, collateral and other forms. Except for overdue receivables, the property insurance CKI’s reinsurance contracts assets that are neither past due nor impaired all have credit ratings ranged between twAA ~ twBBB-, so it expects that the probability of counterparty default is remote. The Group’s maximum exposure to credit risk at the end of the reporting period is the carrying amount of all reinsurance contracts assets. (a) Loans and credit commitments of the Group are shown below by industry. Loans and credit commitments June 30, 2017 December 31, 2016 June 30, 2016 Amount Percentage (%) Amount Percentage (%) Amount Percentage (%) Individuals Individuals $ 449,506,154 19.61% $ 451,344,091 19.43% $ 440,314,489 18.67% Government institution 93,896,626 4.10% 93,173,084 4.01% 96,285,089 4.08% Finance, investment and insurance 220,612,764 9.62% 218,409,633 9.40% 244,944,983 10.39% Enterprise and commerce 1,515,772,997 66.12% 1,548,718,266 66.66% 1,564,249,052 66.33% - Manufacturing 563,260,131 24.57% 558,688,565 24.05% 557,011,552 23.62% - Electricity and gas supply 93,003,410 4.06% 99,400,752 4.28% 108,346,460 4.59% Corporation - Wholesale and retail 171,990,896 7.50% 171,495,535 7.38% 179,539,716 7.61% - Transportation and storage 171,364,929 7.47% 174,256,727 7.50% 176,841,509 7.50% - Real estate 318,697,492 13.90% 330,584,046 14.23% 325,207,464 13.79% - Others 197,456,139 8.61% 214,292,641 9.22% 217,302,351 9.22% Others 12,746,153 0.56% 11,754,768 0.51% 12,421,068 0.53% Total $ 2,292,534,694 100.00%$ 2,323,399,842 100.00%$ 2,358,214,681 100.00%
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(b) Loans and credit commitments of the Group are shown below by location. Loans and credit commitments June 30, 2017 December 31, 2016 June 30, 2016 Amount Percentage (%) Amount Percentage (%) Amount Percentage (%) ROC$ 1,805,543,554 78.76%$ 1,806,051,546 77.74%$ 1,811,482,726 76.82% Asia 289,497,719 12.63% 296,208,761 12.75% 317,586,884 13.47% North America 89,715,092 3.91% 105,347,987 4.53% 116,635,729 4.95% Others 107,778,329 4.70% 115,791,548 4.98% 112,509,342 4.76% Total$ 2,292,534,694 100.00%$ 2,323,399,842 100.00%$ 2,358,214,681 100.00%
(c) Loans and credit commitments of the Group are shown below by collaterals Loans and credit commitments June 30, 2017 December 31, 2016 June 30, 2016 Amount Percentage (%) Amount Percentage (%) Amount Percentage (%) Unsecured$ 893,032,164 38.96%$ 916,590,277 39.45%$ 967,495,849 41.03% Secured - Secured by stocks 163,871,057 7.15% 158,915,232 6.84% 173,000,978 7.34% - Secured by bonds 64,002,108 2.79% 56,237,114 2.42% 62,332,651 2.64% - Secured by real estate 896,447,988 39.10% 893,363,113 38.45% 853,677,556 36.20% - Secured by movable property 99,977,110 4.36% 109,674,057 4.72% 108,985,176 4.62% - Letter of guarantee 52,962,755 2.31% 57,288,066 2.47% 64,630,919 2.74% - Others 122,241,512 5.33% 131,331,983 5.65% 128,091,552 5.43% Total$ 2,292,534,694 100.00%$ 2,323,399,842 100.00%$ 2,358,214,681 100.00%
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F. Financial assets credit quality and analysis of past due and impairment (a) The Group’s financial assets credit quality and analysis of past due and impairment Neither past due nor impaired Past due but not impaired Reserve for June 30, 2017 Impaired Net amount Excellent Satisfactory Fair Weaker No rating Subtotal Excellent Satisfactory Fair Weaker No rating Subtotal losses Credit risk exposure of financial assets in balance sheet: Cash and cash equivalents$ 105,470,918 $ 969,011 $ 19,921 $ 1,265 $ 698,591 $ 107,159,706 $ - $ - $ - $ - $ - $ - $ - $ 2,242 $ 107,157,464 Due from Central Bank and call 514,665,468 4,142,923 2,113,700 152,030 182,436 521,256,557 ------521,256,557 loans to banks Financial assets at fair value through profit or loss - debt instruments 94,219,698 44,450,605 15,602,157 4,371,583 3,223,273 161,867,316 ------161,867,316 - derivative instruments 2,266,259 6,921 - - 1,011,011 3,284,191 ------3,284,191 Available-for-sale financial assets - debt instruments 366,235,611 1,828,578 - - 3,463,405 371,527,594 ------371,527,594
Bills and bonds purchased under 1,396,759 1,000,573 - - - 2,397,332 ------2,397,332 resale agreements Receivables 21,179,587 8,620,644 6,919,541 1,279,416 44,376,833 82,376,021 1,011 313 302 544 18,902 21,072 1,257,963 1,714,024 81,941,032 Bills discounted and loans 766,548,251 340,318,211 224,330,524 94,069,144 274,651,586 1,699,917,716 610,179 143,851 144,536 292,784 3,253 1,194,603 16,546,177 27,856,812 1,689,801,684 Reinsurance contract assets 4,299,554 - - - - 4,299,554 ------37,390 21,347 4,315,597 Held-to-maturity financial 346,116,243 265,943 50,000 - 368,784 346,800,970 ------346,800,970 assets-debt instruments Other assets (Note) 3,761,951 1,349,647 - 226 2,537,956 7,649,780 ------45,126 33,383 7,661,523 Total$ 2,226,160,299 $ 402,953,056 $ 249,035,843 $ 99,873,664 $ 330,513,875 $ 3,308,536,737 $ 611,190 $ 144,164 $ 144,838 $ 293,328 $ 22,155 $ 1,215,675 $ 17,886,656 $ 29,627,808 $ 3,298,011,260 Neither past due nor impaired Past due but not impaired Reserve for December 31, 2016 Impaired Net amount Excellent Satisfactory Fair Weaker No rating Subtotal Excellent Satisfactory Fair Weaker No rating Subtotal losses Credit risk exposure of financial assets in balance sheet: Cash and cash equivalents $ 95,442,113 $ 1,893,045 $ 12,955 $ 10,259 $ 775,191 $ 98,133,563 $ - $ - $ - $ - $ - $ - $ - $ 2,206 $ 98,131,357 Due from Central Bank and call 535,423,829 2,169,137 644,120 1,311,797 462,859 540,011,742 ------540,011,742 loans to banks Financial assets at fair value through profit or loss - debt instruments 98,693,630 46,901,582 22,097,775 5,499,237 4,283,200 177,475,424 ------177,475,424 - derivative instruments 2,231,771 13,309 - - 1,782,163 4,027,243 ------4,027,243 Available-for-sale financial assets - debt instruments 331,989,794 3,125,037 - 60,173 3,622,808 338,797,812 ------338,797,812
Bills and bonds purchased under 2,855,885 - - - - 2,855,885 ------2,855,885 resale agreements Receivables 14,308,626 9,225,013 17,153,080 3,349,734 43,338,625 87,375,078 4,861 330 924 512 21,981 28,608 1,338,194 1,916,078 86,825,802 Bills discounted and loans 754,413,557 347,880,410 213,107,288 110,221,176 301,460,958 1,727,083,389 747,750 150,011 360,168 204,050 48,633 1,510,612 13,378,997 26,694,232 1,715,278,766 Reinsurance contract assets 4,242,814 - - - - 4,242,814 ------38,238 19,384 4,261,668 Held-to-maturity financial 280,502,765 225,667 50,000 - 218,930 280,997,362 ------280,997,362 assets-debt instruments Other assets (Note) 3,694,670 842,149 - 334 1,530,822 6,067,975 ------36,226 18,511 6,085,690 Total$ 2,123,799,454 $ 412,275,349 $ 253,065,218 $ 120,452,710 $ 357,475,556 $ 3,267,068,287 $ 752,611 $ 150,341 $ 361,092 $ 204,562 $ 70,614 $ 1,539,220 $ 14,791,655 $ 28,650,411 $ 3,254,748,751
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Neither past due nor impaired Past due but not impaired Reserve for June 30, 2016 Impaired Net amount Excellent Satisfactory Fair Weaker No rating Subtotal Excellent Satisfactory Fair Weaker No rating Subtotal losses Credit risk exposure of financial assets in balance sheet: Cash and cash equivalents $ 105,857,128 $ 425,425 $ 23,031 $ 7,243 $ 276,002 $ 106,588,829 $ - $ - $ - $ - $ - $ - $ - $ 2,228 $ 106,586,601 Due from Central Bank and call 522,603,745 2,868,807 1,065,372 1,155,767 1,059,843 528,753,534 ------528,753,534 loans to banks Financial assets at fair value through profit or loss - debt instruments 110,955,115 45,325,770 19,104,458 4,064,985 4,877,890 184,328,218 ------184,328,218 - derivative instruments 3,552,336 57,059 - - 2,063,338 5,672,733 ------5,672,733 Available-for-sale financial assets - debt instruments 329,493,957 3,642,047 - 58,456 3,443,219 336,637,679 ------336,637,679
Bills and bonds purchased under 6,769,898 2,452,317 - - 150,232 9,372,447 ------9,372,447 resale agreements Receivables 44,437,187 8,138,777 3,152,341 1,705,650 56,619,457 114,053,412 1,537 257 284 658 18,662 21,398 673,543 1,561,261 113,187,092 Bills discounted and loans 694,226,002 395,507,970 224,503,332 108,636,310 319,421,343 1,742,294,957 1,387,890 109,257 226,612 254,726 356,368 2,334,853 11,739,301 24,597,488 1,731,771,623 Reinsurance contract assets 4,406,485 - - - - 4,406,485 ------29,399 16,468 4,419,416 Held-to-maturity financial 247,606,514 207,034 50,000 - 538,625 248,402,173 ------248,402,173 assets-debt instruments Other assets (Note) 4,797,399 635,996 - 138 2,290,174 7,723,707 ------22,944 11,756 7,734,895 Total$ 2,074,705,766 $ 459,261,202 $ 247,898,534 $ 115,628,549 $ 390,740,123 $ 3,288,234,174 $ 1,389,427 $ 109,514 $ 226,896 $ 255,384 $ 375,030 $ 2,356,251 $ 12,465,187 $ 26,189,201 $ 3,276,866,411 (Note)Other assets include items that are not considered material credit exposure assets within the balance sheet which are listed as accounts in the table. These items include “Other Financial Assets” (excluding financial assets measured at cost) along with prepayments (including prepaid expenses, other prepaid taxes, prepaid interest, prepaid dividends and bonuses, prepaid borrowed security fees and other prepayments) of “Other Assets”, refundable deposits, offsetting refundable deposits, deposited reserve funds for reinsurance, guarantee deposits for security lending, guarantee deposits held for operation and funds for security settlements, offsetting guarantee deposits held for operation and funds for security settlements, and temporary payments.
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(b) The Group’s ageing analysis of financial assets that were past due but not impaired Financial assets might be past due but not impaired due to borrower’s processing delay or other administrative reasons. According to subsidiaries’ internal management rules for assets assessment, financial assets which are past due within 90 days are not regarded as impaired unless there is objective evidence that the financial assets are impaired. There are very few conditions where financial assets are past due over 90 days but not impaired. June 30, 2017 Overdue for less than Overdue for 1~3 Overdue for 3~6 Overdue for more 1 month months months than 6 months Total Receivables $ 13,473 $ 7,427 $ - $ 172 $ 21,072 Bills discounted and loans - Government $ 46,912 $ - $ - $ - $ 46,912 - Enterprise and commerce 150,583 - - - 150,583 - Individuals 993,508 3,600 - - 997,108 Total $ 1,191,003 $ 3,600 $ - $ - $ 1,194,603 December 31, 2016 Overdue for less than 1 Overdue for 1~3 Overdue for 3~6 Overdue for more month months months than 6 months Total Receivables $ 20,126 $ 8,093 $ 81 $ 308 $ 28,608 Bills discounted and loans - Enterprise and commerce $ 314,767 $ 45,004 $ - $ - $ 359,771 - Individuals 1,150,070 771 - - 1,150,841 Total $ 1,464,837 $ 45,775 $ - $ - $ 1,510,612
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June 30, 2016 Overdue for less than 1 Overdue for 1~3 Overdue for 3~6 Overdue for more month months months than 6 months Total Receivables $ 13,309 $ 7,619 $ 470 $ - $ 21,398 Bills discounted and loans - Government $ 32,284 $ - $ - $ - $ 32,284 - Enterprise and commerce 763,885 304,115 - - 1,068,000 - Individuals 1,184,901 49,668 - - 1,234,569 Total $ 1,981,070 $ 353,783 $ - $ - $ 2,334,853 (c) The Group’s provisions for doubtful accounts analysis of impaired loans June 30, 2017 Loans Provisions for doubtful accounts Not impaired Impaired
Individual Individual Group Individual assessment Group assessment assessment assessment Total assessment Group assessment Total Loans net amount ROC$ - $ 1,258,309,471 $ 10,608,993 $ 673,179 $ 1,269,591,643 $ 1,851,171 $ 18,529,857 $ 20,381,028 $ 1,249,210,615 Asia - 271,945,663 655,262 - 272,600,925 203,920 3,987,023 4,190,943 268,409,982 North America - 73,554,451 88,843 - 73,643,294 16,651 1,080,160 1,096,811 72,546,483 Others - 97,302,734 4,315,082 204,818 101,822,634 752,942 1,435,088 2,188,030 99,634,604 Total $ - $ 1,701,112,319 $ 15,668,180 $ 877,997 $ 1,717,658,496 $ 2,824,684 $ 25,032,128 $ 27,856,812 $ 1,689,801,684
December 31, 2016 Loans Provisions for doubtful accounts Not impaired Impaired
Individual Individual Group Individual assessment Group assessment assessment assessment Total assessment Group assessment Total Loans net amount ROC$ - $ 1,261,478,161 $ 10,588,311 $ 728,542 $ 1,272,795,014 $ 2,383,636 $ 17,338,574 $ 19,722,210 $ 1,253,072,804 Asia - 275,312,574 900,184 8,259 276,221,017 295,756 3,781,923 4,077,679 272,143,338 North America - 85,663,604 45,974 - 85,709,578 13,276 1,176,723 1,189,999 84,519,579 Others - 106,139,662 1,093,357 14,370 107,247,389 246,136 1,458,208 1,704,344 105,543,045 Total $ - $ 1,728,594,001 $ 12,627,826 $ 751,171 $ 1,741,972,998 $ 2,938,804 $ 23,755,428 $ 26,694,232 $ 1,715,278,766
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June 30, 2016 Loans Provisions for doubtful accounts Not impaired Impaired
Individual Individual Group Individual assessment Group assessment assessment assessment Total assessment Group assessment Total Loans net amount ROC$ - $ 1,246,411,740 $ 8,870,671 $ 729,432 $ 1,256,011,843 $ 1,995,745 $ 15,741,120 $ 17,736,865 $ 1,238,274,978 Asia - 297,954,365 1,051,600 1,741 299,007,706 302,880 3,782,321 4,085,201 294,922,505 North America - 96,417,530 252,374 - 96,669,904 57,276 1,221,780 1,279,056 95,390,848 Others - 103,846,175 828,562 4,921 104,679,658 186,412 1,309,954 1,496,366 103,183,292 Total $ - $ 1,744,629,810 $ 11,003,207 $ 736,094 $ 1,756,369,111 $ 2,542,313 $ 22,055,175 $ 24,597,488 $ 1,731,771,623 G. Foreclosed properties management policy As of June 30, 2017, December 31, 2016 and June 30, 2016, other assets in the consolidated balance sheet include foreclosed properties’ book value of MICB totaling $0. Foreclosed properties consist of both land and buildings. According to the regulations of competent authorities, foreclosed properties of the bank shall be sold within four years. H. Supplementary information in accordance with “Regulations Governing the Preparation of Financial Reports by Public Banks” (a) MICB’s asset quality of non-performing loans and overdue accounts
Month/Year June 30, 2017 Amount of non-performing Non-performing Allowance for Coverage ratio Business/Items Gross loans loans (Note 1) loan ratio (Note 2) doubtful accounts (Note 3) Secured loans $ 2,106,342 $ 650,529,923 0.32% $ 10,258,174 487.01% Corporate banking Unsecured loans 704,498 674,149,450 0.10% 11,702,450 1661.10% Residential mortgage loans (Note 4) 480,514 296,750,693 0.16% 4,469,529 930.16% Cash card services - - - - - Small amount of credit loans (Note 5) 779 10,299,464 0.01% 152,172 19534.27% Consumer banking Secured loans 113,009 85,793,248 0.13% 1,272,450 1125.97% Others (Note 6) Unsecured loans 469 135,718 0.35% 2,037 434.33% Gross loan business $ 3,405,611 $ 1,717,658,496 0.20% $ 27,856,812 817.97% Balance of accounts Overdue account Allowance for Amount of overdue accounts Coverage ratio receivable ratio doubtful accounts Credit card services $ 8,416 $ 5,611,339 0.15% $ 49,838 592.18% Without recourse factoring (Note 7) $ - $ 27,060,971 - $ 405,947 - ~106~ WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3
Month/Year June 30, 2016 Amount of non-performing Non-performing Allowance for Coverage ratio Business/Items Gross loans loans (Note 1) loan ratio (Note 2) doubtful accounts (Note 3) Secured loans $ 651,793 $ 659,444,627 0.10% $ 8,798,977 1349.96% Corporate banking Unsecured loans 720,207 714,515,764 0.10% 10,870,800 1509.40% Residential mortgage loans (Note 4) 459,275 296,229,356 0.16% 3,828,529 833.60% Cash card services - - - - - Consumer banking Small amount of credit loans (Note 5) 632 7,990,318 0.01% 101,562 16069.94% Others Secured loans 125,606 78,013,249 0.16% 995,380 792.46% (Note 6) Unsecured loans 640 175,797 0.36% 2,240 350.00% Gross loan business $ 1,958,153 $ 1,756,369,111 0.11% $ 24,597,488 1256.16% Balance of accounts Overdue account Allowance for Amount of overdue accounts Coverage ratio receivable ratio doubtful accounts Credit card services $ 9,039 $ 5,173,204 0.17% $ 50,689 560.78% Without recourse factoring (Note 7) $ - $ 31,449,655 - $ 472,985 - (Note 1) The amount recognised as non-performing loans is in accordance with the “Regulation Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrual Loans”. The amount included in overdue accounts for credit cards is in accordance with the Banking Bureau (4) Letter No.0944000378 dated July 6, 2005. (Note 2) Non-performing loan ratio=non-performing loans/gross loans. Overdue account ratio for credit cards=overdue accounts/balance of accounts receivable. (Note 3) Coverage ratio for loans=allowance for doubtful accounts of loans/non-performing loans. Coverage ratio for accounts receivable of credit cards=allowance for doubtful accounts for accounts receivable of credit cards/overdue accounts. (Note 4) For residential mortgage loans, the borrower provides his/her (or spouses) house as collateral in full and mortgages it to the financial institution for the purpose of obtaining funds to purchase or add improvements to a house. (Note 5) Small amount of credit loans apply to the norms of the Banking Bureau (4) Letter No. 09440010950 dated December 19, 2005, excluding credit card and cash card services. (Note 6) Other consumer banking is specified as secured or unsecured consumer loans other than residential mortgage loan, cash card services and small amount of credit loans, and excluding credit card services. (Note 7) Pursuant to the Banking Bureau (5) Letter No. 094000494 dated July 19, 2005, the amount of without recourse factoring will be recognised as overdue accounts within nine-month after the factor or insurance company resolves not to compensate the loss.
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(b) Total amount of non-performing loans or overdue receivables exempted from reporting to the competent authority of MICB June 30, 2017 Total amount of non- Total amount of performing loans overdue receivables exempted from exempted from reporting to the reporting to the competent authority competent authority Performing amounts exempted from reporting to the competent authority as debt $ - $ - negotiation (Note 1) Performing amounts in accordance with debt liquidation program and restructuring 363 2,831 program (Note 2) Total $ 363 $ 2,831 June 30, 2016 Total amount of non- Total amount of performing loans overdue receivables exempted from exempted from reporting to the reporting to the competent authority competent authority Performing amounts exempted from reporting to the competent authority as debt $ 2 $ - negotiation (Note 1) Performing amounts in accordance with debt liquidation program and restructuring 388 3,485 program (Note 2) Total $ 390 $ 3,485 (Note1) The Bank disclosed the total amount of non- performing loans and overdue receivables exempted from reporting to the competent authority as debt negotiation in accordance with the Explanatory Letter Jin-Guan-Yin (1) No. 09510001270 of the FSC dated April 25, 2006. (Note2) The Bank disclosed the total amount of non- performing loans and overdue receivables exempted from reporting to the competent authority as debt liquidation program and restructuring program in accordance with the Explanatory Letter Jin-Guan-Yin (1) No. 09700318940 of the FSC dated September 15, 2008.
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(c) Contract amounts of significant credit risk concentration of MICB Year June 30, 2017 Ranking Name of Enterprise Group (Note 2) Total outstanding Total outstanding (Note 1) loan amount (Note 3) loan amount / net worth of the current period (%) 1 A Company–Transport via Railways $ 55,244,696 21.47% 2 B Group –Other Financial Service Activities Not Elsewhere 39,828,103 15.48% Classified 3 C Group –Other Retail Sale in Non- 21,211,835 8.25% specialized Stores 4 D Group –Other Financial Service Activities Not Elsewhere 20,479,762 7.96% Classified 5 E Group –Air Transport 19,537,169 7.59% 6 F Group –Rolling and Extruding of 19,447,457 7.56% Iron and Steel 7 G Group –Other Financial Service Activities Not Elsewhere 16,943,127 6.59% Classified 8 H Group –Ocean Freight 15,066,984 5.86% Transportation Forwarding Services 9 I Group –Basic chemical materials 13,406,954 5.21% manufacturing industry 10 J Group –Real Estate Development 13,107,632 5.10% Activities
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Year June 30, 2016 Ranking Name of Enterprise Group (Note 2) Total outstanding Total outstanding (Note 1) loan amount (Note 3) loan amount / net worth of the current period (%) 1 A Company–Transport via Railways $ 60,411,248 24.35% 2 B Group –Manufacture of Petroleum 42,100,320 16.97% and Coal Products 3 C Group –Other Financial Service Activities Not Elsewhere 26,111,299 10.53% Classified 4 D Group –Sea Transportation 22,689,545 9.15% 5 E Group –LED Panels and Spare 21,491,219 8.66% Parts Manufacturing 6 F Group –Other Financial Intermediation 18,038,509 7.27% Not Classified 7 G Group –Rolling and Extruding of 17,906,317 7.22% Iron and Steel 8 H Group –Other Retail Sale in Non- 17,223,506 6.94% specialized Stores 9 I Group –Steel and smelting 14,370,878 5.79% 10 J Group –Real Estate Development 12,011,100 4.84% Activities (Note 1) Ranking the top ten enterprise groups other than government and government enterprise according to their total amounts of outstanding loans. If an outstanding loan belongs to an enterprise group, the outstanding loan of the enterprise group should be categorised and listed in total, and disclosed by “code” plus “industry type” (for example, company (or group) A – Liquid Crystal Panel and Components Manufacturing). If it is an enterprise group, industry type of maximum exposure of the enterprise group would be disclosed. Industry type should be filled in accordance with “Standard Industrial Classification System” of Directorate-General of Budget, Accounting and Statistics, Executive Yuan. (Note 2) Definition of enterprise group is based on Article 6 of Supplementary Provisions to the Taiwan Stock Exchange Corporation Rules for Review of Securities Listings. (Note 3) Total outstanding loan amount is the sum of balances of all types of loans (including import negotiation, export negotiation, bills discounted, overdraft, short-term loan, short-term secured loan, margin loans receivable, medium- term unsecured loan, medium-term secured loan, long-term unsecured loan, long-term secured loan and overdue loan), bills purchased, without recourse factoring, acceptance receivable and guarantees.
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(d) Supplementary information in accordance with the “Regulations Governing the Procedures for Bills Finance Companies.” i. The quality of assets
Item June 30, 2017 June 30, 2016 Guarantees in arrear and guaranteed credits overdue for longer than $ - $ - three months Overdue credits (non-accrual loans are inclusive) - - Loans under surveillance - - Overdue receivables - - Ratio of overdue credits (%) - - Ratio of overdue credits plus ratio of loans under surveillance (%) - - Provision for bad debts and guarantees as required by regulations 2,139,816 2,203,631 Provision for bad debts and guarantees actually reserved 2,289,701 2,255,703 (Note) Items follow ”Regulations Governing the Procedures for Bills Finance Companies to Evaluate Assets, Set Aside Loss Reserves, and Handle Non-Performing Credit, Non-Accrual Loans, and Bad Debt”. ii. Overview of main business Item June 30, 2017 June 30, 2016 Total guarantees and endorsement for short- $ 151,991,300 $ 151,159,300 term bills Guarantees and endorsement for short-term bills / Net amount (after deducting final 4.90 4.78 accounts allotment) Total bills and bonds sold under repurchase 185,788,599 197,378,751 agreements Bills and bonds sold under repurchase agreements / Net amount (after 5.99 6.24 deducting final accounts allotment) iii. Credit risk concentration Item June 30, 2017 June 30, 2016 Amount of credit extensions to interested parties $ 97,000 $ 97,000 Ratio of credit extensions to 0.06 0.06 interested Ratio of credit extensions secured by 18.32 18.30 stocks (%)(Note 2) Industry concentration (%) (Top 3 Industry Ratio (%) Industry Ratio (%) Financial Financial industries with highest ratio of 28.89 28.52 credit extension amount) (Note 3) & Insurance & Insurance Real estate 25.37 Manufacturing 26.27 Manufacturing 23.74 Real estate 23.01
Note 1: The ratio of credit extensions to interested parties = the amount of credit
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extensions to interested parties / the total amount of all credit extensions. Note 2: The ratio of credit extensions secured by stocks = the amount of credit extensions secured by stocks / the total amounts of all credit extensions. Note 3: Total amount of credit extensions include loans, bills discounted, acceptances receivable, guarantees receivable, and advance accounts for factoring receivable. (4) Liquidity risk A. Definition and sources of liquidity risk The Group defines liquidity risk as the risk of financial loss to the Group arising from default on the payment obligations from financial instruments. For example, the Group may default on payment obligations, such as withdrawals paid to depositors and loans repayment. Or, the Group is unable to obtain funds within a certain period at reasonable cost in response to increased demand for assets. B. Procedures for liquidity risk management and measurement of liquidity risk The Group is mainly engaged in industry related to finance. Therefore, the management for capital liquidity is very important to the Group. The objectives for liquidity risk management are to maintain reasonable liquidity based on business development plans, ensure capability of daily payment obligations and meet business growth requirements with adequate high-liquid assets and capability of raising funds from others in case of emergency. The financial department of the Group is responsible for daily capital liquidity management. According to the limits authorised by the Board of Directors, the Group monitors the indexes of liquidity risk, executes capital procurement trading and reports the conditions of capital liquidity to the management. The Group also reports the liquidity risk control to the capital review committee, risk management committee and Board of Directors regularly, and performs regular liquidity stress-testing to ensure sufficient capital to meet the funding requirements for increase in assets and payment obligations. The Group daily performs intensive control over capital sources and the period for fund gaps and liquidity risk management. Future cash flows are estimated based on the financial liability contracts due date and expected cash collection date of financial assets. The Group also takes into account the extent of practical utilization of capital in contingent liabilities such as use of loan limits, guarantees and commitments. Assets to be used to pay obligations and loan commitments include cash, due from Central Bank and call loans to other banks, bank deposits, and collection of loans. The Group can also use repo trade and sale of bonds and bills in response of unexpected cash outflows. The liquidity management policies of the Group include. (a) Maintain the ability to perform all payment obligations immediately. (b) Maintain solid assets/liabilities structure to ensure medium and long-term liquidity safety. (c) Diversify capital sources and absorb stable core depositors to avoid depending on certain large-sum depositors or minor borrowers. (d) Avoid potential unknown loss risk which will increase capital cost and capital procurement pressure. (e) Conduct due date management to ensure that cash inflow is greater than cash outflow in short term. (f) Keep liquidity ratio regulated by the supervision authority. (g) Keep legal ratio for high-quality, high-liquidity assets.
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(h) Awareness of the liquidity, safety and diversity of financial instruments. (i) The Group has capital emergency plans, which are reviewed regularly. (j) The overseas branches of the Group must comply with the regulations of ROC and the local supervisory authorities. They may be penalized for violation of these regulations. C. Financial assets and financial liabilities held for liquidity risk management maturity analysis The table below lists analysis for cash inflow and outflow of the non-derivative and derivative financial assets and liabilities held by the Group for liquidity risk management of primary currency based on the remaining period at the financial reporting date to the contractual maturity date.
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(a) The Group’s maturity analysis for non-derivative liabilities June 30, 2017 1-30 days 31-90 days 91-180 days 181 days-1 year 1 year-5 years Over 5 years Total Primary funds inflow upon maturity Cash and cash equivalents $ 67,358,328 $ 28,028,466 $ 9,301,409 $ 2,534,464 $ - $ - $ 107,222,667 Due from the Central Bank and call 379,442,727 125,296,087 16,038,527 1,216,385 - - 521,993,726 loans to banks Financial assets at fair value through 61,857,412 50,946,792 8,990,753 7,730,183 36,569,684 5,918,895 172,013,719 profit or loss Available-for-sale financial assets 53,921,689 14,841,149 28,156,831 22,751,700 234,403,861 137,827,724 491,902,954 Bills and bonds purchased under resale 2,397,943 - - - - - 2,397,943 agreements Receivables 93,264,594 18,861,073 14,371,972 14,347,662 7,754,413 410 148,600,124 Bills discounted and loans 81,356,007 151,055,989 225,371,839 181,792,334 702,033,548 480,666,517 1,822,276,234 Reinsurance contracts assets 71,221 284,884 284,884 71,221 - - 712,210 Held-to-maturity financial assets 150,394,038 35,783,586 36,055,175 100,975,390 23,479,127 1,282,332 347,969,648 Other financial assets 2,586,725 1,145 205,417 108,735 386,152 133,290 3,421,464 Other funds inflow upon maturity ------Total 892,650,684 425,099,171 338,776,807 331,528,074 1,004,626,785 625,829,168 3,618,510,689 Primary funds outflow upon maturity Due to the Central Bank and financial 245,032,392 3,535,694 3,375,936 8,122,098 26,506,958 563,978 287,137,056 institutions Funds borrowed from the Central Bank 24,774,455 5,803,227 457,179 - - - 31,034,861 and other banks Financial liabilities at fair value through 8,091,280 1,687 777 4,337 16,688 9,812 8,124,581 profit or loss Bills and bonds sold under repurchased 179,520,545 24,097,569 2,379,542 114,129 - - 206,111,785 agreements Commercial paper payable 9,340,000 - - - 1,000,000 - 10,340,000 Payables 92,820,481 23,039,068 2,839,362 11,050,766 714,119 21,911,032 152,374,828 Deposits and remittances 500,520,585 337,821,762 269,809,015 377,410,575 863,096,377 17,844,059 2,366,502,373 Bonds payable - - 10,585,570 4,997,240 27,748,570 - 43,331,380 Other loans 802,118 445,018 - - - - 1,247,136 Other financial liabilities 9,120,341 1,697,406 46,204 15,757 288,674 662,364 11,830,746 Other funds outflow upon maturity 464,931 372,830 411,391 1,334,733 27,278 - 2,611,163 Total 1,070,487,128 396,814,261 289,904,976 403,049,635 919,398,664 40,991,245 3,120,645,909 Gap ($ 177,836,444) $ 28,284,910 $ 48,871,831 ($ 71,521,561) $ 85,228,121 $ 584,837,923 $ 497,864,780 Off-balance sheet commitments and ~114~ guarantees $ 162,214,166 $ 121,613,556 $ 116,518,685 $ 55,714,616 $ 40,500,248 $ 78,314,927 $ 574,876,198 WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3
December 31, 2016 1-30 days 31-90 days 91-180 days 181 days-1 year 1 year-5 years Over 5 years Total Primary funds inflow upon maturity Cash and cash equivalents$ 49,141,642 $ 36,924,778 $ 9,123,644 $ 3,077,117 $ - $ - $ 98,267,181 Due from the Central Bank and call 475,112,300 53,732,255 9,009,059 2,638,166 - - 540,491,780 loans to banks Financial assets at fair value through 75,839,231 50,134,104 7,143,786 5,527,643 42,513,973 3,434,762 184,593,499 profit or loss Available-for-sale financial assets 40,705,061 18,034,058 14,373,633 26,238,749 235,795,352 131,442,535 466,589,388 Bills and bonds purchased under resale 2,856,530 - - - - - 2,856,530 agreements Receivables 60,921,125 25,462,435 7,525,951 20,398,571 7,099,695 325 121,408,102 Bills discounted and loans 78,899,118 119,537,352 209,351,303 195,420,919 757,684,688 488,975,036 1,849,868,416 Reinsurance contracts assets 61,154 244,616 244,616 61,154 - - 611,540 Held-to-maturity financial assets 127,392,887 34,730,151 24,805,060 69,291,439 24,847,487 696,674 281,763,698 Other financial assets 2,310,430 56,066 208,403 374,582 494,512 211,492 3,655,485 Other funds inflow upon maturity 131 - - - - - 131 Total 913,239,609 338,855,815 281,785,455 323,028,340 1,068,435,707 624,760,824 3,550,105,750 Primary funds outflow upon maturity Due to the Central Bank and financial 352,024,107 6,623,886 5,733,263 6,239,879 30,516,426 649,286 401,786,847 institutions Funds borrowed from the Central Bank 27,677,843 7,304,654 4,991,930 - - - 39,974,427 and other banks Financial liabilities at fair value through 8,532,435 1,188 - 4,058 38,673 12,500 8,588,854 profit or loss Bills and bonds sold under repurchased 192,931,370 35,936,738 2,375,081 72,676 - - 231,315,865 agreements Commercial paper payable 10,705,000 - - - 1,000,000 - 11,705,000 Payables 60,932,564 4,471,612 2,580,428 5,351,518 905,450 21,991,028 96,232,600 Deposits and remittances 391,870,046 317,587,266 195,869,354 401,713,594 862,895,914 17,860,493 2,187,796,667 Bonds payable - 83,300 213,940 10,585,570 32,745,810 - 43,628,620 Other loans 2,517,634 2,206,068 1,237,043 - - - 5,960,745 Other financial liabilities 8,455,760 1,875,248 6,792 2,153 291,443 226,940 10,858,336 Other funds outflow upon maturity 724,562 366,405 254,182 904,581 28,042 - 2,277,772 Total 1,056,371,321 376,456,365 213,262,013 424,874,029 928,421,758 40,740,247 3,040,125,733 Gap ($ 143,131,712) ($ 37,600,550) $ 68,523,442 ($ 101,845,689) $ 140,013,949 $ 584,020,577 $ 509,980,017 Off-balance sheet commitments and guarantees $ 150,511,421 $ 105,316,273 $ 102,265,073 $ 99,353,670 $ 45,436,107 $ 78,544,300 $ 581,426,844 ~115~ WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3
June 30, 2016 1-30 days 31-90 days 91-180 days 181 days-1 year 1 year-5 years Over 5 years Total Primary funds inflow upon maturity Cash and cash equivalents $ 54,437,385 $ 36,355,387 $ 9,969,572 $ 5,941,967 $ - $ - $ 106,704,311 Due from the Central Bank and call 306,916,913 169,737,084 48,324,002 4,698,838 - - 529,676,837 loans to banks Financial assets at fair value through 68,064,309 53,489,801 10,018,474 6,136,764 46,944,427 7,499,841 192,153,616 profit or loss Available-for-sale financial assets 53,579,520 17,545,013 19,164,062 32,909,311 211,066,064 124,810,560 459,074,530 Bills and bonds purchased under resale 9,374,363 - - - - - 9,374,363 agreements Receivables 67,155,896 22,666,637 12,819,292 28,605,969 15,583,404 378 146,831,576 Bills discounted and loans 83,368,918 147,113,450 197,869,357 179,270,033 754,674,141 506,019,113 1,868,315,012 Reinsurance contracts assets 164,025 168,966 47,182 42,241 - - 422,414 Held-to-maturity financial assets 144,534,795 11,292,487 3,993,791 51,153,497 37,459,037 547,195 248,980,802 Other financial assets 3,760,900 5,602 619,586 317,775 718,144 212,397 5,634,404 Other funds inflow upon maturity 849 - - - - - 849 Total 791,357,873 458,374,427 302,825,318 309,076,395 1,066,445,217 639,089,484 3,567,168,714 Primary funds outflow upon maturity Due to the Central Bank and financial 293,912,392 3,725,418 4,254,718 5,955,624 20,300,830 431,932 328,580,914 institutions Funds borrowed from the Central Bank 50,307,975 7,312,586 225,988 - - - 57,846,549 and other banks Financial liabilities at fair value through 18,045,682 1,688 625 3,875 23,982 14,187 18,090,039 profit or loss Bills and bonds sold under repurchased 190,591,410 27,837,858 3,238,435 237,790 - - 221,905,493 agreements Commercial paper payable 10,205,000 - - - 1,000,000 - 11,205,000 Payables 59,699,125 30,091,411 2,206,414 6,574,411 1,029,654 20,309,681 119,910,696 Deposits and remittances 427,812,328 289,240,297 261,988,398 405,703,529 842,457,646 17,382,743 2,244,584,941 Bonds payable - - 285,570 297,240 43,331,380 - 43,914,190 Other loans 2,755,190 64 97 46,107 - - 2,801,458 Other financial liabilities 10,356,871 1,938,974 484,441 3,640 144,043 310,589 13,238,558 Other funds outflow upon maturity 530,720 458,652 485,666 1,659,978 28,551 - 3,163,567 Total 1,064,216,693 360,606,948 273,170,352 420,482,194 908,316,086 38,449,132 3,065,241,405 Gap ($ 272,858,820) $ 97,767,479 $ 29,654,966 ($ 111,405,799) $ 158,129,131 $ 600,640,352 $ 501,927,309 Off-balance sheet commitments and guarantees $ 172,690,003 $ 120,444,028 ~116~$ 121,820,031 $ 60,409,137 $ 48,094,821 $ 78,387,550 $ 601,845,570 WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3
(b) Structure analysis for maturity of derivative financial assets and liabilities (settled by gross amount) The Group’s derivatives cleared and settled by gross amount include: i. Foreign exchange derivatives: foreign exchange forward contracts. ii. Interest derivatives: foreign exchange and interest rate swaps, currency swaps. June 30, 2017 1-30 days 31-90 days 91-180 days 181 days-1 year 1 year-5 years Over 5 years Total Foreign exchange derivative instruments Inflow $ 20,662,850 $ 11,480,408 $ 7,369,895 $ 2,089,265 $ 170,347 $ - $ 41,772,765 Outflow 20,660,680 11,439,076 7,370,396 2,094,461 170,839 - 41,735,452 Interest rate derivative instruments Inflow 339,452,684 174,762,662 85,684,240 48,390,069 33,495 - 648,323,150 Outflow 340,493,571 174,312,086 85,175,064 47,684,073 33,033 - 647,697,827 Total inflows $ 360,115,534 $ 186,243,070 $ 93,054,135 $ 50,479,334 $ 203,842 $ - $ 690,095,915 Total outflows $ 361,154,251 $ 185,751,162 $ 92,545,460 $ 49,778,534 $ 203,872 $ - $ 689,433,279 December 31, 2016 1-30 days 31-90 days 91-180 days 181 days-1 year 1 year-5 years Over 5 years Total Foreign exchange derivative instruments Inflow $ 30,197,850 $ 18,201,973 $ 7,524,575 $ 2,406,361 $ 511,877 $ - $ 58,842,636 Outflow 30,211,238 18,192,363 7,553,978 2,422,939 515,424 - 58,895,942 Interest rate derivative instruments Inflow 284,272,580 162,606,566 73,320,045 34,026,932 32,427 - 554,258,550 Outflow 282,968,234 162,045,158 73,151,435 33,799,850 29,688 - 551,994,365 Total inflows $ 314,470,430 $ 180,808,539 $ 80,844,620 $ 36,433,293 $ 544,304 $ - $ 613,101,186 Total outflows $ 313,179,472 $ 180,237,521 $ 80,705,413 $ 36,222,789 $ 545,112 $ - $ 610,890,307
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June 30, 2016 1-30 days 31-90 days 91-180 days 181 days-1 year 1 year-5 years Over 5 years Total Foreign exchange derivative instruments Inflow $ 30,371,570 $ 17,322,506 $ 7,559,614 $ 9,131,277 $ 118,274 $ - $ 64,503,241 Outflow 30,299,275 17,142,366 7,496,904 9,101,671 123,546 - 64,163,762 Interest rate derivative instruments Inflow 309,529,397 91,569,519 132,166,368 80,041,050 153,053 - 613,459,387 Outflow 310,917,646 91,175,371 133,032,309 80,093,385 148,667 - 615,367,378 Total inflows $ 339,900,967 $ 108,892,025 $ 139,725,982 $ 89,172,327 $ 271,327 $ - $ 677,962,628 Total outflows $ 341,216,921 $ 108,317,737 $ 140,529,213 $ 89,195,056 $ 272,213 $ - $ 679,531,140 (c) Structure analysis for maturity of derivative financial assets and liabilities (settled by net amount) The Group derivatives cleared and settled by net amount include. i. Foreign exchange derivatives: foreign exchange options, non-delivery foreign exchange forwards. ii. Interest derivatives: forward rate agreements, interest rate swaps, asset swaps, interest rate options, bond options, interest rate futures. iii. Credit derivatives: credit default swaps (CDS). iv. Equity derivatives: stock options. v. Others : combined commodity.
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June 30, 2017 1-30 days 31-90 days 91-180 days 181 days-1 year 1 year-5 years Over 5 years Total Foreign exchange derivative instruments Inflow $ 241,448 $ 36,671 $ 54,752 $ 30,077 $ 597 $ - $ 363,545 Outflow 238,807 30,055 46,537 26,779 655 - 342,833 Interest rate derivative instruments Inflow 51,594 156,794 495,727 472,118 2,987,839 6,606,581 10,770,653 Outflow 101,112 157,640 319,050 590,770 2,492,147 4,305,370 7,966,089 Credit derivative instruments Inflow 42 53,959 53,403 97,362 339,873 - 544,639 Outflow ------Equity derivative instruments Inflow 194,481 - - - - - 194,481 Outflow 384,226 - - - - - 384,226 Total inflows $ 487,565 $ 247,424 $ 603,882 $ 599,557 $ 3,328,309 $ 6,606,581 $ 11,873,318 Total outflows $ 724,145 $ 187,695 $ 365,587 $ 617,549 $ 2,492,802 $ 4,305,370 $ 8,693,148 December 31, 2016 1-30 days 31-90 days 91-180 days 181 days-1 year 1 year-5 years Over 5 years Total Foreign exchange derivative instruments Inflow $ 278,109 $ 21,204 $ 217,171 $ 193,270 $ 607 $ - $ 710,361 Outflow 275,216 16,687 204,314 178,911 - - 675,128 Interest rate derivative instruments Inflow 109,682 169,236 243,784 808,036 3,620,643 4,957,305 9,908,686 Outflow 124,659 147,323 234,122 546,009 3,015,749 21,449,704 25,517,566 Credit derivative instruments Inflow - 74,302 75,025 137,014 514,761 - 801,102 Outflow ------Equity derivative instruments Inflow 151,895 - - - - - 151,895 Outflow 121,871 - - - - - 121,871 Total inflows $ 539,686 $ 264,742 $ 535,980 $ 1,138,320 $ 4,136,011 $ 4,957,305 $ 11,572,044 Total outflows $ 521,746 $ 164,010 $ 438,436 $ 724,920 $ 3,015,749 $ 21,449,704 $ 26,314,565 ~119~ WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3
June 30, 2016 1-30 days 31-90 days 91-180 days 181 days-1 year 1 year-5 years Over 5 years Total Foreign exchange derivative instruments Inflow $ 409,838 $ 33,958 $ 83,667 $ 238,066 $ 155,374 $ - $ 920,903 Outflow 409,932 1,110 62,774 218,575 184,313 - 876,704 Interest rate derivative instruments Inflow 58,717 183,533 834,969 473,987 5,110,841 18,361,459 25,023,506 Outflow 101,338 171,347 199,185 491,016 3,493,286 2,226,864 6,683,036 Credit derivative instruments Inflow - 88,686 87,346 167,343 751,433 - 1,094,808 Outflow ------Equity derivative instruments Inflow 221,500 - - - - - 221,500 Outflow 186,917 - - - - - 186,917 Total inflows $ 690,055 $ 306,177 $ 1,005,982 $ 879,396 $ 6,017,648 $ 18,361,459 $ 27,260,717 Total outflows $ 698,187 $ 172,457 $ 261,959 $ 709,591 $ 3,677,599 $ 2,226,864 $ 7,746,657 (d) Analysis for maturity leasing contractual commitments June 30, 2017 Not later than one year 1 year-5 years Over 5 years Total Leasing contractual commitments - Non-cancellable aggregate minimum lease payments$ 583,979 $ 851,832 $ 618,323 $ 2,054,134 - Non-cancellable aggregate minimum lease income 363,256 441,225 6,769 811,250 December 31, 2016 Not later than one year 1 year-5 years Over 5 years Total Leasing contractual commitments - Non-cancellable aggregate minimum lease payments$ 580,596 $ 920,587 $ 627,780 $ 2,128,963 - Non-cancellable aggregate minimum lease income 341,403 446,661 6,706 794,770
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June 30, 2016 Not later than one year 1 year-5 years Over 5 years Total Leasing contractual commitments - Non-cancellable aggregate minimum lease payments$ 614,494 $ 965,575 $ 655,821 $ 2,235,890 - Non-cancellable aggregate minimum lease income 330,889 516,631 8,811 856,331 (Note) leasing contractual commitments: lease’s future minimum lease income/payments under the terms of a non-cancellable operating lease.
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D. Disclosure requirements in the “Regulations Governing the Preparation of Financial Reports by Public Banks” (a) Maturity analysis of NTD of subsidiary-MICB
June 30, 2017 Total 0-10 days 11-30 days 31-90 days 91-180 days 181 days-1 year Over 1 year Primary funds inflow upon $ 1,894,935,573 $ 210,346,217 $ 198,587,801 $ 208,430,397 $ 248,986,954 $ 223,797,821 $ 804,786,383 maturity Primary funds outflow upon 2,514,688,112 138,308,652 222,715,524 344,486,291 298,319,229 438,456,237 1,072,402,179 maturity Gap($ 619,752,539) $ 72,037,565 ($ 24,127,723) ($ 136,055,894) ($ 49,332,275) ($ 214,658,416) ($ 267,615,796) June 30, 2016 Total 0-10 days 11-30 days 31-90 days 91-180 days 181 days-1 year Over 1 year Primary funds inflow upon $ 1,720,215,441 $ 150,530,267 $ 233,570,237 $ 162,379,103 $ 207,166,206 $ 184,930,874 $ 781,638,754 maturity Primary funds outflow upon 2,457,906,549 103,067,744 166,710,059 262,225,850 318,109,799 524,475,046 1,083,318,051 maturity Gap($ 737,691,108) $ 47,462,523 $ 66,860,178 ($ 99,846,747) ($ 110,943,593) ($ 339,544,172) ($ 301,679,297) (b) Maturity analysis of USD of subsidiary-MICB
Unit: In thousand of US dollars June 30, 2017 Total 0-30 days 31-90 days 91-180 days 181 days-1 year Over 1 year Primary funds inflow upon $ 49,081,214 $ 19,129,543 $ 9,358,574 $ 3,927,103 $ 3,439,885 $ 13,226,109 maturity Primary funds outflow upon 59,558,356 21,906,800 8,787,375 5,892,498 6,589,382 16,382,301 maturity Gap($ 10,477,142) ($ 2,777,257) $ 571,199 ($ 1,965,395) ($ 3,149,497) ($ 3,156,192) June 30, 2016 Total 0-30 days 31-90 days 91-180 days 181 days-1 year Over 1 year Primary funds inflow upon $ 48,551,595 $ 15,883,763 $ 9,264,618 $ 5,208,670 $ 3,661,625 $ 14,532,919 maturity Primary funds outflow upon 63,149,268 21,769,692 8,205,954 7,131,790 8,280,988 17,760,844 maturity Gap($ 14,597,673) ($ 5,885,929) $ 1,058,664 ($ 1,923,120) ($ 4,619,363) ($ 3,227,925) (Note 1) The funds denominated in US dollars means the amount of all US dollars of subsidiary MICB. (Note 2) If overseas assets exceed 10% of subsidiary MICB total assets, supplementary information shall be disclosed.
(c) Maturity analysis of USD of MICB’s-overseas branches
Unit: In thousand of US dollars June 30, 2017 Total 0-30 days 31-90 days 91-180 days 181 days-1 year Over 1 year Primary funds inflow upon $ 14,625,667 $ 5,952,447 $ 2,098,182 $ 871,293 $ 999,064 $ 4,704,681 maturity Primary funds outflow upon 16,506,387 8,353,803 1,080,142 737,014 761,876 5,573,552 maturity Gap($ 1,880,720) ($ 2,401,356) $ 1,018,040 $ 134,279 $ 237,188 ($ 868,871) June 30, 2016 Total 0-30 days 31-90 days 91-180 days 181 days-1 year Over 1 year Primary funds inflow upon $ 16,050,211 $ 6,669,832 $ 2,081,472 $ 1,272,203 $ 917,724 $ 5,108,980 maturity Primary funds outflow upon 18,378,150 9,073,738 1,358,394 899,808 1,084,835 5,961,375 maturity Gap($ 2,327,939) ($ 2,403,906) $ 723,078 $ 372,395 ($ 167,111) ($ 852,395)
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E. Disclosure requirements in the “Regulations Governing the Procedures for Bills Finance Companies.” Utilization and Sources of Capital June 30, 2017 Unit: In millions of NT dollars Gap 91-180 181 days Over 1 Item 1-30 days 31-90 days days to 1 year year Bills 53,157 49,264 6,731 528 - Bonds 2,185 936 2,928 2,534 124,299 Bank deposits 932 - 200 - - Utilization Loans extended - - - - - of Capital Bills and bonds purchased under resale agreements 1,001 - - - - Total 57,275 50,200 9,859 3,062 124,299 Loans borrowed 26,957 - - - - Bills and bonds sold Sources of under repurchased Capital agreements 162,928 20,372 2,375 114 - Own capital - - - - 34,217 Total 189,885 20,372 2,375 114 34,217 Net flow of capital ( 132,610) 29,828 7,484 2,948 90,082 Accumulated net flow of capital ( 132,610) ( 102,782) ( 95,298) ( 92,350) ( 2,268) Utilization and Sources of Capital June 30, 2016 Unit: In millions of NT dollars Gap 91-180 181 days to Item 1-30 days 31-90 days days 1 year Over 1 year Bills 56,928 52,915 7,342 298 - Bonds 375 851 5,840 6,643 116,009 Bank deposits 320 12 200 200 - Utilization Loans extended - - - - - of Capital Bills and bonds purchased under resale agreements 2,101 - - - - Total 59,724 53,778 13,382 7,141 116,009 Loans borrowed 19,537 - - - - Bills and bonds sold Sources of under repurchased Capital agreements 168,081 25,858 3,203 237 - Own capital - - - - 35,122 Total 187,618 25,858 3,203 237 35,122 Net flow of capital ( 127,894) 27,920 10,179 6,904 80,887 Accumulated net flow of capital ( 127,894) ( 99,974) ( 89,795) ( 82,891) ( 2,004)
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(5) Market risk A. Definition of market risk The Group has market risk on changes in fair value and estimated cash flows of financial instruments arising from fluctuations in interest rate, foreign exchange rate, credit spread, stock price, bond price and financial product price. Trading book and non-trading book both generate market risk. The Group’s trading book operation is mainly for the requirement of its own trading or for supporting clients’ investment and hedge, which are accounted for interest rate, foreign exchange rate, equity and credit instruments, including positions of derivative and non-derivative instruments. Non- trading book operation is mainly for assets/liabilities management requirement, such as stock, bond and bill investments. B. Objective of market risk management The objective of the Group’s market risk management is to confine the risks to the tolerable scopes to avoid the impact of fluctuations of interest rate, foreign exchange rate and financial instrument price on values of future profit and assets/liabilities. C. Market risk management policies and procedures The Board of Directors decided the risk tolerant limits and then allocates position limits, Value-at-Risk limits, sensitivity limits, loss limits to each business unit and product line based on budgets and utilization of capital. Market risk management comprises trading book control and non-trading book control. Trading book operation mainly pertains to the positions held by bills and securities firms due to market making. Policies for financial instrument trading of bank are based on back-to-back operation principle. Non-trading book is based on held-to-maturity principle and adopts hedging measures. D. Procedures for market risk management Each entity of the Group manages finance independently. Each subsidiary has set organisation structure and rules on market risk management based on the Company’s guiding principle and each subsidiary’s own business nature. The Board of Directors is the highest decision unit for market risk tolerant limits and authorises certain committee/management to be in charge of obeying the policies and put into operation. The certain committee/management sets trading strategies within total risk limits, trading scopes and limits of money market, capital market, foreign exchange market and derivatives and sets business goals based on business policies, domestic and foreign economic situations, future market interest rates, foreign exchange rates and prices trends. The management monitors the positions of bills and bonds, stocks and derivatives, VaR, sensitivity limits and loss limits, performs sensitivity analysis and valuation test, gives reports to the Risk Management Committee and Board of Directors regularly about the risk management operations and daily reports the financial positions to the Finance Control Department. The Risk Management Department of the Company reviews market risk management operations of subsidiaries regularly.
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E. Methods of risk measurement (market risk valuation technique) Each business unit is responsible for identifying the risk factors of each product and the Risk Management Department is responsible for verification of those factors. The Group adopts sensitivity analysis (PV01 、Delta 、Vega 、 Gamma) and VaR method to measure market risk and conducts stress test monthly. The Company with subsidiaries-MIBC, MS, MB and CKI adopt VaR models to assess the risk of investment portfolios (including financial assets and liabilities designated at fair value through profit or loss) and assess the market risk of holding positions based on the assumptions of several changes in market conditions and maximum expected loss. Value at risk estimates possible losses of the existing positions resulted from the unfavorable market changes based on statistical method. Subsidiaries calculate their tolerable “Maximum potential loss” by using 99% confidence interval; therefore, there is still 1% probability that actual loss might be greater than VaR estimation. Assuming the least holding duration is ten days, they assess the VaR of their own positions through historical simulation method and based on the fluctuations in foreign exchange rates, interest rates, prices or indexes for the past one year. The actual calculation results are used to monitor and test regularly the accuracy of parameters and assumptions used in the calculation. The evaluation method above cannot prevent the losses caused by excessive market fluctuations. The Group currently monitors market risk using sensitivity analysis. F. Policies and procedures of trading-book risk management Subsidiaries daily monitor trading-book positions, changes in risk exposures, and various risk limits, including trading rooms, traders and product line risk limits. If trading-book financial instruments have market price, the valuation of those instruments is conducted at least one time daily using the independent source and available information. If using model valuation, the assumptions and parameters used in the model are reviewed regularly. Risk measurement methods include VaR and sensitivity analysis. The Group conducts stress test on the positions of its interest rate, stock and foreign exchange rate products on the assumptions of the monthly change in interest rate, securities market index and foreign exchange rate by 1%, 15% and 3%, respectively, and reports to the risk control meeting. G. Trading-book interest rate risk management Trading-book interest rate risk refers to the financial loss of the decline in values of interest rate products held due to unfavorable changes in interest rates, including securities and derivatives with interest. The trading group screens the credits and financial positions of issuers and selects investment objectives by judging interest rate trend and a variety of country risks and based on the authorised minimum investment criteria. Subsidiaries set trading-book trading limits and stop-loss limits (including trading rooms, traders, trading products, and counterparties, daily and ~125~ WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3
overnight limits) based on business strategies and market conditions, and measure monthly the extent of impact of interest rate risk on investment portfolios using DV01 value. H. Non-trading-book interest rate risk management Non-trading book interest rate risk mainly comes from the unmatched maturity dates of assets and liabilities or price resetting dates, and inconsistent changes in base interest rates for assets and liabilities. The Group’s interest rate risk mainly comes from the unmatched periods of interest-rate sensitive assets and liabilities of bank subsidiaries. As the Group has interest-rate sensitive gaps, market interest rate fluctuations have good or bad impacts on the Group’s earnings and cash flows. The Group manages non-trading book interest rate risk by using reprising gap analysis. The interest-rate reprising gap analysis is to estimate the difference between the assets and liabilities with interest bearing that are to be due near or reprised within a certain period and measure the impact of interest rate change on net interest revenue. The analysis assumes assets and liabilities structure remain unchanged and there are parallel movements of interest rate curves, and excludes the customer behavior, basis risk, option characteristics of early repayment of bonds. The Group calculates the change in net interest revenue for this year and also monitors the percentage of change in net interest revenue to the projection of net interest revenue for this year. The Group monthly analyses and monitors interest rate risk positions limits and various interest rate risk management indexes. If any risk management index exceeds limit, the Group will adopt responding measures and report the analysis and monitoring results to the Risk Management Committee. I. Foreign exchange risk management Foreign exchange risk refers to the losses caused by the exchange of two different currencies at different times. The Group’s foreign exchange risk mainly comes from its derivative instruments business such as spot foreign exchange, forward foreign exchange and foreign exchange options. The foreign exchange trading of the bank subsidiaries is mainly for offsetting customers’ positions on the same day; therefore, foreign exchange risk is relatively low. To control trading-book foreign exchange risk, subsidiaries have set trading limits and stop-loss limits for trading rooms and traders and also set the annual maximum loss limits to control the losses within the tolerable scopes.
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J. The Group’s foreign exchange risk gaps
June 30, 2017 USD AUD RMB Assets Cash and cash equivalents $ 60,053,483 $ 323,453 $ 10,982,480 Due from the Central Bank and call loans to banks 406,456,556 827,527 6,899,523 Financial assets at fair value through profit or loss 35,020,599 3,112,017 428 Available-for-sale financial assets 90,703,586 58,425,183 14,344,332 Receivables 27,655,320 4,520,342 898,831 Current income tax assets 10,434 - 101 Bills discounted and loans 466,278,128 41,858,088 12,437,968 Reinsurance contract asset 138,008 - - Held-to-maturity financial assets 18,643,516 1,531,121 4,426,864 Equity investments accounted for under the equity method 116,359 - - Other financial assets 491,632 28 52,672 Property and equipment 221,013 25,621 7,386 Intangible assets 3,046 690 8,812 Deferred income tax assets 377,539 - 3,476 Other assets 1,425,197 7,725 61,590 Total assets $ 1,107,594,416 $ 110,631,795 $ 50,124,463 Liabilities Due to the Central Bank and financial $ 226,146,741 $ 2,724,513 $ 5,193,709 institutions Funds borrowed from the Central Bank and other banks 30,982,724 - - Financial liabilities at fair value through profit or loss 9,371,880 9,765 441 Bills and bonds sold under repurchased agreements 35,070,096 - - Payables 14,075,468 280,667 860,407 Current income tax liabilities 125,914 - - Deposits and remittances 826,474,703 36,210,478 88,764,407 Other loans 334,466 - - Provisions for liabilities 535,145 17,307 - Other financial liabilities 5,156,741 924,429 1,272,902 Deferred income tax liabilities 13,692 - 3,588 Other liabilities 1,390,762 1,461,633 ( 289,901) Total liabilities $ 1,149,678,332 $ 41,628,792 $ 95,805,553 On-balance sheet foreign exchange gap ($ 42,083,916) $ 69,003,003 ($ 45,681,090) Off-balance sheet commitments $ 64,398,968 $ 558,876 $ 2,180,776
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December 31, 2016 USD AUD RMB Assets Cash and cash equivalents $ 51,951,026 $ 360,570 $ 10,947,379 Due from the Central Bank and call loans to banks 424,434,194 756,861 13,878,642 Financial assets at fair value through profit or loss 37,947,334 2,240,329 462,933 Available-for-sale financial assets 92,221,128 49,517,023 15,240,350 Receivables 33,556,696 5,151,369 1,318,895 Bills discounted and loans 485,835,591 40,866,161 12,683,762 Reinsurance contract asset 144,715 - - Held-to-maturity financial assets 22,064,690 1,527,971 4,109,819 Equity investments accounted for under the equity method 122,687 - - Other financial assets 384,023 28 103,704 Property and equipment 243,287 26,903 10,835 Intangible assets 2,904 - 8,537 Deferred income tax assets 308,152 - 2,215 Other assets 162,281 5,229 59,187 Total assets $ 1,149,378,708 $ 100,452,444 $ 58,826,258 Liabilities Due to the Central Bank and financial $ 321,370,945 $ 3,462,822 $ 5,652,241 institutions Funds borrowed from the Central Bank and other banks 39,974,427 - - Financial liabilities at fair value through profit or loss 10,363,477 13,022 428 Bills and bonds sold under repurchased agreements 39,040,808 - 159,987 Payables 13,976,999 242,784 788,147 Deposits and remittances 776,913,967 29,935,501 82,258,183 Other loans 161,030 - - Provisions for liabilities 533,595 14,721 - Other financial liabilities 4,082,887 776,374 1,442,173 Deferred income tax liabilities 8,822 - 3,712 Other liabilities 1,993,135 434,301 ( 47,372) Total liabilities $ 1,208,420,092 $ 34,879,525 $ 90,257,499 On-balance sheet foreign exchange gap ($ 59,041,384) $ 65,572,919 ($ 31,431,241) Off-balance sheet commitments $ 75,718,179 $ 1,400,585 $ 2,278,564
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June 30, 2016 USD AUD RMB Assets Cash and cash equivalents $ 60,220,476 $ 462,490 $ 9,424,409 Due from the Central Bank and call loans to banks 407,626,492 2,699,792 22,798,233 Financial assets at fair value through profit or loss 39,714,507 2,309,640 971,871 Available-for-sale financial assets 79,176,113 51,447,516 13,452,487 Receivables 36,323,009 6,254,860 17,239,147 Bills discounted and loans 527,779,535 36,351,650 9,550,150 Reinsurance contract asset 140,899 - - Held-to-maturity financial assets 21,094,473 1,579,623 4,701,421 Equity investments accounted for under - the equity method 122,160 - Other financial assets 865,453 - 212,441 Property and equipment 261,932 29,081 15,094 Intangible assets 2,696 - 8,209 Deferred income tax assets 320,289 - 2,323 Other assets 503,727 4,171 65,411 Total assets $ 1,174,151,761 $ 101,138,823 $ 78,441,196 Liabilities Due to the Central Bank and financial $ 257,301,826 $ 799,781 $ 3,177,082 institutions Funds borrowed from the Central Bank and other banks 57,413,880 - - Financial liabilities at fair value through profit or loss 20,267,804 20,141 978 Bills and bonds sold under repurchased agreements 28,519,981 - 582,886 Payables 24,084,592 178,651 1,412,245 Current income tax liabilities 74,960 42,715 - Deposits and remittances 820,476,944 33,579,323 88,891,689 Other loans 263,093 - - Provisions for liabilities 564,591 15,276 - Other financial liabilities 4,569,718 1,140,939 1,509,048 Deferred income tax liabilities - - 3,892 Other liabilities 3,128,554 461,062 136,065 Total liabilities $ 1,216,665,943 $ 36,237,888 $ 95,713,885 On-balance sheet foreign exchange gap ($ 42,514,182) $ 64,900,935 ($ 17,272,689) Off-balance sheet commitments $ 72,176,403 $ 1,122,091 $ 2,498,993
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K. Equity securities risk management
(a) The market risk of the equity securities held by the Group include individual risks incident to market price fluctuations of individual equity securities and general market risks incident to the overall market price fluctuations. (b) The Group’s risk management for equity securities is primarily categorised into positions held for short-term selling to earn capital gains, positions primarily held for earning dividends, or positions primarily held for capital gains arising from stock prices that reflect good industry prospects or an increase in long-term profitability. The Group’s trading strategy sets the annual loss limits of the annual risk management objective as the scope for tolerable risk. (c) Related control measures include: daily market price valuation to control loss limits, monthly stress-testing to calculate possible losses on the Group’s investment portfolios, measurement of the extent of the impact of systematic risk on investment portfolios using β value, and reporting to the Risk Management Committee quarterly. L. Sensitivity analysis
Sensitivity analysis of the Group’s financial instruments (including trading book and non-trading book). The following table indicates measurement positions of the Group’s financial products on the report date that impact profit or loss when such positions experience a movement in value incident to relative market risk factors experiencing a movement by 1 unit. A 1 unit movement in a market risk factor refers to a 1bp (basis point) increase or decrease in the yield curve, 1% increase or decrease in the weighted stock index, or 1% appreciation or depreciation for foreign currency exchanges in New Taiwan Dollars. Foreign exchange risk is the Group’s net position less equity investments of overseas subsidiaries plus the current year earnings test of overseas branches (subsidiaries). Interest rate risk is the positions of bond products, interest rate swaps, bond options and other interest rate derivatives, not including the PV01 tests of deposits and loans. Equity securities risk is the variation testing of the β value of purchased stocks, convertible bonds and the portfolio of subsidiary issued stock warrants in respect to the weighted stock index.
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June 30, 2017 Effect on Effect on Risks Extent of Variation Profit or Loss Equity Exchange rate of NTD to USD, to JPY, to EUR and to Foreign exchange risk ($ 76,307) ($ 1,895) each of other currencies appreciated by 1% Exchange rate of NTD to USD, to JPY, to EUR and to Foreign exchange risk 76,307 1,895 each of other currencies depreciated by 1% Interest rate risk (not including Major increases in interest rates 1BP( 41,547) ( 84,353) deposits and loans) Interest rate risk (not including Major decline in interest rates 1BP 51,340 99,660 deposits and loans) Equity securities risk TAIEX declined by 1% ( 43,680) ( 112,320) Equity securities risk TAIEX increased by 1% 37,180 105,820 December 31, 2016 Effect on Effect on Risks Extent of Variation Profit or Loss Equity Exchange rate of NTD to USD, to JPY, to EUR and to Foreign exchange risk ($ 48,588) ($ 23,384) each of other currencies appreciated by 1% Exchange rate of NTD to USD, to JPY, to EUR and to Foreign exchange risk 48,588 23,384 each of other currencies depreciated by 1% Interest rate risk (not including Major increases in interest rates 1BP( 39,780) ( 77,221) deposits and loans) Interest rate risk (not including Major decline in interest rates 1BP 46,240 89,141 deposits and loans) Equity securities risk TAIEX declined by 1% ( 34,141) ( 87,844) Equity securities risk TAIEX increased by 1% 30,560 82,637 June 30, 2016 Effect on Effect on Risks Extent of Variation Profit or Loss Equity Exchange rate of NTD to USD, to JPY, to EUR and to Foreign exchange risk ($ 174,000) ($ 16,661) each of other currencies appreciated by 1% Exchange rate of NTD to USD, to JPY, to EUR and to Foreign exchange risk 174,000 16,661 each of other currencies depreciated by 1% Interest rate risk (not including Major increases in interest rates 1BP( 38,980) ( 75,020) deposits and loans) Interest rate risk (not including Major decline in interest rates 1BP 38,980 75,020 deposits and loans) Equity securities risk TAIEX declined by 1% ( 31,922) ( 82,398) Equity securities risk TAIEX increased by 1% 31,922 82,398 M. Value at Risk analysis of the Group’s financial instruments
The following table indicates measurement positions of the Group’s financial products on the report date, the maximum potential loss under a 99% confidence interval.
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June 30, 2017 Value at risk of primary Average Maximum Minimum market Value at risk of equity $ 248,200 $ 295,300 $ 201,100 securities Value at risk of interest 1,125,000 1,450,000 800,000 products Value at risk of foreign 302,000 443,000 161,000 exchange products Value at risk of credit 228,000 266,000 190,000 products Total VaR$ 1,903,200 $ 2,454,300 $ 1,352,100
December 31, 2016 Value at risk of primary Average Maximum Minimum market Value at risk of equity $ 242,550 $ 284,000 $ 201,100 securities Value at risk of interest 1,098,000 1,396,000 800,000 products Value at risk of foreign 164,500 169,000 160,000 exchange products Value at risk of credit 232,650 258,000 207,300 products Total VaR$ 1,737,700 $ 2,107,000 $ 1,368,400 June 30, 2016 Value at risk of primary Average Maximum Minimum market Value at risk of equity $ 250,000 $ 298,000 $ 202,000 securities Value at risk of interest 939,000 1,176,000 702,000 products Value at risk of foreign 176,000 187,000 165,000 exchange products Value at risk of credit 275,500 350,000 201,000 products Total VaR$ 1,640,500 $ 2,011,000 $ 1,270,000
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N. Disclosure requirements in the “Regulations Governing the Preparation of Financial Reports by Public Banks”
Interest rate sensitivity analysis on assets and liabilities (NT Dollars) June 30, 2017
Item 1-90 days 91-180 days 181 days to 1 year Over 1 year Total Interest rate $ 498,273,989 $ 899,533,745 $ 97,850,759 $ 69,363,353 $ 1,565,021,846 sensitive assets Interest rate 552,690,040 678,926,543 64,311,305 29,960,734 1,325,888,622 sensitive liabilities Interest rate ($ 54,416,051) $ 220,607,202 $ 33,539,454 $ 39,402,619 $ 239,133,224 sensitive gap Net worth $ 249,924,830 Ratio of interest rate sensitive assets to interest rate sensitive liabilities 118.04% Ratio of interest rate sensitivity gap to net worth 95.68%
Interest rate sensitivity analysis on assets and liabilities (NT Dollars) June 30, 2016
Item 1-90 days 91-180 days 181 days to 1 year Over 1 year Total Interest rate $ 478,428,918 $ 810,033,956 $ 58,142,289 $ 59,582,547 $ 1,406,187,710 sensitive assets Interest rate 466,548,942 622,929,311 94,429,151 47,115,652 1,231,023,056 sensitive Interest rate $ 11,879,976 $ 187,104,645 ($ 36,286,862) $ 12,466,895 $ 175,164,654 sensitive gap Net worth $ 245,499,074 Ratio of interest rate sensitive assets to interest rate sensitive liabilities 114.23% Ratio of interest rate sensitivity gap to net worth 71.35%
(Note 1) The above amounts included only New Taiwan dollar amounts by the onshore branches of the Company (i.e. excluding foreign currency).
(Note 2) Interest rate sensitive assets and liabilities refer to the interest-earning assets and interest-bearing liabilities of which the income or costs are affected by the fluctuations in interest rates. (Note 3) Interest rate sensitivity gap = Interest rate sensitive assets – Interest rate sensitive liabilities. (Note 4) Ratio of interest rate sensitive assets to interest rate sensitive liabilities = Interest rate sensitive assets ÷ Interest rate sensitive liabilities (referring to the current interest rate sensitive assets and liabilities denominated in New Taiwan dollars)
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Interest rate sensitivity analysis on assets and liabilities (US Dollars) June 30, 2017 Unit ：In thousands of US Dollars Item 1-90 days 91-180 days 181 days to 1 year Over 1 year Total Interest rate $ 31,422,674 $ 1,883,115 $ 506,638 $ 325,508 $ 34,137,935 sensitive assets Interest rate 31,154,291 2,068,847 1,595,286 212 34,818,636 sensitive liabilities Interest rate $ 268,383 ($ 185,732) ($ 1,088,648) $ 325,296 ($ 680,701) sensitive gap Net worth $ 335,859 Ratio of interest rate sensitive assets to interest rate sensitive liabilities 98.05% Ratio of interest rate sensitivity gap to net worth ( 202.67%)
Interest rate sensitivity analysis on assets and liabilities (US Dollars) June 30, 2016 Unit ：In thousands of US Dollars Item 1-90 days 91-180 days 181 days to 1 year Over 1 year Total Interest rate $ 30,588,622 $ 2,664,374 $ 562,585 $ 214,296 $ 34,029,877 sensitive assets Interest rate 31,783,478 1,587,060 1,296,074 513,396 35,180,008 sensitive Interest rate ($ 1,194,856) $ 1,077,314 ($ 733,489) ($ 299,100) ($ 1,150,131) sensitive gap Net worth $ 197,899 Ratio of interest rate sensitive assets to interest rate sensitive liabilities 96.73% Ratio of interest rate sensitivity gap to net worth ( 581.17%)
(Note 1) The above amounts included only US dollars denominated assets and liabilities of head office, domestic and foreign branches, and the OBU branch, contingent assets and liabilities are excluded. (Note 2) Interest rate sensitivity gap = Interest rate sensitive assets – Interest rate sensitive liabilities. (Note 3) Ratio of interest rate sensitive assets to interest rate sensitive liabilities = Interest rate sensitive assets ÷ Interest rate sensitive liabilities (referring to the current interest rate sensitive assets and liabilities denominated in US dollars).
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O. Disclosure requirements in the “Regulations Governing the Preparation of Financial Reports by Publicly Held Bills Finance Companies”
(a) The information of interest rate sensitivity
Interest rate sensitivity analysis on assets and liabilities of MBF June 30, 2017
Item 1-90 days 91-180 days 181 days to 1 year Over 1 year Total Interest rate $ 107,474,896 $ 9,859,083 $ 3,062,002 $ 124,299,209 $ 244,695,190 sensitive assets Interest rate 210,257,023 2,374,850 113,839 - 212,745,712 sensitive liabilities Interest rate ($ 102,782,127) $ 7,484,233 $ 2,948,163 $ 124,299,209 $ 31,949,478 sensitive gap Net worth $ 34,216,934 Interest rate sensitivity assets and liabilities ratio 115.02% Interest rate sensitivity gap and net value ratio 93.37%
Interest rate sensitivity analysis on assets and liabilities of MBF June 30, 2016
Item 1-90 days 91-180 days 181 days to 1 year Over 1 year Total Interest rate $ 113,501,472 $ 13,382,223 $ 7,141,367 $ 116,008,621 $ 250,033,683 sensitive assets Interest rate 213,475,963 3,202,710 237,179 - 216,915,852 sensitive Interest rate ($ 99,974,491) $ 10,179,513 $ 6,904,188 $ 116,008,621 $ 33,117,831 sensitive gap Net worth $ 35,122,490 Interest rate sensitivity assets and liabilities ratio 115.27% Interest rate sensitivity gap and net value ratio 94.29%
(Note 1) Interest rate sensitive assets and liabilities refer to the interest-earning assets and interest- bearing liabilities of which the income or costs are affected by the fluctuations in interest rates. (Note 2) Ratio of interest rate sensitive assets to interest rate sensitive liabilities = Interest rate sensitive assets ÷ Interest rate sensitive liabilities. (Note 3) Interest rate sensitivity gap = Interest rate sensitive assets – Interest rate sensitive liabilities.
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(b) Average amount and average interest rates of interest-earning assets and interest- bearing liabilities of MBF
For the six-month period ended June 30, 2017 Average amount Average interest rate (%) Assets Cash and cash equivalents (Note) $ 1,045,763 0.22 Financial assets at fair value through profit or loss 12,495,429 0.91 Bills and bonds purchased under resale agreements 739,857 0.39 Available-for-sale financial assets 132,498,185 1.74 Held-to-maturity financial assets 350,000 2.07 Liabilities Interbank call loans and overdrafts 20,337,240 0.51 Bonds and bills sold under repurchase agreements 207,895,582 0.52
For the six-month period ended June 30, 2016 Average amount Average interest rate (%) Assets Cash and cash equivalents (Note) $ 749,720 0.40 Financial assets at fair value through profit or loss 117,340,319 1.01 Bills and bonds purchased under resale agreements 1,414,780 0.36 Available-for-sale financial assets 113,371,147 1.73 Held-to-maturity financial assets 440,659 2.05 Liabilities Interbank call loans and overdrafts 20,790,137 0.40 Bonds and bills sold under repurchase agreements 181,339,962 0.40 (Note) Cash and cash equivalents comprise restricted assets-certificate of deposit.
9. INSURANCE RISK MANAGEMENT
In order to effectively recognise, measure and monitor the risks the subsidiary is exposed to and ensure that the risks are within a coverable range, to balance risks and rewards reasonably, to maximize the value of equity and to maintain the adequacy of self-owned capital and repayment ability to secure the company’s operation, the subsidiary established a risk management committee under the Board of Directors and a risk control department independent from business units as well as risk control policy and procedures. Insurance risks and financial risks will be explained below. (1) Insurance risk, measurement and corresponding risk management Insurance risks are the risks to overpay expected claims due to insufficient estimate of the frequency, degree of impact and uncertainty of time of the insured incidents, and such uncertain elements including natural disaster, catastrophe risks, legal changes and litigation, which might occur randomly. The subsidiary primarily covers automobile insurance, fire insurance, accident insurance and flood insurance, and the risk management methods are stated as follows:
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A. Automobile insurance The automobile insurance mainly covers automobile insurance businesses, and the risks primarily resulting from accident losses due to the behavior of the insured; therefore, the subsidiary selects clients of good quality through careful underwriting standards and practice, the amount of each policy is small and covered insurance is spread all over the country; the insurance is not concentrated on a specific location or on people of certain age group or occupation. However, the accumulative risks as a whole are still large, the subsidiary signs reinsurance contracts for automobile insurance when claims of various insurance exceed retention amount. B. Fire insurance The fire insurance mainly covers commercial fire insurance businesses, and the targets include manufacturing factories, losses due to machines and operation interruption. The insurance primarily covers fire or explosion resulting from machine abandonment, machine damage or human behavior, and risks concentrate on industrial parks, and petrochemical or heavy industries. Also, the insurance additionally covers typhoon, flood and earthquake, which elevates the overall degree of risks covered; therefore, the subsidiary excludes high risk clients through strict underwriting policy. The subsidiary disperses risks through fire reinsurance contract, over-insurance per risk unit reinsurance contract, over-insurance for catastrophe losses reinsurance contract or coinsurance. Also, the subsidiary assesses the relation between the scope of insurance cases and premium consideration; those with lower risks are self-retained, and facultative reinsurance arrangement will be adopted for the rest. C. Accident insurance The accident insurance mainly covers engineering insurance businesses, targeting non-renewal contracts, including contractor’s all risk insurance, installation all risk insurance and carrying forward various all risk insurance, including risks resulting from typhoons (due to Taiwan’s geographic location), floods and earthquakes. The subsidiary disperses risks through reinsurance contract and coinsurance with the Engineering Insurance Association; if the subsidiary is unable to disperse risks through the abovementioned methods, the relations between actual risk and premium consideration is considered, and those with lower risks are self-retained, while facultative reinsurance arrangement are adopted for the rest. Also, the subsidiary examines business performance and accumulated value of natural disasters; observes if there is any abnormal situation from loss rates and performance results for the insurer as reference. The maximum self-retention amount is revised each year after ~137~ WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3
assessing market situation, business characteristics and previous year’s performance result. For large and concentrated losses from natural disasters such as typhoons or earthquakes, foreign department will transfer self- retained risk above certain amount to be covered by reinsurers, and control risk through setting claim limit of self-retained risks. D. Marine insurance Marine insurance includes cargo transportation, hull insurance and fishing vessel insurance, primarily covering risks resulting from hull or cargo damage from accidents, which does not generate risk concentration problems. However, the accumulative risks as a whole are still large, the subsidiary selects quality businesses through strict underwriting policy and makes facultative reinsurance arrangement when claims of various insurance exceed retention amount based on insurance types and targets, e.g. hull insurance contracts. For cargo transportation insurance, the subsidiary disperses risks through surplus reinsurance contract and quota share reinsurance. When there are businesses that cannot be covered by reinsurance contracts or special risks, facultative reinsurance arrangement or coinsurance are adopted. (2) Insurance risk concentration The over concentration of risks in locations and industries arising from CKI underwriting fire insurance and engineering insurance policies is primarily dispersed through reinsurance ceding. As of June 30, 2017 and 2016 , the over concentration of insurance risk is displayed respectively as follows through CKI’s fire insurance’s and engineering insurance’s premium income and self- retained premium.
For the six-month periods ended June 30, 2017 2016 Type Premium Income Self-retained Premium Premium Income Self-retained Premium Earthquake insurance$ 406,139 $ 105,390 $ 388,342 $ 101,973 Fire insurance 416,930 164,761 371,068 158,393 Engineering insurance 101,303 55,885 89,291 46,790 (3) Sensitivity analysis of insurance risk CKI assesses claim reserves through the loss development model and the estimated loss rate for various insurance types. Due to elements of uncertainty, including changes in the environment (e.g. changes in regulations or legal rulings), changes in trends or payment methods, which may change the loss development model and the estimated loss rate, affecting the estimation of claim reserves, thus CKI’s sensitivity test on the estimated loss rate for June 30, 2017 and 2016 is respectively as follows:
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June 30, 2017 June 30, 2016 Final loss rate increases 5% Final loss rate increases 5% Type Total increase of Net increase of Total increase of Net increase of claim reserves claim reserves claim reserves claim reserves Fire Insurance$ 50,980 $ 15,941 $ 48,281 $ 21,919 Marine Insurance 31,470 8,982 32,356 8,964 Automobile Insurance 162,790 125,606 151,654 118,351 Accident Insurance 87,985 33,475 90,435 39,455 Injury Insurance 16,820 12,849 19,372 14,343 Offshore Branches 4,257 4,254 6,776 6,772 Sensitivity testing calculates the impact a 5% increase in the final loss rate has on the Company’s profit or loss based on the retained earned premium within 1 year as of the financial report’s year-end date. If the movement of the final loss rate is inversely, the above-mentioned claims reserve held is also inversed.
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(4) Claim development trend As of June 30, 2017 , December 31, 2016 and June 30, 2016 , the subsidiary-CKI’s claim development trend is as follows: A. Accumulative claim amounts (Before reinsurance ceding)
June 30, 2017 Day of evaluation Estimated Accumulative Year of Accumulative Adjustments Amount recognised accumulative claim present unpaid Accident 2012.12.31 2013.12.31 2014.12.31 2015.12.31 2016.12.31 2017.6.30 claim amounts (Note) in the balance sheet amounts amount
2012 and 24,570,984 24,747,717 24,538,516 24,470,044 24,415,547 24,391,866 24,391,866 24,093,735 298,131 before 2013 1,973,722 2,347,007 2,296,331 2,290,391 2,268,399 2,268,399 2,112,160 156,239 2014 2,404,641 2,535,901 2,514,147 2,523,814 2,523,814 2,375,213 148,601 2015 2,714,989 2,889,178 2,892,203 2,892,203 2,663,011 229,192 2016 4,145,650 4,395,494 4,395,494 2,917,849 1,477,645 2017 1,165,951 1,165,951 435,843 730,108 (1/1~6/30) Total 37,637,727 34,597,811 3,039,916 1,113,971 4,153,887 December 31, 2016 Day of evaluation Estimated Accumulative Year of Accumulative Adjustments Amount recognised accumulative claim present unpaid Accident 2011.12.31 2012.12.31 2013.12.31 2014.12.31 2015.12.31 2016.12.31 claim amounts (Note) in the balance sheet amounts amount 2011 and 22,285,223 22,289,718 22,155,918 22,026,507 21,990,324 21,930,229 21,930,229 21,746,388 183,841 before 2012 2,281,266 2,591,799 2,512,009 2,479,720 2,485,318 2,485,318 2,364,252 121,066 2013 1,973,722 2,347,007 2,296,331 2,290,391 2,290,391 2,098,585 191,806 2014 2,404,641 2,535,901 2,514,147 2,514,147 2,363,246 150,901 2015 2,714,989 2,889,178 2,889,178 2,562,105 327,073 2016 4,145,650 4,145,650 1,886,190 2,259,460 Total 36,254,913 33,020,766 3,234,147 1,185,310 4,419,457
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June 30, 2016 Estimated Accumulative Amount Day of evaluation Accumulative Adjustments Year of Accident accumulative claim present unpaid recognised in the claim amounts (Note) 2011.12.31 2012.12.31 2013.12.31 2014.12.31 2015.12.31 2016.6.30 amounts amount balance sheet
2011 and before 22,285,223 22,289,718 22,155,918 22,026,507 21,990,324 21,970,229 21,970,229 21,590,768 379,461
2012 2,281,266 2,591,799 2,512,009 2,479,720 2,493,109 2,493,109 2,367,000 126,109
2013 1,973,722 2,347,007 2,296,331 2,283,265 2,283,265 2,079,285 203,980
2014 2,404,641 2,535,901 2,514,527 2,514,527 2,318,712 195,815
2015 2,714,989 2,921,431 2,921,431 2,394,247 527,184
2016(1/1~6/30) 2,427,047 2,427,047 399,183 2,027,864
Total 34,609,608 31,149,195 3,460,413 1,160,052 4,620,465
(Note) Claim reserves for credit insurance, nuclear energy insurance, government sponsored earthquake insurance and health insurance are provided in accordance with related regulations; therefore, the loss development triangle of direct businesses does not include the abovementioned insurance types. Claim reserves on account are estimated based on current available data; however, the final result might differ from initial estimation value due to subsequent developments.
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B. Accumulative claim amounts (After reinsurance ceding)
June 30, 2017 Day of evaluation Amount Estimated Accumulative Accumulative Adjustments recognised in Year of Accident accumulative present unpaid 2012.12.31 2013.12.31 2014.12.31 2015.12.31 2016.12.31 2017.6.30 claim amounts (Note) the balance claim amounts amount sheet
2012 and before 15,815,113 16,136,277 16,058,224 16,045,373 16,043,396 16,002,116 16,002,116 15,856,564 145,552
2013 1,322,491 1,654,907 1,679,800 1,685,737 1,670,873 1,670,873 1,557,535 113,338
2014 1,411,247 1,634,777 1,673,889 1,679,179 1,679,179 1,577,059 102,120
2015 1,487,394 1,728,447 1,760,518 1,760,518 1,604,007 156,511
2016 1,971,815 2,201,138 2,201,138 1,682,161 518,977
2017(1/1~6/30) 702,992 702,992 348,002 354,990
Total 24,016,816 22,625,328 1,391,488 570,148 1,961,636
December 31, 2016 Day of evaluation Estimated Accumulative Amount Accumulative Adjustments Year of Accident accumulative claim present unpaid recognised in the 2011.12.31 2012.12.31 2013.12.31 2014.12.31 2015.12.31 2016.12.31 claim amounts (Note) amounts amount balance sheet
2011 and before 14,058,028 14,468,291 14,471,511 14,375,805 14,371,532 14,366,659 14,366,659 14,270,789 95,870
2012 1,346,822 1,664,766 1,682,419 1,673,841 1,676,737 1,676,737 1,615,364 61,373
2013 1,322,491 1,654,907 1,679,800 1,685,737 1,685,737 1,555,357 130,380
2014 1,411,247 1,634,777 1,673,889 1,673,889 1,563,644 110,245
2015 1,487,394 1,728,447 1,728,447 1,521,826 206,621
2016 1,971,815 1,971,815 1,138,327 833,488
Total 23,103,284 21,665,307 1,437,977 581,407 2,019,384
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June 30, 2016 Estimated Accumulative Amount Accumulative Adjustments Year of Accident accumulative claim present unpaid recognised in the 2011.12.31 2012.12.31 2013.12.31 2014.12.31 2015.12.31 2016.6.30 claim amounts (Note) amounts amount balance sheet
2011 and before 14,058,028 14,468,291 14,471,511 14,375,805 14,371,532 14,367,038 14,367,038 14,245,595 121,443
2012 1,346,822 1,664,766 1,682,419 1,673,841 1,674,147 1,674,147 1,611,129 63,018
2013 1,322,491 1,654,907 1,679,800 1,676,893 1,676,893 1,540,387 136,506
2014 1,411,247 1,634,777 1,662,243 1,662,243 1,515,854 146,389
2015 1,487,394 1,682,702 1,682,702 1,354,761 327,941
2016(1/1~6/30) 967,734 967,734 305,472 662,262
Total 22,030,757 20,573,198 1,457,559 591,606 2,049,165
(Note) Claim reserves for credit insurance, nuclear energy insurance, government sponsored earthquake insurance and health insurance are provided in accordance with related regulations; therefore, the loss development triangle of direct businesses does not include the abovementioned insurance types. Claim reserves on account are estimated based on current available data; however, the final result might differ from initial estimation value due to subsequent developments.
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(5) Credit risk, liquidity risk and market risk of insurance contracts A. Credit risk Credit risk mainly comes from the condition when the reinsurers of the Group’s reinsurance business fail to fulfill their obligations and thus premiums, claims or other expenses may not be recovered from reinsurers. To control this risk, subsidiaries would consider diversifying reinsurers to eliminate credit risk concentration and would carefully select reinsurers according to the Group’s reinsurance risk management policy. The reinsurance contracts would require using net payment way to pay reinsurance premiums, which have excluded receivables or recoverable amounts, to mitigate credit risk. After the reinsurance business was classified, subsidiaries review the credit rating of reinsurers regularly according to the reinsurance risk management policy. If the credit rating of reinsurer is downgraded and this reinsurance has met the criteria of not qualifying for reinsurance as specified in the “Regulations Governing Insurance Enterprises Engaging in Operating Reinsurance and Other Risk Spreading Mechanisms”, subsidiaries shall disclose the amount of reserve for unqualified reinsurance according to relevant regulations. B. Liquidity risk Liquidity risk of insurance contract occurs when the Group is unable to realise assets immediately or acquires adequate capital and thus it fails to fulfill payment obligations for insurance. To control this risk, subsidiaries conduct maturity analysis of insurance contracts regularly and examine the matching of assets and liabilities. Future actual payment amounts will differ by the difference between actual experience and expected experience. The following table illustrates the cash outflows for the claims of the subsidiary - CKI as of June 30, 2017 , December 31, 2016 and June 30, 2016 ： June 30, 2017 December 31, 2016 June 30, 2016 Below 1 year$ 3,846,914 $ 4,225,529 $ 4,423,983 From 1 year to 5 years 306,973 193,928 196,482 Total$ 4,153,887 $ 4,419,457 $ 4,620,465
C. Market risk Subsidiaries provide reserve for each type of insurance liability in accordance with “Regulations Governing the Setting Aside of Various Reserves by Insurance Enterprises” and relevant laws. Except for the reserve for unearned premiums for long- term fire insurance that is provided based on the insurance reserve provision coefficient table published by the competent authority, other reserves are provided without discounting, which are therefore not affected by market interest rate fluctuations.
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(6) Disclosures in “Regulations Governing the Preparation of Financial Reports by Insurance Enterprises” A. Details of calculation of net premiums are as follows. For the three-month period ended June 30, 2017 Reinsurance premiums Retained insurance Net change in reserve for Premium income Reinsurance premium Net premiums ceded premiums unearned premiums Type (1) (2) (3) (4)=(1)+(2)-(3) (5) (6)=(4)+(5) Compulsory insurance$ 109,896 $ 40,850 $ 46,859 $ 103,887 ($ 815) $ 103,072 Non-compulsory insurance 1,696,948 117,078 873,810 940,216 ( 55,664) 884,552 Total $ 1,806,844 $ 157,928 $ 920,669 $ 1,044,103 ($ 56,479) $ 987,624
For the six-month period ended June 30, 2017 Reinsurance premiums Retained insurance Net change in reserve for Premium income Reinsurance premium Net premiums ceded premiums unearned premiums Type (1) (2) (3) (4)=(1)+(2)-(3) (5) (6)=(4)+(5) Compulsory insurance$ 217,896 $ 86,496 $ 92,138 $ 212,254 ($ 1,973) $ 210,281 Non-compulsory insurance 3,285,591 228,391 1,572,999 1,940,983 ( 86,371) 1,854,612 Total $ 3,503,487 $ 314,887 $ 1,665,137 $ 2,153,237 ($ 88,344) $ 2,064,893
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For the three-month period ended June 30, 2016 Reinsurance premiums Retained insurance Net change in reserve for Premium income Reinsurance premium Net premiums ceded premiums unearned premiums Type (1) (2) (3) (4)=(1)+(2)-(3) (5) (6)=(4)+(5) Compulsory insurance$ 108,563 $ 39,491 $ 45,955 $ 102,099 $ 779 $ 102,878 Non-compulsory insurance 1,673,424 108,380 793,359 988,445 ( 13,978) 974,467 Total $ 1,781,987 $ 147,871 $ 839,314 $ 1,090,544 ($ 13,199) $ 1,077,345
For the six-month period ended June 30, 2016 Reinsurance premiums Retained insurance Net change in reserve for Premium income Reinsurance premium Net premiums ceded premiums unearned premiums Type (1) (2) (3) (4)=(1)+(2)-(3) (5) (6)=(4)+(5) Compulsory insurance$ 213,378 $ 84,171 $ 89,472 $ 208,077 ($ 6,071) $ 202,006 Non-compulsory insurance 3,283,176 224,746 1,577,348 1,930,574 ( 81,526) 1,849,048 Total $ 3,496,554 $ 308,917 $ 1,666,820 $ 2,138,651 ($ 87,597) $ 2,051,054 The subsidiaries had no premium income from compulsory insurance in Guam and $185,081, $201,227, $378,255 and $402,218 from non-compulsory insurance for the three-month and six - month periods ended June 30, 2017 and 2016, respectively.
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B. Details of calculation of net claims are as follows: For the three-month period ended June 30, 2017 Claims Reinsurance Claims recovered incurred Claims incurred From reinsurers Net claims Type (1) (2) (3) (4)=(1)+(2)-(3) Compulsory insurance$ 62,429 $ 20,240 $ 35,657 $ 47,012 Non-compulsory insurance 741,003 115,008 291,867 564,144 Total $ 803,432 $ 135,248 $ 327,524 $ 611,156
For the six-month period ended June 30, 2017 Claims Reinsurance Claims recovered incurred Claims incurred From reinsurers Net claims Type (1) (2) (3) (4)=(1)+(2)-(3) Compulsory insurance$ 129,536 $ 56,788 $ 75,324 $ 111,000 Non-compulsory insurance 1,573,296 176,756 766,126 983,926 $ 1,702,832 $ 233,544 $ 841,450 $ 1,094,926 Total For the three-month period ended June 30, 2016 Claims Reinsurance Claims recovered incurred Claims incurred From reinsurers Net claims Type (1) (2) (3) (4)=(1)+(2)-(3) Compulsory insurance$ 57,753 $ 7,114 $ 31,158 $ 33,709 Non-compulsory insurance 582,313 94,426 225,198 451,541 Total $ 640,066 $ 101,540 $ 256,356 $ 485,250
For the six-month period ended June 30, 2016 Claims Reinsurance Claims recovered incurred Claims incurred From reinsurers Net claims Type (1) (2) (3) (4)=(1)+(2)-(3) Compulsory insurance$ 144,066 $ 39,005 $ 73,875 $ 109,196 Non-compulsory insurance 1,216,008 152,309 487,583 880,734 $ 1,360,074 $ 191,314 $ 561,458 $ 989,930 Total
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C. Details of assets and liabilities for compulsory automobile liability insurance are as follows: Assets June 30, 2017 December 31, 2016 June 30, 2016 Cash and bank deposits$ 579,038 $ 548,076 $ 567,189 Premiums receivable 6,820 5,250 8,614 Claims recoverable from Reinsurers 25,801 20,006 17,581 Due from reinsurers and ceding companies 29,780 27,239 26,883 Ceded unearned premium reserve 97,624 96,485 95,843 Ceded claims reserve 151,216 148,832 134,707 Temporary payments 41 2,218 132 Total $ 890,320 $ 848,106 $ 850,949 Liabilities Due to reinsurers and ceding companies$ 31,554 $ 30,359 $ 30,652 Unearned premium reserve 257,892 254,780 254,796 Reserve for outstanding losses 392,778 384,486 369,751 Reserve for catastrophic losses 207,316 177,357 195,484 Temporary receipts 172 553 266 Other liabilities 608 571 - $ 890,320 $ 848,106 $ 850,949 Total
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D. Details of costs and revenues relating to compulsory automobile liability insurance. For the three-month periods ended June 30, 2017 2016 Operating revenues Direct written premiums$ 78,100 $ 76,585 Reinsurance premiums 40,850 39,491 Less: Reinsurance premiums( 46,859) ( 45,955) net change in reserve for unearned premiums( 815) 779 Net premiums written 71,276 70,900 Interest income 459 475 Total $ 71,735 $ 71,375 Operating costs Claims incurred$ 62,429 $ 57,753 Reinsurance Claims incurred 20,240 7,114 Less: Claims recovered from reinsurers( 35,657) ( 31,158) Net claims 47,012 33,709 Net change in reserve for claims 13,174 ( 5,184) Net change in special reserve 11,549 42,850 Total $ 71,735 $ 71,375
For the six-month periods ended June 30, 2017 2016 Operating revenues Direct written premiums$ 153,564 $ 149,106 Reinsurance premiums 86,496 84,171 Less: Reinsurance premiums( 92,138) ( 89,472) net change in reserve for unearned premiums( 1,973) ( 6,071) Net premiums written 145,949 137,734 Interest income 918 983 Total $ 146,867 $ 138,717 Operating costs Claims incurred$ 129,536 $ 144,066 Reinsurance Claims incurred 56,788 39,005 Less: Claims recovered from reinsurers( 75,324) ( 73,875) Net claims 111,000 109,196 Net change in reserve for claims 5,908 2,785 Net change in special reserve 29,959 26,736 $ 146,867 $ 138,717 Total
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E. Net premiums Net premiums of the respective insurances are as follows: Items 2017 2016 General fire insurance$ 1,600,000 $ 1,600,000 Fire & allied perils insurance 1,600,000 1,600,000 Marine cargo insurance 200,000 200,000 Marine hull insurance 200,000 200,000 Fishing vessel insurance 50,000 50,000 Aviation insurance USD10,000 thousands USD 10,000 thousands Engineering insurance 1,600,000 1,600,000 Money insurance 600,000 600,000 Motor physical damage insurance 10,000 10,000 Motor third party liability insurance 100,000 100,000 Motor passengers liability insurance 100,000 100,000 Compulsory automobile liability 3,000 3,000 insurance for motorcycle Car driver injury insurance 30,000 30,000 Driver injury insurance 3,000 3,000 Liability insurance 300,000 300,000 Fidelity surety bond 50,000 50,000 Engineering surety bond 200,000 200,000 Bankers’ surety bond 600,000 600,000 Other property insurance 200,000 200,000 Other credit and surety bond 120,000 120,000 Nuclear energy insurance 300,000 300,000 Group accident insurance 20,000 20,000 Personal accident insurance 20,000 20,000 Travel accident insurance 30,000 30,000 F. Unqualified reinsurance reserve (a) The summarised content in respect of ineligible reinsurance contract and related explanation for each insurance type are as follows: The subsidiary entered into outward reinsurance contracts with the following insurance companies and insurance agents. The scope of the reinsurance contracts is the same as the reinsurance contracts of the subsidiary.
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Insurance company/ insurance agent Type of outward reinsurance contract Walsun Insurance Construction insurance Reaal Schadeverzekeringen Marine hull insurance Lemma Marine hull insurance Best Re (L) Limited Cargo insurance, marine hull insurance, liability insurance, construction insurance and fire insurance Asian Re Bangkok Cargo insurance, marine hull insurance Santam LTD Marine hull insurance Schwarzmeer Und Ostsee Fire insurance Versicherungs-AKT Cargo insurance, marine hull insurance, fire Milli Reasurans T.A.S insurance (b) The unqualified reinsurance expense was $705 and $16,770 for the six-month periods ended June 30, 2017 and 2016, respectively. (c) As of June 30, 2017 , December 31, 2016 and June 30 2016, the unqualified reinsurance reserves are unearned premium reserve. Details are set forth as follows: June 30, 2017 December 31, 2016 June 30, 2016 Unearned premium reserve$ 352 $ 422 $ 8,385 Ceded claim reserve-reported 21,286 8,492 7,775 Claims recoverable from reinsurers 616 537 957 10. CAPITAL MANAGEMENT (1) Objective of capital management A. The Group’s qualifying self-owned capital should meet the regulatory requirements and meet the minimum regulated capital adequacy ratio. This is the basic objective of capital management of the Group. The calculation and provision of qualifying self-owned capital and regulated capital shall follow the regulations of the competent authority. B. In order to have adequate capital to take various risks, the Group shall assesses the required capital with consideration of the risk portfolio it faces and the risk characteristics, and manages risk through capital allocation to realise optimum utilization of capital allocation. (2) Capital management procedures A. Following the “Regulations Governing the Consolidated Capital Adequacy of Financial Holding Companies” of the Financial Supervisory Commission, the Group calculates capital adequacy ratio on a consolidated basis and reports this information regularly. B. The calculation of capital adequacy ratio of subsidiaries shall follow the regulations of regulatory authorities; if without regulations, capital adequacy ratio is computed as net of qualifying self-own capital divided by regulated capital. (3) Capital adequacy ratio A.Capital adequacy ratio of the Company and its subsidiaries
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Mega Financial Holding Co., Ltd. and its subsidiaries Capital adequacy ratio June 30, 2017 Ownership percentage held by the Company Eligible capital Minimum capital The Company 100.00%$ 288,660,477 $ 324,233,581 MICB 100.00% 277,808,130 184,459,576 MS 100.00% 12,405,492 3,611,606 MBF 100.00% 33,628,889 20,113,438 CKI 100.00% 6,681,524 1,775,192 MITC 100.00% 795,684 429,578 MAM 100.00% 2,692,637 5,522,309 Mega Life Insurance Agency 100.00% 274,674 174,685 Mega Venture Capital 100.00% 783,253 393,564 Deduction item( 321,927,328) ( 316,643,544) Subtotal (A)$ 301,803,432 (B)$ 224,069,985 Capital adequacy ratio of the Consolidated (C) Company (C)=(A)÷(B) 134.69%
June 30, 2016 Ownership percentage held by the Company Eligible capital Minimum capital The Company 100.00%$ 283,288,597 $ 315,113,207 MICB 100.00% 275,652,903 179,711,624 MS 100.00% 12,163,112 4,177,551 MBF 100.00% 32,516,200 19,429,249 CKI 100.00% 6,674,367 1,949,618 MITC 100.00% 781,016 399,253 MAM 100.00% 2,747,808 8,017,781 Mega Life Insurance Agency 100.00% 316,740 251,645 Mega Venture Capital 100.00% 714,470 358,859 Deduction item( 316,732,326) ( 308,020,857) Subtotal (A)$ 298,122,887 (B)$ 221,387,930 Capital adequacy ratio of the Consolidated (C) 134.66% Company (C)=(A)÷(B)
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B. As of June 30, 2017 and 2016, the financial holding's net eligible capital
Mega Financial Holding Co., Ltd. and its subsidiaries Financial Holding’s net eligible capital Item June 30, 2017 June 30, 2016 Common stocks $ 135,998,240 $ 135,998,240 Unaccumulated preferred stocks which meet tier 1 capital requirement and - - unaccumulated subordinated debts with no maturity date Other preferred stocks and subordinated - - debts Capital collected in advance - - Additional paid-in capital 68,194,233 68,194,233 Legal reserve 32,682,333 30,436,714 Special reserve 3,004,318 2,545,158 Accumulated earnings 49,482,593 44,430,381 Equity adjustment number ( 689,477) 1,696,040 Less: Goodwill 3,496 3,607 Deferred assets 8,267 8,562 Treasury stocks - - Total net eligible capital $ 288,660,477 $ 283,288,597 11. RELATED PARTY TRANSACTIONS (1) Names of the related parties and their relationship with the Company Short name of Names of related parties related parties Relationship with the Company Chunghwa Post Co., Ltd. Chunghwa Post Supervisor of the Company Bank of Taiwan BOT Supervisor of the Company Yung Shing Industries Co. Yung Shing Indirect subsidiary of the Company Industries Win Card Co., Ltd. Win Card Indirect subsidiary of the Company Taiwan Bills Finance Corporation TFC MICB is the director of TFC Other related parties The Company’s and subsidiary’s directors, supervisors, managers, their relatives, associated companies and related parties in substance
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(2) Significant transactions and balances with related parties A. Deposits Details of the related parties’ deposits placed with MICB and recorded under “deposits and remittances” are as follows: June 30, 2017 December 31, 2016 June 30, 2016 Others (individual amounts accounting for less than 10% of the total amount)$ 13,905,624 $ 6,302,446 $ 25,445,967 B. Loans Details of the credits extended to the related parties by MICB and recorded under “bills, discounts and loans” are as follows: June 30, 2017 December 31, 2016 June 30, 2016 Others (individual amounts accounting for less than 10% of the total amount)$ 117,433 $ 105,809 $ 138,042 C. Bank deposits June 30, 2017 December 31, 2016 June 30, 2016 Chunghwa Post$ 4,020 $ 5,831 $ 4,595 BOT 135,954 272,754 277,000 Total$ 139,974 $ 278,585 $ 281,595
D. Refundable deposits Collaterals June 30, 2017 December 31, 2016 June 30, 2016 Available-for-sale financial assets BOT - bonds $ 50,748 $ 50,049 $ 51,434 E. Sales of securities and bonds For the three-month periods ended June 30, 2017 2016 BOT $ 7,152,730 $ 5,000,282 Chunghwa Post 47,488,171 29,248,078 Total $ 54,640,901 $ 34,248,360 For the six-month periods ended June 30, 2017 2016 BOT $ 9,100,686 $ 5,000,282 Chunghwa Post 114,866,353 66,275,983 Total $ 123,967,039 $ 71,276,265 Terms and conditions on the above transactions are not materially different from those with non-related parties.
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F. Transactions with other financial institutions (a) Due from banks and call loans to banks June 30, 2017 December 31, 2016 June 30, 2016 BOT $ 20,957,870 $ 9,330,096 $ 20,055,021 (b) Overdraft on banks June 30, 2017 December 31, 2016 June 30, 2016 Chunghwa Post $ 2,860,726 $ 2,818,812 $ 10,674,630 BOT 15,822,069 7,383,788 13,843,396 Total$ 18,682,795 $ 10,202,600 $ 24,518,026
G. Commercial paper payable Institutions of guarantee or acceptance June 30, 2017 December 31, 2016 June 30, 2016 TFC$ 669,889 $ - $ -
H. Collaterals June 30, 2017 December 31, 2016 June 30, 2016 BOT Financial assets at fair value through profit or loss - negotiable certificate of deposits$ 700,869 $ 700,802 $ 700,763 Available-for-sale financial assets - bonds 2,011,750 2,011,752 2,016,161 Total$ 2,712,619 $ 2,712,554 $ 2,716,924
I.Loans June 30, 2017
Default status Whether terms and Number conditions of the of related party accounts transactions are or names different from those of related Highest Ending Normal Overdue of transactions with Types party balance balanceloans accounts Collateral third parties Consumer loans for 6$ 2,602 $ 2,165 V None None employees Home mortgage 83 560,330 508,185 V Real estate None loans Other loans 1 52,602 52,602 V Real estate None
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December 31, 2016 Whether terms Default status and conditions of the related Number party of transactions are accounts different from or names those of of related Highest Ending Normal Overdue transactions with Types party balance balance loans accounts Collateral third parties Consumer loans for 11$ 11,383 $ 3,933 V None None employees Home mortgage 77 564,202 509,838 V Real estate None loans Other loans 2 95,211 55,716 V Real estate None June 30, 2016
Default status Whether terms and conditions of the related Number party of transactions are accounts different from or names those of of related Highest Ending Normal Overdue transactions with Types party balance balance loans accounts Collateral third parties Consumer loans for 14$ 11,383 $ 5,949 V None None employees Home mortgage 78 500,645 448,793 V Real estate None loans Other loans 2 56,602 55,851 V Real estate None
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J. Interest revenue: For the three-month periods ended June 30, 2017 2016 Amount % of the account Amount % of the account BOT$ 295 - $ 173 -
For the six-month periods ended June 30, 2017 2016 Amount % of the account Amount % of the account BOT$ 643 - $ 472 -
K. Interest expense: For the three-month periods ended June 30, 2017 2016 Amount % of the account Amount % of the account BOT$ 8,149 0.16 $ 7,239 0.18 TFC 254 0.01 - - Chunghwa Post 8,504 0.17 23,117 0.58 Total$ 16,907 $ 0.34 $ 30,356 0.76
For the six-month periods ended June 30, 2017 2016 Amount % of the account Amount % of the account BOT$ 14,119 0.15 $ 12,180 0.14 TFC 336 - - - Chunghwa Post 19,579 0.21 40,707 0.48 Total$ 34,034 $ 0.36 $ 52,887 0.62
L. Income and losses of financial assets and liabilities measured at fair value through profit or loss (sales of securities and bonds and derivative transaction) For the three-month periods ended June 30, 2017 2016 Amount % of the account Amount % of the account BOT$ 479 0.03 $ 282 0.03 Chunghwa Post 16,962 1.10 12,205 1.18 Total$ 17,441 $ 12,487 1.13 1.21
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For the six-month periods ended June 30, 2017 2016 Amount % of the account Amount % of the account BOT$ 343 0.01 $ 282 0.01 Chunghwa Post 32,930 0.82 77,141 3.04 Total$ 33,273 0.83 $ 77,423 3.05
M. Information on remunerations to the Company’s key management: For the three-month periods ended June 30, 2017 2016 Salaries and other short-term employee benefits $ 88,602 $ 105,463 Post-employment benefits 3,612 1,129 Termination benefits 174 145 Total $ 92,388 $ 106,737
For the six-month periods ended June 30, 2017 2016 Salaries and other short-term employee benefits $ 180,764 $ 201,877 Post-employment benefits 4,721 2,884 Termination benefits 309 297 Total $ 185,794 $ 205,058 N. Guarantees: None. 12. PLEDGED ASSETS Assets Purpose of pledge June 30, 2017 December 31, 2016 June 30, 2016 Financial assets at fair value Collaterals for Central Bank and $ 15,705,307 $ 10,503,131 $ 15,606,222 through profit or loss bank overdrafts, Available-for-sale financial Guarantees or money lodged at assets Courts, Collaterals for bank overdrafts, Guarantees or money 16,807,750 18,972,746 20,476,011 lodged at Courts, Operation guarantee deposits of bills firm and securities firm Held-to-maturity financial assets Guarantees or money lodged at 5,542,800 5,276,900 5,314,400 Courts Other financial assets Collaterals for short-term borrowings, Collaterals 402,100 402,100 417,100 for and bank overdrafts Property and equipment Collaterals for short-term borrowings 2,450,909 2,456,922 2,461,918 Investment property Collaterals for short-term 454,528 457,373 460,218 borrowings Other assets Guarantee of insurance business, performance guarantee 516,262 523,042 526,681 $ 41,879,656 $ 38,592,214 $ 45,262,550
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13. COMMITMENTS AND CONTINGENT LIABILITIES (1) The subsidiaries-MICB 1. MICB, the subsidiary, has branches in New York, Los Angeles, Silicon Valley and Chicago, totaling 4 branches in the U.S. (hereinafter “U.S. branches”), are under the regulation of the major Competent Authority and Supervisor of federal (such as the Office of Foreign Assets Control (OFAC) and the Federal Reserve Bank (FRB) and state (such as the New York State Department of Financial Services (NYDFS)). If the financial examination reports indicate there were deficiencies in the U.S. Branches, the Competent Authority and Supervisor probably implement different mandatory sanction, respectively. For the year ended December 31, 2017, MICB has received financial examination reports of the four branches in succession. The audit date was set either at the end of 2016 or in the mid-term of 2016. MICB has proposed improvement management on related deficiencies, and continuously complete or execute the improvement management. However, some of these financial examination reports indicated mandatory sanctions, MICB didn’t expect it won’t be fined by NYDFS as described in Note 6(35) while it might be enforcement action (such as be fined) by other Supervisors, As of financial reporting date, the actual sanctions are uncertain. 2. As of June 30, 2017, December 31, 2016 and June 30, 2016, MICB and its subsidiaries’ commitments and contingent liabilities were as follows: June 30, 2017 December 31, 2016 June 30, 2016 Irrevocable arranged financing limit $ 110,957,878 $ 115,408,871 $ 107,879,533 Securities sold under repurchase agreement 393,683 444,888 583,987 Securities purchased under resale agreement 2,592,847 4,256,613 9,971,968 Credit card line commitments 56,298,548 56,378,442 57,646,935 Guarantees issued 190,383,042 195,512,459 218,169,272 Contra guarantees 10,000 60,644 - Letters of credit 55,628,350 61,515,435 62,117,143 Customers’ securities under custody 194,547,461 193,861,943 209,770,972 Properties under custody 3,289,864 3,323,676 2,955,907 Guarantee received 231,121,002 136,273,654 143,943,960 Collections for customers 89,967,508 102,094,722 104,416,708 Agency loans payable 849,110 977,405 1,133,238 Travelers’ checks consigned -in 1,369,454 1,525,830 1,699,847 Gold coins consigned-in 405 433 436 Payables on consignments-in 2,453 2,459 2,477 Agent for government bonds 157,292,900 144,109,400 189,600,200 Short-dated securities under custody 48,580,007 89,610,128 83,194,930 Trust liability 526,177,984 522,980,128 534,598,385 Certified notes paid 5,906,898 6,256,579 6,194,700 Exposures - 322,060 756,829
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(2) The subsidiaries-MBF As of June 30, 2017, December 31, 2016 and June 30, 2016, the company’s commitments and contingent liabilities arising from its normal course of business were as follows June 30, 2017 December 31, 2016 June 30, 2016 Bills and bonds bought under repurchase agreements$ 1,000,573 $ - $ 2,101,387 Bills and bonds sold under repurchase agreements 185,788,599 210,809,807 197,378,751 Guarantees for commercial papers 151,991,300 147,973,500 151,159,300 Buy fixed rate financial paper 12,600,000 14,170,000 8,870,000 Sell fixed rate financial paper 500,000 500,000 500,000 Buy index rate financial paper 35,110,000 29,310,000 28,110,000 Sell index rate financial paper 4,500,000 4,000,000 5,000,000 (3) The subsidiaries-MS MS has entered into proxy delivery agreements with several securities firms. If MS is unable to fulfill its obligations to the Taiwan Stock Exchange, the proxies must act upon the said obligations. MS has reciprocated by agreeing to act as the proxy for the securities firms. (4) The subsidiaries-CKI As of June 30, 2017, except that reserve for claims had been provided, CKI still had several lawsuits regarding insurance claims. CKI had appointed attorneys to deal with the lawsuits. 14. SIGNIFICANT DISASTER LOSS None. 15. SIGNIFICANT SUBSEQUENT EVENTS None.
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16. OTHERS (1) According to Article 46 of Financial Holding Company Act, disclosures of the sum of amounts of endorsements and guarantees provided by all subsidiaries of Financial Holding Company to the same natural person, same related natural person, or same related company for loans or other transactions June 30, 2017 Unit: In millions of NT dollars Total balance of transaction listed in article 46, paragraph Percentage of net 2 of the Financial value of the Holding Company Company Name Act (%)(Note) 1. Same natural or juridical person Central Bank of the Republic of China (Taiwan)$ 394,441 136.64 Ministry of Finance, R.O.C 96,541 33.44 Taiwan Power Company 86,897 30.10 Taiwan High Speed Rail Corporation 57,459 19.90 CPC Corporation, Taiwan 40,425 14.00 High wealth Construction Corp. 11,058 3.83 Taiwan Semiconductor Manufacturing Co.,Ltd. 10,052 3.48 The Bank of Tokyo-Mitsubishi UFJ, Ltd. 7,562 2.62 Taipei Branch Formosa Group (Cayman) Ltd. 7,545 2.61 Yuanlih Development Co., Ltd. 7,432 2.57 Runlong Construction Co., Ltd. 7,178 2.49 Micron Technology, Inc. 7,000 2.42 Yieh United Steel Co., Ltd. 6,905 2.39 Hou-Tai Estate Management Co., Ltd. 6,890 2.39 Sunworld Dynasty Europe 6,838 2.37 Holdings B.V. Wealth Media Co.,Ltd. 6,726 2.33 Eva Airways Co., Ltd. 6,637 2.30 Sunrider Taiwan,Inc 6,006 2.08 AU Optronics Co., Ltd. 5,990 2.07 Linyuan Investment Co., Ltd. 5,957 2.06 Formosa Petrochemical Co., Ltd. 5,936 2.06 Westpac Banking Corporation 5,793 2.01 Hong Han Investment Co., Ltd. 5,699 1.97 China Development Bank 5,649 1.96 The Export-Import Bank of China 5,474 1.90 Yang Ming Marine Transport Co., Ltd. 5,471 1.90 China Airlines Co., Ltd. 5,285 1.83 Innolux Co., Ltd 5,102 1.77 Easy Gain International L.L.C. 5,069 1.76
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June 30, 2017 Unit: In millions of NT dollars Total balance of transaction listed in article 46, paragraph Percentage of net 2 of the Financial value of the Holding Company Company Name Act (%)(Note)
Yfg Shopping Centres Pty Ltd Atf $ 5,059 1.75 The Fu Lloyds Bank Plc 5,036 1.74 Hon Hai Precision Ind. Co., Ltd. 5,032 1.74 Pxmart Co., Ltd 4,975 1.72 Morgan Stanley Formosa Holdings 4,969 1.72 (Cayman) Formosa Plastics Co., Ltd. 4,868 1.69 China Steel Co., Ltd. 4,868 1.69 Formosa Ha Tinh (Cayman) Co., Ltd. 4,865 1.69 The Export-Import Bank Of Korea 4,742 1.64 United Microelectronics 4,667 1.62 Pegatron Corporation 4,580 1.59 Wan Bao Development Co., Ltd. 4,532 1.57 Mayfull Enterprise Co., Ltd. 4,520 1.57 Inteplast Group Inc. 4,517 1.56 Hanns Touch Solution Co., Ltd. 4,375 1.52 Goldman Sachs Bank USA 4,305 1.49 Commonwealth Bank of Australia 4,255 1.47 Evergreen Marine Co., (Taiwan) Ltd. 4,220 1.46 Cse Transport Co., Ltd. 4,214 1.46 Far Eastern New Century Co., Ltd. 4,136 1.43 Yieh Phui Enterprise Co.,Ltd. 4,114 1.43 Kofu International Co., Ltd. 4,100 1.42 Sunworld Dynasty US Holdings LLC 4,099 1.42 Da Shen Development Co., Ltd 4,038 1.40 Prince Housing & Development Co., Ltd. 3,965 1.37 King's Town Construction Co., Ltd. 3,863 1.34 Central Investment Co., Ltd. 3,859 1.34 Trondage Enterprises Pty Co., Ltd. 3,841 1.33 Rich Development Inc. 3,759 1.30 CTCI Corporation. 3,715 1.29 Ruen Chen Investment Holding Co., Ltd. 3,648 1.26 J-M Manufaturing Company Inc. 3,563 1.23 Wells Fargo & Co. Taipei Branch 3,540 1.23
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June 30, 2017 Unit: In millions of NT dollars Total balance of transaction listed in article 46, paragraph Percentage of net 2 of the Financial value of the Holding Company Company Name Act (%)(Note) Siliconware Precision Industries $ 3,528 1.22 Co., Ltd. Changchun Investment Co., Ltd. 3,522 1.22 China Gorvernment 3,512 1.22 Oriental Petrochemical (Taiwan) Co., Ltd. 3,473 1.20 Tatung Co., Ltd. 3,399 1.18 China Network Systems Co., Ltd. 3,399 1.18 Advanced Semiconductor Engineering, Inc. 3,386 1.17 Nan Ya Plastics Co., Ltd. 3,365 1.17 Credit Suisse Ag Sydney Branch 3,341 1.16 Citigroup 3,319 1.15 JPMorgan Chase&Co. 3,302 1.14 National Australia Bank Co., Ltd. 3,289 1.14 Melbourne Hung Sheng Construction Co., Ltd. 3,200 1.11 Hong Da Di Instruction Co., Ltd. 3,147 1.09 Bank of China 3,125 1.08 Wei Sheng International Development Co., Ltd. 3,120 1.08 JIMEI Construction Co., Ltd. 3,118 1.08 (Note) The amount is calculated with the unaudited net value as of June 30, 2017. 2. Principal, his /her spouse, blood relatives within the second degree and enterprises in which the principal or his/her spouse is the responsible person Mr./Ms. Chu $ 86,897 30.10 Mr./Ms. Liu 70,590 24.45 Mr./Ms. Lin 61,708 21.38 Mr./Ms. Hou 57,567 19.94 Mr./Ms. Chang 57,465 19.91 Mr./Ms.Wang 40,426 14.00 Mr./Ms.Wang 19,523 6.76 Mr./Ms.Wang 15,476 5.36 Mr./Ms. Lin 15,338 5.31 Mr./Ms.Lan 14,774 5.12 Mr./Ms.Chen 12,844 4.45 Mr./Ms.Yi 12,040 4.17 Mr./Ms. Chung 11,524 3.99 Mr./Ms.Zheng 11,408 3.95 Mr./Ms.Fan 11,314 3.92 Mr./Ms. Ho 10,053 3.48 ~163~ WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3
June 30, 2017 Unit: In millions of NT dollars Total balance of transaction listed in article 46, paragraph Percentage of net 2 of the Financial value of the Holding Company Company Name Act (%)(Note) Mr./Ms. Zhuang $ 9,966 3.45 Mr./Ms.Wu 9,876 3.42 Mr./Ms.Hsu 9,194 3.18 Mr./Ms. Chu 8,931 3.09 Mr./Ms.Wu 8,880 3.08 Mr./Ms.Zheng 8,729 3.02 Mr./Ms.Lan 8,653 3.00 Mr./Ms. Gu 8,396 2.91 Mr./Ms. Xie 8,157 2.83 Mr./Ms.Tsai 7,728 2.68 Mr./Ms. Liu 7,493 2.60 Mr./Ms.Li 7,462 2.58 Mr./Ms. Guo 7,326 2.54 Mr./Ms.Tsai 7,234 2.51 Mr./Ms. Song 6,995 2.42 Mr./Ms. Chang 6,973 2.42 Mr./Ms. Zhao 6,939 2.40 Mr./Ms. Liao 6,663 2.31 Mr./Ms.Wang 6,442 2.23 Mr./Ms. Chien 6,397 2.22 Mr./Ms. Lu 6,233 2.16 Mr./Ms.Wu 6,232 2.16 Mr./Ms.Chen 6,020 2.09 Mr./Ms. Ho 5,881 2.04 Mr./Ms.Lan 5,850 2.03 Mr./Ms.Li 5,841 2.02 Mr./Ms.Li 5,831 2.02 Mr./Ms. Lu 5,811 2.01 Mr./Ms. Chang 5,555 1.92 Mr./Ms. Guo 5,553 1.92 Mr./Ms. Chang 5,517 1.91 Mr./Ms.Chen 5,516 1.91 Mr./Ms.Chen 5,502 1.91 Mr./Ms. Shen 5,476 1.90 Mr./Ms. Lin 5,448 1.89 Mr./Ms. Lin 5,439 1.88 Mr./Ms. Ding 5,330 1.85
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June 30, 2017 Unit: In millions of NT dollars Total balance of transaction listed in article 46, paragraph Percentage of net 2 of the Financial value of the Holding Company Company Name Act (%)(Note) Mr./Ms. Hong $ 5,304 1.84 Mr./Ms.Zheng 5,298 1.84 Mr./Ms.Tsai 5,213 1.81 Ｍ○○ 5,182 1.80 Mr./Ms.Tsai 5,168 1.79 Mr./Ms.Wu 5,158 1.79 Mr./Ms. Zhuang 5,114 1.77 Mr./Ms.Chen 5,104 1.77 Mr./Ms.Tseng 5,033 1.74 Mr./Ms.Li 4,983 1.73 Mr./Ms. Lin 4,837 1.68 Mr./Ms. Chien 4,674 1.62 Mr./Ms. Tsao 4,671 1.62 Mr./Ms. Lin 4,648 1.61 Mr./Ms.Li 4,630 1.60 Mr./Ms. Lin 4,628 1.60 Mr./Ms. Chang 4,563 1.58 Mr./Ms.Hsu 4,553 1.58 Mr./Ms. Lin 4,538 1.57 Mr./Ms. Chiao 4,536 1.57 Mr./Ms. Lai 4,481 1.55 Mr./Ms.Chen 4,448 1.54 Mr./Ms. Chang 4,401 1.52 Mr./Ms.Wu 4,363 1.51 Mr./Ms. Miao 4,316 1.49 Mr./Ms. Guo 4,217 1.46 Mr./Ms. Lin 4,142 1.43 Mr./Ms. Kao 4,015 1.39 Mr./Ms.Hsu 3,761 1.30 Mr./Ms.Hsu 3,724 1.29 Mr./Ms. Chiao 3,705 1.28 Mr./Ms. Chen 3,699 1.28 Mr./Ms. You 3,553 1.23 Mr./Ms. Chang 3,521 1.22 Mr./Ms.Chen 3,501 1.21 Mr./Ms. Chou 3,473 1.20 Mr./Ms.Chen 3,272 1.13
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June 30, 2017 Unit: In millions of NT dollars Total balance of transaction listed in article 46, paragraph Percentage of net 2 of the Financial value of the Holding Company Company Name Act (%)(Note) Mr./Ms. Liao $ 3,230 1.12 Mr./Ms. Chou 3,219 1.12 Mr./Ms. Lin 3,201 1.11 Mr./Ms. Chiu 3,193 1.11 Mr./Ms. Chung 3,169 1.10 Mr./Ms. Lin 3,168 1.10 Mr./Ms. Yeh 3,132 1.08 Mr./Ms.Wu 3,130 1.08 Mr./Ms.Wu 3,103 1.07 (Note) The amount is calculated with the unaudited net value as of June 30, 2017. 3. Same affiliated enterprises Taiwan Cogeneration Co., Ltd. 40,818 14.14 China Steel Co., Ltd. 23,600 8.18 Formosa Plastics Co., Ltd. 20,847 7.22 High wealth Construction Co., Ltd. 18,486 6.40 Ruentex Co., Ltd. 15,330 5.31 Yieh Hsing Enterprise Co.,Ltd. 14,301 4.95 Pxmart Co., Ltd. 13,835 4.79 Sunrider Taiwan,Inc 12,844 4.45 E-DA Development Co., Ltd. 12,503 4.33 Yieh United Steel Co., Ltd. 12,355 4.28 Eliter International Co., Ltd. 12,207 4.23 Evergreen Marine Co., (Taiwan) Ltd. 12,178 4.22 Asiazone Co., Ltd. 11,905 4.12 Huei Hong Investment Co., Ltd. 11,465 3.97 Lien Huei Development Co., Ltd. 11,220 3.89 Yieh Co., Ltd. 11,029 3.82 Uni-President Enterprises Co., Ltd. 10,651 3.69 Linyuan Investment Co., Ltd. 10,489 3.63 Ampowertek Co., Ltd. 10,134 3.51 Far Eastern New Century Corporation 10,088 3.49 Global Unichip Co., Ltd 10,053 3.48 Ruen Chen Investment Holding Co., Ltd. 10,042 3.48 Yong Li Investment Co., Ltd 9,949 3.45 Ruentex Development Co., Ltd. 9,933 3.44 Lih Pao Construction Co., Ltd 9,839 3.41 E-DA Healthcare Group 9,724 3.37
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June 30, 2017 Unit: In millions of NT dollars Total balance of transaction listed in article 46, paragraph Percentage of net 2 of the Financial value of the Holding Company Company Name Act (%)(Note) Yieh Phui Enterprise Co.,Ltd.$ 9,359 3.24 Oriental Petrochemical (Taiwan) Co., Ltd. 8,964 3.11 Taiwan Cement Corp. 8,842 3.06 Hon Hai Precision Ind. Co., Ltd. 8,720 3.02 Wealth Media Co.,Ltd. 8,476 2.94 Yang Ming Marine Transport Co., Ltd. 8,407 2.91 Daxin Materials Co., Ltd. 8,266 2.86 Formosa Chemicals & Fiber Co. Ltd. 7,958 2.76 Formosa Petrochemical Co., Ltd. 7,880 2.73 Chailease Holding 7,842 2.72 Foxconn (Far East) 7,769 2.69 Raydium Semi-conductor Co., Ltd. 7,738 2.68 Nan Ya Plastics Co., Ltd. 7,664 2.65 CTCI Co., Ltd. 7,663 2.65 Sinopac Financial Holdings Company Ltd. 7,654 2.65 Pegatron Co., Ltd. 7,553 2.62 Uni Airways Co., Ltd. 7,248 2.51 Micron Technology, Inc. 7,182 2.49 Topcell Solar International Co., Ltd. 7,092 2.46 Shih Wei Navigation Co., Ltd. 7,047 2.44 GREENCOMPASS MARINE 6,919 2.40 Farglory Land Development Co., Ltd. 6,917 2.40 EVER SHINE (NINGBO) 6,873 2.38 Prince Housing & Development Corp. 6,776 2.35 Ruen Hua Dyeing & Weaving Co., Ltd 6,696 2.32 Far Eastern Construction Co., Ltd. 6,544 2.27 Cheng Shin Rubber Ind., Co., Ltd. 6,527 2.26 Far EasTone Telecommunications Co., Ltd. 6,470 2.24 Hong Jing Environment Company 6,442 2.23 Rich Development Inc. 6,428 2.23 AU Optronics Co., Ltd. 6,267 2.17 Nanya Technology Co., Ltd. 6,155 2.13 China Airlines Co Ltd. 6,101 2.11 Formosa Network Co., Ltd. 6,079 2.11 Fina Finance & Trading Co., Ltd. 5,966 2.07 Colon Container Term 5,966 2.07
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June 30, 2017 Unit: In millions of NT dollars Total balance of transaction listed in article 46, paragraph Percentage of net 2 of the Financial value of the Holding Company Company Name Act (%)(Note) Shin Yang Steel Co., Ltd. $ 5,929 2.05 Central Investment Co., Ltd. 5,774 2.00 Regiant Industrial Co., Ltd. 5,764 2.00 Advanced Semiconductor Engineering, Inc. 5,603 1.94 Greater China Interm 5,601 1.94 Evergreen International Storage&Transport 5,534 1.92 Co., Ltd. Radium Life Tech Co., Ltd. 5,474 1.90 Yuen Foong Yu Investment Holding Inc 5,336 1.85 Ennoconn Co., Ltd 5,289 1.83 Taiwan Rolling Stock Co., Ltd. 5,168 1.79 China Synthetic Rubber Co., Ltd. 5,116 1.77 United Microelectronics 4,992 1.73 Chng Fu Construction Co., Ltd 4,973 1.72 Tatung Co., Ltd. 4,934 1.71 King's Town Construction Co., Ltd. 4,883 1.69 Icbc International 4,869 1.69 Pou Chen Co., Ltd. 4,854 1.68 Dau Ying Co., Ltd. 4,785 1.66 L & K Engineering Co., Ltd. 4,761 1.65 Da Yang Fishery & Refrigerating 4,640 1.61 Co., Ltd. Tainan Spinning Co., Ltd. 4,566 1.58 Dyx Construction Ltd. 4,546 1.57 Evergreen International 4,534 1.57 Mayfull Enterprise Co., Ltd. 4,520 1.57 Zhong-Tai Binguan Co., Ltd. 4,479 1.55 Asia Cement Corporation 4,421 1.53 Financial Products 4,413 1.53 YC Co., Ltd. 4,407 1.53 Hanns Touch Solution Co., Ltd. 4,375 1.52 Chinese Maritime Transport Co., Ltd. 4,351 1.51 Yue Ding Industry Co., Ltd. 4,308 1.49 Oriental Union Chemical Corporation 4,210 1.46 U-Ming Marine Transport Co., Ltd. 4,155 1.44 Continental Engineering Co. Ltd. 4,072 1.41 I-Sunny Co,.Ltd. 4,043 1.40
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June 30, 2017 Unit: In millions of NT dollars Total balance of transaction listed in article 46, paragraph Percentage of net 2 of the Financial value of the Holding Company Company Name Act (%)(Note) Apollo Solar Energy Co., Ltd.$ 3,981 1.38 Yu Ding Resoure Technology Co., Ltd. 3,918 1.36 Jia Rui Development Company 3,853 1.33 Inventec Co. Ltd. 3,832 1.33 Reliance Industries 3,801 1.32 Tsrc Corporation 3,784 1.31 Fareast Land Development Co., Ltd. 3,763 1.30 Fong-Yi Department Co. Ltd 3,761 1.30 An Sheng Construction Co., Ltd. 3,748 1.30 Yulon Motor Co.,Ltd. 3,567 1.24 Sincere Navigation Corporation 3,546 1.23 Wpg Holdings Co., Ltd. 3,541 1.23 Siliconware Precision Industries 3,528 1.22 Co., Ltd. Cheng Loong Corp. 3,498 1.21 Boc Aviation Co., Ltd. 3,407 1.18 Formosa Biomedical Technology 3,327 1.15 Co., Ltd. Xiangtian International 3,321 1.15 ACHEM Technology Corporation 3,258 1.13 Lih Yuan Construction Co., Ltd. 3,219 1.11 Taiwan Cogeneration Corporation 3,211 1.11 Kee Tai Properties Co.,Ltd. 3,194 1.11 Sm Investments Co., Ltd. 3,193 1.11 Goshawk Aviation Ltd 3,164 1.10 Te Chin Investments Co., Ltd. 3,127 1.08 JIMEI Construction Co., Ltd. 3,118 1.08 Ton Yi Industrial Co., Ltd 3,056 1.06 Hsiang Ho Fishery Co., Ltd. 3,012 1.04 (Note) The amount is calculated with the unaudited net value as of June 30, 2017. (2) Significant impact arising from changes in government laws and regulations None. (3) Information with respect to the subsidiary holding shares in parent company None. (4) Research and development plans sponsored by others
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None. (5) Information for discontinued operations None. (6) Major operating assets or liabilities transferred from (or to) other financial institutions None. (7) Information on the apportionment of the revenues, costs, expenses, gains and losses arising from business activities, transactions, joint promotion for businesses development, information sharing, and operating facilities or premises sharing between the Company and its subsidiaries. A. Transactions between the Company and its subsidiaries Please refer to Note 17(4) for details of transactions with related parties. B. Joint promotion of businesses In order to create economic synergy throughout the various subsidiaries and provide customers financial services in all aspects, the subsidiaries have continuously established specialised counters for other subsidiaries in different businesses (including counters of banking services, securities trading services, and insurance services) in the business locations of its subsidiaries and simultaneously promoted service business in banking, securities and insurance areas. C. Information sharing or Operating facilities or premises sharing Under the Financial Holding Company Act, Computer-Process Personal Data Protection Law and the related regulations stipulated by the Ministry of Finance, when customers’ information of a financial holding company’s subsidiary is disclosed to the other subsidiaries under the Company and its subsidiaries or exchanged between the subsidiaries for the purpose of cross-selling of products, the subsidiaries receiving, utilizing, managing or maintaining the information are bound to use the information for the specified purposes only. In addition, the Company is required to publish its “Measures for Protection of Customers’ Information” at its website. Customers also reserve the right to have their information withdrawn from the information sharing mechanism. D. Apportionment of revenues, costs, expenses, gains and losses For the six-month period ended June 30, 2017 The promotion bonus paid to other subsidiaries by MITC and MICB amounted to $1,312 and $66, respectively. As a result of cross-selling by other subsidiaries, the insurance premium income increased by $27,311 for CKI; $997 for MICB; and $6,268 for MITC. For the six -month period ended June 30, 2016 The promotion bonus paid to other subsidiaries by MITC and MICB amounted to $1,453 and $33, respectively. As a result of cross-selling by other subsidiaries, the insurance premium income increased by $36,448 for CKI; $1,156 for MICB; $6,902 for MITC. (8) Information for private placement securities None.
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(9) Financial information by business segments Mega Financial Holding Co., Ltd. and its subsidiaries Total other For the three-month period ended June 30, 2017 Bank division Insurance division Bills division Securities division divisions Consolidation Interest income, net $ 8,390,722 $ 17,390 $ 292,487 $ 176,535 ($ 12,107) $ 8,865,027 Revenues other than interest, net 3,782,885 319,279 739,959 461,933 494,346 5,798,402 Net revenue 12,173,607 336,669 1,032,446 638,468 482,239 14,663,429 (Provisions for) reversal of bad debts expense and guarantee ( 510,082) - ( 7,260) - 1 ( 517,341) Net change in provisions for insurance liabilities - 50,597 - - - 50,597 Operating expenses ( 5,029,163) ( 285,827) ( 194,122) ( 546,052) ( 202,591) ( 6,257,755) Income before income tax from continuing operations 6,634,362 101,439 831,064 92,416 279,649 7,938,930 Income tax expense ( 628,823) ( 15,618) ( 128,249) ( 9,689) ( 42,853) ( 825,232) Consolidated net income from continuing operations $ 6,005,539 $ 85,821 $ 702,815 $ 82,727 $ 236,796 $ 7,113,698 For the three-month period ended June 30, 2016 Bank division Insurance division Bills division Securities division Total other Consolidation Interest income, net $ 8,918,041 $ 21,459 $ 334,203 $ 204,373 $ 5,912 $ 9,483,988 Revenues other than interest, net ( 2,127,309) 449,539 755,531 317,848 811,877 207,486 Net revenue 6,790,732 470,998 1,089,734 522,221 817,789 9,691,474 Reversal of bad debts expense and guarantee 174,946 9,358 42,846 - - 227,150 liabilities reserve (Provisions for ) reversal of insurance reserve - ( 123,011) - - - ( 123,011) Operating expenses ( 4,588,183) ( 263,396) ( 215,997) ( 543,718) ( 198,870) ( 5,810,164) Income (loss) before income tax from continuing 2,377,495 93,949 916,583 ( 21,497) 618,919 3,985,449 operations Income tax expense ( 1,492,853) ( 16,744) ( 127,975) ( 9,295) ( 552,915) ( 2,199,782) Consolidated net income from continuing operations $ 884,642 $ 77,205 $ 788,608 ($ 30,792) $ 66,004 $ 1,785,667
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For the six-month period ended June 30, 2017 Bank division Insurance division Bills division Securities division Total other Consolidation Interest income, net $ 16,723,194 $ 33,064 $ 569,186 $ 340,625 ($ 43,735) $ 17,622,334 Revenues other than interest, net 7,746,158 681,208 1,409,701 937,351 1,025,362 11,799,780 Net revenue 24,469,352 714,272 1,978,887 1,277,976 981,627 29,422,114 (Provision for) reversal of bad debts expense and ( 989,370) 2 ( 7,019) - 14,932 ( 981,455) guarantee Net change in provisions for insurance liabilities - 27,789 - - - 27,789 Operating expenses ( 10,017,500) ( 518,971) ( 350,580) ( 1,092,514) ( 391,449) ( 12,371,014) Income before income tax from continuing 13,462,482 223,092 1,621,288 185,462 605,110 16,097,434 operations Income tax expense ( 1,254,054) ( 51,501) ( 259,596) ( 23,175) 8,049 ( 1,580,277) Consolidated net income from continuing operations $ 12,208,428 $ 171,591 $ 1,361,692 $ 162,287 $ 613,159 $ 14,517,157 For the six-month period ended June 30, 2016 Bank division Insurance division Bills division Securities division Total other Consolidation Interest income, net $ 17,684,465 $ 42,806 $ 594,376 $ 401,024 $ 5,429 $ 18,728,100 Revenues other than interest, net 2,384,041 746,777 1,590,895 786,081 1,446,304 6,954,098 Net revenue 20,068,506 789,583 2,185,271 1,187,105 1,451,733 25,682,198 Provisions for (reversal of) bad debts expense and ( 1,020,527) 9,358 43,438 - - ( 967,731) guarantee liabilities (Provisions for ) reversal of insurance reserve - ( 220,473) - - - ( 220,473) Operating expenses ( 9,320,036) ( 496,676) ( 370,492) ( 1,098,258) ( 401,159) ( 11,686,621) Income before income tax from continuing 9,727,943 81,792 1,858,217 88,847 1,050,574 12,807,373 operations Income tax expense ( 2,482,916) ( 24,744) ( 278,238) ( 42,280) ( 547,422) ( 3,375,600) Consolidated net income from continuing operations $ 7,245,027 $ 57,048 $ 1,579,979 $ 46,567 $ 503,152 $ 9,431,773
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(10) Financial statements of the Company and condensed financial statements of its subsidiaries: MEGA FINANCIAL HOLDING CO., LTD. BALANCE SHEETS (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)
ASSETS June 30, 2017 June 30, 2016 % LIABILITIES AND EQUITY June 30, 2017 June 30, 2016 % Assets Liabilities Financial liabilities at fair value Cash and cash equivalents $ 7,333,532 $ 10,699,709 ( 31.46) through profit or loss $ 179,800 $ 108,460 65.78 Available-for-sale financial assets, net 6,095,282 5,586,489 9.11 Payables 35,726,504 35,137,001 1.68 Equity investments accounted for under the equity method , net 316,643,544 308,020,857 2.80 Current income tax liabilities 1,191,605 1,518,206 ( 21.51) Other financial assets , net 758,293 758,293 - Bonds payable 5,746,917 5,701,153 0.80 Investment property 136,371 - - Other loans 57,712 56,198 2.69 Property and equipment , net 599,238 745,582 ( 19.63) Deferred tax liabilities 1,124 1,436 ( 21.73) Deferred tax assets 8,092 8,092 - Other liabilities 2,975 1,975 50.63 Other assets, net 4,524 6,173 ( 26.71) Total liabilities 42,906,637 42,524,429 0.90 Equity Common stock 135,998,240 135,998,240 - Capital surplus 68,194,233 68,194,233 - Retained earnings Legal reserve 32,682,332 30,436,714 7.38 Special reserve 3,004,318 2,545,158 18.04 Unappropriated retained earnings 49,482,593 44,430,381 11.37 Other equity interest ( 689,477) 1,696,040 ( 140.65) Total equity 288,672,239 283,300,766 1.90 TOTAL ASSETS $ 331,578,876 $ 325,825,195 1.77 TOTAL LIABILITIES AND EQUITY $ 331,578,876 $ 325,825,195 1.77
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MEGA FINANCIAL HOLDING CO., LTD. STATEMENTS OF COMPREHENSIVE INCOME (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT EARNINGS PER SHARE AMOUNTS) For the six-month period For the six-month period ended June 30, 2017 ended June 30, 2016 Revenues Interest income $ 10,431 $ 1,105 Foreign exchange gain 5 46,980 Share of profit of associates and joint ventures accounted for under equity method 14,660,954 10,024,522 Other revenue except for interest income 5,660 989 Total revenue 14,677,050 10,073,596 Expenses and losses Interest expense ( 38,853) ( 30,678) Financial assets and liabilities at fair value through profit or loss ( 23,200) - Employee benefit expense ( 150,177) ( 152,021) Depreciation and amortization ( 7,262) ( 7,594) Other business and administrative expenses ( 34,281) ( 34,482) Total expenses and losses ( 253,773) ( 224,775) Income before income tax 14,423,277 9,848,821 Income tax benefit (expense) 98,870 ( 409,839) Profit for the period $ 14,522,147 $ 9,438,982 Other comprehensive income Potentially reclassifiable to profit or loss subsequently Unrealized gain on valuation of available-for -sale financial assets 250,982 - Share of other comprehensive (loss) income of associates and joint ventures accounted for under the equity method 1,225,507 857,441 Other comprehensive income for the period, (after 1,476,489 857,441 income tax) Total comprehensive income (after income tax) $ 15,998,636 $ 10,296,423
Earnings Per Share (in dollars) Basic and Diluted Earnings Per Share (in dollars) $ 1.07 $ 0.69
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MEGA FINANCIAL HOLDING CO., LTD. STATEMENTS OF CHANGES IN EQUITY (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) Retained earnings Other equity interest Exchange differences on translation of Unrealized gain foreign or loss on Unappropriated financial available-for-sale Common stock Capital surplus Legal reserve Special reserve retained earnings statement financial assets Total For the six-month period ended June 30, 2016 Balance at January 1, 2016 $ 135,998,240 $ 68,194,233 $ 27,494,993 $ 2,545,158 $ 58,332,856 $ 427,764 $ 410,835 $ 293,404,079 Earnings distribution for 2015 Legal reserve - - 2,941,721 - ( 2,941,721) - - - Cash dividends - - - - ( 20,399,736) - - ( 20,399,736) Profit for the period - - - - 9,438,982 - - 9,438,982 Other comprehensive (loss) income for the period - - - - - ( 779,722) 1,637,163 857,441 Balance, June 30, 2016$ 135,998,240 $ 68,194,233 $ 30,436,714 $ 2,545,158 $ 44,430,381 ($ 351,958) $ 2,047,998 $ 283,300,766 For the six-month period ended June 30, 2017 Balance at January 1, 2017 $ 135,998,240 $ 68,194,233 $ 30,436,714 $ 2,545,158 $ 56,976,974 ($ 853,382) ($ 1,312,584) $ 291,985,353 Earnings distribution for 2016 Legal reserve - - 2,245,618 - ( 2,245,618) - - - Cash dividends - - - - ( 19,311,750) - - ( 19,311,750) Special reserve - - - 459,160 ( 459,160) - - - Profit for the period - - - - 14,522,147 - - 14,522,147 Other comprehensive (loss) income for the period - - - - - ( 1,236,135) 2,712,624 1,476,489 Balance, June 30, 2017$ 135,998,240 $ 68,194,233 $ 32,682,332 $ 3,004,318 $ 49,482,593 ($ 2,089,517) $ 1,400,040 $ 288,672,239
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MEGA FINANCIAL HOLDING CO., LTD. STATEMENTS OF CASH FLOWS (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)
For the six-month period ended For the six-month period ended June 30, 2017 June 30, 2016 Cash Flows from Operating Activities Profit before tax $ 14,423,277 $ 9,848,821 Income and expenses having no effect on cash flows Income and expenses Depreciation 6,255 6,322 Amortization 1,007 1,272 Interest expense 38,853 30,678 Interest revenue ( 10,431) ( 1,105) Share of profit of associates accounted for under equity method( 14,660,954) ( 10,024,522) Changes in assets/liabilities relating to operating activities Changes in assets relating to operating activities: Decrease (increase) in other assets 173 ( 1,028) Changes in liabilities relating to operating activities: Increase(decrease) in financial liabilities at fair value through profit or loss 23,200 ( 46,980) Decrease in payables ( 66,486) ( 98,552) Decrease in provisions for liabilities ( 223) ( 141) Decrease in other liabilities ( 8,133) ( 610) Cash used in operations ( 253,462) ( 285,845) Interest received 10,431 1,105 Cash dividend received 15,782,762 16,004,767 Interest paid ( 14,953) ( 6,862) Income tax paid ( 273,164) ( 804,250) Net cash provided by operating activities 15,251,614 14,908,915 Cash Flows from Investing Activities Acquisition of property and equipment ( 1,388) ( 1,445) Acquisition of intangible assets - ( 473) Net cash used in investing activities ( 1,388) ( 1,918) Cash Flows from Financing Activities Decrease in commercial papers payable ( 6,400,000) ( 6,200,000) Decrease in other loans ( 1,600,000) ( 300,000) Net cash used in financing activities ( 8,000,000) ( 6,500,000) Net increase in cash and cash equivalents 7,250,226 8,406,997 Cash and cash equivalents at beginning of period 83,306 2,292,712 Cash and cash equivalents at end of period $ 7,333,532 $ 10,699,709
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MEGA INTERNATIONAL COMMERCIAL BANK CO., LTD. CONDENSED BALANCE SHEETS (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)
Item June 30, 2017 June 30, 2016 Item June 30, 2017 June 30, 2016 ASSETS LIABILITIES Due to the Central Bank Cash and cash equivalents $ 96,921,979 $ 95,269,809 $ 261,146,463 $ 308,540,698 and financial institutions Funds borrowed from the Due from the Central Bank and 523,914,036 526,421,552 Central Bank and other 31,034,861 57,846,549 call loans to banks banks Financial liabilities at fair Financial assets at fair value 44,617,599 48,864,216 value through profit or 10,288,294 21,755,654 through profit or loss loss Bills and bonds purchased under Bills and bonds sold under 2,592,550 9,970,672 393,464 583,784 resale agreements repurchase agreements Receivables, net 48,888,356 78,954,978 Payables 35,943,313 40,771,112 Current income tax Current income tax asset 98,277 375,214 7,670,896 8,542,618 liabilities Bills discounted and loans, net 1,674,443,757 1,716,413,651 Deposits and remittances 2,345,664,887 2,224,462,955 Available-for-sale financial 239,499,970 214,404,595 Financial bonds payable 36,200,000 36,200,000 assets, net Held-to-maturity financial assets 342,283,339 244,608,140 Other financial liabilities 9,233,663 9,921,534 , net Investments accounted for under 8,737,577 8,944,940 Provisions for liabilities 12,889,835 12,387,154 equity method, net Other financial assets, net 9,420,223 9,899,709 Deferred tax liabilities 2,206,666 2,291,079 Property and equipment, net 14,448,288 14,152,546 Other liabilities 5,355,205 6,474,269 Investment property, net 863,471 866,577 Total liabilities 2,758,027,547 2,729,777,406 Deferred tax assets 5,208,260 4,617,110 EQUITY Other assets, net 3,352,908 4,077,872 Common stock 85,362,336 85,362,336 Capital surplus 62,219,540 62,219,540 Retained earnings 111,120,184 100,558,529 Other equity interest ( 1,439,017) ( 76,230) Total equity 257,263,043 248,064,175
TOTAL LIABILITIES TOTAL ASSETS $ 3,015,290,590 $ 2,977,841,581 AND EQUITY$ 3,015,290,590 $ 2,977,841,581
MEGA SECURITIES CO., LTD. CONDENSED BALANCE SHEETS (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)
Item June 30, 2017 June 30, 2016 Item June 30, 2017 June 30, 2016 ASSETS LIABILITIES Current assets $ 46,898,150 $ 49,805,028 Current liabilities$ 37,148,863 $ 40,707,587 Financial assets measured at cost Provisions for liabilities 223,238 276,479 112,798 124,806 - non-current - non-current Investments accounted for under 636,171 927,003 Deferred tax liabilities 2,491 1,871 equity method Other liabilities - non Property and equipment 2,532,079 2,598,927 -current 10,542 11,295 Investment property 500,839 507,643 Total liabilities 37,274,694 40,845,559 Intangible assets 71,493 79,912 EQUITY Deferred tax assets 71,389 68,243 Common stock 11,600,000 11,600,000 Other assets - non-current 883,072 943,118 Capital surplus 971,161 971,161 Retained earnings 2,004,191 1,863,277 Other equity interest ( 33,615) ( 73,644) Total equity 14,541,737 14,360,794 TOTAL LIABILITIES TOTAL ASSETS $ 51,816,431 $ 55,206,353 AND EQUITY$ 51,816,431 $ 55,206,353
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MEGA BILLS FINANCE CO., LTD. CONDENSED BALANCE SHEETS (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)
Item June 30, 2017 June 30, 2016 Item June 30, 2017 June 30, 2016 ASSETS LIABILITIES Interbank overdraft and call Cash and cash equivalents $ 732,496 $ 332,965 $ 26,957,113 $ 19,537,100 loans Financial assets at fair value Financial liabilities at fair through profit or loss 114,049,339 123,332,824 value through profit or loss 1,614 5,514 Available-for-sale financial Bills and bonds sold under assets, net 129,366,661 124,205,470 repurchase agreements 185,788,599 197,378,751 Bills and bonds purchased under resale agreements 1,000,573 2,101,387 Payables 923,827 476,796 Receivables, net 1,554,105 1,334,818 Current income tax liabilities 130,752 139,114 Held-to-maturity financial assets 350,000 350,000 Provisions for liabilities 2,748,762 2,697,565 Other financial assets, net 822,106 808,233 Deferred tax liabilities 35,434 18,698 Property and equipment, net 365,548 372,795 Other liabilities 217,393 177,136 Investment property, net 2,523,092 2,533,756 Total liabilities 216,803,494 220,430,674 Intangible assets 2,929 3,691 EQUITY Deferred tax assets, net 222,499 146,060 Common stock 13,114,411 13,114,411 Other assets, net 31,080 31,165 Capital surplus 320,929 320,929 Retained earnings 19,715,735 19,001,981 Other equity interest 1,065,859 2,685,169 Total equity 34,216,934 35,122,490 TOTAL LIABILITIES AND TOTAL ASSETS $ 251,020,428 $ 255,553,164 EQUITY $ 251,020,428 $ 255,553,164
CHUNG KUO INSURANCE CO., LTD CONDENSED BALANCE SHEETS (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)
Item June 30, 2017 June 30, 2016 Item June 30, 2017 June 30, 2016 ASSETS LIABILITIES Cash and cash equivalents $ 6,570,031 $ 6,596,605 Payables $ 1,469,668 $ 1,381,275 Receivables 937,917 1,033,724 Current income tax liabilities 37,501 18,341 Current income tax assets 189,719 205,843 Insurance liabilities 8,980,489 9,520,322 Financial assets at fair value through profit or loss 111,902 81,262 Provisions for liabilities 176,478 174,520 Available-for-sale financial assets 1,194,612 1,444,405 Deferred tax liabilities 9,099 12,592 Financial assets measured at cost 100,000 100,000 Other liabilities 115,254 213,070 Investment in bonds without active markets 244,888 394,001 Total liabilities 10,788,489 11,320,120 Held-to-maturity financial assets 1,452,073 1,203,230 EQUITY
Investments accounted for under equity method 37,901 38,833 Common stock 3,000,000 3,000,000 Investment property 312,291 316,506 Capital surplus 1,084,811 1,084,811 Reinsurance contracts assets 4,315,597 4,419,416 Retained earnings 2,208,926 2,026,474 Property and equipment 841,395 850,629 Other equity interest ( 64,343) ( 66,004) Intangible assets 43,082 37,034 Total equity 6,229,394 6,045,281 Deferred tax assets 39,391 48,091 Other assets 627,084 595,822 TOTAL LIABILITIES AND TOTAL ASSETS $ 17,017,883 $ 17,365,401 EQUITY $ 17,017,883 $ 17,365,401
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MEGA INTERNATIONAL INVESTMENT TRUST CO., LTD. CONDENSED BALANCE SHEETS (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) Item June 30, 2017 June 30, 2016 Item June 30, 2017 June 30, 2016 ASSETS LIABILITIES Current assets$ 433,491 $ 382,765 Current liabilities$ 39,534 $ 43,694 Financial assets at fair value through profit or loss 9,395 - Liabilities - non-current 23,937 23,243 Available-for-sale financial assets 246,384 294,152 Total liabilities 63,471 66,937 Financial assets measured at cost 1,137 1,500 EQUITY Property and equipment 3,488 3,645 Common stock 527,000 527,000 Investment property 110,942 111,606 Capital surplus 3,675 3,675 Intangible assets 1,337 426 Retained earnings 281,399 269,663 Deferred tax assets 5,203 6,081 Other equity interest ( 16,390) ( 19,322) Other assets - non-current 47,778 47,778 Total equity 795,684 781,016 TOTAL LIABILITIES TOTAL ASSETS$ 859,155 $ 847,953 AND EQUITY$ 859,155 $ 847,953
MEGA ASSET MANAGEMENT CO., LTD. CONDENSED BALANCE SHEETS (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) Item June 30, 2017 June 30, 2016 Item June 30, 2017 June 30, 2016 ASSETS LIABILITIES Current assets$ 10,518,037 $ 15,713,206 Current liabilities$ 8,315,323 $ 13,235,469 Other liabilities - non Property and equipment 782 1,092 -current 36,657 52,284 Investment property 422,187 189,991 Total liabilities 8,351,980 13,287,753 Intangible assets 4,397 9,108 Deferred tax assets 89,693 106,829 EQUITY Other assets - non-current 9,521 15,335 Common stock 2,000,000 2,000,000 Capital surplus 1,261 1,261 Retained earnings 691,376 746,547 Total equity 2,692,637 2,747,808 TOTAL LIABILITIES TOTAL ASSETS$ 11,044,617 $ 16,035,561 AND EQUITY$ 11,044,617 $ 16,035,561 MEGA INSURANCE AGENCY CO., LTD. CONDENSED BALANCE SHEETS (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) Item June 30, 2017 June 30, 2016 Item June 30, 2017 June 30, 2016 ASSETS LIABILITIES Current assets$ 239,656 $ 397,697 Current liabilities$ 74,593 $ 186,434 Other liabilities - non Property and equipment 663 881 -current 130 163 Intangible assets 1,432 1,957 Total liabilities 74,723 186,597 Other financial assets- non -current 99,300 99,300 Other assets - non-current 8,346 3,502 EQUITY Common stock 20,000 20,000 Capital surplus 804 804 Retained earnings 253,870 295,936 Total equity 274,674 316,740 TOTAL LIABILITIES TOTAL ASSETS$ 349,397 $ 503,337 AND EQUITY$ 349,397 $ 503,337
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MEGA VENTURE CAPITAL CO., LTD. CONDENSED BALANCE SHEETS (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)
Item June 30, 2017 June 30, 2016 Item June 30, 2017 June 30, 2016 ASSETS LIABILITIES Current assets$ 271,647 $ 23,589 Current liabilities $ 3,874 $ 3,248 Available-for-sale financial assets 515,480 415,834 Total liabilities 3,874 3,248 Financial assets measured at cost - 278,295 EQUITY Common stock 1,000,000 1,000,000 Retained earnings 1,900 ( 23,720) Other equity interest ( 218,647) ( 261,810) Total equity 783,253 714,470 TOTAL LIABILITIES TOTAL ASSETS$ 787,127 $ 717,718 AND EQUITY$ 787,127 $ 717,718
MEGA INTERNATIONAL COMMERCIAL BANK CO., LTD. CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (EXPRESSED IN THOUSANDS OF NEW TAIWANDOLLARS, EXCEPT EARNINGS PER SHARE AMOUNTS) Item For the six-month period ended June 30, 2017 For the six-month period ended June 30, 2016 Interest income $ 25,173,683 $ 25,412,585 Less: Interest expense ( 8,696,370) ( 7,977,965) Interest income, net 16,477,313 17,434,620 Revenues other than interest 8,121,776 2,912,108 income, net Net revenue 24,599,089 20,346,728 Provisions for bad debts expense and guarantee ( 989,181) ( 1,002,121) liabilities reserve Operating expenses ( 9,903,822) ( 9,205,027) Income before income tax from 13,706,086 10,139,580 continuing operations Income tax expense ( 1,225,722) ( 2,458,760) Net income 12,480,364 7,680,820 Other comprehensive income (loss) 22,782 ( 305,246) Total comprehensive income $ 12,503,146 $ 7,375,574
Earnings per share Basic earnings per share ( after taxes ) $ 1.46 $ 0.90
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MEGA SECURITIES CO., LTD. CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT EARNINGS PER SHARE AMOUNTS)
Item For the six-month period ended June 30, 2017 For the six-month period ended June 30, 2016 Revenues $ 1,282,832 $ 1,161,318 Service fee expenditure ( 108,022) ( 116,863) Employee benefit expense ( 696,879) ( 655,785) Other operating expenditures ( 454) - Operating expenses ( 365,746) ( 375,069) Other gains and losses 78,936 94,724 Share of income (loss) of associates and joint ventures accounted for under equity method 7,553 ( 8,657) Income before income tax from continuing 198,220 99,668 operations Income tax expense ( 21,636) ( 39,576) Net income 176,584 60,092 Other comprehensive income 60,080 6,061 Total comprehensive income $ 236,664 $ 66,153 Earnings per share Basic earnings per share ( after taxes ) $ 0.15 $ 0.05
MEGA BILLS FINANCE CO., LTD. CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT EARNINGS PER SHARE AMOUNTS) Item For the six-month period ended June 30, 2017 For the six-month period ended June 30, 2016 Interest income $ 1,714,444 $ 1,575,901 Less: Interest expense ( 589,207) ( 403,378) Interest income, net 1,125,237 1,172,523 Revenues other than interest income, net 883,813 1,040,735 Net revenue 2,009,050 2,213,258 (Provisions) reversal ( 7,019) 43,438 Operating expenses ( 369,833) ( 390,074) Income before income tax from continuing 1,632,198 1,866,622 operations Income tax expense ( 259,596) ( 278,238) Net income 1,372,602 1,588,384 Other comprehensive income 1,098,008 1,158,177 Total comprehensive income $ 2,470,610 $ 2,746,561 Earnings per share Basic earnings per share ( after taxes ) $ 1.05 $ 1.21
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CHUNG KUO INSURANCE CO., LTD. CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT EARNINGS PER SHARE AMOUNTS) Item For the six-month period ended June 30, 2017 For the six-month period ended June 30, 2016 Operating revenue $ 2,353,536 $ 2,347,779 Operating cost ( 1,617,473) ( 1,765,863) Operating expense ( 513,258) ( 481,578) Operating income 222,805 100,338 Non-operating income and expense 2,514 8,976 Income before income tax from continuing 225,319 109,314 operations Income tax expense ( 51,501) ( 24,744) Net income 173,818 84,570 Other comprehensive income (loss) 11,930 ( 23,588) Total comprehensive income $ 185,748 $ 60,982 Earnings per share Basic and diluted earnings per share ( after taxes ) $ 0.58 $ 0.28
MEGA INTERNATIONAL INVESTMENT TRUST CO., LTD. CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT EARNINGS PER SHARE AMOUNTS) Item For the six-month period ended June 30, 2017 For the six-month period ended June 30, 2016 Operating revenue $ 168,535 $ 178,345 Operating expense ( 133,921) ( 127,668) Operating income 34,614 50,677 Non-operating income and expense 8,186 7,071 Income before income tax 42,800 57,748 Income tax expense ( 6,473) ( 24,232) Net income 36,327 33,516 Other comprehensive income (loss) 2,068 ( 1,376) Total comprehensive income $ 38,395 $ 32,140
Earnings per share Basic and diluted earnings per share ( after taxes ) $ 0.69 $ 0.64
MEGA ASSET MANAGEMENT CO., LTD. CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT EARNINGS PER SHARE AMOUNTS) Item For the six-month period ended June 30, 2017 For the six-month period ended June 30, 2016 Operating revenue $ 271,484 $ 412,888 Operating cost 14,932 - Gross Profit 286,416 412,888 Operating expense ( 57,906) ( 69,571) Operating income 228,510 343,317 Non-operating income and expense - - Income before income tax 228,510 343,317 Income tax expense ( 38,648) ( 58,845) Net income 189,862 284,472 Other comprehensive loss - - Total comprehensive income $ 189,862 $ 284,472 Earnings per share Basic and diluted earnings per share ( after taxes ) $ 0.95 $ 1.42
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MEGA INSURANCE AGENCY CO., LTD. CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT EARNINGS PER SHARE AMOUNTS) Item For the six-month period ended June 30, 2017 For the six-month period ended June 30, 2016 Operating revenue $ 284,885 $ 308,132 Operating expense ( 27,426) ( 33,884) Operating income 257,459 274,248 Non-operating income and expense - 33,893 Income before income tax from continuing operations 257,459 308,141 Income tax expense ( 43,768) ( 52,384) Net income $ 213,691 $ 255,757 Earnings per share Basic and diluted earnings per share ( after taxes ) $ 106.85 $ 127.88 MEGA VENTURE CAPITAL CO., LTD. CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT EARNINGS PER SHARE AMOUNTS) Item For the six-month period ended June 30, 2017 For the six-month period ended June 30, 2016 Operating revenue $ 29,144 $ 26,378 Operating cost - - Gross Profit 29,144 26,378 Operating expense ( 9,287) ( 8,582) Operating income 19,857 17,796 Non-operating income and expense - - Income before income tax 19,857 17,796 Income tax expense ( 1,933) ( 2,123) Net income 17,924 15,673 Other comprehensive income 30,638 23,412 Total comprehensive income $ 48,562 $ 39,085
Earnings per share Basic and diluted earnings per share $ 0.18 $ 0.16 ( after taxes )
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(11) Profitability of the Company and its subsidiaries
A. Profitability (A) The Company Unit ：% MEGA FINANCIAL HOLDING CO., LTD Items For the six-month period For the six-month period ended June 30, 2017 ended June 30, 2016 Pre-tax 4.40 3.04 Return on assets After-tax 4.43 2.91 Pre-tax 4.97 3.42 Return on equity After-tax 5.00 3.27 Net profit margin 98.94 93.70
Unit ：% MEGA FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Items For the six-month period For the six-month period ended June 30, 2017 ended June 30, 2016 Pre-tax 0.48 0.38 Return on assets After-tax 0.43 0.28 Pre-tax 5.54 4.44 Return on equity After-tax 5.00 3.27 Net profit margin 49.34 36.72 (B) The subsidiary Unit ：% MICB Items For the six-month period For the six-month period ended June 30, 2017 ended June 30, 2016 Pre-tax 0.46 0.34 Return on assets After-tax 0.42 0.25 Pre-tax 5.32 4.04 Return on equity After-tax 4.85 3.06 Net profit margin 50.74 37.75
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Unit ：% MS Items For the six-month period For the six-month period ended June 30, 2017 ended June 30, 2016 Pre-tax 0.41 0.19 Return on assets After-tax 0.37 0.11 Pre-tax 1.37 0.69 Return on equity After-tax 1.22 0.42 Net profit margin 13.77 5.17
Unit ：% MBF Items For the six-month period For the six-month period ended June 30, 2017 ended June 30, 2016 Pre-tax 0.63 0.78 Return on assets After-tax 0.53 0.66 Pre-tax 4.80 5.37 Return on equity After-tax 4.04 4.57 Net profit margin 68.32 71.77
Unit ：% CKI Items For the six-month period For the six-month period ended June 30, 2017 ended June 30, 2016 Pre-tax 1.35 0.67 Return on assets After-tax 1.04 0.52 Pre-tax 3.67 1.81 Return on equity After-tax 2.83 1.40 Net profit margin 7.39 3.60 (Note 1) Return on assets ＝ Income (loss) before income tax ÷ Average total assets (Note 2) Return on equity ＝ Income (loss) before income tax ÷ Average equity (Note 3) Net profit margin ＝ Net income (loss) after income tax ÷ Net revenues (Note 4) Net income (loss) pre-tax / after-tax refers to the income (loss) for the six-month periods ended June 30, 2017 and 2016. (12) In accordance with Article 17 of the Trust Enterprise Law, the disclosures of the trust balance sheet, trust income statement and schedule of investment for trust business would be shown semi-annually:
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A.Trust Balance Sheets
Trust assets June 30, 2017 June 30, 2016 Trust liabilities June 30, 2017 June 30, 2016 Bank deposits$ 18,460,144 $ 23,218,877 Capital borrowed$ 4,500,525 $ 4,500,526 Short-term investments Payables 18,234 13,789 Account collected in Mutual funds 118,460,007 129,419,540 advance 36,292 30,963 Bonds 14,449,832 15,176,702 Taxes payable 40,363 36,480 Stocks 46,306,170 45,814,268 Accounts withholding 1,870 1,921 Customers’ securities Structured products 27,992,694 27,872,652 171,190,218 164,116,136 under custody Real estate Other liabilities 1,476,014 1,526,435 Land 99,907,970 106,007,096 Buildings and structures 14,335,825 11,150,223 -net Construction in process 12,068,484 9,646,666 Trust capital 345,125,126 359,000,480 Accumulated earnings Movable properties 18,972 15,453 421,919 679,252 on the reserves Customers’ securities under 171,190,218 164,116,136 Accumulated profit 3,367,423 4,692,403 custody Receivables 5,834 2,369 Other assets 2,981,834 2,158,403 Total trust assets$ 526,177,984 $ 534,598,385 Total trust liabilities$ 526,177,984 $ 534,598,385
B.Trust income statements
For the six-month periods ended June 30, Trust income: 2017 2016 Interest income $ 33,604 $ 147,146 Rental income 576,404 562,993 Cash dividends 97,353 94,950 Other income 19,840 547 Exchange gain - 245,457 Realised investment gains-stock 142,579 18,671 Realised investment gains-fund 6,926 - Total trust income 876,706 1,069,764 Trust expenses: Management expenses ( 43,281) ( 43,213) Repairing expenses ( 26,774) ( 17,685) Insurance expense ( 6,326) ( 6,523) Depreciation expense ( 1,106) ( 740) Land and building tax ( 70,348) ( 66,961) Interest expense ( 36,462) ( 40,792) Service charge ( 58,000) ( 75,943) Accountant fees ( 590) ( 602) Lawyer fees ( 96) ( 3) Realised investment loss - stock ( 169,541) ( 93,425) Other expenses ( 42,263) ( 44,625) Total trust expenses ( 454,787) ( 390,512) Net income before income tax (Net investment income of current period) 421,919 679,252 Income tax expense - - Net income after income tax $ 421,919 $ 679,252
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C.List of investment for trust business
For the six-month periods ended June 30, 2017 2016 Bank deposits $ 18,460,144 $ 23,218,877 Short-term investments: Mutual funds 118,460,007 129,419,540 Bonds 14,449,832 43,021,481 Stock 46,306,170 45,814,268 Structured products 27,992,694 27,873 Real estate Land 99,907,970 106,007,096 Buildings and structures 14,335,825 11,150,223 Construction in process 12,068,484 9,646,666 Properties 18,972 15,453 Customers’ securities under custody 171,190,218 164,116,136 Other assets 2,981,834 2,158,403 Total $ 526,172,150 $ 534,596,016 Note: As of June 30, 2017 and 2016, the above financial statements include $32,973,955 and $35,682,493, of the foreign securities business of the specific trust of money investment of MICB’s OBU.
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17. ADDITIONAL DISCLOSURES
The transactions between and among subsidiaries have been eliminated during the consolidation. The disclosed information below is for reference purposes only. (1) Significant transaction information: A. Marketable securities acquired or disposed of, at costs or prices of at least $300 million or 10% of the issued capital Balance as of January 1, 2017 Addition Disposal Balance as of June 30, 2017 Marketable General Number of Number of Number of Number of Investor Counterparty Relationship Gain (loss) on securities ledger account shares(in Amount shares(in Amount shares(in Amount shares(in Amount disposal thousands) thousands) thousands) thousands) Hon Hai Precision Financial assets at MICB Industry fair value through - - 1,910 154,470 3,455 350,329 2,765 301,412 39,422 2,600 242,809 Company profit or loss, net Taiwan Semiconductor " " - - 2,770 447,668 2,305 450,118 2,105 407,908 41,658 2,970 531,536 Manufacturing Company China Development Available-for-sale " Financial Holding financial assets, - - 79,758 380,289 - - 77,838 628,002 256,715 1,920 9,002 Corporation net Taiwan " Cogeneration " - - 15,857 111,583 - - 14,609 329,505 226,657 1,248 8,735 Corporation B. Acquisition of individual real estate, at costs or prices of at least $300 million or 10% of the issued capital:None. C. Disposal of individual real estate, at costs or prices of at least $300 million or 10% of the issued capital: None. D. Allowance for service fees to related parties amounting to at least $5 million: None. E. Receivables from related parties amounting to at least $300 million or 10% of the issued capital: None. F. Information on selling non-performing loans of subsidiaries: (a) Summary of selling non-performing loans: The information of subsidiary-MICB regarding selling non-performing loans for the six-month period ended June 30, 2017 are as follows:
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Gain or loss Transaction Contents of right of Carrying Attached Relationship with the Counterparty Sale price from Note date claim value conditions Company disposal SC LOWY PRIMARY 2017.03.10 Corporate lending$ - $ 31,119 $ 31,119 None None Note 1 INVESTMENTS LTD SOUTHERN DEBT 2017.04.14 TRADING JOIN- Corporate lending$ - $ 22,376 $ 22,376 None None Note 2 STOCK (Note 1) The carrying amount and the sale price of the debt were US $0 thousand dollars and US $1,020 thousand dollars, respectively. Based on the exchange rate of 30.5087 New Taiwan dollars per USD at June 30, 2017. (Note 2) The carrying amount and the sale price of the debt were US $0 thousand dollars and US $734.44 thousand dollars, respectively. Based on the exchange rate of 30.5087 New Taiwan dollars per USD at June 30, 2017. (b) Sale of non-performing loans exceeding NT$1 billion (excluding sale to related parties): None. G. Information on categories of securitization of assets of subsidiaries applied for and approved in accordance to both financial asset securitization rule and real estate securitization regulations: None. H. Other significant transactions which may affect the decisions of users of financial reports: None.
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(2) Information on the investees:
A. Supplementary disclosure regarding investee companies: (Expressed In Thousands Of New Taiwan Dollars, Unless Otherwise Indicated) Share-holdings of the Bank and related enterprises Total Pro forma Percentage of Investment information on Percentage ownership Carrying income Share (in number of Share (in of ownership Investee companies Address Main service % value (loss) thousands) stock held thousands) % Note Mega International Commercial Banking industry No.100, Jilin Rd., Taipei City 100.00%$ 257,204,451 $ 12,480,364 8,536,234 None 8,536,234 100.00% Bank Co., Ltd. 3, No.95, Sec.2, Zhongxiao Securities industry Mega Securities Co., Ltd. 100.00% 14,515,410 176,584 1,160,000 None 1,160,000 100.00% E.Rd., Taipei City 2~5 and 9-10F, No. 91, Notes and bills industry Mega Bills Finance Co., Ltd 100.00% 34,208,366 1,372,602 1,311,441 None 1,311,441 100.00% Hengyang Rd., Taipei City No. 58, Sec.1, Wuchang Property insurance industry Chung Kuo Insurance Co., Ltd. 100.00% 6,169,069 173,599 300,000 None 300,000 100.00% Street, Taipei City Issuing beneficiary Mega International Investment 8F, No. 91, Hengyang Rd., certificates and raising 100.00% 795,684 36,327 52,700 None 52,700 100.00% Trust Co., Ltd. Taipei City securities investment trust funds. Purchase of financial creditors’ rights, evaluate or Mega Asset Management Co., 6F, No. 91, Hengyang Rd., auction of financial 100.00% 2,692,637 189,862 200,000 None 200,000 100.00% Ltd. Taipei City creditors’ right and management services. 7F, No. 91, Hengyang Rd., Venture capital Mega Venture Capital Co., Ltd. 100.00% 783,253 17,925 100,000 None 100,000 100.00% Taipei City 5F, No. 91, Hengyang Rd., Investment industry Mega I Venture Capital Co., Ltd. 40.00% 36,383 ( 4,827) 13,500 None 13,500 40.00% Taipei City Mega Life Insurance Agency 5F., No. 100, Jilin Rd., Taipei Insurance industry 100.00% 274,674 213,691 2,000 None 2,000 100.00% Co., City 1.Deposits 36/12P.S.Tower, Asoke, Mega International Commercial 2. Negotiation, bill for Sukhumvit 21 Klongtoey nua, Bank Public Co., Ltd. collection and foreign 100.00% 4,736,873 ( 5,316) 400,000 None 400,000 100.00% Wattana Bangkok (Thailand) exchange 10110,Thailand 3. Loan(credit, loan and L/C)
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(Expressed In Thousands Of New Taiwan Dollars, Unless Otherwise Indicated) Share-holdings of the Bank and related enterprises Total Pro forma Percentage of Investment information on Percentage ownership Carrying income Share (in number of Share (in of ownership Investee companies Address Main service % value (loss) thousands) stock held thousands) % Note 1.Deposits North York Madison Centre, 2. Negotiation, bill for Mega International Commercial 4950 Yonge Street, Suite collection and foreign 100.00%$ 953,354 $ 116,224 230 None 230 100.00% Bank (Canada) 1002, Toronto,Ontario, M2N exchange 6K1, Canada 3. Loan(credit, loan and L/C) Cathay Investment & Post Office Box 3937 Nassau, International investment and Development Corporation 100.00% 57,036 268 5 None 5 100.00% Bahamas exploration (Bahamas) Mega Management Consulting 7F, No. 91, Hengyang Rd., Management consulting 100.00% 49,219 16,901 1,000 None 1,000 100.00% Corporation Taipei City industry Calle 16 Colon Free Zone 1. Warehousing Local No. 4 Edificio No. 49 2. Manage and make the Cathay Investment & P. O. Box 4036 Colon Free investment for the business 100.00% 52,412 ( 405) 1 None 1 100.00% Warehousing Ltd. Zone, Colon, Republic of in foreign trade business. Panama 3. Office rental Calle 50 y Esquina Margarita A. de Vallarino Nuevo Real estate investment Ramlette Finance Holdings Inc. 100.00% 6,911 375 2 None 2 100.00% Campo Alegre, Edificio industry MEGAICBC Agency business industry, manage and make the 7F, No. 100, Jilin Rd, Taipei investment for the business Yung Shing Industries Co. 99.56% 660,891 20,945 299 None 299 99.56% City in foreign trade business and customer request service. Processing agricultural China Products Trading 7F, No.100, Jilin Rd., Taipei product and investment 68.27% 27,589 ( 72) 68 None 68 68.27% Company City industry. Automatic Teller Machine 3F., No.139, Jhengjhou Rd., An Fang Co., Ltd. rental, configure and 25.00% 12,237 393 900 None 900 30.00% Taipei City maintain. Proprietary trading, brokerage and underwriting of short-term notes and 3F, No. 123, Sec. 2 Nanjin E. Taiwan Bills Finance Co., Ltd. bills, arrangement of interbank 24.55% 1,641,208 51,217 126,714 None 126,714 24.55% Rd. Taipei City call loans, proprietary trading of government bonds and corporate bonds. ~191~ WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3
(Expressed In Thousands Of New Taiwan Dollars, Unless Otherwise Indicated) Share-holdings of the Bank and related enterprises Total Pro forma Percentage of Investment information on Percentage ownership Carrying income Share (in number of Share (in of ownership Investee companies Address Main service % value (loss) thousands) stock held thousands) % Note Everstrong Iron Steel & No.1 Shiquan Rd., Xiaogang Iron and steel making 22.22% 44,262 805 1,760 None 1,760 22.22% Foundry & Mfg Corp Dist., Kaohsiung City China Real Estate Management 11F., No.35, Guangfu S. Rd., Real estate and property 20.00% 184,051 544 9,000 None 9,000 20.00% Co., Ltd Taipei City selling Universal Venture Capital 7F, No. 91, Hengyang Rd., Investment industry 11.84% 138,280 1,485 14,250 None 14,250 11.84% Investment Corporation Taipei City 7F., No.91, Hengyang Rd., Venture capital Mega Growth Venture Capital Zhongzheng District, Taipei 20.08% 250,574 1,027 25,500 None 25,500 20.08% Co.,Ltd City Business administration 4F, No. 99,Sec 3,Chongyang consulting,advertising,and Win Card Co., Ltd. Rd., Sanchong Dist., New management of past due 100.00% 42,852 3,504 200 None 200 100.00% Taipei City accounts receivables Investment consulting,corporate ICBC Asset Management & No.100, Jilin Rd., Taipei City management consulting and 100.00% 21,243 501 2,000 None 2,000 100.00% Consulting Co., Ltd venture investment management consulting Brokerages of overseas 2F., No.95, Sec. 2, futures business, domestic Mega Futures Co., Ltd. Zhongxiao proprietary trading and 100.00% 531,833 8,385 40,000 None 40,000 100.00% E. Rd., Taipei City futures settlement business
Mega International Securities Securities investment 10F., No.95, Zhongxiao E. Investment Consulting Co., consulting industry 100.00% 28,535 1,043 2,000 None 2,000 100.00% Rd., Taipei City Ltd. B. Marketable securities acquired or disposed of, at costs or prices of at least $300 million or 10% of the issued capital: None. C. Information on financial derivative transactions: Please refer to Note 7 for the information of financial instruments. D. Acquisition or disposal of individual real estate, at costs or prices of at least $300 million or 10% of the issued capital: None. E. Allowance for service fees to related parties amounting to at least $5 million: None. F. Receivables from related parties amounting to at least $300 million or 10% of the issued capital: None. ~192~ WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3
G. Sale of non-performing loans: Please refer to Note 17 additional disclosures for details. H. Information on categories of securitization of assets of subsidiaries applied for and approved in accordance to both financial asset securitization rule and real estate securitization regulations: None. I. Other significant transactions which may affect the decisions of users of financial reports: None. J. Funds lent to others: None. K. Endorsement / guarantee provided:None.
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L. Securities held at the end of period
(Expressed in thousands of New Taiwan dollars/thousand shares) Percentage of Name of Holding Type and Name of Relationship with the Financial Statement Share Carrying Ownership Company Marketable Securities Securities Issuer Account ( in thousands) Value (%) Market Value Note Mega Financial Holding Co., Stocks Ltd. 〃 Taiwan Depository & Clearing Corporation (TDCC) None Financial assets measured at costs 1,463 $ 23,193 0.41%$ 23,193 〃 Taipei Financial Center Co. 〃〃 73,500 735,000 5.00% 735,000 〃 Taiwan Business Bank Co., Ltd. 〃 Available-for-sale financial assets 717,092 6,095,282 12.01% 6,095,282 Total $ 6,853,475 $ 6,853,475 Mega Futures Co., Ltd Stocks Taiwan Futures Exchange Co. None Financial assets measured at costs 1,224 $ 9,280 0.40% $ 9,280 Mega International Investment Beneficiary certificates Trust Co., Ltd.
Be issued by Mega International 〃 Mega First Fund Available-for-sale financial assets 617 $ 7,952 - $ 7,952 Investment Trust Co., Ltd
〃 Mega Greater China Balanced-NTD 〃〃 2,515 24,367 - 24,367 〃 Mega Greater China Balanced-USD 〃〃 8 2,491 - 2,491 〃 Mega Greater China Balanced-CNY 〃〃 51 2,466 - 2,466 〃 Mega Emerging Market High Yield Bond B 〃〃 3,785 31,772 - 31,772 〃 Mega RMB Money Market 〃〃 767 38,263 - 38,263 〃 Mega Global Consumer 〃〃 300 1,003 - 1,003 〃 Manulife GF US Special Opportunities T Share None 〃 284 8,922 - 8,922 〃 First Eagle Amundi International Fund 〃〃 12 37,445 - 37,445 〃 Loomis Sayles High Income Fund-R/D USD 〃〃 117 34,096 - 34,096 〃 JPMorgan Asia Pacific Income Fund 〃 〃 8 28,141 - 28,141 〃 Yuanta RMB Money Market 〃〃 387 19,098 - 19,098 〃 MFS Meridian Funds-Global Total Return A2 〃〃 13 10,267 - 10,267
Be issued by Mega International Financial assets at fair value through profit or 〃 Mega Taiwan Blue Chip 30 ETF 500 - Investment Trust Co., Ltd loss 9,395 9,395 Total $ 255,678 $ 255,678
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(Expressed in thousands of New Taiwan dollars/thousand shares) Percentage of Name of Holding Type and Name of Relationship with the Financial Statement Share Carrying Ownership Company Marketable Securities Securities Issuer Account ( in thousands) Value (%) Market Value Note Mega International Investment Stocks Trust Co., Ltd. FundRich Securities Co. Ltd None Financial assets measured at costs 113 $ 1,137 - $ 1,137 Mega Venture Capital Co., Ltd. Stocks 〃 Etasis Electronics Corporation None Financial assets measured at costs 576 $ 4,153 2.23%$ 4,153 〃 Probe Leader Co., Ltd. 〃〃 1,163 14,648 4.16% 14,648 〃 Fujitec Corporation 〃〃 500 9,937 2.91% 9,937 〃 Neotec Semiconductor Ltd. 〃〃 937 11,217 3.12% 11,217 〃 Taiwan United Medicals Inc. 〃〃 327 2,924 1.47% 2,924 〃 Orgchem Technologies, Inc. 〃〃 762 33,700 1.33% 33,700 〃 Immense Advance Technology Corp. 〃〃 800 2,112 5.33% 2,112 〃 Comchip Technology Co., Ltd. 〃〃 1,065 8,800 4.00% 8,800 〃 Chi Lin Optoelectronics Co., Ltd. 〃〃 125 4,911 0.07% 4,911 〃 Kentec Inc. 〃〃 630 10,861 0.68% 10,861 〃 Kuang Ming Shipping Corp. 〃〃 90 900 0.02% 900 〃 Supertec Machinery Incorporated 〃〃 81 871 0.26% 871 〃 An Te Luo Bio-Tech Co. Ltd. 〃 〃 700 10,500 1.75% 10,500 〃 Nan Pao resins chemical Co. Ltd. 〃〃 127 10,380 0.09% 10,380 〃 Tair Jiuh Enterprise Co., Ltd. 〃〃 250 9,250 0.79% 9,250 〃 Megapro Biomedical Co., Ltd. 〃〃 385 5,000 1.10% 5,000 〃 Jrsys International Co., Ltd. 〃〃 75 2,625 1.39% 2,625 〃 Tang Eng Vehicles Co., Ltd. 〃〃 750 18,750 2.67% 18,750 〃 Vizionfocus Inc. 〃〃 776 15,519 2.84% 15,519 〃 GOGORO Inc. 〃〃 333 32,911 0.35% 32,911 〃 Hex Inc. 〃 〃 100 3,500 1.04% 3,500 〃 HOY Technologies Co., Ltd. 〃〃 500 6,000 0.60% 6,000 〃 Drewloong Precision Inc. 〃〃 200 24,000 0.77% 24,000 〃 Formosa Advanced Technologies Co., Ltd. 〃 Available-for-sale financial assets 1,285 36,558 0.29% 36,558 〃 Jentech Precision Industrial Co., Ltd. 〃〃 224 18,049 0.21% 18,049 〃 Darfon Electronics Corp. 〃〃 364 10,223 0.12% 10,223 〃 Innolux Corporation 〃〃 623 9,908 0.01% 9,908 〃 Paragon Technologies Co., Ltd. 〃 〃 763 16,704 0.95% 16,704 〃 Feature Integration Technology Inc. 〃〃 438 5,691 1.31% 5,691 〃 Ju Teng International Holdings Ltd. 〃〃 300 3,810 0.03% 3,810 〃 AVerMedia Information, Inc. 〃〃 289 6,107 0.29% 6,107 〃 Lextar Electronics Corp. 〃〃 285 5,130 0.05% 5,130
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(Expressed in thousands of New Taiwan dollars/thousand shares) Percentage of Name of Holding Type and Name of Relationship with the Financial Statement Share Carrying Ownership Company Marketable Securities Securities Issuer Account ( in thousands) Value (%) Market Value Note Mega Venture Capital Co., Ltd. ACTi Corporation None Available-for-sale financial assets 331 $ 5,973 0.89%$ 5,973 〃 Assem technology Co., Ltd. 〃〃 165 2,721 0.65% 2,721 〃 Hong Wei Electrical Industry & Co., Ltd. 〃〃 681 24,577 1.62% 24,577 〃 TacBright Optronics Corp. 〃〃 854 5,662 0.18% 5,662 〃 E&E Recycling, Inc. 〃〃 1,050 20,360 3.22% 20,360 〃 Sun Art Retail Group Limited. 〃〃 300 7,220 0.00% 7,220 〃 United Oriental Glass Ind. Co., Ltd. 〃 〃 500 4,700 1.25% 4,700 〃 Intech Biopharm Co., Ltd. 〃〃 197 9,189 0.36% 9,189 〃 Chelic Co., Ltd. 〃〃 350 21,455 0.52% 21,455 〃 United biopharma Co., Ltd. 〃〃 108 7,587 0.09% 7,587 〃 WeGames Corporation. 〃〃 228 16,000 0.08% 16,000 〃 Foresee Pharmaceuticals Co., Ltd. 〃〃 165 14,130 0.23% 14,130 〃 General Silicones Co., Ltd. 〃〃 476 7,188 1.67% 7,188 〃 Jmc Electronics Co., Ltd. 〃〃 181 5,403 0.18% 5,403 〃 Green River Holding Co.Ltd 〃〃 386 62,146 0.52% 62,146 〃 Chime-Ball Technology Co., Ltd. 〃〃 628 31,897 1.62% 31,897 〃 Transart Graphics Co ,. Ltd. 〃〃 20 810 0.03% 810 〃 My Humble House Hospitality Management Consulting Co. Ltd 〃〃 200 7,120 0.20% 7,120 〃 JPP Holding Co .,Ltd 〃〃 424 26,924 1.10% 26,924 〃 Chang Wah Technology Co., Ltd. 〃〃 10 4,028 0.04% 4,028 〃 AXIOMTEK Co., Ltd. 〃〃 500 28,250 0.63% 28,250 〃 Avalue Technology Inc. 〃〃 800 40,640 1.15% 40,640 〃 Aerospace Industrial Development Co., Ltd 〃〃 468 16,754 0.05% 16,754 〃 Auden Techno Co., Ltd 〃〃 40 620 0.01% 620 〃 Mosa Industrial Co., Ltd 〃〃 766 22,946 0.49% 22,946 〃 Strongh Machinery Technology Co., Ltd 〃〃 225 9,000 0.03% 9,000 Total $ 758,949 $ 758,949 Mega I Venture Capital Co., Stocks Ltd. 〃 Kuang Ming Shipping Corp. None Financial assets measured at costs 90 $ 1,465 0.02%$ 1,465 〃 Taiwan Video System Co., Ltd. 〃〃 316 3,879 1.31% 3,879 〃 Yung Fa Steel & Iron Industry Co., Ltd. 〃 〃 3,466 27,738 9.70% 27,738 〃 Probe Leader Co., Ltd. 〃〃 698 15,975 2.50% 15,975 〃 Taiwan United Medicals Inc. 〃〃 327 3,924 1.47% 3,924 〃 Thecus Technology Corp. 〃〃 201 4,635 1.12% 4,635 〃 Chi Lin Optoelectronics Co., Ltd. 〃〃 124 4,872 0.07% 4,872 Total $ 62,488 $ 62,488
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(3) Information on investments in Mainland China A. The Company: None. B. Subsidiaries MICB:
Name of Book The remitted Investee Accumulated amount Outward Accumulated amount Investment Book value of Investment value of Main investment Company in Paid-in Capital Investment method of investment as of remittance Withdrawal of investments as of income for the investment as of June income for the investment Business income as of Mainland January 1, 2017 June 30, 2017 period (Note 2) 30, 2017 period (Note 2) as of June June 30, 2017 China 30, 2017
Mega Banking International businesses Commercial approved by $4,796,000(Note3) Branch $4,796,000 (Note 3) - - $4,796,000 (Note 3) $ 188,837 NA $ 188,837 - - Bank, Suzhou the local Branch government
Mega Banking International businesses Commercial approved by $5,122,458(Note 4) Branch $5,122,458(Note 4) - - $5,122,458(Note 4) $ 118,303 NA $ 118,303 - - Bank, Ningbo the local Branch government
Investment amount Limits on investment approved by the investment amounts established by the Accumulated investment amounts in audit commission of the investment commission of Mainland China as of June 30, 2017 Ministry of Economic the Ministry of Economic Affairs Affairs (Note 1)
$9,918,458(Note 3) (Note $9,918,458(Note 3) (Note 4) $154,357,826 4)
(Note 1) The calculation of the above-mentioned investment limit is 60% of the $257,263,043 net value.
(Note 2) Relevant operating income and expense of the subsidiary, Mega International Commercial Bank Suzhou Branch (including Wujiang Sub- Branch and Kunshan Sub-Branch), have been included in the gains and losses of the subsidiary.
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(Note 3) Based on the approved investment amount (RMB$1 billion, approximately US$160,000 thousand) pursuant to Jing-Shen-II-Zi Letter No. 10000045990 issued by the Investment Commission of the Ministry of Economic Affairs on March 31, 2011. The actual remitted amount, converted using the exchange rate at the date of remittance, was approximately US$157,347 thousand, which converted to NTD was 4,796,000 thousand. (Note 4) Based on the approved investment amount (RMB$1 billion, approximately US$167,000 thousand) pursuant to Jing-Shen-II-Zi Letter No. 10300306930 issued by the Investment Commission of the Ministry of Economic Affairs on December 9, 2014. The actual remitted amount, converted using the exchange rate at the date of remittance, was approximately US$162,411 thousand, which converted to NTD was NT$5,122,458 thousand.
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(4) Significant transactions between parent company and subsidiaries MEGA FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Business Relationship and Significant Transactions among the Company and its Subsidiaries For the six-month period ended June 30, 2017 Description of Transactions Transaction Nature of Percentage of company relationships Transaction Consolidated Revenue No. (Note 1) Counterparty (Note 2) Financial Statement Account Amounts Item / Assets (Note 3) 0 The Company MICB 1 Cash and cash equivalents $ 7,333,466 （Note 4 ） 0.22% 1 MICB The Company 2 Deposits and remittances 7,333,466 ″ 0.22% 2 MS MICB 3 Cash and cash equivalents 255,996 ″ 0.01% 2 MS MICB 3 Other financial assets, net 51,305 ″ 0.00% 2 MS MICB 3 Other assets, net 14,441 ″ 0.00% 1 MICB MS 3 Other liabilities 4,441 ″ 0.00% 1 MICB MS 3 Deposits and remittances 317,301 ″ 0.01% 3 MBF MICB 3 Cash and cash equivalents 518,285 ″ 0.02% 3 MBF MICB 3 Other financial assets, net 48,095 ″ 0.00% 3 MBF MICB 3 Due to the Central Bank and financial institutions 2,700,715 ″ 0.08% 3 MICB MBF 3 Central Bank and call loans to other banks 2,700,715 ″ 0.08% 1 MICB MBF 3 Deposits and remittances 566,379 ″ 0.02% 4 CKI MICB 3 Cash and cash equivalents 694,240 ″ 0.02% 4 CKI MICB 3 Other assets, net 12,162 ″ 0.00% 1 MICB CKI 3 Deposits and remittances 706,402 ″ 0.02% 5 Mega Life Insurance Agency MICB 3 Cash and cash equivalents 239,542 ″ 0.01% 5 Mega Life Insurance Agency MICB 3 Other financial assets, net 99,300 ″ 0.00% 1 MICB Mega Life Insurance Agency 3 Deposits and remittances 338,842 ″ 0.01% 6 Mega Venture Capital MICB 3 Cash and cash equivalents 16,742 ″ 0.00% 1 MICB Mega Venture Capital 3 Deposits and remittances 16,742 ″ 0.00% 8 MITC MICB 3 Cash and cash equivalents 72,714 ″ 0.00% 8 MITC MICB 3 Other assets, net 6,000 ″ 0.00% 1 MICB MITC 3 Deposits and remittances 78,714 ″ 0.00% 4 CKI MBF 3 Cash and cash equivalents 299,460 ″ 0.01% 3 MBF CKI 3 Bills and bonds purchased under repurchase agreements 299,460 ″ 0.01% 1 MBF MICB 3 Other liabilities 14,041 ″ 0.00% 3 MICB MBF 3 Other assets, net 14,041 ″ 0.00% 2 MS MICB 3 Bills and bonds purchased under repurchase agreements 1,195,791 ″ 0.04% 1 MICB MS 3 Bills and bonds purchased under resale agreements 1,195,791 ″ 0.04% 2 MS MBF 3 Other business and administrative expenses 14,724 ″ 0.00% 1 MBF MS 3 Other revenue other than interest income 14,724 ″ 0.00% 1 MICB MBF 3 Other business and administrative expenses 39,889 ″ 0.00% 3 MBF MICB 3 Other revenue other than interest income 39,889 ″ 0.00% 4 CKI MICB 3 Insurance revenue, net 11,136 ″ 0.00% ~199~ WorldReginfo - 6420f10b-3c66-4696-ba20-31be7715f9f3
MEGA FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Business Relationship and Significant Transactions among the Company and its Subsidiaries For the six-month period ended June 30, 2017 Description of Transactions Transaction Nature of Percentage of company relationships Transaction Consolidated Revenue No. (Note 1) Counterparty (Note 2) Financial Statement Account Amounts Item / Assets (Note 3) 4 CKI MICB 3 Gain (loss) on investment property $ 11,108 ″ 0.00% 1 MICB CKI 3 Service fee revenue and commissions, net 11,136 ″ 0.00% 1 MICB CKI 3 Other business and administrative expenses 11,108 ″ 0.00% 5 Mega Life Insurance Agency MICB 3 Service fee revenue and commissions, net 271,127 ″ 0.01% 1 MICB Mega Life Insurance Agency 3 Service fee revenue and commissions, net 271,127 ″ 0.01% 8 MITC MICB 3 Other business and administrative expenses 16,576 ″ 0.00% 1 MICB MITC 3 Service fee revenue and commissions, net 10,509 ″ 0.00% 1 MICB MITC 3 Other revenue other than interest income 6,067 ″ 0.00%
(Note 1) Transactions between parent company and subsidiaries should be distinguished as follows: 1. Parent company: 0 2. Subsidiaries are numbered in sequence starting from 1. (Note 2) Types of transactions with related parties were classified as follows: 1. Parent company to subsidiaries. 2. Subsidiaries to parent company. 3. Subsidiaries to subsidiaries. (Note 3) In the computation of percentage of consolidated revenue/assets, if the amount is the ending balance of assets or liabilities, the accounts percentage will be calculated by dividing the consolidated assets or liabilities: if the amount is the amount of income or expense, the accounts percentage will be calculated by dividing the consolidated revenues in the same period. (Note 4) For the transactions between the Company and related parties, the terms are similar to those transacted with unrelated parties.
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(5) MS and MF engaged in futures business and shall meet the requirements of relevant futures transactions regulations. Financial ratio and enforcement of MS and MF are as follows:
The table below is prepared according to: “Regulations Governing Futures Commission Merchants” A. MS
For the six-month period ended For the six-month period ended June 30, 2017 June 30,2016 Article Calculation formula Standard Enforcement
Calculation Ratio Calculation Ratio Stockholders’ equity 464,956 476,103 17 4.00 4.68 ≧1 Meets the requirements (Total liability －futures traders’ equity ) 116,201 101,771 Current assets 569,605 566,681 17 1514.91 1,749.02 ≧1 Meets the requirements Current liabilities 376 324 Stockholders’ equity 464,956 476,103 ≧60% 22 116.24% 119.03% Meets the requirements Minimum paid-in capital 400,000 400,000 ≧40% Adjusted net capital 417,472 437,405 ≧20% 22 Total amount of customer margins 503.88% 630.85% Meets the requirements required for the open positions of futures 82,852 69,336 ≧15% traders
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B. MF For the six-month period ended For the six-month period ended Article Calculation formula June 30, 2017 June 30, 2016 Standard Enforcement Calculation Ratio Calculation Ratio Stockholders’ equity 529,559 528,107 Meets the 17 16.68 16.16 ≧1 (Total liability －futures traders’ equity ) 31,743 32,683 requirements Current assets 2,657,723 2,294,324 Meets the 17 1.15 1.18 ≧1 Current liabilities 2,307,745 1,945,031 requirements Stockholders’ equity 529,559 528,107 ≧60% Meets the 22 132.39% 132.03% Minimum paid-in capital 400,000 400,000 ≧40% requirements Adjusted net capital 505,560 489,524 ≧20% Meets the 22 Total amount of customer margins required 101.05% 128.13% 500,294 382,041 ≧15% requirements for the open positions of futures traders (6) The Prospective Risk For Futures Trading Brokerage department of MF, which is under the consignment of futures’ traders, conducts brokerage services pursuant to the laws and regulations. Uncovered positions are daily adjusted by mark-to-market price of Taiwan Futures Exchange. If margin call is lower than certain level, additional margin calls are requested to maintain limits of guarantee deposits. The Company controls credit risk by constantly monitoring the balance of performance bonds based on market price of positions held by each client, regulations of Taiwan Stock Exchange and the Company to minimize the risk. Futures’ trading and futures option trading are with high financial leverage risk. When MS and MF purchase options, the maximum loss arising from fluctuation on futures index is limited to the paid premium; hence, market price risk is insignificant. When MS and MF sell options, market price risk is the fluctuation of TAIEX Index Option contracts. Futures department of MS and MF have established relevant risk control mechanism and set up stop-loss limits, in order to monitor changes on positions held and their prices. When there is significant fluctuation on futures price, MS and MF will conversely purchase options or TAIEX Index Futures to manage the market price risk, and loss incurred would be controlled.
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18. DISCLOSURE OF FINANCIAL INFORMATION BY SEGMENTS
(1) General Information
The Group’s operation segment reports are consistent with the internal reports provided to the chief operating decision-maker (“CODM”). The CODM allocates resources to operating segments and evaluates their performance. The Group’s CODM refers to the Board of Directors.
Inter-segmental transactions are arm’s-length transactions, and gain and loss arising from such transactions are eliminated by the parent company upon the presentation of consolidated financial statements. Profit and loss directly attributable to various segments have been considered when segment performance is being evaluated. The operating segments of the Group comprise banking, securities, bills finance, insurance and other businesses. The operating results are reviewed by the CODM regularly and are referenced when allocating resources and evaluating operating performance. The Group is based in the global market, comprising four major business segments; there were no changes in the reporting segments for the period. The operating results have different income items due to different nature of the operating segments, and the CODM evaluates segment performance based on the net profit before tax of various segments. Therefore, performance of all reporting segments is presented by the net amount of operating net profit less various operating expenses. Income from external clients provided for the CODM to review is measured on the same basis with the statement of comprehensive income. Adjustments of internal pricing and transfer pricing are reflected in segment performance evaluation. Income from external clients has been allocated based on the regulated allocation standard between segments.
The internal management’s operating reports are prepared based on net operating profit, including net interest income, net service fee income, recovered bad debts (provision), loan loss impairment, net gain (loss) on financial instruments and other operating gain (loss). Measurement basis does not include non-recurring items, e.g. litigation expenses.
(2) Information about segment profit or loss, assets and liabilities
The Group’s management mainly focuses on the operating results of the whole group, which is consistent with the statement of comprehensive income on page 12 of the consolidated financial statements.
(3) Major customer information
The Group’s source of income is not concentrated on transactions with a single customer or single trading.
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(4) Information on products and services
All operating segments’ operating results of the Group mainly comes from interest income from external clients and is measured on a consistent basis compared with the statement of comprehensive income. While the segmental income also consists of internal profit and loss appropriated by the terms agreed amongst segments other than external revenue. Please refer to the information by geography for relevant components of income balances.
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(5) Information about segment profit or loss, assets and liabilities
For the three-month period ended June 30, 2017 Insurance Adjustment Bank Department Department Bills Department Securities Department Other Departments and write-off Total Interest income, net $ 8,398,128 $ 17,390 $ 287,405 $ 174,212 ($ 12,108) $ - $ 8,865,027 Revenues other than interest income, net 3,943,923 314,327 759,904 475,664 7,594,656 ( 7,290,072) 5,798,402 Net revenue 12,342,051 331,717 1,047,309 649,876 7,582,548 ( 7,290,072) 14,663,429 (Provision for) reversal of bad debts expense and ( 510,082) - ( 7,260) - 1 - ( 517,341) guarantee Net change in provisions for insurance liabilities - 50,597 - - - - 50,597 Operating expenses ( 5,065,540) ( 285,718) ( 202,283) ( 550,963) ( 220,620) 67,369 ( 6,257,755) Income (loss) before income tax from 6,766,429 96,596 837,766 98,913 7,361,929 ( 7,222,703) 7,938,930 continuing operations Income tax expense ( 628,823) ( 15,618) ( 128,249) ( 9,689) ( 42,853) - ( 825,232) Net income (loss) $ 6,137,606 $ 80,978 $ 709,517 $ 89,224 $ 7,319,076 ($ 7,222,703) $ 29,716,057 For the three-month period ended June 30, 2016 Insurance Adjustment Bank Department Department Bills Department Securities Department Other Departments and write-off Total Interest income, net $ 8,925,806 $ 21,459 $ 328,325 $ 202,487 $ 5,911 $ - $ 9,483,988 Revenues other than interest income, net ( 1,834,811) 453,975 775,486 337,406 8,468,360 ( 7,992,930) 207,486 Net revenue 7,090,995 475,434 1,103,811 539,893 8,474,271 ( 7,992,930) 9,691,474 Provision for bad debts expense and guarantee 174,946 9,358 42,846 - - - 227,150 liabilities reserve Net change in provisions for insurance liabilities - ( 123,011) - - - - ( 123,011) Operating expenses ( 4,618,556) ( 263,286) ( 224,206) ( 550,452) ( 217,707) 64,043 ( 5,810,164) Income (loss) before income tax from 2,647,385 98,495 922,451 ( 10,559) 8,256,564 ( 7,928,887) 3,985,449 continuing operations Income tax expense ( 1,492,853) ( 16,744) ( 127,975) ( 9,294) ( 552,916) - ( 2,199,782) Net income (loss) $ 1,154,532 $ 81,751 $ 794,476 ($ 19,853) $ 7,703,648 ($ 7,928,887) $ 1,785,667
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For the six-month period ended June 30, 2017 Insurance Adjustment Bank Department Department Bills Department Securities Department Other Departments and write-off Total Interest income, net $ 16,735,244 $ 33,064 $ 559,459 $ 338,302 ($ 43,735) $ - $ 17,622,334 Revenues other than interest income, net 8,072,570 683,215 1,449,591 963,793 15,412,679 ( 14,782,068) 11,799,780 Net revenue 24,807,814 716,279 2,009,050 1,302,095 15,368,944 ( 14,782,068) 29,422,114 (Provision for) revesal of bad debts expense and ( 989,370) 2 ( 7,019) - 14,932 - ( 981,455) guarantee Net change in provisions for insurance liabilities - 27,789 - - - - 27,789 Operating expenses ( 10,084,026) ( 518,751) ( 369,833) ( 1,102,336) ( 420,289) 124,221 ( 12,371,014) Income (loss) before income tax from 13,734,418 225,319 1,632,198 199,759 14,963,587 ( 14,657,847) 16,097,434 continuing operations Income tax expense ( 1,254,054) ( 51,501) ( 259,596) ( 23,175) 8,049 - ( 1,580,277) Net income (loss) $ 12,480,364 $ 173,818 $ 1,372,602 $ 176,584 $ 14,971,636 ($ 14,657,847) $ 14,517,157 For the six-month period ended June 30, 2016 Insurance Adjustment Bank Department Department Bills Department Securities Department Other Departments and write-off Total Interest income, net $ 17,701,597 $ 42,806 $ 582,463 $ 395,806 $ 5,428 $ - $ 18,728,100 Revenues other than interest income, net 2,885,554 774,080 1,630,795 816,233 16,666,187 ( 15,818,751) 6,954,098 Net revenue 20,587,151 816,886 2,213,258 1,212,039 16,671,615 ( 15,818,751) 25,682,198 (Provision for) revesal of bad debts expense and ( 1,020,527) 9,358 43,438 - - - ( 967,731) guarantee Net change in provisions for insurance liabilities - ( 220,473) - - - - ( 220,473) Operating expenses ( 9,402,888) ( 496,457) ( 390,074) ( 1,109,668) ( 433,848) 146,314 ( 11,686,621) Income (loss) before income tax from 10,163,736 109,314 1,866,622 102,371 16,237,767 ( 15,672,437) 12,807,373 continuing operations Income tax expense ( 2,482,916) ( 24,744) ( 278,238) ( 42,279) ( 547,423) - ( 3,375,600) Net income (loss) $ 7,680,820 $ 84,570 $ 1,588,384 $ 60,092 $ 15,690,344 ($ 15,672,437) $ 9,431,773
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For the six-month period ended June 30, 2017 Adjustment Bank Department Insurance Department Bills Department Securities Department Other Departments and write-off Total Segments assets $ 3,030,924,929 $ 17,017,883 $ 251,020,428 $ 53,986,088 $ 344,688,998 ($ 330,400,190) $ 3,367,238,136 Segments liabilities $ 2,773,661,886 $ 10,788,489 $ 216,803,494 $ 39,444,351 $ 51,400,746 ($ 13,574,928) $ 3,078,524,038 For the six-month period ended June 30, 2016 Adjustment and Bank Department Insurance Department Bills Department Securities Department Other Departments write-off Total Segments assets $ 2,993,824,429 $ 17,365,401 $ 255,553,164 $ 58,004,582 $ 349,691,975 ($ 330,991,524) $ 3,343,448,027 Segments liabilities $ 2,745,760,254 $ 11,320,120 $ 220,430,674 $ 43,643,788 $ 56,069,007 ($ 17,129,509) $ 3,060,094,334
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