20200521133300210687199 En.Pdf

CTBC Financial Holding Co., Ltd. Moody's Investors Service Hong Kong Limited Address: 27 & 29F., No. 168, Jingmao 2nd Rd., Nangang Address: 24/F, One Paciﬁc Place, 88 Queensway, Admiralty, Dist., Taipei City 115, Taiwan (R.O.C.) Hong Kong Tel: +886-2-3327-7777 Tel: +852-3758-1300 Website: http://www.ctbcholding.com Website: http://www.moodys.com

Spokesman CTBC Bank Co., Ltd. Name: Daniel Wu* / Ya-Ling Chiu (Acting Spokesman) Address: No. 166, 168, 170, 186, 188, Jingmao 2nd Rd., Position: President / Executive Vice President Nangang Dist., Taipei City 115, Taiwan (R.O.C.) Tel: +886-2-3327-7777 Tel: +886-2-3327-7777 Email: [email protected] / Website: http://www.ctbcbank.com [email protected] *Mr. Wu's role as Spokesman is being ﬁlled by Acting Taiwan Life Insurance Co., Ltd. Spokesman Ya-Ling Chiu between Dec. 7, 2017 and June 6, Address: 8F., No. 188, Jingmao 2nd Rd., Nangang Dist., 2018. Taipei City 115, Taiwan (R.O.C.) Tel: +886-2-8170-9888 Acting Spokesman Website: http://www.taiwanlife.com Name: Ya-Ling Chiu Position: Executive Vice President CTBC Securities Co., Ltd. Tel: +886-2-3327-7777 Address: 3F., No. 168, Jingmao 2nd Rd., Nangang Dist., Email: [email protected] Taipei City 115, Taiwan (R.O.C.) Tel: +886-2-6639-2000 Acting Spokesman Website: http://www.ctbcsec.com Name: Roger Kao Position: Senior Executive Vice President CTBC Venture Capital Co., Ltd. Tel: +886-2-3327-7777 Address: 21F., No. 168, Jingmao 2nd Rd., Nangang Dist., Email: [email protected] Taipei City 115, Taiwan (R.O.C.) Tel: +886-2-3327-7777 Stock Transfer Agency Website: http://www.ctbcholding.com/investment.html Agency: Corporate Trust Operation and Service Department, CTBC Bank Co., Ltd. CTBC Asset Management Co., Ltd. Address: 5F., No. 83, Sec. 1, Chongqing S. Rd., Address: 19F., No. 168, Jingmao 2nd Rd., Nangang Dist., Zhongzheng Dist., Taipei City 100, Taiwan (R.O.C.) Taipei City 115, Taiwan (R.O.C.) Tel: +886-2-6636-5566 Tel: +886-2-3327-7777 Website: http://www.ctbcbank.com Website: http://www.ctbcholding.com/manage.html

Certified Public Accountants CTBC Investments Co., Ltd. Jeff Chen, Lin Wu Address: 12F., No. 188, Jingmao 2nd Rd., Nangang Dist., Business Office: KPMG Certified Public Accountants Taipei City 115, Taiwan (R.O.C.) Address: 68F., No. 7, Sec. 5, Xinyi Rd., Xinyi Dist., Tel: +866-2-2652-6688 Taipei City 110, Taiwan (R.O.C.) Website: http://www.ctbcinvestments.com Tel: +886-2-8101-6666 Website: http://www.kpmg.com.tw CTBC Security Co., Ltd. Address: 5F., No. 188, Jingmao 2nd Rd., Nangang Dist., Credit Rating Institutions Taipei City 115, Taiwan (R.O.C.) Taiwan Ratings Corp. Tel: +886-2-2653-0355 Website: http://www.ctbcholding.com/safe.html Address: 49F., No. 7, Sec. 5, Xinyi Rd., Xinyi Dist., Taipei City 110, Taiwan (R.O.C.) Taiwan Lottery Corporation Tel: +886-2-8722-5800 Address: 15F., No. 188, Jingmao 2nd Rd., Nangang Dist., Website: http://www.taiwanratings.com.tw Taipei City 115, Taiwan (R.O.C.) S&P Global Ratings Tel: +886-2-8170-5228 Website: http://www.taiwanlottery.com.tw Address: Unit 1, Level 69., International Commerce Centre, 1 Austin Road West Kowloon, Hong Kong Tel: +852-2532-8003 Website: http://www.standardandpoors.com

Fitch Australia Pty Ltd., Taiwan Branch Address: Suite 1306, 13F., No. 205, Tun Hwa N. Rd., Taipei City 105, Taiwan (R.O.C.) Tel: +886-2-8175-7600 Website: https://www.ﬁtchratings.com/site/taiwan CONTENTS

I. Letter to Shareholders 2

II. Company Proﬁle 8

III. Corporate Governance Report 18 1. Organization 18

2. Directors, Supervisors and Management Team 20

3. Corporate Governance Implementation 28

4. Others 33

5. CPA Information 49

IV. Capital Overview 51 1. Capital and Shares 51

2. Bonds, Preferred Shares, Global Depository Receipts, Employee Stock Options, and New

Restricted Employee Shares 57

3. Capital Utilization Plan Implementation 63

V. Operational Highlights 64 1. Business Activities 64

2. Human Resources 68

3. Social Responsibility 71

VI. Financial Information 76 1. Audit Committee Report 76

2. Independent Auditor Report 77

3. Consolidated Balance Sheets 80

4. Consolidated Statements of Comprehensive Income 82

5. Consolidated Statements of Changes in Stockholders' Equity 84

6. Consolidated Statements of Cash Flows 86

VII. Review and Analysis of Financial Conditions, Financial Performance, and Risk Management 89

VIII. Special Disclosure 92

1 I. Letter to Shareholders

Dear shareholders: 2017 was a turbulent year punctuated by a rising tide of protectionism in the United States as well as that country's withdrawal from the Trans-Pacific Partnership, along with uncertainty resulting from key elections in major EU countries. However, the overall effect of these geopolitical developments on the global economy was less severe than feared, with its recovery continuing at a steady pace. This extended to Taiwan, where the economy has been gradually picking up in tandem with the global economy. However, although the world economy is emerging from the gloom, the challenges faced by financial holding companies remain. In a market characterized by excess liquidity, the industry has continued to engage in fierce price competition, making operations difficult for industry players. Despite this environment, CTBC Financial Holding Co., Ltd., with its solid customer base and dynamic group-wide synergies, has advanced steadily and outperformed its internal budget. For 2017, CTBC Holding generated after-tax profit totaling NT$37.2 billion— a near-record high. In fact, when excluding the one-off profit in 2014 with the purchase of The Tokyo Star Bank, last year's result is the highest in the Company's history. This achievement testifies to the effectiveness of the holding company's integration of resources in achieving synergy among the subsidiaries. Going forward, CTBC Holding will continue to expand our corporate borders, building up an international network to provide international financial services. At the same time, as we collaborate for mutual gains in line with our management principles, we will maximize the advantages of being a holding company. We will continue to uphold our "We are family" brand spirit, to strengthen our corporate governance and corporate social responsibility per our corporate mission to "Protect and Build," and to demonstrate our brand values of "Caring, Professional, and Trustworthy" as we aim to become a leading brand with the best governance, and the most trusted financial institution by customers and shareholders.

1. Business Plans and Results (1) Expanding Globally, Launching From Asia Pacific CTBC Holding is based in Taiwan as it actively targets expansion in overseas markets, achieving significant gains this fiscal year. Last September, Taiwan's Financial Supervisory Commission approved CTBC Bank Co., Ltd.'s request to open a branch in Shenzhen, China. Looking forward, the branch, which will deepen our reach into the Pearl River Delta Economic Zone and leverage the region's key industry chain, will be linked to our other branches in Taiwan, Hong Kong, and elsewhere overseas to build a full-range cross-border financial platform that offers a comprehensive array of financial products and services, including trade financing and international insurance and finance. Looking at the Southeast Asia market, we have been working in line with the Taiwan government's "New Southbound Policy" to identify strategic investments, share investments, as well as M&A that target specific customer bases, networks, and complementary services. Furthermore, in July last year, CTBC Bank successfully completed its bid for an equity investment in Thailand's LH Financial Group, obtaining a 35.6% stake as well as seats on the company's board. In the future, we will continue strengthening our network and expanding our financial service offerings across Southeast Asia. Meanwhile, Tokyo Star Bank has expanded its

2 3 Letter to Shareholders

business scope by investing in private equity funds. As of Dec. 31, 2017, it had invested in 12 private equity funds, including ones covering leasing, manufacturing, retail sales, and IT. The investment amount totaled 5.1 billion yen, with a strong investment return of 83%. (2) Reinforcing Corporate Governance, Accumulating Brand Value In response to the growing emphasis of government authorities on corporate governance, CTBC has set up a strong corporate governance mechanism. It is one to which we are making constant improvements, such as by increasing the personnel dedicated to ensuring sound corporate governance. In addition, the Company is the first financial institution in Taiwan to have independent directors fill more than half of the seats on its board. This ensures that when the Board reviews major proposals, it does so in a manner that is characterized by transparency, independence, and that prioritizes CTBC's customers, employees, and shareholders as well as the public. As part of our efforts to combat money laundering, CTBC has established a special unit tasked with preventing money laundering and terrorism financing, instilling the culture of anti-money-laundering along with combating terrorism financing, promoting anti-money-laundering education initiatives, implementing money- laundering preventative controls, and fighting terror operations. We have also bolstered the supervision of our overseas branches. These efforts are focused on burnishing the credibility of our group's brand and maximizing the benefits of its equity. (3) Integrating Group Resources, Creating Synergy CTBC Holding completed its acquisition of Taiwan Life on Jan. 1, 2016. By comprehensively integrating CTBC's resources and utilizing its existing channels, CTCB Holding steered the insurer to rapid growth. In 2017, Taiwan Life recorded annual profit of NT$10.2 billion, marking the first time in its 70-year history it has surpassed the 10-billion-dollar milestone and a clear demonstration of the Company's ability to deliver results. Looking ahead, CTBC Holding will continue improving its sales operation model. We will also deepen cooperation among our banking, life insurance, securities, and investment arms. By maximizing their synergy, we will be able to offer a full spectrum of comprehensive financial products and services while facilitating the continual growth of these subsidiaries. (4) Upgrading Digital Finance, Creating Value for the Customer CTBC Holding is committed to upgrading digital finance services, with a development team managed directly under the holding. All services are tested internally prior to launch to ensure flawless service procedures and complete consumer protection. The Company's innovative digital finance services and comprehensive protection of consumer rights have enabled our digital finance products to attain positive results. Recent offerings include finger vein authentication at ATMs, online travel insurance, the smart investment fund Smart GO, and LINE Pay, a credit card issued in partnership with a mobile payment operator. These are a reflection of CTBC's unsparing effort to develop the digital finance sector and to drive exceptional outcomes. (5) Enhancing Risk Control Technology, Achieving Stringent Asset Quality Control CTBC Holding is well known for sound risk management aligned with international standards. We have adopted Basel III to strengthen risk management, and we continually develop new risk management techniques

2 3 and systems to keep pace with expansion in the Company's business operations and territories, proactively enhancing the effectiveness of its risk management. By the end of 2017, our non-performing loans ratio had declined to 0.41% and our combined coverage ratio had risen to 306.85%, an indication of our rigorous approach to risk control and asset quality.

2. 2017 Business Plans, Strategies, and Results CTBC Holding has many subsidiaries that specialize in a broad variety of services, from banking, securities, life insurance, venture capital, and asset management to investment trusts, security services, and lottery draws. In addition, 99.86% of revenues and profits are recognized using the equity method and are mostly contributed from our banking and insurance subsidiaries, with the remaining 0.14% coming from other sources. In 2017, CTBC Holding recorded a consolidated after-tax profit of NT$37.2 billion and a consolidated after-tax profit of 12.77% on return to ordinary shareholders—ranking it among Taiwan's top financial holding companies. Moreover, CTBC Holding has received acclaim for its efforts in corporate governance, brand image, corporate social responsibility, personal banking, institutional banking, digital payment, and innovation, winning 176 major local and international awards in 2017—nine more than in the previous year. Among these accolades, CTBC Holding was ranked No. 1 in the domestic financial sector in the 2017 Best Taiwan Global Brands awards while CTBC Bank was Taiwan's highest-placed bank for the fifth consecutive year in Brand Finance's Global 500 index of the world's top banking brands. The scale and scope of such awards make us the pride of Taiwan's financial industry and are the best possible affirmation of CTBC Holding's outstanding operating results. We were also honored in 2017 by being selected for the Dow Jones Sustainability Indices' World Index for the first time, just one year after our maiden inclusion as a constituent stock on the Dow Jones Sustainability Indices' Emerging Markets Index. To have won this top global honor is recognition that our group has successfully integrated economic, environmental, and social concerns in its operating model and supporting sustainable development. Going forward, the Company will commit itself to maintaining customer trust. Through our work in corporate governance, sustainable development, human capital development, products and services, and social welfare, we will demonstrate the importance we place on fellow enterprises, the environment, our employees, our customers, and society at large. The Company will continue to maintain its sound corporate constitution, provide customers with thoughtful financial services, and fulfill its responsibilities to society and to the environment in order to forge an even better future.

Latest Credit Ratings and Effective Dates

Credit rating Rating type Rating agency Outlook Effective Date Long-term Short-term Fitch A- F2 Stable Sept. 20, 2017 International Moody's Baa1 Stable Dec. 9, 2016 S&P Global Ratings BBB A-2 Stable Oct. 23, 2017 Fitch AA(twn) F1+(twn) Stable Sept. 20, 2017 National Taiwan Ratings twAA- twA-1+ Stable Sept. 28, 2017

4 5 Letter to Shareholders

3. 2018 Business Overview CTBC Holding will continue our sustainable practices as we work to strengthen our financial structure and maintain the most appropriate capital allocation. Realizing these goals will further enable us to build long-term customer relations and a solid foundation for the future development of CTBC Holding. Below is a summary of our plans for 2018. (1) 2018 Operational Guidelines 1) Enhance our operational efficiency and spur organic growth. 2) Establish a solid foundation for digital financial services and accelerate CTBC's digital transformation. 3) Cultivate international talent and deepen our operations abroad. 4) Strengthen cooperation among subsidiaries so as to maximize group synergy. 5) Deepen focus on the Asian market, including by identifying new strategic partners. 6) Further improve corporate governance and strengthen the functions of our directors. 7) Ensure complete legal compliance as well as the prevention of money laundering. (2) Operational Goals 1) Become the most customer-centric, most trusted, and most efficient financial institution. 2) Actively integrate the group's business activities and system in order to improve our financial products and services. 3) Enhance collaboration among various subsidiaries to deliver greater group synergy. 4) Steer our banking business to greater profits domestically and further expansion abroad. 5) For our insurance business, promote high-yield products via multiple channels, maximize profits, and raise our recurring revenue rate in order to ensure a stable profitability base. 6) Develop our securities business by building a digital broker model that prioritizes smooth customer experience. 7) Work to transform our investment trust business into a private bank-grade investment management company. 8) Continue pushing forward with the digital transformation of our businesses, thereby developing an innovative digital business model. (3) Key Operational Policies 1) Practice corporate social responsibility and invest in public charitable activities. 2) Ensure information transparency while further refining our corporate governance mechanism. 3) Create long-term value by ensuring high asset quality and operational stability as well as through sustainable brand management. 4) Implement risk management and strengthen compliance management. 5) Actively recruit international talent, expand our overseas presence, and further internationalize our headquarters. 6) Increase customer satisfaction by more acutely listening to their needs and improving our financial services accordingly.

4 5 7) Develop digital ﬁnance infrastructure, maintain our momentum in innovation, and continue adopting new technologies.

4. Impacts from the Competitive Environment, Regulatory Environment, and Overall Business Environment Taiwan's financial sector is a crowded one, with an overly competitive market amid low domestic interest rates. As such, achieving desired profitability can be difficult. Meanwhile, the booming fintech industry is compounding the situation, making competition in the sector even fiercer. Taiwan has also seen increased attention paid by government authorities to money-laundering prevention, with related laws increasing operating costs. Despite this challenging environment, CTBC Holding will maintain its strategy of strengthening our home base, expanding regionally, and extending into other businesses as we integrate our subsidiaries' abundant resources and leverage synergies to provide diverse, innovative, and full-service financial products and services, maintaining our market-leading position. Regarding the cross-strait market, China's economic growth has increased the financing needs of Taiwanese enterprises. Boasting the advantages of a multinational financial platform as well as offering convenient financing channels and fund management services, CTBC Bank is the optimal backer to help such enterprises expand into the mainland market. Of course, the Bank exercises great care to control its China-related exposure and maintain high asset quality, while also continually introducing new channels, products, and services to the cross- strait market. In line with the government's "New Southbound Policy," CTBC will continue to expand overseas, replicating our domestic success and capturing new development opportunities. Indeed, as CTBC Holding perfects its overseas platform, we anticipate effectively capturing growth opportunities in the Asia-Pacific region, with the hope of helping subsidiary CTBC Bank develop its stature as a regional bank and assisting Taiwan Life Insurance and CTBC Securities in expanding their operational scales.

5. Future Corporate Development Strategy Reflecting on the changes witnessed in 2017, particularly the fluctuations in the global financial environment, further rise of digital finance and corporate social responsibility trends, and increasing regulations concerning money-laundering prevention, CTBC Holding will harness the continued concerted efforts of its professional staff to track international as well as cross-strait economic developments, exploit the opportunities posed by digital finance, enhance our corporate governance mechanism, and strive to comply with all relevant laws and regulations domestically and abroad. CTBC's future development strategies are as follows:

6 7 Letter to Shareholders

1) Leverage our brand strengths to expand our competitive edge. 2) Strengthen legal compliance and reinforce corporate governance, and instil the culture of anti-money- laundering along with combating terrorism financing. 3) Maintain strict capital controls to enhance utilization efficiency. 4) Continue steady growth of existing businesses while seeking new M&A opportunities. 5) Consolidate group resources, establish a foundation for digital financial services, and continue to advance the Company's digital transformation. 6) Strengthen the foundation of our life insurance business to create a powerful profit engine. 7) Deepen our expansion throughout Asia by taking advantage of cross-border platforms. CTBC Holding is committed to pursuing stable growth on the back of strong fundamentals. We will continue to prioritize the values of our customers, identify market trends, and offer market-leading financial services all while expanding our reach farther abroad. Acting with deep belief in our "We are family" brand spirit, we aim to become a leading brand with the best governance, and the most trusted financial institution by customers and shareholders.

Chairman

Wen-Long Yen

6 7 II. Company Profile

1. Date of Establishment: May 17, 2002

2. Company History: (1) CTBC Financial Holding Co., Ltd. CTBC Financial Holding Co., Ltd. was established on May 17, 2002, and is headquartered in Taipei, Taiwan. It has more than 27,000 employees worldwide and eight subsidiaries, namely CTBC Bank Co., Ltd.; Taiwan Life Insurance Co., Ltd.; CTBC Securities Co., Ltd.; CTBC Venture Capital Co., Ltd.; CTBC Asset Management Co., Ltd.; CTBC Investments Co., Ltd.; CTBC Security Co., Ltd.; and Taiwan Lottery Corporation. As part of its efforts to provide customers with more global and convenient financial services, CTBC Bank acquired The Tokyo Star Bank, Ltd. in 2014, marking the first purchase of a Japanese bank by a foreign-owned counterpart. In 2017, we completed our 35.6% equity purchase in Thailand's LH Financial Group, becoming the first Taiwanese investment bank to own such a stake in any Thai financial institution. To expand our scale in the insurance business, we acquired 100% of Taiwan Life in 2015, and proceeded to integrate its banking, life insurance, securities, and investment trust services to maximize synergies within CTBC Holding. To date, CTBC Holding's banking arm, CTBC Bank, has 150 branches within Taiwan and 110 overseas locations in the U.S., Canada, Japan, Indonesia, the Philippines, India, Thailand, Vietnam, Malaysia, Hong Kong, Singapore, mainland China, Myanmar, and Australia. This vast global presence constitutes the most extensive international network of any financial institution in Taiwan. Looking ahead, CTBC Holding will continue to uphold our "We are family" brand spirit and five core values of integrity, innovation, professionalism, teamwork, and caring, as well as our corporate mission to "Protect and Build" and brand values of caring, professional, and trustworthy. We will strive to continue strengthening our corporate governance, fulfill our corporate social responsibility, and create value for our customers, employees, and shareholders as well as for society as a whole. We aim to become a "Taiwan Champion, Asia Leader"- a global brand that boasts industry-leading governance and a financial institution trusted by customers and shareholders alike.

Domestic Awards ● Dragon and Phoenix Awards 2017 of Risk Management, Insurance & Finance Foundation First-rated holding company within undergraduates of Finance & Insurance ● PwC Taiwan & Cannes Lion CSR Impact Award ● Industrial Development Bureau under MOEA & Interbrand #4 in 2017 Best Taiwan Global Brands ● 2017 10th Taiwan Corporate Sustainability Awards TOP 50 Corporate Sustainability Report Awards - Gold Medal TOP 50 Sustainable Corporates People Developments Awards Social Inclusion Awards Creativity in Communication Awards

8 9 Company Proﬁle

● 2017 Art and Business Awards (AABA) Long - Term Sponsorship Award

International Awards ● Enterprise Asia Social Empowerment Category ● Dow Jones Sustainability Indices World Index Emerging Markets Index ● MSCI ESG Leaders Indexes ● FTSE4Good Emerging Index ● CDP Leadership A- rating ● British Standards Institution Sustainability Excellence Award ● The Asset Platinum Award for Excellence in Environmental, Social, and Corporate Governance Best Initiatives 2017 - Social Responsibility Best Initiatives 2017 - Environmental Responsibility

(2) CTBC Bank Established in 1966, CTBC Bank has been through three major stages of development. It started life as China Securities Investment Corp. and subsequently became China Investment and Trust Co., Ltd. In 1992, it was restructured into a commercial bank with business a scope covering deposits, loans, guarantees, foreign exchange services, an offshore banking unit, trusts, credit cards, securities, bonds, derivatives, e-banking, and the national lottery agent business. Since May 17, 2002, it has been a subsidiary of CTBC Holding. To maximize its operational scope, CTBC Bank merged with Grand Commercial Bank in December 2003, acquired Fengshan Credit Cooperative in July 2004, and successfully bid for Enterprise Bank of Hualien in May 2007. The following year, on April 26, CTBC Bank formally merged with Chinatrust Bills Finance Corp., sharply increasing the group's effectiveness. The transfer of 100% of Tokyo Star Bank Ltd.'s shares was completed in June 2014, making CTBC Bank the sole shareholder in the Japanese institution. In 2017, we completed our 35.6% equity purchase in Thailand's LH Financial Group, becoming the first Taiwanese investment bank to own such a stake in any Thai financial institution. CTBC Bank is proud to have offered many innovative services throughout its history, including being the first bank in Taiwan to issue credit cards, to set up a customer service center, and to provide foreign exchange machine in convenience store. With its commitment to excellence and innovation, CTBC Bank continues to lead Taiwan's financial industry. As of 2017, the Bank's consolidated asset size had reached NT$3.76 trillion, making it

8 9 the largest privately owned bank in Taiwan and giving it the largest brand value in Taiwan's banking industry for the ﬁfth consecutive year. To date, CTBC Bank has 150 branches within Taiwan and 110 overseas locations in the U.S., Canada, Japan, Indonesia, the Philippines, India, Thailand, Vietnam, Malaysia, Hong Kong, Singapore, mainland China, Myanmar, and Australia. This vast global presence constitutes the most extensive international network of any ﬁnancial institution in Taiwan. Looking ahead, CTBC Bank will continue to uphold its "We are family" brand spirit and five core values of integrity, innovation, professionalism, teamwork, and caring as well as the corporate mission to "Protect and Build" and its brand values of caring, professional, and trustworthy. It will strive to continue strengthening its corporate governance, fulfilling its corporate social responsibility, and creating value for its customers, employees, and shareholders as well as society as a whole. It aims to become "Taiwan Champion, Asia Leader"— a global brand that boasts industry-leading governance and a financial institution trusted by customers and shareholders alike.

Domestic Awards ● Reader's Digest Trusted Brand Awards: Gold Awards for Banking, Wealth Management, Internet Banking, and Credit Cards ● Wealth Magazine Wealth Management Survey 2017: Best Domestic Bank for Wealth Management, Best Client Recommendation, and Best Digital Banking ● Business Next Magazine Business Innovation Awards 2017: Best Innovation Management- Jury Award, Silver Award; Best Technology Innovation ● CommonWealth Magazine Service Survey 2017: Gold Award in Banking Finance Category ● Business Weekly Top 100 Taiwan Brands 2016: Excellence in Financial Category ● Bureau of Energy: Best Service in Financial Industry of Top Solar System Awards ● MANAGERtoday Brand Asia 2017: No. 1 in the Financial Industry ● Business Today Wealth Management Banking Awards 2017: Best Wealth Management, No. 1 in Best Digital Service, No. 1 in Best Perspective Bank, No. 2 in Best Product, No. 2 in Best Wealth Growth, and No. 3 in Best Marketing in Innovation ● Taiwan Insurance Institute, Taiwan Insurance Best Performance Awards 2017: Innovative Customer Service Gold Award, Innovative Education & Training Silver Award, and IT Application Excellence Silver Award ● Sports Administration, Sports Activist Awards Sponsorship Gold Class & Long-Term Sponsorship ● Sports Administration, iSports Certiﬁcate of Corporate Wellness ● Wealth Magazine Taiwan Financial Awards 2017: Gold Award for Digital Banking, Quality Award for Best Domestic Bank Image, and Best Fintech Banking ● Workforce Development Agency, Train Quali System: Silver Award ● Environmental Protection Administration, Enterprise Environmental Protection Awards: Silver Award ● Next Magazine Top Service Awards 2017: No. 2 in Banking Category ● Business Today Best Brand Awards 2017: No. 1 in Banking Category ● MAPECT Taiwan M&A Awards 2017: Deal of the Year Award

10 11 Company Proﬁle

International Awards ● Global Finance Best Foreign Exchange Bank in Taiwan Best Trade Finance Bank in Taiwan Best Sub-Custodian Bank in Taiwan Best Securities Services Provider in Taiwan Best Corporate/Institutional Digital Bank in Taiwan ● Brand Finance No. 161 of Top 500 Banking Brands ● Euromoney Best Private Banking Services Overall in Taiwan Best Net-worth-speciﬁc Services in Taiwan Best Asset Management in Taiwan Best Commercial Banking Capabilities in Taiwan Best Research and Asset Allocation Advice in Taiwan Best Philanthropic Advice in Taiwan Best Succession Planning Advice and Trusts in Taiwan Best Equity Finance in Taiwan ● Retail Banker International Excellence in Internet Banking – Overall Highly Commended: Innovation in Service Delivery - ATMs Highly Commended: Excellence in Loan Origination Highly Commended: Excellence in Customer Centricity Highly Commended: Best Tech Implementation - Front End Highly Commended: Best Tech Implementation - Back Ofﬁce ● The Asset Best Retail ATM Experience, Taiwan Most Innovative ATM Project, Taiwan Most Innovative Social Media Project, Taiwan Most Innovative Risk Management Project, Taiwan Best Service Provider - Trade Finance, Taiwan Best Service Provider - Risk Management, Taiwan Best Custodian Bank in Taiwan Best Derivatives House of the Year, Taiwan Best Flow Derivatives House, Taiwan Best Rates Derivatives, Taiwan Best FX Derivatives, Taiwan Best Commodities Derivatives, Taiwan Best Debt Adviser in Taiwan

10 11 Best Loan Adviser in Taiwan Best M&A/Best Acquisition Financing, Indonesia (for Star Energy consortium's acquisition of Chevron's geothermal and power business in Indonesia and the Philippines, for which CTBC Bank acted as arranger) Best Syndicated Loan, Vietnam (for Petro Vietnam Gas' US$210 million syndicated term loan facility, for which CTBC Bank acted as lead arranger) Best Share Financing, Vietnam (for Masan Nutri-Science Co.'s US$110 million senior loan facility, for which CTBC Bank acted as joint mandated lead arranger and bookrunner) ● IDC Financial Insights Asia/Paciﬁc's Leader in Big Data Strategy ● The Asian Banker Wealth Management of the Year Best Retail Bank in Taiwan Best Transaction Bank in Taiwan Best Cash Management Bank in Taiwan Best Trade Finance Bank in Taiwan Best FX Bank in Taiwan Best Corporate Trade Finance Deal in Taiwan Credit Risk Technology Implementation of the Year in Taiwan Sub-Custodian Bank of the Year in Taiwan No. 62 of Top 500 Banks 2017 ● Private Banker International Highly Commended: Best Private Bank in Taiwan ● Global Business Outlook Best Private Bank Taiwan 2017 ● International Finance Magazine Best Retail Bank in Taiwan ● Asiamoney Best Bank in Taiwan Best Bank for Corporate Social Responsibility Best Domestic Bank ● Timetric Best Data Analytics Program Best New Product, Service or Innovation Launch Highly Commended: Best Tech Implementation- Front End Highly Commended: Best Tech Implementation- Back Ofﬁce ● FinanceAsia Best Bank in Taiwan Best Private Bank in Taiwan

12 13 Company Proﬁle

● Asian Banking & Finance Taiwan Domestic Foreign Exchange Bank of the Year ● Enterprise Asia Green Leadership Category ● Asia Risk House of the Year ● IFR Asia Taiwan Loan House ● The Banker No. 155 of Top 1,000 World Banks 2017 ● World Branding Forum Brand of the Year – National Tier ● The European Magazine Banking CEO of the Year 2017 Best Bank for Corporate Governance 2017 ● eASIAAwards 2017 Data Driven Value Creation

Latest Credit Ratings and Effective Dates

Credit Rating Rating Type Rating Agency Outlook Effective Date Long-term Short-term Fitch A F1 Stable Sept. 20, 2017 International Moody's A2 Prime-1 Stable Dec. 9, 2016 S&P Global Ratings A A-1 Stable Oct. 23, 2017 Fitch AA+(twn) F1+(twn) Stable Sept. 20, 2017 National Taiwan Ratings twAA+ twA-1+ Stable Sept. 28, 2017

(3) Taiwan Life Early this decade, to expand the breadth and diversity of ﬁnancial services offered to our customers, CTBC Holding made entering the insurance business a priority. This was acted upon in November 2011 with the 100% acquisition of MetLife, Inc.'s local subsidiary. In January 2012, MetLife Taiwan was renamed CTBC Life, marking our point of entry into the insurance sector. CTBC Life acquired Manulife Taiwan on Jan. 1, 2014, making it stronger in terms of human resources, distribution coverage, and service scope, with a team of close to 1,000 dedicated employees. Bolstering its scale in the insurance business further, CTBC Holding's Board of Directors gave approval on May 12, 2015 for a stock exchange with Taiwan Life, which was completed on Oct. 15 that year. Subsequently, with CTBC Holding having acquired 100% of its shares, Taiwan Life ofﬁcially became a subsidiary. At the beginning of 2016, the integration of Taiwan Life's resources into CTBC Life was completed, successfully creating consolidated synergies and expanding our life insurance business.

12 13 Taiwan Life, the first life insurance company in Taiwan, was established in 1947 and privatized in 1998. Connecting deeply with the local community, Taiwan Life started off by offering a comprehensive range of insurance services and paid continual attention to market changes to develop flexible, creative commodity strategies that help improve company performance and provide a comprehensive protective network that ensures the health, wealth, and safety of the insured. Moreover, valuable commodities are promoted to maintain the company's stable long-term proﬁtability so that both the insured and the company can enjoy steady, tangible sources of protection. Going forward, Taiwan Life will uphold CTBC Holding's service belief that, as the "We are family" brand spirit suggests, customers should be treated like family. It will work hand in hand with CTBC members to offer more thoughtful ﬁnancial services and innovative products to every customer. In addition, it will support CTBC Holding in pursuing our mission to "Protect and Build" customer, employee, shareholder, and community value, to create a better future, and to become the No. 1 insurer of Chinese people worldwide.

Domestic Awards ● Risk Management, Insurance & Finance Foundation Awards 2018 Best Insurance Quality Most Famous Company Best Insurance Agents ● Taiwan Insurance Institute, Taiwan Insurance Best Performance Awards 2017 Best Public Service Project Award - Silver Award Best Product Innovation Project Award - Silver Award ● Risk Management, Insurance & Finance Foundation, Faith, Hope, and Love Awards 2017 Best Professional Advisor Award for Life Office Personnel Best Professional Advisor Award for Life Sales Force Best Product Creativity Award for Life Insurers- Honorable Mention Best Sense of Social Responsibility Award- Honorable Mention Distinguished Insurance Professionalism Award for Life Insurers- Honorable Mention Distinguished Award for Integrated Marketing Communications- Honorable Mention Best Life Representative Office Award- Honorable Mention Best Insurance Achievement Award- Honorable Mention Best Contribution to Society Award- Honorable Mention ● Sports Administration, Sports Activist Awards Sponsorship Award Category Gold Class ● Sports Administration Exercise Enterprise Certification ● National Brand Yushan Awards 2017 Enterprise with Outstanding Performance Best Product

14 15 Company Proﬁle

Business Leader with outstanding performance High-Invisible Brand ● Reader's Digest Trusted Brands 2017 Gold Medal Award in the Insurance Company Category ● Risk Management, Insurance & Finance Most Admired Insurance Company – 1st Place in the Back Ofﬁce Support Category Most Admired Insurance Company – 1st Place in the Field Representative Support Category

International Awards ● Brand Finance Insurance 2017: Included in Top 100 ● Asia Responsible Entrepreneurship Awards: Health Promotion Award ● Singapore Asia Banking & Finance, ABF Insurance Asia Awards 2017: CSR Initiative of the Year

Latest Credit Ratings and Effective Date

Credit rating Rating Type Rating Agency Outlook Effective Date Financial Capability International A- Fitch Stable Sept. 20, 2017 National AA(twn)

(4) CTBC Securities CTBC Securities was formerly known as Pou Chen Securities, which was founded in 1989. It was the largest professional brokerage in Kaohsiung, with an initial paid-in capital investment of NT$200 million. In 2000, its name was changed to Chinatrust Securities Corp. and its capital had increased to NT$3.5 billion. In 2002, it joined CTBC Holding and the following year was renamed CTBC Securities and had capital of NT$5 billion. In 2009, to increase its operational capital, BIS ratio, and EPS, CTBC Securities issued private equity, increasing its capital to NT$5.36 billion. In response to the government's so-called "Asian Cup" policy aimed at encouraging enterprises to expand, CTBC Securities widened its scope of business cooperation locally and abroad, increasing its capital to NT$6 billion in 2015. CTBC Securities assists with corporate financing in the capital market and is committed to further enhancing its securities and future business in order to provide customers with a more diversified spectrum of trading services. In addition to its head office, CTBC Securities has multiple branches across many cities in Taiwan, including Taipei, New Taipei, Taoyuan, Hsinchu, Taichung, Chiayi, Tainan, and Kaohsiung, to serve customers in the trading of securities listed on the Taiwan Stock Exchange, Taipei Exchange, and Taipei Exchange Emerging Stock Board. CTBC Securities has also assembled an offshore securities unit to bolster its global exposure and product variety. In the future, under CTBC Holding, CTBC Securities will roll out online ordering, app orders, telephone orders, and ordering compatible with iOS and Android smartphones to afford greater diversity in electronic trading services and to meet customers' one-stop shopping demands. With the rapid development of technology, growth of per capita income, and improvements in education, local investors are more accepting of

14 15 a variety of financial products and demand has increased accordingly. High-quality product planning and financial services have become critical factors for investors, and CTBC Securities has added diverse cross-border financial services after obtaining licenses from international financial companies, helping the company to further expand its operations.

Latest Credit Ratings and Effective Dates

Credit Rating Rating Type Rating Agency Outlook Effective Date Long-term Short-term International A- F2 Fitch Stable Spt. 20, 2017 National AA(twn) F1+(twn)

(5) CTBC Venture Capital Founded in March 2003, CTBC Venture Capital is CTBC Holding's first venture capital company. CTBC Venture Capital invests in businesses of sound potential in the information communication, biotech, health care, cultural and creative, and alternative energy ﬁelds as well as in traditional industries. Leveraging CTBC Holding's vast pool of ﬁnancial resources and services, CTBC Venture Capital's industry-leading management professionals are well positioned to help enterprises develop and to become entrepreneurs' most valued partners.

(6) CTBC Asset Management CTBC Asset Management (CTBC AMC) was founded in May 2003 mainly to take advantage of the large quantities of non-performing assets arising from Taiwan's domestic financial reform. A team of professionals was assembled to seek business opportunities and help companies improve their finances. CTBC AMC manages debt trading for financial institutions and for the lease investment industry. Since its establishment, CTBC AMC has steadily increased its investment in non-performing liabilities as well as actively assessed the real estate and chattels from court auctions and complied with financial holding policies to assist with the handling and activation of the CTBC Holding's idle assets. CTBC AMC intends to support the government's urban renewal policy, actively engage in the provision of advances for urban renewal projects, and help provide the owners and redevelopers of old buildings with the funds required for urban renewal projects. In light of the increasingly competitive environment, CTBC AMC is shifting its investment focus toward the leasing business. To this end, it founded an investment company in Hong Kong in April 2012 specifically to invest in mainland China. There, few barriers to establishing a financial leasing company exist and the business scope of such firms is broad. After establishment, a company can directly begin dealing in RMB and immediately begin increasing their presence. Future integration with financial holdings companies will enhance the effectiveness of asset disposal, maximize the synergy to enhance investment profits, and expand the scope of asset management business.

16 17 Company Proﬁle

(7)CTBC Investments To diversify its product range, CTBC Holding obtained a 98.6% stake in Truswell Securities Investment Trust Co., Ltd. in November 2012. In January 2013, its name was ofﬁcially changed to CTBC Investments. In June that year, it obtained the remaining 1.4% to become the sole shareholder. CTBC Investments' principal responsibilities span securities investment trusts, discretionary investment services, offshore fund agent services, and other government-sanctioned business.

Domestic Awards ● TFF–Bloomberg Best Fund Awards: 3-Year Outstanding Mid-to-Small Capital Fund (won by CTBC Taiwan small-cap fund) ● 2017 Thomson Reuters Lipper Fund Awards: Taiwan 3-Year Equity Taiwan Small and Mid-Caps Fund (won by CTBC Taiwan small-cap fund) ● TFF–Bloomberg Best Fund Awards: 3-year Outstanding Balance Fund (won by CTBC Stable Growth Fund)

(8) CTBC Security Founded in 1995, CTBC Security became a subsidiary of CTBC Holding in December 2005. CTBC Security is principally engaged in helping corporate entities protect their property and personnel. Chosen through a meticulous screening process, its highly trained workforce of 344 employees stands out as one of the ﬁnest in the industry. CTBC Security's business scope includes planning and design for ﬁre safety and disaster prevention, security systems consulting, security courier services, stationed guards, and personnel protection. Financial institutions constitute the majority of its clientele. CTBC Security is committed to a security-based, service-oriented business philosophy that ensures customer satisfaction.

(9) Taiwan Lottery Taiwan Lottery was officially registered on July 10, 2006 as a CTBC Holding subsidiary entrusted with the distribution, sale, marketing, management, and other operational duties of Taiwan's public welfare lottery, including handling the related prize money. CTBC Bank has now obtained the distribution rights for the fourth public welfare lottery, the duration of which spans Jan. 1, 2014, to Dec. 31, 2023. We sought the right to run the public welfare lottery largely because we believe in and support the good that the lottery provides, such as employment opportunities and care for disadvantaged groups. Moreover, operating the lottery successfully yields a larger public welfare surplus, which improves society as a whole. For CTBC Holding, operating the lottery is a means of giving back to the community. In addition to the annual surplus of NT$25 billion that is raised for government public welfare efforts, an additional NT$2.7 billion is allocated to various social welfare programs. Indeed, by successfully running the lottery, CTBC Holding is able to—in a very real way—uphold our philosophy of giving back to the community and fulﬁlling our corporate social responsibility.

16 17 III. Corporate Governance Report

1. Organization

As of April 27, 2018

Stockholders’ Meeting

Audit Committee Board of Directors Remuneration Committee General Auditor Ofﬁce of General Auditor Risk Management Committee Chairman Nomination Committee Ofﬁce of Chairman Ethics & Integrity Committee

Executive Committee

President

Credit Approval Committee Ofﬁce of President

Digital Finance Division

Corporate Planning Division

Investment Advisory Department

Investor Relations Department

Legal Department Cross-Border Officer, Strategy Japan Chief Technology Officer Chief Investment Officer Chief Risk Officer Chief Compliance Officer Chief Administration Officer

Financial General Risk Management Compliance Management Administration Department Department Department Department

Accounting F i n a n c i a l O f ﬁ c e r Ofﬁcer

18 19 Corporate Governance Report

Organization of Group

As of April 27, 2018

100% CTBC Financial Holding Co., Ltd. CTBC Bank Corp. (Canada)

99% PT CTBC Bank Indonesia

100% 99.6% CTBC Bank Co., Ltd. CTBC Bank (Philippines) Corp.

100% 100% CTBC Capital Corp. CTBC Bank Corp. 100% (USA) Taiwan Lottery Corporation

100% 100% 100% The Tokyo Star Bank, Ltd. TSB Servicer, Ltd. CTBC Security Co., Ltd.

100% Tokyo Star Business Finance, Ltd. 100% CTBC Investments Co., Ltd.

100% CTBC Asset Management 100% 100% CTBC Leasing CTBC International Co., Ltd. Co., Ltd. Co., Ltd.

CTBC Venture 100% 100% CTBC Capital International 100% Capital Investment CTBC Venture Capital Co., Ltd. Co., Ltd. Management (Shanghai) Co., Ltd.

100% 100% CTBC(Mauritius) Holding CTBC Asia Ltd. 99.9179% Co., Ltd. CTBC Securities Co., Ltd. 100% CTBC Securities Investment Service Co., Ltd.

100% TLG Insurance Co., Ltd. 100% Taiwan Life Insurance Co., Ltd. 100% TLG Capital Co., Ltd.

18 19 2. Directors, Supervisors and Management Team (1) Directors and Supervisors As of April 27, 2018

Shares Owned by the Shareholders, Owned Shares Presently Owned Ofﬁce Spouse and Date of upon Assignment Shares Title Name Term Children under Signiﬁcant Experience Education Assignment (Note) the Legal Ages Number Number Number % % % of Shares of Shares of Shares Chairman Wen-Long Yen, Dec.8, 2016 3 86,316,551 0.44% 86,316,551 0.44% 80,254,109 0.41% Director, CTBC Bank Department of Representative Co., Ltd. Economics, Soochow of Wei Fu Chairman, Kainan University Investment Vocational High School Co., Ltd. Chairman, Kainan University Director, Wei Kuo Construction Co., Ltd. Director, Wei Fu Investment Co., Ltd. Director Chao- Dec.8, 2016 3 44,572,626 0.23% 44,572,626 0.23% 276,787 0.00% Chairman, CTBC Bank Masters in Materials Chin Tung, Co., Ltd. Science, University Representative Director, The Tokyo Star of Rochester, New of Chung Yuan Bank, Ltd. York, USA Investment Director, CTBC Life Co., Ltd. Insurance Co., Ltd. Chairman, CTBC Venture Capital Co., Ltd. Chairman, CTBC Asset Management Corporation Chairman, CTBC Capital Corp. Chairman, CTBC Bank Corp. (USA) Director Thomas Dec.8, 2016 3 65,344,869 0.34% 65,344,869 0.34% 840,411 0.00% Director, CTBC Bank Bachelors, K. S. Chen, Co., Ltd. Department of Representative Chairman, CTBC Public Finance and of Yi Chuan Investments Trust Co., Taxation, National Investment Ltd. Chengchi University Co., Ltd. Chairman, CTBC Asset Management Corporation Director, Taipei Financial Center Corporation Chairman, CTBC Bank Corp. (USA) Chief Secretary, CTBC Financial Holding Co., Ltd.

20 21 Corporate Governance Report

Shares Owned by the Shareholders, Owned Shares Presently Owned Office Spouse and Date of upon Assignment Shares Title Name Term Children under Significant Experience Education Assignment (Note) the Legal Ages Number Number Number % % % of Shares of Shares of Shares Independent Chung-Yu Dec.8, 2016 3 ------Independent Director, Honorary Ph. D., Director Wang CTBC Bank Co., Ltd. Chung Yuan Christian Chairman, China Steel University Corporation Independent Director, Chunghwa Telecom Co., Ltd. Legislator, Taiwan Independent Peter Tuen-Ho Dec.8, 2016 3 ------Lawyer, Senior Ph. D., in Law from Director Yang consultants, Guoju Law The University of office California, Berkeley Supervisor, Shiquan Campus Science & Technology Co., Ltd. Director, Jinwen University of Science & Technology Chairman, Wenzao Ursuline University of Languages President, Fu Jen Catholic University Independent Wen-Chih Lee Dec.8, 2016 3 ------Independent Director, Ph. D., Accounting Director CTBC Bank Co., Ltd. Department, College Professor, Department of Management, of Wealth and Taxation National Taiwan Management, National University Kaohsiung University of Science and Technology Independent Director, Bank of Kaohsiung Director, Graduate Institute of Finance, Economics, and Business Decisions, National Kaohsiung University of Applied Sciences

20 21 Shares Owned by the Shareholders, Owned Shares Presently Owned Ofﬁce Spouse and Date of upon Assignment Shares Title Name Term Children under Signiﬁcant Experience Education Assignment (Note) the Legal Ages Number Number Number % % % of Shares of Shares of Shares Independent Shih-Chieh, Dec.8, 2016 3 133,844 0.00% 133,844 0.00% - - Independent Director, Ph. D., Dept. Director Chang Taiwan Life Insurance of Statistics in Co., Ltd. University of Independent Director, Wisconsin-Madison, TLG Non- Life Insurance USA. Co., Ltd. Professor, Dept. of Risk Management and Insurance, National Chengchi University Commissioner, Financial Supervisory Commission, Taiwan, R.O.C. Note1: Shareholding as of the book closure date of 04/17/2018 does not include the preferred shares. Note2: The 6th Board of Director period spans from Dec. 8, 2016 to Dec. 7, 2019

(2) Signiﬁcant Shareholders of Legal Entities As of April 27, 2018 Legal entity Major shareholders Wei Fu Investment Co., Ltd. Wen-Long Yen (37.61%) Chen Li-Chin Yen (29.25%) Chih-Kuang Yen (8.96%) Chih-Yu Yen (8.96%) Wei Kuo Construction Co., Ltd. (8.66%) Wen-Tse Yen (3.58%) Tai-Hsuan Hsia (1.49%) United Investment Management Co., Ltd. (1.19%) Shieh-Er Chang (0.30%) Yi Chuan Investment Co., Ltd. Yi Kao Investment Co., Ltd. (100%) Chung Yuan Investment Co., Ltd. Yi Chuan Investment Co., Ltd. (100%) Note: The main legal shareholders comprise all shareholders whose equity exceeds 10% or who are among the top 10 largest shareholders.

22 23 Corporate Governance Report

(3) Major Shareholders of the Major Shareholders That Are Juridical Persons As of April 27, 2018 Juridical person Major shareholders Chen Li-Chin Yen (67.57%) Wei Fu Investment Co., Ltd. (22.86%) Wei Kuo Construction Co., Ltd. Wen-Long Yen (9.43%) Wen-Tse Yen (0.14%) Wei Fu Investment Co., Ltd. (75.02%) Wei Kuo Construction Co., Ltd. (23.67%) Chiau-Chih Chen (0.99%) Wen-Tse Yen (0.14%) United Investment Management Co., Ltd. Wen-Long Yen (0.08%) Wen-Si Yen (0.07%) Chen Li-Chin Yen (0.01%) Chih-Kuang Yen (0.01%) Chih-Yu Yen (0.01%) Yi Kao Investment Co., Ltd. Bo Yu Investment Co., Ltd. (100％) Yi Chuan Investment Co., Ltd. Yi Kao Investment Co., Ltd. (100％)

22 23 (4) Professional Qualifications and Independence Analysis of Directors and Supervisors As of April 27, 2018 Criteria Meet One of the Following Professional Qualification Requirements, Together with at Independence Criteria(Note) Least Five Years Work Experience An Instructor A Judge, Public Have Work or Higher Prosecutor, Experience Position in a Attorney, in the Department Certified Public Areas of Number of of Commerce, Accountant, Commerce, Other Public Law, Finance, or Other Law, Companies Accounting, Professional Finance, or in Which the or Other or Technical Accounting, Individual is Academic Specialist Who or Concurrently Department has Passed Otherwise 1 2 3 4 5 6 7 8 9 10 Serving as an Related to a National Necessary Independent the Business Examination and for the Director Needs of the been Awarded Business Company in a Certificate of the a Public or in a Profession Company Private Junior Necessary for the College, Business of the College or Company Name University Wen-Long Yen V V V V V V V V V 0 Chao-Chin Tung V V V V V V V V V 0 Thomas K. S. Chen V V V V V V V V V 0 Chung-Yu Wang V V V V V V V V V V V 0 Peter Tuen-Ho Yang V V V V V V V V V V V V V 0 Wen-Chih Lee V V V V V V V V V V V V 0 Shih-Chieh Chang V V V V V V V V V V V V 1 Note: The corresponding boxes are ticked if directors or supervisors have been any of the following during the two years prior to being elected or during their current term of office. 1. Not an employee of the Company or any of its affiliates. 2. Not a director or supervisor of the Company or any of its affiliates (excluding cases where the person is an independent director of the Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares). 3. Not a natural-person shareholder who holds shares, together with those held by the person's spouse or minor children or those held by the person under others' names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in terms of holdings. 4. Not a spouse, relative within the second degree of kinship, or lineal relative within the fifth degree of kinship of any of the persons in the preceding three subparagraphs. 5. Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds shares ranking in the top five in terms of holdings. 6. Not a director, supervisor, officer, or shareholder holding 5% or more of shares in a specified company or institution that has a financial or business relationship with the Company. 7. Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, or accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof. 8. Not having a marital relationship with or being a relative within the second degree of kinship of any other director of the Company. 9. Does not meet any conditions defined in Article 30 of the Company Law. 10. Not a governmental, juridical person, or its representative as defined in Article 27 of the Company Law.

24 25 Corporate Governance Report

(5) Management Team Concurrently Name Position Education Experience Serving Position Daniel I.K. Wu President MBA, University of Director, CTBC Financial Holding Co., Ltd. None (Note 1) Rochester, USA CEO, Investment Business of CTBC Financial Holding Co., Ltd. CEO, Insurance Business of CTBC Financial Holding Co., Ltd. Senior Executive Vice President, CTBC Bank Co., Ltd. Director, CTBC Capital Corp. Director, GCB Finance (HK) Ltd. Chairman, CTBC Securities Co., Ltd. Director, CTBC Asset Management Co., Ltd. Director, CTBC Venture Capital Co., Ltd. Director, CTBC Asia Ltd. Jack T.K. Cheng Acting President Bachelor Deputy Chief Risk Officer, CTBC Financial Holding Co., Ltd. Director, CTBC Bank (Note 1) Chief Risk Officer of Business Executive Vice President, CTBC Bank Co., Ltd. (USA) Administration, Director, CTBC Venture Capital Co., Ltd. Director, CTBC Capital National Taiwan Director, CTBC Asset Management Co., Ltd. Corp. University Director, CTBC Securities Co., Ltd. Director, The Tokyo Star Director, Chung Shin-1 Asset Management Co., Ltd. Bank, Ltd. Director, Tuo Yu Asset Management Servicing Co., Ltd. Director, CT Opportunity Investment Co. Roger Kao Chief Administration Officer MS in Broadcast General Secretary of CTBC Financial Holding Co., Ltd. Senior Executive Vice Journalism, Boston Director, CTBC Bank Co., Ltd. President of CTBC Bank University, USA Executive Vice President of CTBC Bank Co., Ltd. Co., Ltd. Chairman, CTBC Insurance Brokers Co., Ltd. Acting Spokesman, CTBC Bank Co., Ltd. Director, CTBC Security Co., Ltd Director, Taiwan Lottery Co., Ltd. Director, CTBC Asset Management Co., Ltd. Aaron King Chief Compliance Officer Master of Law, Senior Executive Vice President, CTBC Bank Co., Ltd. None (Note 2) Head of Compliance Georgetown Partner, Lotus International Law Offices, Taipei Department University, USA Vice President (Legal), Hannspree, Inc. Vice President ( Legal), Taiwan Fixed Network Co., Ltd. (Taiwan Telecom Group), Taipei General Counsel, TECO Electric & Machinery Co., Ltd., Taipei Partner of Taiwan Commercial Law Offices, Taipei Prosecutor, Shilin District Prosecutors Office Winston Hsia Chief Investment Officer MBA, Wharton Executive Vice President, CTBC Bank Co., Ltd. Director, TransWorld School, University CEO, ShopNet Co., Ltd. Production Co. of Pennsylvania, President, CTBC Asset Management Co., Ltd. Director, CNEX Studio USA President, CTBC Venture Capital Co., Ltd. Corp. Director, GCB Finance (HK) Ltd. Director, Mandarin Vision Inc. Director, ABICO Asia Capital Corp.

24 25 Concurrently Name Position Education Experience Serving Position Chung Mao Cross-Border Strategy Officer, Bachelor of Executive Vice President, CTBC Bank Co., Ltd. Director, AZ-Star Co., Hsiao Japan Economics, Keio Senior Vice President, RZB Austria, Beijing Branch Ltd. University, Japan President, Bank Boston Securities Co., Ltd. Japan Senior Vice President, Peregrine Fixed Income Ltd., Hong Kong Senior Vice President, Lehman Brothers Hong Kong Titan Chia Chief Technoloay Officer IMBA, National Taiwan Country Leader, Global Business Serice, IBM None Chengchi University Albert Hu General Auditor MBA, George Executive Vice President, CTBC Bank Co., Ltd. None Washington Vice President, AIG Credit Card Co. (Taiwan), Ltd. University, USA Vice President, Standard Chartered Bank, Taipei Manager, Citibank Taiwan Assistant Manager, Societe Generale, Taipei Assistant Manager, Citibank Taiwan Chang Hsing General Secretary Bachelor Executive Vice President, Taiwan Life Insurance Co., Ltd. Director, CTBC Venture Cho of Business Capital Co., Ltd. Administration, Director, King Dragon Chinese Culture Life Insurance Co., Ltd. University Yaling Chiu Financial Officer MBA, Minnesota- Senior Vice President, CTBC Bank Co., Ltd. Executive Vice President, Head of Financial Management Twin Cities Assistant Vice President, Citibank Taiwan CTBC Bank Co., Ltd. Department University, USA Vice President, ABN AMRO Acting Spokeswoman, CTBC Bank Co., Ltd. Supervisor, Taiwan Lottery Co., Ltd. Supervisor, CTBC Asset Management Co., Ltd. Supervisor, CTBC Leasing Co., Ltd. Sting Yang Accounting Officer Bachelor of Vice President, CTBC Financial Holding Co., Ltd. Senior Vice President, Accounting, Fu Jen Vice President, CTBC Bank Co., Ltd. CTBC Bank Co., Ltd. Catholic University Supervisor, CTBC Investment Co., Ltd. Supervisor, CTBC Venture Capital Co., Ltd. Supervisor, Taiwan Lottery Co., Ltd. Supervisor, CTBC Venture Capital Investment Management (Shanghai) Co., Ltd. Supervisor, CTBC Security Co., Ltd Derek Lo Head of General Administration MBA, Madonna Senior Vice President, CTBC Bank Co., Ltd. Executive Vice President, Department University, USA Assistant Manager, Citibank Taiwan CTBC Bank Co., Ltd.

26 27 Corporate Governance Report

Concurrently Name Position Education Experience Serving Position Sean Tang Head of Legal Department Master of Laws, Counselor and Associate Partner, Senior Vice President, National Chengchi Lee and Li, Attorneys-at-Law CTBC Bank Co., Ltd. University Staff Member, Ministry of Justice Prosecutor, Shilin District Prosecutors Office Sophie You Head of Risk Management MBA, National Manager, CTBC Bank Co., Ltd. None Department Taiwan University Monica Chu Head of Corporate Planning MBA, National Vice President, CTBC Financial Holding Co., Ltd. None Division Taipei University Manager, CTBC Bank Co., Ltd. Head of Strategic Planning Department Wenchieh Wu Head of Business Management MBA, National Sun Manager, CTBC Bank Co., Ltd. None Department Yat-sen University Justine Shen Head of Investor Relations Master of Vice President, CTBC Financial Holding Co., Ltd. None Department Commerce, Vice President, CTBC Bank Co., Ltd. University of New South Wales, AUS Alan Liao Head of Investment Advisory Master of Political Senior Vice President, CTBC Bank Co., Ltd. None Department Economy, National Cheng kung University May Su Head of Digital Banking MBA, Imperial Senior Vice President, CTBC Bank Co., Ltd. None Division College London, UK Erick Hsieh Head of Digital Banking Certificate Senior Vice President, Citibank Taiwan None Innovation Department I in Business Consultant, Oracle Corp. Administration, Warwick Business School, University of Warwick, UK Benny Kuo Head of Digital Banking Master of Vice President, CTBC Bank Co., Ltd. None Innovation Department II Technology Management, University of New South Wales, AUS Ellen Wu Head of Digital Banking MBA, National Vice President, CTBC Bank Co., Ltd. None Management Department Taipei University Juihsiang Lee Acting Head of Corporate Bachelor of Law, Manager, CTBC Bank Co., Ltd. None Governance Office National Taiwan University Sean Chan Acting Head of Secretariat to European Master of Vice President, CTBC Bank Co., Ltd. None the Board of Directors Law and Economics, Senior Associate, Lotus International Law Office University of Manchester, UK Note1: The duties of President are performed by Chief Risk Officer during the period from 7, Dec. 2017 to 6, June 2018. Note2: The duties of Chief Compliance Officer are performed by Executive Officer of Office of the President, Mr. Alex Lu during the period from 7, Dec. 2017 to 6, March 2018.

26 27 3. Corporate Governance Implementation (1) Corporate Governance Implementation Status and Deviations From Corporate Governance Best-Practice Principles for Financial Holding Companies, and Reasons for Any Deviations Deviation and reasons Operations for deviation from Corporate Governance Evaluation item Best Practice Principles Yes No Summary for Financial Holding Companies 1. Shareholding structure and shareholders' equity within the financial holding company (1) Has the financial holding company V (1) The Company values the opinions of its shareholders. It has set up (1) No deviation implemented a set of internal a "Contact IR" section under the Investor Service category on the procedures to process shareholders\ Investor Relations page of the Company's website to disclose contact suggestions, queries, disputes, and details so shareholders can call or email suggestions or problems litigations? they have to the Company, and the Company shall designate a specific managerial department to process shareholders' suggestions and problems. (2) Does the Company have a list of major V (2) The Company holds lists of major shareholders in accordance with (2) No deviation shareholders that have actual control the shareholder list obtained after the date on which share transfer over the Company and a list of ultimate is suspended and with the information on equity changes of insiders owners of those major shareholders? and major shareholders, which is submitted to the Company per regulations. The Company publishes this information in its annual report and on its website. (3) Has the financial holding company V (3) The Company engages in credit transactions and non-credit-related (3) No deviation established and implemented risk transactions with affiliated companies in accordance with the Financial management and firewalls in affiliated Holding Company Act, the Banking Act, and related regulations. companies? 2. Constitution and obligations of the Board of Directors (1) Excluding the Remuneration Committee V (1) In addition to assembling the Remuneration Committee and the Audit (1) No deviation and the Audit Committee, has the Committee as required by law, the Company has also established a financial holding company assembled Risk Management Committee, Nomination Committee and Ethics & other functional committees at its own Integrity Committee. discretion? 1. Audit Committee: Composed of independent directors who assist the Board of Directors in executing supervisory duties. Auditing matters include: (1) fair presentation of financial reports; (2) evaluation of hiring or dismissal of attesting CPAs, or the compensation given thereto and the related independence and performance; (3) effective implementation of the internal control system; (4) adequacy of internal legal compliance procedures and planning; (5) management of existing or latent risks; and (6) examination of mergers and acquisitions. 2. Remuneration Committee: Committee members are appointed by the Board of Directors, and there should be no fewer than three members, with at least one being an independent director, and an independent director will act as the convener. The Committee assists the Board in (1) formulating and regularly reviewing the performance assessments and remuneration policy, system, standards, and structures for directors, senior executives, and managers; and (2) regularly assessing and establishing the remuneration of directors, senior executives, and managers.

28 29 Corporate Governance Report

Deviation and reasons Operations for deviation from Corporate Governance Evaluation item Best Practice Principles Yes No Summary for Financial Holding Companies 3. Risk Management Committee: Committee members are appointed by the Board of Directors, and there should be no fewer than three members, with at least one being an independent director. The Committee was established for the purpose of helping the Board of Directors communicate, report, and offer suggestions to support the risk management practices of decision makers. Thus, the decisions made and leaders' supporting actions could exert a widespread influence on the organization and all its employees. 4. Nomination Committee: Committee members should comprise at least three directors appointed by the Board of Directors, and more than half of the committee members should be independent directors. The Committee helps the Board (1) define the background required of directors and supervisors (e.g., profession, technical skills, experience, and gender) and independence criteria for seeking, assessing, and nominating director and supervisor candidates for the Company and its subsidiaries; (2) construct, develop, and review the organizational structure for the Board and committees of the Company and its subsidiaries; (3) devise and inspect continuing education plans for directors; (4) formulate corporate governance practice for the Company; and (5) establish matters that should be handled by the committees as instructed by the Board. 5. Ethics & Integrity Committee: Committee members are appointed by the Board of Directors, and there should be no fewer than three members, with at least one member must be an independent director. The Committee is responsible for formulating and monitoring integrity management policies and preventative plans, and regularly reports the status to the Board of Directors for assisting the Board of Directors and senior management in ensuring the effective operation of preventative measures established to execute business integrity in accordance with Procedures for Handling Illegal and Unethical or Dishonest Behavior. The Committee periodically conducts verification of reports submitted in the Company and its subsidiaries regarding relevant cases and their handling, ensuring the effectiveness of the offense-reporting system. The Committee also periodically conducts verification of cases of unethical behavior submitted from the internal awards and penalty committee regarding employees of the Company and its subsidiaries.

28 29 Deviation and reasons Operations for deviation from Corporate Governance Evaluation item Best Practice Principles Yes No Summary for Financial Holding Companies (2) Does the financial holding company V (2) The Company verifies the independence of its certified public (2) No deviation conduct regular assessments on the accountants every year. The results of the assessment for 2018 were independence of its financial statement reported to the Audit Committee on March 20, 2018 and were auditors? approved by the Board of Directors on March 21, 2018. An assessment of CPAs Lin Wu and Jeff Chen, of KPMG, determined that there should be no violation of the standards of independence (see Note) and that they can therefore provide services to the Company. In addition, statements to that effect were obtained from the accountants. Note: Summary of auditor independence assessment Fulfills Meets Criteria independence criteria requirements 1. The accountant has no direct or Ye s v significant indirect financial relationship with the Company. 2 . The accountant does not have a Ye s v lender or guarantor relationship with the Company or any member of its Board of Directors. 3. The accountant does not have a close Ye s v business relationship or potential employment relationship with the Company. 4. Within the past two years, neither the Ye s v accountant nor any member of the accountant's auditing team has served as a Company director, manager, or other staff member who could significantly affect the Company audit. 5. The accountant does not provide Ye s v any non-auditing services that could impact the auditing service provided to the Company. 6. The accountant has not previously Ye s v brokered Company shares or other securities offered. 7. The accountant has never served as Ye s v an defender or mediator on behalf of the Company in disputes with a third party. 8. The accountant has no kinship with Ye s v Company directors, managers, or other staff member who could significantly affect the Company audit. 9. A statement of independence from Ye s v the CPA has been obtained. 10. The accountant is not a stakeholder Ye s v of the Company.

30 31 Corporate Governance Report

Deviation and reasons Operations for deviation from Corporate Governance Evaluation item Best Practice Principles Yes No Summary for Financial Holding Companies 3. If the financial holding company is a TWSE/ V The Company has established the role of Corporate Governance No deviation TPEx-listed company, has it set up a full- Officer under the Chairman's Office, tasking it with supervising matters or part-time corporate governance unit related to corporate governance. The Secretary Department of the or member of personnel to be in charge Board of Directors has been appointed to handle administrative matters, of corporate governance affairs (including including those relating to board meetings and shareholders meetings as but not limited to furnishing information well as producing meeting minutes and furnishing information required required for business execution by for business execution by directors. Another staff member is tasked directors and supervisors, handling with corporate registration, matters related to changes in registration, matters relating to board meetings and safeguarding related documents and seals, and monitoring information shareholders meetings according to disclosure operations. On Feb. 1, 2018, the Company established laws, handling corporate registration a dedicated corporate governance department, which handles the and amendment registration, and policies and protocols required to strengthen corporate governance. producing minutes of board meetings and It is also responsible for coordinating with the related units to develop shareholders meetings)? sophisticated corporate governance programs. 4. Has the financial holding company V (1) The Company has set up a designated unit to confirm data accuracy No deviation established a communication channel with its stakeholders on a yearly basis using paper documents. for its stakeholders (including but not (2) The Company has set up a "Contact IR" section under the Investor limited to shareholders, employees, and Service category on the Investor Relations page of its website customers)? to disclose contact details, including of its spokesperson, acting spokesperson, audit committee convener, and institutional investor relations and shareholder service personnel, and to handles issues of interest to stakeholders. (3) The Company has established a stakeholders page to ensure uninterrupted communication with employees, investors, customers, and suppliers. 5. Disclosure of information (1) Has the financial holding company V (1) The Company has set up a company website to disclose financial, (1) No deviation established a website that discloses business, corporate governance, and other information. financial, business, and corporate governance-related information? (2) Does the financial holding company V (2) The Company's website is mainly in Chinese, but an English version (2) No deviation have other information disclosure is also available for foreign investors. Related units are in charge of channels (e.g., maintaining an English- website information collection and disclosure. The Company has language website, appointing responsible designated a spokesperson and an acting spokesperson. In addition, people to handle information collection slideshow presentations and audio recordings used in investor and disclosure, creating a spokesperson conference are uploaded to the Company's website on the Events system, and webcasting investor Calendar page under the Events & Filings section of the Investor conference on the company website)? Relations site.

30 31 Deviation and reasons Operations for deviation from Corporate Governance Evaluation item Best Practice Principles Yes No Summary for Financial Holding Companies 6. Does the ﬁnancial holding company have V For details, please refer to "4. Others" below. No deviation other crucial information that facilitates understanding the operation status of its corporate governance (including but not limited to situations regarding employee rights and interests, employee care, investor relations, the rights and interests of stakeholders, the continuing education of directors and supervisors, the implementation status of risk management policies and risk measuring standards, the implementation status of customer policies, the situation concerning the purchase of accountability insurance for directors and supervisors, and donations made to public interest groups)? 7. Please describe improvements that have been made based on the latest corporate governance evaluation results issued by the Corporate Governance Center of the Taiwan Stock Exchange. If improvements have not been made, please propose priorities for change and relevant measures. The Company was rated in the top 21%–35% in the 2017 Third Corporate Governance Evaluation. Immediately thereafter, the Company took the following steps for improvement based on results of the evaluation: 1. Requested the Company's Board of Directors and major shareholders to reduce pledged shares. 2. Disclosed the Company's evaluation procedures for CPAs. 3. Disclosed the communications among the independent Directors, Chief Audit Executive, and CPAs. 4. Reviewed and amended internal guidelines. In 2017, the Company revised guidelines including the Corporate Governance Best Practice Principles, the Code of Ethical Conduct, and the Corporate Social Responsibility Best Practice Principles, requiring the implementation of relevant procedures to strengthen corporate governance.

32 33 Corporate Governance Report

4. Others (1) Deviations from Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies and Reasons for Deviation Operations Deviations from Corporate Governance Best Evaluation item Practice Yes No Summary Principles for TWSE/ TPEx Listed Companies and reasons 1. Has the Company V In December 2017, the Company revised the CTBC Financial Holding Corporate Governance No deviation established and disclosed Best Practice Principles in order to strengthen corporate governance. The updated principles were its corporate governance disclosed on the Company's website and the Market Observation Post System. principles in accordance with the Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies? 2. Does the Company have V The Company has formulated internal regulations for the prevention of insider trading as well No deviation internal regulations in place as the Code of Ethical Conduct, Procedure for Ethical Management and Guidelines for Conduct, to prevent its people from and Employee Code of Conduct in order to guide the conduct of its directors, managers, and trading securities based on employees. All codes have been posted on the Company's website. information yet to be public on the market? 3. Has the Board of Directors V The Company uses a candidate nomination system to elect directors. The Board of Directors is No deviation established and executed composed of seven directors, of whom four are independent directors and the remaining three are a diversity policy for its non-independent directors. The term of ofﬁce is three years. Candidates for election to director members? are selected based on the overall allocation of the Board of Directors. The knowledge, skills, and literacy required of Board members for executing their duties are stipulated in the Rules for Director Election. The duties of the Board of Directors are mandated in the Company's Articles of Incorporation.

32 33 Operations Deviations from Corporate Governance Best Evaluation item Practice Yes No Summary Principles for TWSE/ TPEx Listed Companies and reasons 4. Does the Company V The Company has established CTBC Financial Holding Co., Ltd. and its Subsidiaries' Board of No deviation have Board of Directors Directors Evaluation Measures, and it conducts annual Board of Directors performance assessment performance assessment at the end of December. Assessments are performed on the overall operations of the Board guidelines and assessment of Directors, and each of its directors is required to conduct a self-assessment. The items of methods in place? Does it assessment for the Company's Board of Directors comprise the following ﬁve areas: perform such assessment 1. Involvement in the Company's business activities. on a yearly basis? 2. Improving quality of the Board's decisions. 3. Composition and structure of the Board of Directors. 4. Election of directors and continuing education and training. 5. Internal control. The items of assessment for members of the Board should encompass at least the following six areas: 1. Understanding of the Company's goals and missions. 2. Understanding of director duties and functions. 3. Involvement in the Company's business activities. 4. Internal relations management and communication. 5. Director expertise and continuing education. 6. Internal control. The assessment results are graded as follows: Excellent, great, good, OK, or to be improved; the secretary department reports the assessment results to the Board of Directors and propose improvement measures. The 2017 assessment, made in accordance with the aforementioned regulations, yielded an "Excellent" rating. 5. Has the Company V The Company tasks CTBC Bank with handling shareholder affairs. No deviation designated a professional shareholder service agency to deal with shareholder affairs?

34 35 Corporate Governance Report

(2) Corporate Social Responsibility Compliance and Adoption Operations Deviation from Corporate Social Evaluation item Responsibility Yes No Summary Best Practices for TWSE/TPEx 1. Corporate governance implementation (1) Has the Company V (1) The Company has established the Corporate Social Responsibility Best Practice Principles (1) No deviation established a corporate and revises them at intervals to stay current with CSR developments at home and abroad. social responsibility policy/ To execute the above mentioned principles, the Company's Corporate Sustainability system and evaluated the Committee, which is steered by executive leaders, regularly convenes relevant units to outcomes thereof? reﬁne methods of advancing CSR and to track work outcomes. In 2017, the Company's work in CSR received numerous domestic and international honors, including: the Gold Award at the 2017 TCSA Top 50 Corporate Sustainability Report Awards, inclusion as a component of the Dow Jones Sustainability Indices (DJSI) World Index and Emerging Markets Index, inclusion in the Morgan Stanley Capital International (MSCI) ESG Leaders Indexes, a position in the FTSE4Good Emerging Index, and Leadership A- distinction in the 2017 annual CDP Climate report, validating the performance of the Company's environmental, social, and governance practices. (2) Does the Company V (2) Since 2007, the Company has prepared CSR reports on its own initiative, and it (2) No deviation provide training promulgated the CTBC Financial Holding Corporate Social Responsibility Best Practice on corporate social Principles in 2012. The Company adheres to these best practice principles when promoting responsibility on a regular CSR within the organization. The Company's Corporate Sustainability Committee issues basis? CSR-related information and regularly conducts CSR training. In 2017, three meetings were convened over matters, including the following: 1. Learning from external experts, who shared views on topics including "the impact of CSR trends on enterprise operations" and "socially responsible products and investments for enterprises." 2. Devising CSR plans and policies for the year. 3. Organizing projects and campaigns relating to stakeholder communication and assessing issues of concern. 4. Evaluating and following up on the effectiveness of each project. 5. Participating in CSR award assessments and discussing international trends. 6. Sharing CSR practices adopted by domestic and foreign ﬁnancial institutions.

34 35 Operations Deviation from Corporate Social Evaluation item Responsibility Yes No Summary Best Practices for TWSE/TPEx (3) Has the Company tasked a v (3) Since 2011, the Company has tasked designated staff with CSR-related strategy planning (3) No deviation dedicated or part-time unit and promotional activities. There are seven designated staff members and they currently with promoting CSR, and work in a CSR unit under the General Administration Department of CTBC Holding, has senior management undertaking CSR-related campaigns. The cross-departmental CSR Taskforce Committee been authorized by the was established at the beginning of 2012 and renamed the Corporate Sustainability Board to take charge of Committee in 2017, with the President of CTBC Holding as the Chairman of the proposing CSR policies and committee, independent directors as Supervisors, the Chief Secretary as the Deputy reporting to the Board? Chairman, and the presidents of CTBC subsidiaries as the committee members. The Corporate Sustainability Committee serves as the resource integration unit, consolidating human resources, corporate governance, legal affairs, auditing, general affairs, risk management, personal banking, institutional banking, and the group's eight subsidiaries. Issues and policies related to the CSR of CTBC Holding are collected by the Corporate Sustainability Committee, which regularly identifies stakeholders that they may come into contact with over the course of business, and to discuss and allocate resources into a number of CSR aspects such as corporate governance, employee care, responsible investments and products, community involvement, and environmental sustainability. The Committee evaluates and determines the annual targets of various CSR categories and regularly performs management and supervision tasks, which are then reported in regular meetings and reviewed by the Chairman, the Committee before escalating to CTBC Holding's Executive Committee and to the Board of Directors. The final amendments and decisions are made by the Board of Directors before implementing them. Under the operation of the Company's Corporate Sustainability Committee, various CSR tasks are executed through a top-down approach in the organization to ensure effective and comprehensive execution. (4) Has the Company v (4) Since 2006, the Company has abided by the CTBC Employee Code of Conduct, which (4) No deviation established a reasonable specifies the corporate ethics and obligations that employees should comply with. salary remuneration The Company not only uses the Employee Code of Conduct in its annual employee policy? Has the Company performance assessment, but rewards and penalizes employees under special integrated the employee circumstances. Rewards and penalties for employees are handled by the Rewards and performance evaluation Disciplinary Committee in accordance with the Company's regulations concerning system with its CSR policy rewards and disciplinary actions. and established an effective The Company has a comprehensive performance management system that ties employee reward and disciplinary remuneration to the Company's strategic goals and individual performance. Employees system? are offered opportunities for professional advancement based on their performance; employees with outstanding results and potential are offered bonuses and training. Through an open and transparent promotion mechanism, the Company enables outstanding talent to rise through the ranks, offering them greater responsibilities and favorable remuneration to drive the positive overall development of the organization. In most cases, the annual remuneration of a Company employee comprises 12 months' salary and Duty Bonus, along with Year-End Bonus based on the Company's operating performance and the individual employee's performance. There was virtually no gender- based wage difference at the Company's Taiwan sites in 2017, be it at the managerial or general level. The Company's average annual pay raise was 2.8%, of which the highest raise was 14.3%, which included a promotional increase.

36 37 Corporate Governance Report

Operations Deviation from Corporate Social Evaluation item Responsibility Yes No Summary Best Practices for TWSE/TPEx 2. Fostering a sustainable environment (1) Is the Company committed V (1) The Company's CTBC Financial Park meets the eight major standards of Taiwan's green (1) No deviation to achieving the efficient building assessment indexes: Biodiversity, Greenery, Soil Water Retention, Daily Energy use of resources and to Saving, CO2 Reduction, Construction Waste Reduction, Indoor Environment, Water using renewable materials Resource, and Sewage & Garbage Improvement. that have less impact on the environment? (2) Has the Company V (2) The Company assembled an Energy Management Committee in September 2012 and (2) No deviation developed an acquired ISO50001 Energy Management System verification in December 2012. In June environmental 2015, the committee was restructured into an Environment and Energy Management management system that is Committee, which was certified in July 2015 by the British Standards Institution for appropriate to its industry? both the ISO14001 Environmental Management System and ISO14064-1 Greenhouse Gas Inventory. In 2017, the Committee was renamed the Environmental Sustainability Task Force. The task force regularly holds management meetings and management review meetings to execute environmental targets. That same year, 151 loctions in Taiwan earned ISO 50001 Energy Management certification, ISO 14001 Environment Management certification, and ISO 14064-1 Greenhouse Gas Emissions Reporting certification, and the CDP's Leadership A- recognition, in what was the best showing in Taiwan's financial industry. Also in 2017, the Company won international and domestic awards for its performance in environmental and energy conservation. These include the Silver Award at the R.O.C. Enterprise Environmental Protection Awards from the Environmental Protection Administration of the Executive Yuan, the Outstanding Energy Saving Performance Award from the Ministry of Economic Affairs, the Asia Responsible Entrepreneurship Award in Green Leadership, and The Asset's Best Initiatives 2017 Environmental Responsibility Award. The Company also became the first financial institution in Taiwan to obtain renewable energy certification from the Ministry of Economic Affairs. (3) Does the Company V (3) 1. The Company has installed environmental and energy management system in with (3) No deviation monitor the impact of ISO50001 and ISO14001 international standards. Our environment and energy policy is as climate change on business follows: operations, conduct a I. Self-compliance with laws and regulations and the extensive purchase of products with greenhouse gas inventory, energy-saving labels. and formulate strategies II. Regularly hold training and promote environmental protection and energy management. for energy conservation III. Integrate related resources and implement environment and energy management and carbon and programs. greenhouse gas reduction? IV. Continue to implement environmental energy improvement and conduct regular review to achieve the goal of sustainability. V. Magnify corporate influence and link surrounding enterprises to form a green energy circle. 2. The Company has continually promoted environmental protection and energy conservation. The total carbon emissions volume was 44,786.56 tons of CO2/year in 2016 and was 45,463.37 tons of CO2/year in 2017. As of the end of December 2017, energy- saving projects of CTBC Financial Park and other Company buildings have reduced carbon emissions to 1,995.71 tons of CO2/year.

36 37 Operations Deviation from Corporate Social Evaluation item Responsibility Yes No Summary Best Practices for TWSE/TPEx 3. Upholding public interests (1) Has the Company V (1) The Company's Corporate Social Responsibility Best Practice Principles mandate that (1) No deviation developed its policies and the Company shall adhere to international human right conventions and related laws and procedures in accordance regulations to protect labor rights. The Company has launched "CTBC Human Rights with law and the Policy" on April 27, 2018, and it also applicable to CTBC's customers and suppliers. The International Bill of Human Company has established a policy to support human rights in the Code of Conduct for Rights? Employees, and devised Work Rules in accordance with the regulations of the Labor Standard Act. In adherence to the Act of Gender Equality in Employment and the Sexual Harassment Prevention Act, the Company has established Regulations for Establishing Measures of Prevention, Correction, Complaint, and Punishment of Sexual Harassment in the Workplace to support workplace rights and a harassment-free environment. The Company and its subsidiaries regularly elect labor representatives in accordance with the law and convene periodic labor meetings to discuss issues regarding employee equity and welfare. The Company's regulations and employee handbook are available on its website for employee use. (2) Does the Company have V (2) The Company has set up an Employee Hot Line so that employee feedback can be handled (2) No deviation means through which directly and quickly. All feedback documents and letters are handled in a confidential employees may raise manner in order to protect the rights of the complainant. complaints? Are employee 1. By mail: Employee feedback can be posted in writing to the human resource division or complaints being handled directly posted to the highest executive of the human resource division. properly? 2. By delivery in person: Employees can provide their feedback to any one of the supervisors of the human resource division in person. 3. By e-mail: [email protected] 4. Employee hot line: (02) 3327-8804 5. Company website:An area for employee feedback is designated on the General Affairs website of the General Administration Department, where employees can express their opinions freely (3) Does the Company provide V (3) Through a comprehensive range of facilities and programs, the Company provides (3) No deviation employees with a safe and employees with a comfortable, safe, and healthy working environment. This range includes healthy work environment? a smoke-free workplace policy, access control measures, quarterly meetings of the Are employees trained Occupational Safety and Health Committee to review measures supporting workplace regularly on safety and health and safety, regular labor safety training, fire drills, regular environmental inspections health issue? (of CO2 emissions and lighting in the workplace), health check-ups, employee canteen, breastfeeding room, library, staff lounge, and fitness center. Such provisions enable employees to feel at ease about their workplace safety and to lead a happy life. (4) No deviation (4) Does the Company V (4) The Company holds town hall meetings on a quarterly basis to inform employees about have channels for material matters and business operations. Executive managers also send emails from time communicating with to time to update employees on how the Company handled an emergency situation during employees on a regular business operations. basis. Does the Company inform them of operational changes that may be of significant impact? (5) Does the Company V (5) Depending on business needs and work requirements, the Company sends employees (5) No deviation offer its employees to participate in internal or external training programs or to attend overseas seminars. effective occupational The training courses include professional competency and skills training, management empowerment training skills training, practical operations, language, and experience sharing. Based on employee programs? development and organizational needs, job rotations are granted from time to time. (6) Has the Company V (6) To protect customer interests, the Company has set up various communication channels (6) No deviation established any consumer such as a 24-hour toll-free customer service hotline, e-mail service, and Stakeholders protection mechanisms page on the Company's website. In addition, subsidiary CTBC Bank has established and complaint procedures customer care management practices, including the Voice of Customer (VOC) mechanism regarding R&D, purchasing, and customer complaint improvement plan to ensure customer satisfaction and protect production, operation, and customers' interests. Subsidiary Taiwan Life Insurance has established regulations for service? resolving financial consumer disputes, publicizing them on its official website. In addition, it has set up a customer service line with dedicated staff handling calls, and it has established a complaints services division that provides transparent and effective complaint processing and services.

38 39 Corporate Governance Report

Operations Deviation from Corporate Social Evaluation item Responsibility Yes No Summary Best Practices for TWSE/TPEx (7) Does the Company V (7) The Company conducts the marketing and labeling of products and services in accordance (7) No deviation comply with applicable with the Financial Holding Company Act, the Banking Act, and related regulations, and laws, regulations, and implements a strict internal control system. For the marketing and labeling of insurance international guidelines in products and services, subsidiary Taiwan Life Insurance has established guidelines for the marketing and labeling preparing insurance products for commercialization, a merchandise management policy, of products and services? and guidelines for the disclosure of investment-oriented insurance products' offering documents. All of the above complies with the relevant domestic regulations. (8) Has the Company V (8) Since 2012, the Company has implemented a "Supplier CSR Advocacy Policy" that requires (8) No deviation evaluated the records of suppliers to sign a commitment to business ethics, employee rights and assistance, suppliers' impact on the environmental protection, and other issues before executing any single transaction that environment and society amounts to NT$1 million or more. before doing business with them? (9) Do the contracts between V (9) The Company has revised, announced, and implemented this content in the Corporate (9) No deviation the Company and its Social Responsibility Best Practice Principles. major suppliers include termination clauses that come into force if suppliers violate the Company's corporate social responsibility policy and cause a significant negative impact on the environment or society? 4. Enhancing information V On its official website, the Company has created a dedicated CSR section that details No deviation disclosure: Has the Company corporate principles and policies pertaining to CSR. The Company also publishes CSR reports disclosed relevant and reliable as hard and soft copies to adequately disclose our efforts and practices with regard to our CSR information on its economic, social, and environmental responsibilities. The electronic file of the CSR report is website and at the Market available on the website of CTBC Holding and on the Market Observation Post System for Observation Post System? public access. Hard copies of the CSR reports are distributed to our bank branches across Taiwan, as well as to enterprises in the finance sector and other industries. In addition, the Company has been invited to attend various types of sustainability forums and meeting, where CSR-related experiences were shared among industry experts. 5. If the Company has established the corporate social responsibility principles based on the Corporate Social Responsibility Best Practice Principles for TWSE/ TPEx Listed Companies, please describe any discrepancy between the principles and their implementation: No deviation 6. Other important information to facilitate a better understanding of the Company's corporate social responsibility practices: (1) The Company published its first CSR report in 2007. This year marks the 11th year of the report. The report primarily covers the Company's efforts in the areas of corporate sustainability, corporate governance, customer service, socially responsible products, human capital development, environmental sustainability, and social investment. Through CSR reports, the Company hopes to fulfill its responsibility to all stakeholders, including employees, customers, shareholders, and the public, and to provide them with the best care. (2) For information regarding other aspects of our CSR efforts, please refer to the CSR section of the Company's website: http://www.ctbcholding.com/care_ index.html. 7. If the CSR reports have received verification from external certification institutions, this should be stated below: The Company's most recent CSR report was verified in April 2017 by the British Standards Institution (BSI), a third-party verification organization. The BSI verified the materiality, inclusiveness, and responsiveness of this report based on the AA1000 guaranteed standards and GRI G4 guidelines. The disclosed contents complied with the core options provided in the GRI G4 guidelines.

38 39 (3) Implementation of Business Integrity Management Deviation from Ethical Corporate Operations Management Best Practice Principles Evaluation item for TWSE/TPEx Listed Companies Yes No Summary and reasons for deviation 1. Establishment of integrity policies and solutions (1) Has the Company V (1) The Company has established the CTBC Financial Holding Ethical Corporate Management (1) No deviation disclosed in a Best Practice Principles, with which the Board of Directors and management levels are memorandum or external required to comply. And the Ethics & Integrity Committee was established in order to correspondence the strengthen the business integrity across company culture and management. policies and practices it has in place to maintain business integrity? Are the Board of Directors and the management committed to fulfilling this commitment? (2) Does the Company have V (2) The Company forbids dishonest conduct and the scope of such conduct is defined in the (2) No deviation any measures against Employee Code of Conduct, Code of Ethical Conduct (for directors and managers), and dishonest conduct? Are the Procedures for Ethical Management and Guidelines for Conduct. Integrity policies are these measures supported implemented through education and training, internal auditing, and regular reporting to by proper procedures, the Board of Directors. behavioral guidelines, disciplinary actions, and compliance systems? (3) Has the Company V (3) The Company's business operations have a strict internal control and risk management (3) No deviation taken steps to prevent mechanism. In addition to conducting business activities in accordance with the occurrences listed in regulations of the competent authorities, the Company has assembled legal compliance, Paragraph 2, Article 7 audit, and risk management units to ensure the strict monitoring of business activities. The of Ethical Corporate aforementioned measures also ensure corporate ethical management by encompassing Management Best Practice regulations against bribery, conflicts of interest, and the provision or acceptance of Principles for TWSE/TPEx improper benefits. Listed Companies or business conduct prone to integrity risks?

40 41 Corporate Governance Report

Deviation from Ethical Corporate Operations Management Best Practice Principles Evaluation item for TWSE/TPEx Listed Companies Yes No Summary and reasons for deviation 2. Implementation of ethical corporate management (1) Does the Company V (1) The Company avoids transacting with any party that has a record of dishonest business (1) No deviation evaluate the integrity of conduct. For dealings with clients and suppliers, the Company follows KYC (Know Your all counterparties with Customer) policy and contract management policies, which require transacting parties to which it has business be reviewed by the legal affairs unit in advance to ensure related rights, obligations, and relationships? Are there legitimacy. The contracts signed with agents, suppliers, customers, and other business- any integrity clauses in the transacting parties include clauses mandating compliance with integrity management agreements it signs with policy and effectuating termination when counterparties are involved in dishonest business partners? conduct. (2) Does the Company have V (2) The Company has designated units to promote the implementation of integrity (2) No deviation a unit that specializes (or management in accordance with the nature of their business activity. For example, the is involved) in business finance department ensures the effective implementation of accounting systems, and integrity? Does this unit the human resource department designates employees to attend integrity management report its progress to the courses. In addition, the Company has tasked the corporate governance unit affiliated with Board of Directors on a the Chairman's office (restructured into a dedicated corporate governance department regular basis? in February 2018) with formulating integrity management regulations and reporting the implementation status of integrity management to the Audit Committee and the Board of Directors. After the Ethics & Integrity Committee starts operation, the implementation status of integrity management will report to the committee and Board of Directors. (3) Does the Company have V (3) The Company has policies and regulations preventing conflicts of interest included in the any policy that prevents Regulations Governing Procedure for Board of Directors Meetings (for directors) and the (3) No deviation conflicts of interest and Employee Code of Conduct (for employees) and Procedures for Ethical Management and channels that facilitate the Guidelines for Conduct. These policies and regulations have been effectively implemented. reporting of such conflicts? Article 16 of the Company's Regulations Governing Procedure for Board of Directors Meetings specifies the policy for director recusal over conflicts of interest. If any director or a juristic person represented by a director is an interested party with respect to any agenda item, and when such a relationship is likely to prejudice the interests of the Company, the director may express his/her opinions or answer questions but may not participate in discussion or voting on that agenda item, and furthermore, shall enter recusal during discussion and voting on that item and may not act as another director's proxy to exercise voting rights on that matter. Per the Employee Code of Conduct, the Company requires employees to maintain awareness of situations that may influence their job performance or constitute a conflict of interest, avoid any personal action or pecuniary advantage that might conflict with company interests, and prevent abuse of power for personal gain or the inappropriate benefit of others. (4) Has the Company V (4) The Company's accounting system is based on generally accepted accounting principles, (4) No deviation implemented effective and the internal control system is developed in accordance with the Implementation accounting and internal Rules of Internal Audit and Internal Control System of Financial Holding Companies control systems for the and Banking Industries for the purpose of promoting sound corporate management and purpose of maintaining ensuring effective operational efficiency, reliability, and regulatory compliance in reporting. business integrity? Are The audit unit also examines the design of its internal control system and effectiveness of these systems reviewed its implementation through internal auditing and self-auditing systems. by internal or external auditors on a regular basis? (5) Does the Company V (5) The Company tasks its corporate governance unit with producing educational materials (5) No deviation organize internal or on integrity management and regularly providing training to directors and employees. external training on a With regard to newly elected directors or new employees, educational materials on regular basis to maintain integrity management are provided to directors when they take office and new employee business integrity? orientation includes training in integrity management. Furthermore, the Company publishes a summary of legal compliance cases each month on the internal information network for employees to use as a reference.

40 41 Deviation from Ethical Corporate Operations Management Best Practice Principles Evaluation item for TWSE/TPEx Listed Companies Yes No Summary and reasons for deviation 3. Operation of whistleblowing system (1) Does the Company V (1) The Company has set up a whistleblowing system on its website to encourage employees (1) No deviation provide incentives and to report any suspected violations of legal regulations or the Company's Code of Ethical means for employees Conduct to the Board of Directors, managers, internal auditing supervisors, or other to report malpractice? relevant personnel, and to provide information sufficient for appropriate follow-up by the Does the Company assign Company. All reports filed are handled by dedicated personnel. In addition, the Employee dedicated personnel Code of Conduct clearly stipulates that employees are obligated to report any breach to investigate reported of integrity to management or relevant units. The Company set up the Procedures for malpractice? Handling Illegal and Unethical or Dishonest Behavior to scrupulously operate the whistleblowing system. (2) Has the Company V (2) The Company has incorporated (in the Procedures for Handling Illegal and Unethical (2) No deviation implemented any or Dishonest Behavior and Procedures for Ethical Management and Guidelines for standard procedures or Conduct) standard procedures, including confidentiality measures, for the handling of confidentiality measures reports of dishonest conduct by employees. The Company assigns designated personnel for handling reported to investigate such reported cases and maintains confidentiality over the handling process malpractice? and related information. The accused is granted the opportunity to provide clarifications during the investigation. Whistleblowers and investigators are subjected to protection. If an employee is confirmed as being involving in conduct that violates the principles of integrity management, he/she shall be penalized in accordance with related regulations. (3) Has the Company provided V (3) The Company has established open reporting and complaint channels, and all cases are (3) No deviation proper whistleblower handled in a confidential manner to protect complainants from retribution or any other protection? form of unfair treatment. A special chapter of whistleblower protection is stated in the Procedure for Handling Illegal and Unethical or Dishonest Behavior. 4. Enhancing information The Company has established websites in both Chinese and English to disclose integrity disclosure management-related regulations and information. Depending on the nature of the (1) Has the Company V information, designated units are tasked with updating the website content on an irregular No deviation disclosed its integrity basis. The Company also discloses its Ethical Corporate Management Best Practice Principles principles and progress and Code of Ethical Conduct on the Market Observation Post System and announces on its website and Market related information in accordance with the Taiwan Stock Exchange Corporation Procedures Observation Post System? for Verification and Disclosure of Material Information of Companies with Listed Securities. 5. If the Company has established Ethical Corporate Management Best Practice Principles in accordance with the Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies, describe any discrepancy between the principles and their implementation: The Company used the Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies as the model for its Ethical Corporate Management Best Practice Principles. The Company modifies the contents of the principles from time to time to align them with legal and practical requirements, and it provides regular reports on the status of integrity management in the Company to the Audit Committee and the Board of Directors. After the Ethics & Integrity Committee starts operation, the status of integrity management in the company will report to the committee and Board of Directors. All company operations fall within the scope of the Company's Ethical Corporate Management Best Practice Principles.

42 43 Corporate Governance Report

Deviation from Ethical Corporate Operations Management Best Practice Principles Evaluation item for TWSE/TPEx Listed Companies Yes No Summary and reasons for deviation 6. Other important information that facilitates a better understanding of the Company's implementation of ethical corporate management (e.g., details about the evaluation and amendment of ethical management rules): (1) In August 2017, the Company revised its Ethical Corporate Management Best Practice Principles to make relevant operating procedures more comprehensive. In December 2017, the Company amended the Corporate Governance Best Practice Principles and required relevant units to abide by the amended content in order to implement ethical business practices. (2) To strengthen the function of the Board and to implement business integrity across the company culture and management, the Company established the Ethics & Integrity Committee on April 27, 2018. (3) The Company has set a stakeholders page on the homepage of its website to provide a channel of communication between stakeholders and the Company and to serve as a reporting channel for whistleblowers. An independent hotline, email and mailbox are also established for whistleblower's reporting. (4) The Company requires transacting partners to complete a Qualiﬁcations Examination Form detailing whether they have bounced check records over the past six months, along with related company information. This process works to prevent Company transactions with "bad" suppliers or partners. Before engaging in business transactions, the Company considers the legitimacy of agents, suppliers, customers, or other business-transacting partners and whether they are involved in unethical conduct, in order to avoid engaging with those involved in such conduct. (5) The Company regularly arranges for all its directors to attend corporate governance and integrity management courses that improve their supervisory and corporate management capabilities. In 2017, arrangements were made for all of its directors to attend a course on CSR in the ﬁnancial industry as well as sustainable business strategy and governance, which was aimed at enhancing the directors' professional knowledge on corporate governance and integrity management. In addition, the Company requires all directors and all employees to complete integrity management training on an annual basis.

(4) Other Signiﬁcant Information That May Improve the Understanding of Corporate Governance and Operation: Please visit the CTBC Holding website at http://ir.ctbcholding.com/html/gov.php

(5) Items That Must be Disclosed as Required by the Corporate Governance Principles for Financial Holding Companies: Please visit the CTBC Holding website at http://ir.ctbcholding.com/html/gov.php

42 43 (6) Internal Control Statement

To: Financial Supervisory Commission,

On behalf of CTBC Financial Holding Co., Ltd., we hereby certify that for the ﬁscal year of 2017, the company has duly complied with the "Implementation Rules of Internal Audit and Internal Control System of Financial Holding Companies and Banking Industries" in establishing its internal control system, implementing risk management mechanism, designating an independent audit department to conduct audits, and regularly reporting to the company's Board of Directors and the Audit Committee.

After prudent evaluation, we hereby certify that except items listed on attachments, the company complies with all related laws and regulations, and the internal controls are effectively in place. This statement will be included in the company's annual report and public prospectuses, and be disclosed to the public.

We understand that we are legally bound to the Article 20, 32, 171, and 174 of the Securities and Exchange Act.

Sincerely yours,

Chairman

President

General Auditor

Chief Compliance Ofﬁcer

44 45 Corporate Governance Report

Issues and Corrective Actions for Internal Control Statement

As of December 31, 2017 Target Issue for Improvement Corrective Actions Completion Date 1. Financial Supervisory Commission ("FSC") imposed an (1) CTBC Holding had revised the policy June 30, 2018 administrative fine of NTD 10 million and a reprimand on of litigation aid to employees and the CTBC Financial Holding Co., Ltd. ("CTBC Holding") for guideline of legal consulting service. providing bail money for its current and former employees who (2) To ensure the effective exertion of the were under investigation. CTBC Holding was accused for failing board function, CTBC Holding had to have explicit guideline in place before its Board of Directors' enhanced the reporting procedures by approval to furnish the bail money, which indicating major furnishing sufficient information to the deficiencies exist in its supervision and management, as well as board members. internal control and legal compliance system. In addition to the (3) CTBC Holding had reviewed the fine, the President of CTBC Holding and the Chief Compliance responsibilities of related personnel. Officer were suspended from performing their duties for six The company will continuously months and three months, respectively. deliberate the enhancement for the effectiveness of the board function. 2. FSC imposed an administrative fine of NTD 2 million on (1) CTBC Bank had strengthened IT March 31, 2018 CTBC Bank due to an improper Information Technology ("IT") operation with the following actions: operation incident which resulted in unexpected deletion of extending retention period of audio some audio recordings. recordings, establishing tape back-up mechanism, implementing dual-backup system at remote site, and improving the management of authorization and post monitoring of privileged account usage, etc. (2) CTBC Bank will implement a rectification plan to enhance information security and personal data protection, and such plan will be reviewed independently by an external expert. Moreover, the external review report on the effectiveness of executing the aforesaid rectification plan will be submitted to FSC. 3. FSC conducted a limited-scope examination on CTBC Bank CTBC Bank had revised and reiterated the Completed in 2016 regarding the credit business of Offshore Banking related operation procedures. Unit ("OBU") and found that CTBC Bank had either assisted customers in preparing their financial reports, or improperly conducted customer identity verification, or inadequately assessed customers' risk capacity in the treasury marketing business. As a consequence, FSC imposed a reprimand on CTBC Bank.

44 45 Target Issue for Improvement Corrective Actions Completion Date 4. FSC conducted a limited-scope examination on CTBC Bank in CTBC Bank had revised and reiterated the Completed 2016 covering the acquisition of corporate customers' board related operation procedures. resolutions, the account opening of OBU customers and the verification of customers' financial statements. It was found that CTBC Bank had not prudently reviewed the authenticity of customers' board resolutions in treasury marketing business. As a consequence, FSC imposed a reprimand on CTBC Bank. 5. FSC conducted a full-scope examination on the Tokyo Start CTBC Bank had requested TSB to Completed Bank ("TSB", the subsidiary of CTBC Bank) in 2016 and found establish related control mechanism. that CTBC Bank should improve its supervision on TSB's investment activities in private equity funds. As a consequence, FSC imposed a reprimand on CTBC Bank. 6. FSC conducted a limited-scope examination on CTBC Bank (1) CTBC Bank had enhanced the KYC Completed in 2017 covering the follow-up of previous examination questionnaires and related control findings and the sale of structured product. It was found that mechanism. CTBC Bank had improper implementation of know your (2) The FAs' system authority to maintain customer ("KYC") processes and inadequate dual controls customer profiles as professional investors had been purged. Further, for system authority granted to financial advisors ("FAs"). As a CTBC Bank will continuously re-inforce consequence, FSC imposed a reprimand on CTBC Bank. the dual controls over transactions. 7. FSC imposed an administrative fine of NTD 240 thousand CTBC Bank had revised and reiterated the Completed against the legal representative of CTBC Bank due to a late related operation procedures. announcement of loan asset disposal amounting to USD 10 million in Singapore Branch on the Taiwan Stock Exchange's "Market Observation Post System". 8. It was found that certain staffs of PT Bank CTBC Indonesia (1) CTBCI had suspended the salary loan September 30, 2018 ("CTBCI"), the subsidiary of CTBC Bank, involved in fraudulent business and conducted an assessment cases of Salary Loans by using forged documents in loan over related controls. Rectification applications. actions were proposed accordingly. The reactivation of the business is in accordance with the progress of rectification taken. (2) The appointed lawyers had taken proper legal actions to protect CTBC Bank's interests. 9. It was found that certain corporate customers of CTBC Bank (1) CTBC Bank had enhanced the relevant Completed failed to fulfill their financial obligations to repay their debts. It risk control mechanism. was further identified as suspected loan fraud. (2) Legal actions had been taken to protect CTBC Bank's interests.

46 47 Corporate Governance Report

Target Issue for Improvement Corrective Actions Completion Date 10. CTBC Bank's treasury marketing business was found to assist CTBC Bank had refined relevant control Completed a corporate customer in preparing its financial report without procedures, enhanced verification of proper verification over customer's financial information. customers' financial information, and reiterated related requirements to the concerned business units.

11. FSC conducted a limited-scope examination on Taiwan Life in Completed 2016 regarding the Information Technology ("IT") operation and noted the following major deficiencies: (1) The IT operation was found with improper (1) Taiwan Life had reinforced the implementation of self-assessment, penetration test and implementation of self-assessment, vulnerability scan, management of social media usage, and penetration test and vulnerability deletion of personal data related files. scan, strengthened the monitoring for social media usage, and launched the automatic scanning mechanism for deletion of personal data related files. (2) The personal data protection process was found with (2) Taiwan Life had installed database insufficient audit trail for querying and altering personal audit trail management system and data related database, and inadequate control mechanisms established relevant control procedures in discarding obsolescence hard disk drives or converting for storage media. their usages. (3) The mandatory provision was not stated in certain (3) Taiwan Life had revised the contract outsourcing contract. and established a checklist for reviewing As a consequence, FSC imposed an administrative fine the provisions of the contract. of NTD 600 thousand and a reprimand on Taiwan Life. In addition, FSC requested Taiwan Life to complete the rectification measures related to Personal Data Protection Act within 1 month. 12. FSC conducted a full-scope examination on CTBC Holding Taiwan Life had revised relevant Completed in 2016. It was found that CTBC Life, a subsidiary of CTBC procedures. Holding which was merged with Taiwan Life afterward, should improve its processes in certain real estate investment, including valuation procedure, tender pricing assessment and evaluation of investment yields. As a consequence, FSC imposed an administrative fine of NTD 6 million on Taiwan Life.

13. It was found that the staff of Taiwan Life incorporated Taiwan Life had strictly requested staffs Completed improper information to the approved sales documentation to use the approved documentation as and provided it to insurance brokers as training materials. As training materials and forbidden staffs from a consequence, FSC imposed a reprimand on Taiwan Life. amending related sales documentation without prior authorization.

46 47 Target Issue for Improvement Corrective Actions Completion Date 14. FSC conducted a limited-scope examination on Taiwan Life in 2016 regarding risk management operations and noted the following major deficiencies: (1) The acquisition of new policies did not comply with (1) Taiwan Life had increased the selling (1) Continue existing improvement plan of adjusting selling proportion proportion of installment-premium to increase between installment-premium products and single- products and refined a five-year the selling premium products. improvement plan to reach the 50% proportion of target by 2022. installment- premium products and plan to reach the target by 2022. (2) The post-investment management procedures of investing (2) Taiwan Life had established relevant (2) Completed in an join venture insurance company in Mainland China procedures. need to be set up. (3) The control mechanism, which is set up to manage the (3) Taiwan Life had revised relevant (3) Completed reserve for foreign exchange valuation when breaching procedures. certain threshold, did not comply with the related regulation. (4) The contingent liability to the commitment of private (4) Taiwan Life had disclosed related (4) Completed equity fund should be disclosed in the annual financial information in the annual financial report certified by CPA. report in accordance with the As a consequence, FSC imposed a reprimand on Taiwan Life. regulation since 2016. 15. It was found that TLG Insurance did not comply with the TLG Insurance had checked the Completed regulation of uploading specific data of the compulsory consistency between the counts of data automobile policies to the Compulsory Automobile uploaded and the number of policies Information Center within the required time frame. As a issued on a daily basis. consequence, FSC imposed an administrative fine of NTD 60 thousand on TLG Insurance. 16. FSC conducted a full-scope examination on TLG Insurance in Completed 2017 and noted the following major deficiencies: (1) TLG Insurance underwrote and issued travel insurance (1) The underwriting procedure had been based on the data provided by insurance brokers via email, revised to ensure that the review of the without verifying the policyholder's information in the application forms has been done before application forms. underwriting and issuing policies. (2) The account payables to customers were not managed (2) TLG Insurance had reviewed all properly. unclaimed payments and notified customers. (3) The electronic logs of customers' selection entries in (3) The system logs had been retained online automobile insurance system were not retained accordingly. properly. As a consequence, FSC imposed an administrative fine of NTD 600 thousand and a reprimand on TLG Insurance.

48 49 Corporate Governance Report

Target Issue for Improvement Corrective Actions Completion Date 17. FSC conducted a limited-scope examination on CTBC (1) CTBC Securities had ceased providing Completed Securities in 2017 regarding convertible bond ("CB") business financial consulting service since and relative derivatives. It was found that CTBC Securities September 2015. collected brokerage fee for introducing customers to a (2) CTBC Securities had enhanced the specific bank in the name of financial consultant and provided related book building allocation book building allocation on CB according to such bank's processes and the KYC procedures. instruction, which did not conform to the requirement (3) CTBC Securities had disciplined the of fair allocation in providing book building service. As a involved personnel. consequence, FSC imposed a reprimand on CTBC Securities and required the company to discipline the involved manager and reported the result to FSC. 18. FSC conducted a full-scope examination on CTBC Investment CTBC Investment had revised and Completed in 2017. It was found that the customer risk assessment reinforced related procedures. item and associated operating procedure under AML/CFT risk rating process, and the selection criteria of red flags for suspicious transactions were inconsistent with related procedures. As a consequence, FSC imposed a reprimand on CTBC Investment.

5. CPA information (1) Fees Paid to CPAs 1) Basic information Unit: Thousands of NTD Non-audit fees Accounting CPA Audit Policy Business Human Audit period Note firm name fee Other Subtotal design registration Resources Other comprises Jeff Chen document printing Jan. 1, 2017 to fees, administrative KPMG 2,668 - - - 1,846 1,846 Dec. 31, 2017 remedies fees and Lin Wu KPMG fintech radar service. 2) Information regarding the replacement of an accounting firm and the auditing fee for the replacement year decreasing from the previous year (which requires mandatory disclosure of the reduction amount, percentage and reason): Not applicable. 3) Information regarding audit fees decreasing over 15% from the previous year (which requires mandatory disclosure of the reduction amount, percentage, and reason): Not applicable.

48 49 (2) CPA Changes: 1) Regarding previous CPAs Date of change Approved by the Board of Directors on March 28, 2017 Reason and description of Internal organizational changes within the CPA firm change Contracting parties Description of the CPA Appointed person termination of an appointed Involved person person or CPA or refusal to Proactive termination of appointment N/A N/A accept appointment No longer accepts (continues) appointment N/A N/A Report opinions other than The auditor expressed an unqualified opinion. The auditor's opinion was not modified in respect to unqualified opinions in the judicial cases in 2016. past two years, and related The auditor expressed a modified unqualified opinion in respect to offshore structured notes cases reasons in 2015. Accounting principle or practice Disclosure of financial report Ye s Dissenting opinion with the Audit scope or steps Company Others None V Explanation: None Additional disclosures None 2) Regarding succeeding CPAs Accounting firm KPMG CPAs Jeff Chen, Lin Wu Appointment date Approved by the Board of Directors on March 28, 2017 Items and results relating to accounting methods for specific transactions or accounting principles, and consultation of potential None opinions in financial reports Written opinions of succeeding CPAs that differ from those of previous None CPAs 3) Response of previous CPAs to Articles 10.6.1 and 10.6.2.3 of the Regulations Governing Information to be Published in Annual Reports of Financial Holding Company: Not applicable due to internal organizational changes within the CPA firm.

(3) Information Regarding Any Chairman, President, or Financial or Accounting Manager Who Worked for a Certiﬁed Accounting Firm or Afﬁliated Enterprise in the Past Year: None.

50 51 IV. Capital Overview Capital Overview

1.Capital and Shares (1) Source of Capital A. Issued Shares As of April 27, 2018 Authorized Capital Paid-in Capital Remark Issue Month/ Price Shares Amount Amount Year (NT$) (thousands (NT$ Shares (NT$ Sources of Capital Other of shares) thousands) thousands) Capital increase of NT$3,333,300 January/ 60 23,000,000 230,000,000 19,830,320 198,303,196 thousand due to the issuance of preferred Note 1 2018 shares B Note 1: Oct. 3, 2017 - Approved under Letter No. Jin-Kuan-Cheng-Fa-Zi-1060037505 for the issuance of 333,330 thousand preferred shares in a cash capital increase.

B. Type of Shares As of April 27, 2018 Authorized Capital Share Type Remarks Issued Shares Un-issued Shares Total Shares Common shares 19,496,990 (Note) 3,169,680 23,000,000 Listed Shares Preferred shares 333,330 Note: Issued shares include treasury stock totaling 10,579 thousand shares.

(2) Shareholders Composition 1. Common Shares The par value for each share : NT$10 As of April 27, 2018 Foreign Shareholders Other Government Financial Institutional Treasury Composition Institutional Individuals Total Agencies Institution Investors and Stock Quantity Investors Foreigners Number of 7 96 890 1,904 427,050 1 429,948 Shareholders Shareholding 1,271 2,868,273,170 3,281,798,992 8,394,893,356 4,925,054,780 26,968,000 19,496,989,569 (shares) Percentage 0.00% 14.71% 16.83% 43.06% 25.26% 0.14% 100.00% Note: Shareholding as of the book closure date of 04/17/2018.

2. Preferred Shares The par value for each share : NT$10 As of April 27, 2018 Foreign Shareholders Other Government Financial Institutional Treasury Composition Institutional Individuals Total Agencies Institution Investors and Stock Quantity Investors Foreigners Number of 0 27 114 92 42,056 0 42,289 Shareholders Shareholding 0 216,401,013 84,034,555 3,869,258 29,025,174 0 333,330,000 (shares) Percentage 0.00% 64.92% 25.21% 1.16% 8.71% 0.00% 100.00% Note: Shareholding as of the book closure date of 04/17/2018.

50 51 (3) Distribution Proﬁle of Share Ownership 1. Common Shares The par value for each share : NT$10 As of April 27, 2018 Class of Shareholding Number of Shareholders Shareholding (Shares) Percentage (Unit：Share) 1 ~ 999 163,018 34,959,428 0.18% 1,000 ~ 5,000 143,687 326,612,265 1.68% 5,001 ~ 10,000 46,871 343,837,378 1.76% 10,001 ~ 15,000 21,849 264,382,932 1.36% 15,001 ~ 20,000 12,915 227,086,981 1.16% 20,001 ~ 30,000 13,650 331,950,771 1.70% 30,001 ~ 50,000 11,304 437,296,120 2.24% 50,001 ~ 100,000 8,667 601,311,065 3.08% 100,001 ~ 200,000 4,079 558,634,633 2.87% 200,001 ~ 400,000 1,859 510,785,446 2.62% 400,001 ~ 600,000 568 276,238,242 1.42% 600,001 ~ 800,000 259 177,767,389 0.91% 800,001 ~ 1,000,000 173 155,867,719 0.80% 1,000,001 ~ 1,200,000 122 133,548,191 0.68% 1,200,001 ~ 1,400,000 98 127,853,056 0.66% 1,400,001 ~ 1,600,000 52 78,105,058 0.40% 1,600,001 ~ 1,800,000 51 85,738,921 0.44% 1,800,001 ~ 2,000,000 63 119,956,147 0.62% 0ver 2,000,001 663 14,705,057,827 75.42% Total 429,948 19,496,989,569 100.00% Note: Shareholding as of the book closure date of 04/17/2018.

2. Preferred Shares The par value for each share : NT$10 Class of Shareholding Number of Shareholders Shareholding (Shares) Percentage (Unit：Share) 1 ~ 999 34,823 3,386,598 1.02% 1,000 ~ 5,000 6,839 9,114,468 2.73% 5,001 ~ 10,000 304 2,205,908 0.66% 10,001 ~ 15,000 90 1,128,444 0.34% 15,001 ~ 20,000 53 935,438 0.28% 20,001 ~ 30,000 32 776,184 0.23% 30,001 ~ 40,000 22 786,578 0.24% 40,001 ~ 50,000 15 679,637 0.20% 50,001 ~ 100,000 46 3,670,398 1.10% 100,001 ~ 200,000 23 3,464,855 1.04% 200,001 ~ 400,000 10 2,673,232 0.80% 400,001 ~ 600,000 7 3,394,581 1.02% 600,001 ~ 800,000 3 2,205,412 0.66% 800,001 ~ 1,000,000 3 2,833,000 0.85% 0ver 1,000,001 19 296,075,267 88.83% Total 42,289 333,330,000 100.00% Note: Shareholding as of the book closure date of 04/17/2018.

52 53 Capital Overview

(4) Major Shareholders The par value for each share : NT$10 As of April 27, 2018 Holding Shares Shareholding Percentage (shares) Yi Kao Investment Co., Ltd. 567,580,574 2.91%

China Life Insurance Co., Ltd. 521,531,303 2.67%

Cathay Life Insurance Co., Ltd. 479,203,427 2.46%

Government of Singapore 321,366,851 1.65% CTBC Bank Trust Account for CTBC Financial Holding Employee Welfare Savings 321,059,131 1.65% Committee Bank of Taiwan Co.,Ltd. 315,720,426 1.62%

Chuan Wei Investment Co., Ltd. 313,835,344 1.61% Vanguard Emerging Markets Stock Index Fund, A Series Of Vanguard International Equity 301,874,522 1.55% Index Funds Fubon life Insurance Co., Ltd. 299,733,943 1.54%

Norges Bank - internal - NBIM PF EQ INTERNAL CFD 266,986,024 1.37% Note: Shareholding as of the book closure date of 04/17/2018.

(5) Market Price, Net Worth, Earnings, and Dividends Per Share Year Jan. 1, 2018 to 2016 2017 Item April 27, 2018 Before adjustment 19.70 20.75 22.25 Highest After adjustment 18.24 20.75 - Before adjustment 14.50 17.50 19.60 Market price per share (Note 1) Lowest After adjustment 13.43 17.50 - Before adjustment 17.05 19.23 21.18 Average After adjustment 15.79 19.23 - 15.77 Before distribution 14.49 15.46 Net asset value of per share (Note 7) After distribution 13.49 (Note 3) Not applicable 19,469,822 Weighted-average shares (thousand shares) 19,469,822 19,469,822 (Note 7) Earnings per share 0.63 Before adjustment 1.43 1.91 Earnings per share (Note 1) (Note 7) After adjustment 1.43 (Note 3) Not applicable Cash dividends Before adjustment 1.00 (Note 3) - (Note 1 & 2) After adjustment 1.00 (Note 3) - Dividends from - (Note 3) - Dividends per share retained earnings Stock dividends Dividends from - (Note 3) - capital surplus Accumulated undistributed dividends - - -

52 53 Year Jan. 1, 2018 to 2016 2017 Item April 27, 2018 Price/earnings ratio (Note 4) 11.04 (Note 3) - Return on investment Price/dividend ratio (Note 5) 15.79 (Note 3) - Cash dividend yield rate (Note 6) 6.33% (Note 3) - Note 1: Calculation has been retrospective adjustments base according to the number of shares distributed of earnings or capital surplus transferred to capital. Note 2: Cash dividend from retained earnings of 2016 at NT$0.85 per share and cash from capital surplus at NT$0.15 per share, totally cash of NT$1 per share. Note 3: Has not been approved by the 2018 Annual General Shareholders' Meeting, hence non-disclosure. Note 4: Price/earnings ratio = average market price (after adjustment)/earnings (after adjustment) per share Note 5: Price/dividend ratio = average Market Price (after adjustment)/cash dividends (after adjustment) per share Note 6: Cash dividend yield rate = cash dividends per share (after adjustment)/average market price (after adjustment) Note 7: The ﬁnancial data as of March 31, 2018 has not been reviewed by CPA.

(6) Dividend Policy and Earnings Distribution Dividend policy and status of execution 1) Dividend policy The Company, aiming for continuing growth and increasing profitability as well as adherence to the provisions of all related laws, adopts a residual dividend policy. The fiscal year-end earnings of the Company shall be applied to the following uses in the stated order: payment of taxes, adjustments per financial and accounting principles, deficit reduction, legal reserve, special reserve by law or reversal, and preferred share dividends. If additional earnings exist, residual earnings shall be combined with the beginning retained earnings as a distributable base. The earnings distribution should be proposed by the Board and sent for approval by the shareholders' meeting, at which time the allocation of earnings distribution should range from 30% to 100% of the distributable base. The earnings distribution is based on cash and stock dividends in accordance with the Company's business plan. However, the cash dividend shall not be less than 10% of the total distributable dividends. The abovementioned cash dividend may be adjusted, by the amendment of laws, for operational, investment, and acquisition needs but may be no less than 1% of the total dividends. The adjustment, if any, shall be proposed by the Board of Directors and approved by a Shareholders' Meeting. The Company may retain the earnings that are less than NT$0.1 per share of the cash dividend. 2) Dividend distributions proposed at the most recent shareholders' meeting On April 27, 2018, the Board approved the earnings appropriation proposal for the fiscal year 2017 to be approved at the 2018 shareholders' meeting as follows: A. It is proposed that a total of NT$21,056,749 thousand from the retained earnings of the fiscal year 2017 will be distributed in cash according to the record shown in the shareholder book on the distribution record date (Record Date). The common share dividend is NT$1.08 per share in cash. The cash dividend is NT$14,383 thousand for preferred shares B. B. In the event of capital raising or reduction; repurchase of the Company's shares, or transfer, conversion, or cancellation thereof; ESOP conversion into common shares at the request of employees; or disposal of shares by shareholders, which affects the number of outstanding shares on Record Date, the Board shall be authorized to handle relevant matters. 54 55 Capital Overview

(7) Impact on 2018 Business Performance and EPS Resulting From the Proposal of Stock Dividend Distribution Made in the Previous Shareholders' Meeting There was no announced ﬁnancial forecast for the Company for 2018; therefore, no disclosure of such information is applicable.

(8) Information Relating to the Compensation of Employees, Directors, and Supervisors 1) The percentages or ranges with respect to employee, director, and supervisor compensation, as set forth in the Company's Articles of Incorporation: 0.05% as employee compensation and no more than 0.7% as director and supervisor compensation. 2) The basis for estimating the amount of employee, director, and supervisor compensation, for calculating the number of shares to be distributed as employee compensation, and the accounting treatment of the discrepancy, if any, between the actual distributed amount and the estimated figure, for the current period: Estimation of employee, director, and supervisor compensation in 2017 is recognized as current- period expenses based on the Company's pretax income before the deduction of employee, director, and supervisor compensation at the end of the accounting period multiplied by the percentage set by the Company's Articles of Incorporation. Differences between the actual amount as resolved by the Board of Directors and the original estimates will be accounted for as changes in accounting estimates and recognized as the following year's profit or loss. 3) Information on any approval by the Board of Directors regarding the distribution of compensation: A. The cash compensation of employees was NT$18,630 thousand while the cash compensation of directors was NT$260,823 thousand. B. It is proposed that there will be no employee compensation distributed in the form of stock and the percentage of employee stock compensation over stock dividend distributed from earnings is 0%. C. Compensation discrepancy: a. The accrued expenses for employee and director compensation were NT$18,834 thousand and NT$263,679 thousand, respectively. The discrepancy between the actual distribution amount and the accrued expenses for employee and director compensation was NT$204 thousand and NT$2,856 thousand, respectively. b. Reason: The discrepancies were because the monthly closing number of pretax income before the deduction of employee, director, and supervisor compensation used to estimate the accrued expense differed from the final one provided to the auditor. c. Treatment: The difference will be treated via a change in accounting estimates in 2018. 4) The actual distribution of employee, director, and supervisor compensation for 2016 (with an indication of the number of shares, monetary amount, and stock price of the shares distributed) and, for any discrepancy between the actual distribution and the recognized employee, director, or supervisor compensation, the discrepancy, cause, and treatment:

54 55 2016 Distributed with the resolution from the Annual General Recognized expense Difference (Note 1) Explanation Shareholders' Meeting 1. Distribution status The difference was A. Employee NT$13,926 thousand NT$14,039 thousand NT$113 thousand because the monthly compensation closing number of distributed in the pretax income used form of cash to estimate accrued B. compensation expense differed from distributed in the the audited amount. form of stock (1) shares - - - (2) amount - - - (3) stock price - - - C. Compensation NT$194,959 thousand NT$196,551 thousand NT$ 1,592 thousand to directors and supervisors Note 1: The difference will be treated via a change in accounting estimates and recognized as a proﬁt or loss for 2017.

(9) Buyback of Treasury Stock: None

56 57 Capital Overview

2. Bonds, Preferred Shares, Global Depository Receipts, Employee Stock Options, and New Restricted Employee Shares (1) Bonds 1) Corporate bonds As of April 27, 2018 In thousands of NT dollars CTBC Holding 2012-1 CTBC Holding 2015-1 Corporate bond type subordinated unsecured senior unsecured corporate bond corporate bond Issue date Feb. 20, 2012 Aug. 3, 2015 Denomination NT$10,000 NT$1,000 Issuing and transaction Republic of China Republic of China location (Note) Market (TPEX listed) Market (TPEX listed) Issue price Issue by denomination Issue by denomination Total NT$12,000,000 NT$15,000,000 Tranche A: NT$9,600,000 Tranche A: NT$3,200,000 Tranche B: NT$2,400,000 Tranche B: NT$6,300,000 Tranche C: NT$5,500,000 Coupon rate The issue coupon of Tranche A has a fixed rate The issue coupon of Tranche A has a fixed rate of 1.66% per annum. of 1.15% per annum. The issue coupon of Tranche B has a fixed rate The issue coupon of Tranche B has a fixed rate of 1.80% per annum. of 1.35% per annum. The issue coupon of Tranche C has a fixed rate of 1.65% per annum. Tenor Tranche A: 7 years Tranche A: 3 years Maturity: Feb. 20, 2019 Maturity: Aug. 3, 2018 Tranche B: 10 years Tranche B: 5 years Maturity: Feb. 20, 2022 Maturity: Aug. 3, 2020 Tranche B: 7 years Maturity: Aug. 3, 2022 Subordinated/senior ranking Subordinated Senior Guarantee agency N/A N/A Consignee Mega International Commercial Bank Mega International Commercial Bank Underwriting institution N/A N/A Certified lawyer(s) Hsiendai Law Office: True Honesty International Law Offices: Kuo Hui Chi Kuo Hui Chi CPA KPMG: KPMG: Chen Fu Wei,Yang Leou-Fong Chen Chun Kuang, Yang Leou-Fong Repayment method Repayment in lump sum upon maturity Repayment in lump sum upon maturity Outstanding principal NT$12,000,000 NT$15,000,000 Terms of redemption or None None advance repayment

56 57 CTBC Holding 2012-1 CTBC Holding 2015-1 Corporate bond type subordinated unsecured senior unsecured corporate bond corporate bond Restrictive clause If the payment of interest or the repayment Target investors are restricted to professional of principal for the bond causes the ﬁnancial investors as deﬁned in Taipei Exchange Rules holding company's group capital adequacy Governing Management of Foreign Currency ratio to fall below the minimum requirement, Denominated International Bonds. the payment of interest or the repayment of principal shall be temporarily suspended. Interest or the repayment of principal (interest may be accumulated; interest on interest and the repayment of principal rollovers to be calculated at coupon rates) may be paid only when the aforementioned ratio meets the minimum requirement. Included as eligible capital Ye s No Name of credit rating Rating agency: Rating agency: agency, rating date, rating of Fitch Australia Pty Ltd., Taiwan Branch Fitch Australia Pty Ltd., Taiwan Branch corporate bonds Rating date: Rating date: Sep. 20, 2017 Sep. 20, 2017 Credit rating: Credit rating: A(twn) (rating of bond) AA(twn) (rating of issuer) Other rights attached As of the printing date of this annual report, None converted amount of (exchanged or subscribed) ordinary shares, GDRs, or other securities Issuance and conversion (exchange or None subscription) method Issuance and conversion, None None exchange or subscription method, issuing condition dilution, and impact on existing shareholders' equity Transfer agent None None Note: Corporate bonds are not overseas corporate bonds and are traded on OTC markets. 1) Convertible bonds: None 2) Exchangeable bonds: None 3) Shelf registration for issuing bonds: None 4) Corporate bonds with warrants: None 5) Private placement corporate bonds in the last three years: None

58 59 Capital Overview

(2) Issuance of Preferred Shares Issuance date Jan. 26, 2018 Items (CTBC Holding preferred shares B) Face value NT$10 Issue price NT$60 per share Number of shares issued 333,330,000 Total NT$19,999,800,000 1. The dividend yield is set at 3.75% per annum (equal to the sum of seven-year IRS 1.0825% + 2.6675%) on the issue price. The IRS rate will be reset every seven years and the pricing date for reset is two business days prior to the IRS reset date. The IRS rate is the arithmetic mean of seven-year IRS rates appearing on the Reuters pages "PYTWDFIX" and "COSMOS3" at 11:00 a.m. (Taipei time) on the relevant reset pricing date. If such a rate cannot be obtained, the Company will make a good-faith determination of the rate based on reasonable market price. 2. The fiscal year-end earnings of the Company shall be applied to the following uses in the stated order: payment of taxes, adjustments per financial and accounting principles, deficit reduction, legal reserve, special reserve by law or reversal, and preferred shares A dividends, and the remaining shall be paid to holders Rights and obligations Distribution of dividends and bonus of preferred shares B as the current year's dividends. 3. The Company has discretion over the dividend distribution of preferred shares B. The Company may decide not to distribute dividends of preferred shares B in the following circumstances: (a) there are no earnings in a fiscal year, (b) the earnings are insufficient to distribute dividends of preferred shares B, (c) the distribution of dividends of preferred shares B will cause the capital adequacy ratio to be lower than the regulatory requirement, and (d) other considerations. The preferred shareholders can not object to such a decision. 4. The preferred shares B are noncumulative, and the preferred shareholders do not have the right to claim any of the unpaid or omitted dividends in the future. 5. Preferred shareholders are not entitled to common shares' cash or stock dividends derived from earnings or capital reserve.

58 59 Issuance date Jan. 26, 2018 Items (CTBC Holding preferred shares B) Holders of preferred shares B have a prior claim on the Company's assets over common shareholders if it is Priority of claims in liquidation liquidated, but are subordinate to the holders of preferred shares A. The repayment shall be capped at the respective issue amount of preferred shares B upon liquidation. Preferred shareholders do not have voting rights or suffrage. However, they have voting rights in shareholders' Voting and election rights meetings with respect to agendas related to the rights and obligations of preferred shares B. In issuing new shares, holders of preferred shares B have Other the same pre-emptive right as common shareholders to subscribe for new shares. Amount recalled or converted NT$0 Balance not yet recalled or converted, or NT$19,999,800,000 terms of recall/conversion 1. Outstanding preferred shares cannot be converted to common shares and holders do not have the right to Outstanding preferred request the Company to redeem preferred shares. shares 2. Preferred shares B are perpetual but may be redeemed Terms of recall/conversion in whole or in part at issue price any time after seven years of issuance at the option of the Company. Unredeemed preferred shares shall continue to have the rights and obligations of issuance terms prescribed in this article. Highest 61.30 Market price per share Year-to-date April 27, 2018 Lowest 60.40 Average 60.78 Amount converted or subscribed up until Preferred shares B cannot be converted to common the publication of annual report shares. Other rights Issuance and conversion/subscription None rules Possible dilution of equity and impact on equity of existing shareholders None due to the issuance of preferred shares

(3) Issuance of Global Depository Receipts: None

(4) Issuance of Employee Stock Option Plan: None.

(5) Issuance of New Restricted Employee Shares: None.

60 61 Capital Overview

(6) Information of Other Financial Institutions Acquired or Transferred 1) Acquisition or transfer of financial institutions in the past year up to April 27, 2018 The Board of Directors of CTBC Holding subsidiary CTBC Bank passed a resolution on June 8, 2016 and signed a share subscription contract with Thailand's LH Financial Group for newly issued common stock and 35.6% of existing equity, totaling 7.545 billion shares, with a total transaction amount of approximately 16.6 billion baht. The Bank subsequently appointed three directors and two independent directors to the Group as well as the board of its subsidiary, LH Bank, to facilitate the business development of both. The transaction was completed on July 27, 2017. The price adequacy opinion of this acquisition was produced by PwC Taiwan, which provided the following evaluation: "Necessary review and evaluation analysis were conducted by PwC Taiwan on the evaluation method, assumptions, and conclusions of the valuation as well as other key considerations adopted for determining the transaction price. Moreover, various latent risks that may influence the transaction price were evaluated and analyzed. According to a summary of the aforementioned review and evaluation results, PwC Taiwan considers the estimated transaction price of 16.6 billion Thai baht as the estimated transaction price to be reasonable." 2) Merger or acquisition of financial institutions in the past five years A. CTBC Holding subsidiary CTBC Bank received approval from the Board of Directors on Oct. 31, 2013, to sign a share purchase contract with the major shareholders of The Tokyo Star Bank to purchase a 98.16% stake in the Japanese bank for 52 billion yen. The acquisition was approved on Dec. 20, 2013, at an extraordinary CTBC Holding shareholders' meeting. In addition, CTBC Bank received approval from the Board of Directors on Dec. 26, 2013, to purchase the remaining 1.84% of The Tokyo Star Bank from minority interests at the same price per share for a total of approximately 970 million yen. In total, CTBC Bank acquired 100% of Tokyo Star Bank shares at a purchase price of approximately 52.97 billion yen (approximately NT$15.89 billion). The price adequacy opinion of this acquisition was produced by PwC Taiwan, which provided the following evaluation: "Necessary review and analysis were conducted by PwC Taiwan on the evaluation method, assumptions, and conclusion of the valuation as well as other key factors adopted for evaluating the purchase price and share value of the potential acquisition of The Tokyo Star Bank by using relevant evaluation data. Moreover, various latent risks that may influence the transaction price were evaluated and analyzed. According to a summary of the aforementioned review and evaluation results, PwC Taiwan considers the estimated transaction price of 52 billion yen as a purchase price for acquiring The Tokyo Star Bank to be reasonable." B. The Board of Directors gave approval on July 31, 2013, for CTBC Life Insurance to handle the operational matters, assets, and liabilities of Manulife Taiwan, with the acquisition completed on Jan. 1, 2014. The transaction price was based on the overall value of Manulife (NT$720 million); after excluding reserved assets to the value of NT$840 million, Manulife was required to pay NT$120 million to CTBC Life Insurance. In addition, the changes in the designated net value between the evaluation record date and the settlement date were used as the basis for price adjustment. The price adequacy opinion of this acquisition was produced by PwC Taiwan, which provided the following evaluation: "Necessary review and evaluation analysis were conducted by PwC Taiwan on the data source, evaluation method, assumptions, and conclusion of the valuation as well as other key considerations for determining the

60 61 purchase price and the embedded value referenced for the potential transaction by using relevant evaluation data. Moreover, a valuation method used in the insurance sector in practice was employed to evaluate the purchase price of the potential transaction. PwC considers that having the seller pay NT$120 million based on the evaluation record date and the conclusion drawn for the aforementioned review, and considering the adjusted net value as a reference for estimating the purchase price of the potential transaction, to be reasonable." C. CTBC Holding received approval from the Board of Directors on May 12, 2015, to acquire 100% of the shares of Taiwan Life Insurance Co., Ltd. through share conversion, exchanging 1 ordinary share of Taiwan Life with 1.44 ordinary shares of CTBC Holding (hereafter referred to as the "share exchange ratio"). Because CTBC Holding obtained the approval of the Board of Directors on July 21, 2015, to use earnings for cash dividend distribution and capital increase, the share exchange ratio was adjusted to 1.6129 using the formula listed in the share conversion contract between both parties. The share conversion was completed on Oct. 15, 2015. The price adequacy opinion of this share conversion was produced by Ernst & Young Taiwan, which provided the following evaluation: "The reasonable range of stock exchange ratio based on the evaluation record date (Dec. 31, 2014) as evaluated by Ernst & Young Taiwan is approximately 1.10–1.56 of CTBC Holding's ordinary shares in exchange for each ordinary share of Taiwan Life. For this transaction, Ernst & Young Taiwan considers that CTBC Holding's use of 1.44 of its ordinary shares in exchange for every ordinary share of Taiwan Life falls within the range as evaluated above. Therefore, this stock exchange ratio is reasonable. CTBC Holding passed a resolution at a stockholders' meeting on June 29, 2015, to issue ordinary shares at a cash dividend of NT$0.81 per share and at a stock dividend of NT$0.81 per share, distributing a total of NT$1.62 per share. The Board of Directors of CTBC Holding passed a resolution on July 21, 2015, stipulating Aug. 14, 2015, as the record date for capital increase and cash dividend distribution. Following the consideration of the distribution of the stock dividend, the reasonable range of stock exchange ratio is approximately 1.23– 1.75 of CTBC Holding's ordinary shares in exchange for each ordinary share of Taiwan Life. According to the share conversion contract, CTBC Holding's use of 1.6129 of its ordinary shares in exchange for every ordinary share of Taiwan Life falls within the range as evaluated above. Therefore, this stock exchange ratio is reasonable." D. Taiwan Life and CTBC Life Insurance are wholly owned subsidiaries of CTBC Holding. The merger and acquisition of Taiwan Life and CTBC Life was approved by the Board of Directors on Oct. 15, 2015, as an effort to effectively integrate resources, expand the Company's life insurance business, and maximize group synergies to lead to an increased economy of scale. CTBC Life and Taiwan Life merged on Jan. 1, 2016, with Taiwan Life the surviving company. The stock exchange ratio was 1.23 of CTBC Life's ordinary shares in exchange for each ordinary share of Taiwan Life. The price adequacy opinion of this acquisition was produced by PwC Taiwan, which provided the following evaluation: "The stock exchange ratio was evaluated by PwC Taiwan based on the premise that Taiwan Life is the wholly owned subsidiary of CTBC Holding. Considering the nature of the tangible and consolidated targets of this transaction, PwC deems that calculating the stock exchange ratio of this merger and acquisition on the basis of embedded value is reasonable. PwC Taiwan conducted necessary review and evaluation

62 63 Capital Overview

analysis on the ﬁnancial statement, key assumptions of embedded value, calculation results, and relevant information. According to a summary of the aforementioned review and evaluation results, exchanging 1.23 ordinary shares of Taiwan Life for each ordinary share of CTBC Life in the current M&A is reasonable and conforms to Article 45 of the Financial Holding Company Act and Article 4 of the Regulations Governing the Management of Non-Credit-Related Transactions between Insurance Firms and their Related Parties regarding the prohibition of offering terms that are more favorable than other comparable counterparties.

3. Capital Utilization Plan Implementation

(1) Public Issues or Private Placements of Securities That Have Not Been Completed As of the Quarter Preceding the Date of Printing of This Annual Report: None

(2) Such Issues and Placements Completed in the Past Three Years That Have Not Yet Fully Yielded the Planned Beneﬁts: None

62 63 V. Operational Highlights

1. Business Activities

(1) CTBC Financial Holding 1) Business activities CTBC Financial Holding is a financial holding company; it is entitled to invest in and conduct business relating to banking, bills financing, credit cards, trusts, insurance, securities, futures, venture investment, securities investment trusts, foreign financial institutions, and other finance-related activities approved by the competent authorities. 2) Primary subsidiaries CTBC Bank Co., Ltd.; Taiwan Life Insurance Co., Ltd.; CTBC Securities Co., Ltd.; CTBC Venture Capital Co., Ltd.; CTBC Asset Management Co., Ltd.; CTBC Investments Co., Ltd.; CTBC Security Co., Ltd.; and Taiwan Lottery Corporation. 3) Revenue breakdown In millions of NT dollars Revenue source Amount % Investment income under equity method 38,938 99.86 Other revenue 55 0.14 Total 38,993 100.00

(2) CTBC Bank 1) Business activities A. Institutional banking and overseas business a. Commercial banking We provide diversified professional financial services, including loans, transaction financing, cash management, fiduciary and agent services, and international trade financing. b. International business We leverage the Bank's overseas reach and integrated platform to provide Taiwan-based businesses with cross-border services while actively developing our overseas customer base. We are continuing to strengthen our financial hub functions in Hong Kong, Singapore, and New York, refining focus on the cross-border finance needs of Greater China, Southeast Asia, North America, and Japan. In addition, our overseas personal banking business operations are developing diversified and differentiated financial products and services in line with the specific stage of development of various markets and our target customers in them. c. Capital markets We provide tailored solutions to meet clients' financial requirements. These services include syndication lending, structured finance, and financial advisory services. We also offer wide-ranging foreign exchange and derivative products to fulfill clients' hedging and financing as well as bond issuance and underwriting needs, with specialization in structured product design and proprietary trading. B. Retail banking a. Wealth management We provide personal foreign currency deposits, financial planning, asset allocation planning and consultation, and services for the purchase of various financial products.

64 65 Operational Highlights

b. Consumer banking We provide a variety of personal unsecured loans, including regular and revolving credit, and guaranteed lending in products such as home loans, on-lending, installment ﬁnancing, policy-oriented loans, and home equity loans. C. Credit card and payment services a. Credit cards: We provide issuing and acquiring services for credit cards, stored value cards, and debit cards. b. New payment methods: We are developing e-wallet, third-party, fee payment, and cross-border transaction platform services. In millions of NT dollars Revenue source Amount % Institutional banking and overseas business 46,390 49.52 Retail banking 41,335 44.12 Other businesses 5,958 6.36 Total 93,683 100.00 Note: Based on CTBC Bank's consolidated basis

(3) Taiwan Life 1) Business activities Taiwan Life provides life insurance products. Its products are primarily marketed through banking insurance, sales personnel, insurance brokers, and direct means. Insurance applications are required to undergo approval procedures before being underwritten to insurers. 2) Revenue breakdown In millions of NT dollars Revenue Source Amount % Life insurance 263,355 91.33 Health insurance 12,687 4.40 Accident insurance 1,473 0.51 Annuity insurance 10,830 3.76 Total 288,345 100.00

(4) CTBC Securities 1) Business activities A. Underwriting The services mainly involve IPO and M&A counseling for Taiwan Stock Exchange, Taipei Exchange, and Taipei Exchange Emerging Stock Board listed companies and prospects. CTBC Securities assists these ﬁrms in raising capital, which in turn provides liquidity to the capital market and accelerates economic development. B. Financial consultation services Our professional advisers assist domestic and foreign clients with M&A as well as foreign investment. C. Securities brokerage Entrusted by investors with the sale and purchase of securities on the listed, OTC, and emerging securities markets; margin ﬁnancing operations ; securities lending ; and open-ended loan operations.

64 65 D. Re-consignment services Entrusted by investors with the sale and purchase of securities on world markets including the Dow Jones, Hong Kong Stock Exchange, Shanghai-Hong Kong Stock Connect, the Singapore Exchange, and the Japanese exchange. E. Futures brokerage This service involves accepting investors' trade orders for futures and options. F. Proprietary trading Business activities include securities trading in both the stock exchange and over-the-counter markets as well as the development and underwriting of conditional bond-trading services, exchange of convertible/exchangeable corporate bonds, operation of futures and options in domestic and foreign futures exchange, and other proprietary-related business approved by the competent authorities. G. Options issuance This comprises the issuance and hedging of call (put) options, callable bull/bear contracts, and other authority-approved derivative transactions. H. E-commerce We plan and design front-end electronic platform services as well as back-end data applications with the aim of improving the competitiveness of our digital services. 2) Revenue breakdown In millions of NT dollars Revenue source Amount % Proprietary 717 48.81 Brokerage 646 43.97 Underwriting 106 7.22 Total 1,469 100.00

(5) CTBC Venture Capital 1) Business activities CTBC Venture Capital seeks long-term holdings in companies yet to list on the Taiwan Stock Exchange or Taipei Exchange. 2) Revenue breakdown In 2017, CTBC Venture Capital made 17 investments for a sum of NT$709 million. Of these, 11 cases were new investments whereas six were existing investments; in addition, nine of them were local investments whereas eight were foreign investments. Combined with its existing portfolio, the company now has 86 cases on hand with total invested capital of NT$3.584 billion, of which 73% (NT$2.616 billion) has been invested locally, with the remaining 27% (NT$968 million) invested abroad. Below is a summary of the company's portfolio, classiﬁed by industry: In millions of NT dollars Revenue source Amount % Information technology software and hardware 660 18.41 Culture and creative industry 579 16.16 Consumer industry 353 9.85 Biotech industry 615 17.16 Traditional industry 743 20.73

66 67 Operational Highlights

Revenue source Amount % Green energy-saving industry 114 3.18 Precision machinery industry 124 3.46 Other industries 396 11.05 Total 3,584 100.00

(6) CTBC Asset Management 1) Business Activities A. Domestic distressed debt purchasing business. B. Provides consulting services for non-performing loans. C. Handles claims collections and management services. D. Investment are derived from real estate, movable property, and rights on the foreclosure market as well as public auctions held by government agencies. E. Investment and activation of idle assets of the parent company as well as its affiliates. F. Provision of advances for urban renewal projects G. Acceptance of consignment from CTBC affiliates to rent, sell, or manage and maintain real estate, and implementation of urban renewal projects H. Investment in financial leasing businesses in mainland China 2) Revenue breakdown In millions of NT dollars Revenue source Amount % Gain on disposal of non-performing assets 7 1.28 Interest revenue 540 98.36 Other gains/losses 2 0.36 Total 549 100.00

(7) CTBC Investments 1) Business activities CTBC Investments' main services include securities investment trusts, discretionary investment, foreign agency services, and other business activities approved by the competent authority. By the end of December 2017, the company managed assets totaling NT$109 billion. Going forward, the company will continue focusing on designing and offering ﬁxed-income products and marketing them primarily through custodian banks and channels within the ﬁnancial holding group. 2) Revenue breakdown In millions of NT dollars Revenue source Amount % Management fee income 344 99.68 Commission income 1 0.16 Other operating income 1 0.16 Total 346 100.00

66 67 (8) CTBC Security 1) Business activities A. Stationed security a. Banking security services b. Security services at office buildings, business premises, and community residences B. Consultative services on anti-theft, fire safety, and disaster prevention measures 2) Revenue breakdown In millions of NT dollars Revenue Source Amount % Stationed security at office buildings and residential communities 90 37.65 Banking security services 149 62.35 Total 239 100.00 (9) Taiwan Lottery 1) Business activities Taiwan Lottery's main operations comprise the issuance, sale, marketing, redemption, and management of Taiwan's public welfare lottery on behalf of CTBC Bank. 2) Revenue breakdown In millions of NT dollars Revenue source Amount % Lottery service income 1,460 100.00%

2.Human Resources Year Dec. 31, 2017 Dec. 31, 2016 CTBC Financial Holding Co., Ltd. Number of employees 82 37 Average age (years) 40.9 46 Average tenure of employment (years) 3.4 2.9 Employee count Percentage Employee count Percentage Ph.D. 4 4.9% 4 10.8% Education Graduate school 54 65.8% 25 67.6% University/college 24 29.3% 8 21.6% CTBC Bank Co., Ltd. Number of employees 11,232 11,060 Average age (years) 38.1 37.8 Average tenure of employment (years) 9.5 9.2 Employee count Percentage Employee count Percentage Ph.D. 19 0.2% 21 0.2% Graduate school 2,523 22.5% 2,410 21.8% Education University and college 7,950 70.8% 7,788 70.4% Senior high school 691 6.1% 783 7.1% Below senior high school 49 0.4% 58 0.5%

68 69 Operational Highlights

Year Dec. 31, 2017 Dec. 31, 2016 CTBC Securities Co., Ltd. Number of employees 456 461 Average age (years) 40 39.2 Average tenure of employment (years) 7.8 7.3 Employee count Percentage Employee count Percentage Ph.D. 4 0.9% 3 0.7% Graduate school 113 24.8% 102 22.1% Education University and college 305 66.9% 316 68.5% Senior high school 34 7.4% 39 8.5% Below senior high school 0 0.0% 1 0.2% CTBC Security Co., Ltd. Number of employees 346 360 Average age (years) 40.8 39.8 Average tenure of employment (years) 7.2 6.7 Employee count Percentage Employee count Percentage Graduate school or higher 7 2.0% 2 0.6% Education University and college 161 46.5% 175 48.6% Senior high school 176 50.9% 181 50.2% Below senior high school 2 0.6% 2 0.6% Taiwan Lottery Corporation Number of employees 207 207 Average age (years) 38.9 38 Average tenure of employment (years) 7.5 7 Employee count Percentage Employee count Percentage Ph.D. 2 1.0% 2 1.0% Education Graduate school 32 15.5% 35 16.8% University and college 164 79.2% 162 78.3% Senior high school 9 4.3% 8 3.9% Taiwan Life Insurance Co., Ltd. Number of employees 3,773 4,044 Average age (years) 43.4 42.9 Average tenure of employment (years) 9.4 8.9 Employee count Percentage Employee count Percentage Ph.D. 9 0.2% 9 0.2% Graduate school 404 10.7% 390 9.7% Education University and college 2,370 62.8% 2,487 61.5% Senior high school 932 24.7% 1,096 27.1% Below senior high school 58 1.6% 62 1.5%

68 69 Year Dec. 31, 2017 Dec. 31, 2016 CTBC Venture Capital Co., Ltd. Number of employees 28 34 Average age (years) 43.3 40.4 Average tenure of employment (years) 2.9 3 Employee count Percentage Employee count Percentage Ph.D. 1 3.6% 1 2.9% Education Graduate school 23 82.1% 26 76.5% University and college 4 14.3% 7 20.6% CTBC Asset Management Co., Ltd. Number of employees 14 13 Average age (years) 50.3 48.1 Average tenure of employment (years) 1.5 0.9 Employee count Percentage Employee count Percentage Education Graduate school or higher 6 42.9% 5 38.5% University and college 8 57.1% 8 61.5% CTBC Securities Investment Trust Co., Ltd. Number of employees 101 95 Average age (years) 40.2 39 Average tenure of employment (years) 3.2 2.6 Employee count Percentage Employee count Percentage Graduate school or higher 37 36.6% 33 34.7% Education University and college 63 62.4% 61 64.2% Senior high school 1 1.0% 1 1.1%

70 71 Operational Highlights

3.Social Responsibility

As an organization committed to sustainable business development, CTBC Holding has long worked to promote corporate social responsibility and strengthen its corporate governance, environmental protection endeavors, and social participation. Eleven years ago, in 2007, CTBC Holding published the Taiwanese financial industry's CSR report. In another industry first, we received ISO 50001 Energy Management certification in 2012. In 2016, CTBC became an industry leader by adopting the principles of integrated reporting and meeting the GRI G4 International Reporting Guidelines. In 2017, we responded to the United Nations' Sustainable Development Goals, keeping pace with the global community. Over the years, the group's long-term CSR efforts have been widely and warmly recognized by professional organizations in Taiwan and abroad. In 2017 alone, CTBC was chosen for the first time for inclusion in the Dow Jones Sustainability Indices' World Index and yet again selected as a constituent stock for the Emerging Markets Index. In addition, we were included in Morgan Stanley Capital International ESG Leaders Indexes and in the FTSE4Good Emerging Index, while also receiving a Leadership A- rating from CDP, making it the top performer in Taiwan's financial sector for the second consecutive year and demonstrating the tangible results delivered by our implementation of CSR, corporate governance, and sustainable development. Furthermore, we are the only Taiwanese financial institution to be ranked among the top 500 global banking brands for five years running by British based brand appraisal agency Brand Finance. Finally, in the 2017 Best Taiwan Global Brands survey conducted jointly by the Ministry of Economic Affairs' Industrial Development Bureau and brand consultancy Interbrand, CTBC was for the second consecutive time ranked as the most valuable brand in Taiwan's financial sector. The brand value supremacy of our group and bank are true points of pride.

(1) Sustainable Governance To strengthen corporate governance and enhance business performance, in 2006 we implemented a professional management system under which the management team, led by the President, is responsible for the performance of the group, while the Chairman and the Board of Directors oversee the performance of the management team. We have also augmented our participation in investor conferences both in Taiwan and internationally to properly disclose operational and financial information. In 2008, the independent director system was introduced and three independent directors from the business, legal, and academic communities were appointed to strengthen the expertise and independence of the Board. To reinforce the Board's management and supervisory functions, the Audit Committee, Remuneration Committee, and Risk Management Committee were established under the Board of Directors in 2009. The following year, the Corporate Governance Officer position was created directly under the Office of the Chairman to assist the Board of Directors in implementing sound corporate governance practices throughout CTBC Holding and its subsidiaries as well as facilitating coordination among these subsidiaries. To uphold the principle of separating management from oversight, the board directors of CTBC Holding and CTBC Bank do not assume any management positions. Through these efforts, we have successfully built a system of clear separation of responsibilities, with managers in charge of operations, while the Board of Directors is responsible for supervising the management team. With the reappointment of the Board in 2016, we became first financial institution in Taiwan to have independent directors take up more than half the seats on its board. The four independent directors on our seven-member Board established a new model of corporate governance among ﬁnancial holding companies. By leveraging their diverse professional experience and independent status, these independent directors will

70 71 continue supervising the management team during major decisions and support the Company to further achieve sustainable development. At the end of 2016, we took another significant step to reinforce our overall supervisory mechanism by establishing the Nominating Committee. This body is authorized to develop the standards and qualiﬁcations required of directors and supervisors. It also evaluates the performance of the Board and devises training plans for directors. In 2017, we strengthened our information disclosure procedures and reviewed our corporate governance- related regulations as part of our continual efforts to ensure international-standard corporate governance. To take on more social responsibility, we have implemented CSR policies with concrete measures and formed dedicated groups to carry out related tasks. The CSR Taskforce was set up in 2011 and over the next six years developed into the CTBC Holding Corporate Sustainability Committee, which is chaired by the President of CTBC Holding. The presidents of CTBC Holding subsidiaries are members of the committee, and independent directors are invited to attend and supervise meetings. The committee is further separated into several working groups responsible for corporate governance, employee care, customer care, social participation, and environmental sustainability to ensure the thorough implementation of related policies. The committee empowers CTBC in all aspects of environmental, social, and governance and endeavors to maximize the interests of stakeholders.

(2) Social Care With the goal of achieving sustainable business development, CTBC leads the industry in not only business innovation and management but also charitable campaigns aiming to eradicate social problems in Taiwan. The Company has been recognized as a role model in social care as it has launched many groundbreaking social welfare programs, with the group's resources and embedded corporate culture of volunteering directed to where they are most needed. Light Up a Life was the ﬁrst charity initiative established by the Company, and as such marked the start of our commitment to public welfare. Our devotion to social welfare over the decades was inspired by a simple love of children. Thirty-three years ago, in 1985, CTBC Holding founder Jeffrey Koo Sr. felt compelled to make a difference in the lives of children living in remote areas and initiated the Light Up a Life fundraising campaign. All the collected donations were given to social welfare organizations working with disadvantaged children and families. We believe that when children living in remote areas are given adequate support and opportunities, they can change their lives for the better. This has been proven true time after time by Light Up a Life, which is now the longest-running charity campaign in Taiwan and the most visible platform for the public to help disadvantaged children. As of 2017, it has raised donations exceeding NT$1.8 billion that have been used to help approximately 400,000 people. These results underline the public's support, trust, and goodwill for the campaign. Through our decades of work with disadvantaged children, we have discovered that many of those living in remote areas are raised by their grandparents. In these areas, up to 36% of children loiter outside after school without parental supervision. To provide these children with a healthier environment in which to live and pursue their dreams, we launched the Taiwan Dream Project. The initiative has so far helped build 20 Taiwan Dream Project sites for the children of remote mountainous areas and outlying islands. The project works by marshalling central and local government resources and leveraging the efforts of volunteers and the general public to provide children with a warm and loving second home. In 2017, in response to international trends and to maximize the effect of corporate resources invested in social welfare, we introduced the social return

72 73 Operational Highlights

on investment (SROI) measurement mechanism, applying it on the group's first Taiwan Dream Project site. This SROI evaluation, conducted on the Dahu Community of Bitou Township in Changhua County, found that every NT$1 invested generated NT$4.26 in social value. Also in 2017, the Taiwan Dream Project was recognized by Enterprise Asia's Asia Responsible Entrepreneurship Awards. One problem that plagues children in both remote and urban areas is drug abuse. In recent years, CTBC has observed the increasingly severe influence of such abuse on children's development. To address this, we have integrated resources from academia, domestic institutions, and professional foreign groups to establish the CTBC Anti-Drug Educational Foundation in 2015. As Taiwan's first corporate-sponsored group specializing in drug education, the Foundation has served as a crucial drug awareness platform for the government and the public, partnering with government agencies and NGOs worldwide including the justice and education ministries in Taiwan, the Drug Enforcement Administration Educational Foundation in the United States, and the China Narcotics Control Foundation in mainland China. In addition, to raise children's awareness of the dangers of drugs in a unique manner that breaks free of conventional, low-impact methods, it has utilized 3D interactive technology and documentaries as part of countrywide special exhibitions, reaching more than 130,000 people in the process. In 2017, we collaborated with the Ministry of Justice's Agency of Corrections to launch the enhancement program of child-raising in correctional institutions, working to improve the facilities and the conditions in which incarcerated mothers raise their children and providing early childhood courses on drug prevention. CTBC has participated proactively in drug prevention education and in 2017 was recognized as the exemplary anti-drug organization by the Executive Yuan for its exemplary service in combating drug abuse. In addition to helping disadvantaged children, CTBC also helps parents start their own businesses to escape poverty. Inspired by the microfinancing concept of Nobel Peace Prize winner Dr. Muhammad Yunus's Grameen Bank, we introduced the first such initiative in Taiwan in 2011 with the CTBC Poverty Alleviation Program (CPAP). Combining our expertise in entrepreneurship counseling, lending, social work, and business planning, CPAP provides microfinancing to help disadvantaged families meet their basic needs and escape poverty. CTBC subsequently introduced the CTBC Caring Shop brand to promote products created through CPAP microloans. Over the past six years, CPAP has provided support for 1,200 would-be entrepreneurs, of whom 211 have so far succeeded in starting up their own businesses. For its work giving disadvantaged children and their families the courage to pursue their dreams, the program won the Excellence Award under the 11th Charity Support Category at the 2015 Corporate Social Responsibility Award Ceremony held by Global Views Monthly, as well as the Taiwan Corporate Sustainability Social Inclusion Award. Also in recent years, we discovered that many children in remote locations have both a passion and a talent for baseball but that this potential often goes unharnessed due to a lack of stable funding and resources. In 2014, CTBC initiated the CTBC Youth Baseball Project, which has so far provided funding for 24 youth league baseball teams. CTBC is endeavoring to improve Taiwan's overall competitiveness in baseball—widely considered the national pastime of Taiwan—by supporting both this youth competition as well as the professional league through sponsorship and by organizing tournaments. We are also working to cultivate talented female golfers and sponsor golf tournaments to promote Taiwan to the world through the sport. CTBC firmly believes that education provides people with opportunities to change their lives. In 2015, we made a donation to a college on the brink of closure and transformed it into CTBC Business School. The college, which offers grants and scholarships to disadvantaged students who display outstanding academic performance, has achieved a 100% student enrollment rate in the three years since its establishment. The Ministry of Education has praised the school as a new model of corporate philanthropy. In 2017, CTBC established the Southern Taiwan's first English-language experimental high school, CTBC International Academy, providing an alternative to the traditional approach to education.

72 73 We have long dedicated a great deal of effort to supporting the arts, having founded the CTBC Foundation for Arts and Culture in 1996. Since then, we have been recognized 12 times by the Art and Business Awards. The CTBC Arts Festival was launched in 2015 with the mission of bringing cultural arts to every corner of Taiwan. In 2017, for the first time, an outdoor charity event was held, with the venue in Taichung City attracting an audience of more than 10,000 people. The Foundation has also launched the LOVE & ARTS for Dreams Initiatives, bringing instructors to rural areas to teach children various forms of art—at the same time teaching them not only to dare to dream but to chase those dreams and make them a reality. Our support for artistic and cultural events enables people to experience the arts in more diverse forms than they otherwise could. Such sponsorship in 2017 included an exhibition Musée d'Orsay: The Aesthetic Worlds of the 19th Century and The World of Studio Ghibils Animation Exhibition. In addition to our efforts to improve society through external arms and means, we have also implemented the Good Deeds Leave program—the first of its kind among financial holding companies—to encourage a culture of volunteering within the Group. Currently, we have nearly 2,300 volunteers providing assistance such as tutoring, financial management, American English classes, and anti-drug education. These volunteers have already worked a total of more than 140,000 hours. CTBC not only encourages its employees to extend their love to others, but it also cares for them like family members. To meet its employees' basic needs as well as the need for self-development, CTBC provides generous and incentivized compensation schemes in addition to various benefits, training programs, and a promotion mechanism superior to those of industry peers. We also value human rights, gender equality, and transparent channels for labor–management communication. Beginning in 2017, human rights issues were covered in new employee training. That women fill nearly 60% of managerial positions in CTBC and that the rate of women who receive the "Best Employee" title exceeds 60% demonstrate just how committed we are to nondiscriminatory career advancement. "We are family" is more than a slogan-it is the spirit of the CTBC brand, in which we care for our employees as well as our clients in the way we do our family. This care in turn spreads across our community and country, like ripples in a pond, as we continue to expand our efforts in five categories of charitable endeavors: social welfare, physical education, drug awareness, education, and culture and the arts. CTBC devotes resources to creating positive cycles with the goal of encouraging public participation and contributing to a better world.

(3) Environmental Sustainability In line with our commitment to sustainable development and "Green Policy, Green Future," we have built upon the foundations of energy efficiency, carbon reduction, resource management, and green buildings to expand our green action further to green services, green sourcing, and green consumption, with the ultimate goal of protecting the Earth. The concepts of environmental protection and energy conservation are at the core of the design of the Group's headquarters, CTBC Financial Park, which boasts 29,752 square meters of park area, 28,099 square meters of public and green space, and 264,463 square meters of gross floor area. The complex incorporates various environmental-protection and energy-saving techniques and is the largest financial institution building in Taiwan to receive diamond-level green building status. The building's water facilities, fountains, and sprinkler equipment utilize rainwater reclamation and water-recycling technologies, while solar panels are installed to supply electricity for the financial park's public spaces. We are also working to shrink our carbon footprint, such as by purchasing products that meet strict standards in environmental protection, energy efficiency, water conservation, and green construction. As a result, the Group has received the Outstanding Contribution to Green Purchasing by a Private Enterprise award from Taipei City Government's Department of Environmental Protection for eight consecutive years.

74 75 Operational Highlights

In the spirit of the Equator Principles, CTBC has established a credit policy that supports the green energy and environmental protection industries. In making investment and financing decisions, we also consider carbon emissions and carbon-related issues along with the potential environmental and social impact. CTBC Bank adhered to the Equator Principles in 2017 and is expected to formally sign on before the end of 2018. It will also finalize the pricing of the first green bonds issued in the Taiwan market and raise funds for a green investment program. The program will address environmental protection, climate change, and green energy, and provide support to small and medium-sized businesses investing in green energy-related infrastructure. Climate change is a tremendous global challenge, and CTBC has taken concrete actions to realize its commitment to the planet. We were one of the first Taiwanese financial institutions that signed on to the CDP in 2012. In the same year, we became the first financial institution in Taiwan to be granted ISO 50001 Energy Management certification. In 2015, CTBC received both ISO 14001 Environment Management System and ISO 14064-1 Greenhouse Gas Emissions Reporting certification. In 2017, all 151 of CTBC Bank's branches in Taiwan received ISO 50001 Energy Management certification, ISO 14001 Environment Management certification, and ISO 14064-1 Greenhouse Gas Emissions Reporting certification, while Taiwan Life Insurance earned ISO 14064- 1 Greenhouse Gas Emissions Reporting certification. Also in 2017, we received for the second consecutive year the Leadership A- recognition from CDP—the best result in Taiwan's financial industry. That same year, CTBC was honored with the R.O.C. Enterprise Environmental Protection Silver Award from the Executive Yuan's Environmental Protection Administration, the Outstanding Energy Saving Performance Award from the Ministry of Economic Affairs, and the Green Leadership Award from the Asia Responsible Entrepreneurship Awards. In addition, we became the first financial institution in Taiwan to obtain renewable energy certification from the Ministry of Economic Affairs. In the 51 years since the founding of CTBC, the brand of the Group has been our most important intangible asset. In 2017, CTBC won 176 top domestic and foreign awards recognizing the Group's efforts in business performance, brand image, CSR, and sustainable performance. Going forward, we will continue to integrate sustainable development as well as environmental, social, and governance issues into our policies and development programs. We will also continue to uphold our "We are family" brand spirit, "protect and build" corporate mission, and "caring, professional, and trustworthy" brand values in order to promote corporate governance and fulfill our corporate social responsibility. The Group will strive to create value for its customers, employees, shareholders, suppliers, and society as it develops its brand as a "Taiwan Champion and Asia Leader." CTBC also aspires to be the most reliable financial institution with the strongest governance for its customers and shareholders.

74 75 VI. Financial Information

1. Audit Committee Report

In accordance with Article 14-4 of Security and Exchange Law and with Article 219 of the Company Act, the undersigned, have duly examined and accepted as correct the ﬁnancial reports for the year 2017 along with the business report and earnings distribution plan submitted by the Board of Directors of CTBC Financial Holding Co., Ltd.

CTBC Financial Holding Co., Ltd. Audit Committee Convener

Shih-Chieh, Chang Taipei, Taiwan, R.O.C. April 27, 2018

76 77 Financial Information

2. Independent Auditors' Report

To the Board of Directors of CTBC Financial Holding Co., Ltd.:

Opinion We have audited the consolidated financial statements of CTBC Financial Holding Co., Ltd.("the Company") and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the consolidated statement of comprehensive income, changes in stockholders' equity and cash flows for the years ended December 31, 2017 and 2016, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 2017 and 2016, and its consolidated financial performance and its consolidated cash flows for the years ended December 31, 2017 and 2016 in accordance with the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies, the Regulations Governing the Preparation of Financial Reports by Public Banks, the Regulations Governing the Preparation of Financial Reports by Securities Firms, the Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants, the Regulations Governing the Preparation of Financial Reports by Insurance Companies, International Financial Reporting Standards (IFRSs), and International Accounting Standards (IASs), interpretations and pronouncements as accepted by the Financial Supervisory Commission of the Republic of China ("FSC").

Basis for Opinion We conducted our audit in accordance with the Regulations Governing Auditing and Certification of Financial Statements of Financial Institutions by Certified Public Accountants and the auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company and its subsidiaries in accordance with the Certified Public Accountants Code of Professional Ethics in Republic of China ("the Code"), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of our opinion.

Emphasis of Matter The judicial cases as stated in Note 9(e) are still under investigation by the judiciary, and the results remain uncertain. Our opinion is not modiﬁed in respect of this matter.

Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2017. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 1. Assessment of the fair value of financial instruments Please refer to Note 4 (f) for the related accounting policies of the assessment of the fair value of financial instruments, Note 5 (c) for the accounting assumptions and estimation uncertainty, and Note 6 (au) for the other details. How the matter was addressed in our audit: Parts of the financial instruments owned by the Company and its subsidiaries as of December 31, 2017 were valued via evaluation model due to the lack of public transaction prices, and parts of the referred input values could not be obtained from the public market. Thus, it demands significant professional judgments from the management by using different valuation techniques and assumptions for input values. Therefore, the assessment of fair value of financial instruments is one of the key audit matters. Our principal audit procedures included: testing the management's control procedures over measurement and disclosure of financial instruments, including evaluating how the management chooses the appropriate evaluation method and the prime parameter hypothesis, and confirming that the presentation and disclosure of financial instruments are in accordance with the International Financial Reporting Standards (IFRSs). For financial assets with active market prices, we used sampling test to assess the appropriateness of public quoted prices. As to financial assets using evaluation model to measure their fair value, we used sampling test to confirm the appropriateness of the evaluation method and the prime input values used by the management. 2. Impairment of loans and receivables Please refer to Note 4 (f) for the related accounting policies of impairment of loans and receivables, Note 5 (a) for the accounting assumptions and estimation uncertainty, and Note 6 (g), (h) and (au) for the other details. How the matter was addressed in our audit: The management assessed the impairment of loans and receivables by determining whether there is any observable evidence indicating

76 77 impairment, and dividing them into collective assessment and individual assessment to measure them by using different impairment methods. For collective assessment, the impairment is calculated by establishing an impairment model and using the past loss experience on assets with similar credit risk characteristic to form basic estimation. For individual assessment, the measurement is based on expected future recoverable cash flows. The aforementioned measurement methods involved significant professional judgments and estimation by the management; therefore, the impairment of loans and receivables is one of the key audit matters. Our principal audit procedures included: understanding the methodology and related control procedures on how the management assesses and measures the impairment amount of loans and receivables. For collective assessment, we assessed the impairment model adopted by the management and reviewed the appropriateness of the calculation of the impairment parameters (including probability of default rate and recovery rate) via sampling. For individual assessment, we used sampling test to assess the appropriateness of the estimation of future recoverable amounts and the value of collateral. Meanwhile, we assessed whether the allowance for loans and receivables meets the regulation requirements. 3. Provision of insurance liability Please refer to Note 4 (s) for the related accounting policies of insurance liability, Note 5 (e) for the accounting assumptions and estimation uncertainty, and Note 6 (z) and (ad) for the other details of the provision of insurance liability. How the matter was address in our audit: The estimation of insurance liability is subject to future uncertainties. The assumption of life insurance reserve adopts a fixed cost basis, that is to say, the provision is calculated by a reserve rate upon the issuance of insurance policy. Provision of unearned premiums is calculated by actuaries according to each product's characteristic and its undue risk. The main assumptions of claim reserve are claim development factors and expected claims rates. To evaluate the adequacy of insurance liabilities, estimating the discounted future cash flows should take into consideration the future insurance payments, insurance income and related expenses. The aforementioned evaluation involved the professional judgments of the management which will affect the recognition amount of insurance liabilities. Therefore, evaluating the provision of insurance liabilities is one of the key audit matters. Our principal audit procedures included: reviewing the analysis of movements in insurance liabilities, adopting the audit of insurance liabilities performed by our actuarial specialists, and inspecting whether the calculation and applied parameters are in accordance with the related ordinances, administrative interpretations and code of conduct announced by the Actuarial Institute of the Republic of China. Also, the assessment on the reasonableness of actuarial assumptions should be in conformity with the empirical data and product specification in order to build the model of evaluation of insurance liability, as well as the estimation on the reasonableness of the actuarial result adopted by the management should be based on our understanding of industry and market to make sure that the final provision of insurance liability has been properly recorded.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies, the Regulations Governing the Preparation of Financial Reports by Public Banks, the Regulations Governing the Preparation of Financial Reports by Securities Firms, the Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants, the Regulations Governing the Preparation of Financial Reports by Insurance Companies, International Financial Reporting Standards (IFRSs), and International Accounting Standards (IASs), interpretations and pronouncements as accepted by the FSC and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Company and its subsidiaries' ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company and its subsidiaries or to cease operations, or has no realistic alternative but to do so. Those charged with governance (including audit committee) are responsible for overseeing the Company's and its subsidiaries' financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

78 79 Financial Information

As part of an audit in accordance with auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and its subsidiaries' internal control. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company and its subsidiaries' ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company and its subsidiaries to cease to continue as a going concern. 5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company and its subsidiaries to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision, performance of the group audit and developing a group audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2017 and are therefore the key audit matters. We describe these matters in our auditors' report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partners on the audit resulting in this independent auditors' report are Chen, Chun-Kuang and Wu, Lin.

KPMG

Taipei, Taiwan (Republic of China) March 21, 2018

Notes to Readers The accompanying consolidated financial statements are intended only to present the financial position, financial performance and its cash flows in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the International Financial Reporting Standards ("IFRSs"), International Accounting Standards ("IASs"), interpretation as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China. The auditors' report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, the English and Chinese language auditors' report and financial statements, the Chinese version shall prevail.

78 79 (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES 3. Consolidated Balance Sheets December 31, 2017 and 2016 (Expressed in Thousands of New Taiwan Dollars) December 31, 2017 December 31, 2016 ASSETS Amount % Amount % 11000 Cash and cash equivalents(Note 4 and 6(a)) $ 154,080,461 3 128,881,516 3 11500 Due from the central bank and call loans to banks(Note 6(b) and 8) 281,195,765 5 265,151,265 5 12000 Financial assets measured at fair value through profit or loss(Note 4, 6(c) 175,690,858 3 195,315,251 4 and (t), 7 and 8) 12100 Available-for-sale financial assetsnet(Note 4, 6(d) and (t) and 8) 478,234,096 9 808,810,459 17 12300 Derivative financial assetshedgingnet (Note 4 and 6(e)) 137,010 - 416,342 - 12500 Securities purchased under resell agreements(Note 4 and 6(f)) 24,658,803 1 25,510,984 1 13000 Receivablesnet(Note 4, 6(g) and (i), 7 and 8) 153,686,602 3 130,315,259 3 13200 Current income tax assets(Note 4) 1,740,877 - 2,377,851 - 13500 Loans-net(Note 4, 6(h) and (i), and 7) 2,194,551,195 41 2,112,661,940 44 13700 Reinsurance assets-net(Note 4 and 6(j)) 2,841,708 - 3,322,732 - 14500 Held-to-maturity financial assets-net(Note 4, 6(k) and (t), and 8) 737,471,741 14 216,315,007 5 15000 Investments under equity method-net(Note 4 and 6(l)) 33,735,935 1 17,885,709 - 15500 Other financial assets-net(Note 4, 6(i), (m) and (ad), and 8) 911,595,514 17 739,955,696 15 18000 Investment property-net(Note 4 and 6(n)) 56,593,899 1 47,009,937 1 18500 Premises and equipment-net(Note 4 and 6(o)) 52,650,171 1 60,463,447 1 19000 Intangible assets-net(Note 4 and 6(p)) 23,406,249 - 23,383,294 - 19300 Deferred income tax assets(Note 4 and 6(ae)) 13,909,970 - 10,347,900 - 19500 Other assets-net(Note 4, 6(q) and 8) 44,552,690 1 51,126,665 1

TOTAL ASSETS $ 5,340,733,544 100 4,839,251,254 100

80 81 Financial Information

December 31, 2017 December 31, 2016 LIABILITIES AND EQUITY Amount % Amount % Liabilities: 21000 Deposits from Central Bank and banks(Note 6(r)) $ 74,874,783 1 63,498,683 1 21500 Due to Central Bank and banks(Note 6(s)) 15,470,633 - 15,752,488 - 22000 Financial liabilities measured at fair value through profit or loss(Note 68,406,471 1 97,582,396 2 4 and 6(c)) 22300 Derivative financial liabilities-hedging-net(Note 4 and 6(e)) 16,865 - 303,599 - 22500 Securities sold under repurchase agreements(Note 4, 6(t) and 7) 74,118,226 1 49,491,084 1 22600 Commercial papers payable-net(Note 6(u)) 51,777,524 1 28,248,099 1 23000 Payables(Note 6(v) and 7) 87,184,528 2 78,876,776 2 23200 Current income tax liabilities(Note 4) 6,230,722 - 2,435,981 - 23500 Deposits and remittances(Note 6(w) and 7) 2,944,973,167 55 2,748,419,254 57 24000 Bonds payable(Note 6(c) and (e), and (y)) 112,212,447 2 99,355,898 2 24600 Provisions(Note 4, 6(z), (ac) and (ad)) 1,370,665,257 26 1,152,859,490 24 25500 Other financial liabilities(Note 4, 6(aa) and (ao)) 189,540,151 4 199,621,926 4 29300 Deferred income tax liabilities(Note 4 and 6(ae)) 4,198,632 - 1,506,995 - 29500 Other liabilities(Note 6(ab)) 20,079,967 - 19,103,166 - Total Liabilities 5,019,749,373 93 4,557,055,835 94 Stockholders’ equity - parent company: 31100 Capital stock: 31101 Common stock(Note 6(ag)) 194,969,896 4 194,969,896 4 31103 Preferred stock(Note 6(ag)) 3,333,300 - - - 31500 Capital surplus(Note 6(ag)) 50,366,018 1 36,637,717 1 32000 Retained earnings: 32001 Legal reserve 20,467,553 - 17,674,655 - 32003 Special reserve 30,688,581 1 21,886,995 - 32005 Undistributed earnings(Note 6(ah)) 37,417,514 1 28,249,266 1 32500 Other equity interest(Note 6(ag)) ( 15,759,469 ) - ( 16,728,988 ) - 32600 Treasury stock(Note 4 and 6(ag)) ( 582,754 ) - ( 582,754 ) - 39500 Non-controlling interests 83,532 - 88,632 - Total Equity 320,984,171 7 282,195,419 6 TOTAL LIABILITIES AND EQUITY $ 5,340,733,544 100 4,839,251,254 100

80 81 (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES 4. Consolidated Statements of Comprehensive Income For the years ended December 31, 2017 and 2016 (Expressed in Thousands of New Taiwan Dollars, Except for Earnings Per Share) For the years ended December 31 2017 2016 Change Amount % Amount % % 41000 Interest income(Note 6(ak)) $ 112,086,276 32 102,274,095 32 10 51000 Less: Interest expenses(Note 6(ak)) (20,481,110 ) (6 ) (18,806,920 ) (6 ) 9 Net income of interest (Note 6(ak)) 91,605,166 26 83,467,175 26 10 Net noninterest income (loss) 49800 Service fee and commission income(Note 6(al)) 20,465,038 6 16,981,749 5 21 49810 Net insurance income(Note 6 (am)) 216,433,869 62 202,011,333 64 7 49820 Gains on financial assets measured at fair value through profit or 38,812,149 11 12,357,934 4 214 loss(Note 6(an)) 49825 Gains on investment properties 607,844 - 373,081 - 63 49830 Realized gains on available-for-sale financial assets(Note 6(ag)) 10,322,634 3 9,773,534 3 6 49840 Realized gains (losses) on held-to-maturity financial assets 16,658 - (2,675 ) - 723 49870 Foreign exchange losses (34,954,751 ) (10 ) (8,306,620 ) (3 ) (321 ) 49880 Impairment loss on assets (184,346 ) - (204,584 ) - (10 ) 49890 Proportionate share of gains from associates or joint ventures 1,632,737 1 234,639 - 596 under equity method(Note 6(l)) 49900 Other net noninterest income 7,706,659 2 5,685,795 2 36 58099 Public-welfare lottery payment (2,700,000 ) (1 ) (2,700,000 ) (1 ) - Net revenue 349,763,657 100 319,671,361 100 9 58100 Provisions for bad debt expenses and guarantee reserve(Note 6(i)) (2,519,102 ) (1 ) (5,896,362 ) (2 ) (57 ) 58300 Net changes in insurance liability reserve(Note 6(ap)) (239,860,214 ) (69 ) (220,215,855 ) (69 ) 9 Operating expenses: 58501 Employee benefits expenses(Note 6(aq)) (35,636,835 ) (10 ) (32,243,135 ) (10 ) 11 58503 Depreciation and amortization expense(Note 6(ar)) (3,587,728 ) (1 ) (3,545,994 ) (1 ) 1 58599 Other general and administrative expenses(Note 6(at)) (23,433,483 ) (7 ) (23,817,840 ) (7 ) (2 ) Total operating expenses (62,658,046 ) (18 ) (59,606,969 ) (18 ) 5 Net income before tax from continuing operations 44,726,295 12 33,952,175 11 32 61003 Income tax expenses (Note 6(ae)) (7,502,115 ) (2 ) (6,019,301 ) (2 ) 25 Net income 37,224,180 10 27,932,874 9 33

82 83 Financial Information

For the years ended December 31 2017 2016 Change Amount % Amount % % 69500 Other comprehensive income: 69560 Items that will not be reclassified subsequently to profit or loss 69561 Remeasurement gains related to defined benefit plans $ 117,180 - 110,417 - 6 69565 Changes in designated as financial liabilities measured at fair value (1,105,808 ) - (1,931,883 ) (1 ) 43 through profit or loss attributable to credit risk 69563 Proportionate share of other comprehensive losses from associates (3,304 ) - (6,470 ) - 49 or joint ventures under the equity method-items that will not be reclassified subsequently to profit or loss 69569 Income tax related to items that will not be reclassified to profit or (24,289 ) - (12,252 ) - (98 ) loss Subtotal (1,016,221 ) - (1,840,188 ) (1 ) 45 69570 Items that are or may be reclassified subsequently to profit or loss 69571 Exchange differences of overseas subsidiaries’ financial reports (4,756,977 ) (1 ) (2,942,073 ) (1 ) (62 ) translation 69572 Unrealized valuation gains (losses) on available-for-sale financial assets 7,239,817 2 (4,647,311 ) (1 ) 256 69575 Proportionate share of other comprehensive income from associates 147,534 - (38,448 ) - 484 or joint ventures under the equity method-items that are or may be reclassified subsequently to profit or loss 69579 Income tax related to items that are or may be reclassified to profit (561,836 ) - 755,840 - (174 ) or loss Subtotal 2,068,538 1 (6,871,992 ) (2 ) 130 69500 Other comprehensive income (losses) (net amount after tax) 1,052,317 1 (8,712,180 ) (3 ) 112 Total comprehensive income $ 38,276,497 11 19,220,694 6 99 Net income attributable to: Parent company $ 37,222,217 10 27,928,977 9 33 Non-controlling interest 1,963 - 3,897 - (50 ) $ 37,224,180 10 27,932,874 9 Comprehensive income attributable to: Parent company $ 38,281,597 11 19,219,055 6 99 Non-controlling interest (5,100 ) - 1,639 - (411 ) $ 38,276,497 11 19,220,694 6 Earnings per share (unit: NT Dollars)(Note 6(aj)) $ 1.91 1.43

82 83 (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES 5. Consolidated Statements of Changes in Stockholder's Equity For the years ended December 31, 2017 and 2016 (Expressed in Thousands of New Taiwan Dollars) Stockholder’s Equity parent company Other equity interest Capital Stock Retained earnings Change in Exchange designated as differences financial liabilities of overseas Unrealized measured at fair subsidiaries (losses) gains value through financial on available- profit or loss Stockholders’ Non- Common Preferred Capital Legal Special Undistributed reports for-sale attributable to equity-parent controlling stock stock surplus reserve reserve earnings translation financial assets credit risk Treasury stock company interests Total equity Balance at January 1, 2016 $ 180,547,806 - 36,654,760 14,180,457 19,692,303 34,941,972 (1,614,049 ) (7,928,095 ) 1,614,741 (582,754 ) 277,507,141 87,105 277,594,246 Net income - - - - - 27,928,977 - - - - 27,928,977 3,897 27,932,874 Other comprehensive income (losses) - - - - - 91,663 (2,800,314 ) (4,069,388 ) (1,931,883 ) - (8,709,922 ) (2,258 ) (8,712,180 ) Total comprehensive income (losses) - - - - - 28,020,640 (2,800,314 ) (4,069,388 ) (1,931,883 ) - 19,219,055 1,639 19,220,694 Appropriation and distribution of retained earnings: Legal reserve appropriated - - - 3,494,198 - (3,494,198 ) ------Special reserve appropriated - - - - 2,194,692 (2,194,692 ) ------Cash dividends of common share - - - - - (14,602,366 ) - - - - (14,602,366 ) - (14,602,366 ) Stock dividends of common share 14,422,090 - - - - (14,422,090 ) ------Changes in other capital surplus - - (17,043 ) ------(17,043 ) - (17,043 ) Changes in noncontrolling interests ------(112 ) (112 ) Balance at December 31, 2016 194,969,896 - 36,637,717 17,674,655 21,886,995 28,249,266 (4,414,363 ) (11,997,483 ) (317,142 ) (582,754) 282,106,787 88,632 282,195,419 Net income - - - - - 37,222,217 - - - - 37,222,217 1,963 37,224,180 Other comprehensive income (losses) - - - - - 89,861 (4,313,666 ) 6,388,993 (1,105,808 ) - 1,059,380 (7,063 ) 1,052,317 Total comprehensive income (losses) - - - - - 37,312,078 (4,313,666 ) 6,388,993 (1,105,808 ) - 38,281,597 (5,100 ) 38,276,497 Appropriation and distribution of retained earnings: Legal reserve appropriated - - - 2,792,898 - (2,792,898 ) ------Special reserve appropriated - - - - 8,801,584 (8,801,584 ) ------Cash dividends of common share - - - - - (16,549,348 ) - - - - (16,549,348 ) - (16,549,348 ) Cash dividends from capital surplus - - (2,920,473 ) ------(2,920,473 ) - (2,920,473 ) Issue of shares - 3,333,300 16,648,774 ------19,982,074 - 19,982,074 Others - - - - 2 - - - - - 2 - 2 Balance at December 31, 2017 $ 194,969,896 3,333,300 50,366,018 20,467,553 30,688,581 37,417,514 (8,728,029 ) (5,608,490 ) (1,422,950 ) (582,754) 320,900,639 83,532 320,984,171

84 85 Financial Information

(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES 5. Consolidated Statements of Changes in Stockholder's Equity For the years ended December 31, 2017 and 2016 (Expressed in Thousands of New Taiwan Dollars) Stockholder’s Equity parent company Other equity interest Capital Stock Retained earnings Change in Exchange designated as differences financial liabilities of overseas Unrealized measured at fair subsidiaries (losses) gains value through financial on available- profit or loss Stockholders’ Non- Common Preferred Capital Legal Special Undistributed reports for-sale attributable to equity-parent controlling stock stock surplus reserve reserve earnings translation financial assets credit risk Treasury stock company interests Total equity Balance at January 1, 2016 $ 180,547,806 - 36,654,760 14,180,457 19,692,303 34,941,972 (1,614,049 ) (7,928,095 ) 1,614,741 (582,754 ) 277,507,141 87,105 277,594,246 Net income - - - - - 27,928,977 - - - - 27,928,977 3,897 27,932,874 Other comprehensive income (losses) - - - - - 91,663 (2,800,314 ) (4,069,388 ) (1,931,883 ) - (8,709,922 ) (2,258 ) (8,712,180 ) Total comprehensive income (losses) - - - - - 28,020,640 (2,800,314 ) (4,069,388 ) (1,931,883 ) - 19,219,055 1,639 19,220,694 Appropriation and distribution of retained earnings: Legal reserve appropriated - - - 3,494,198 - (3,494,198 ) ------Special reserve appropriated - - - - 2,194,692 (2,194,692 ) ------Cash dividends of common share - - - - - (14,602,366 ) - - - - (14,602,366 ) - (14,602,366 ) Stock dividends of common share 14,422,090 - - - - (14,422,090 ) ------Changes in other capital surplus - - (17,043 ) ------(17,043 ) - (17,043 ) Changes in noncontrolling interests ------(112 ) (112 ) Balance at December 31, 2016 194,969,896 - 36,637,717 17,674,655 21,886,995 28,249,266 (4,414,363 ) (11,997,483 ) (317,142 ) (582,754) 282,106,787 88,632 282,195,419 Net income - - - - - 37,222,217 - - - - 37,222,217 1,963 37,224,180 Other comprehensive income (losses) - - - - - 89,861 (4,313,666 ) 6,388,993 (1,105,808 ) - 1,059,380 (7,063 ) 1,052,317 Total comprehensive income (losses) - - - - - 37,312,078 (4,313,666 ) 6,388,993 (1,105,808 ) - 38,281,597 (5,100 ) 38,276,497 Appropriation and distribution of retained earnings: Legal reserve appropriated - - - 2,792,898 - (2,792,898 ) ------Special reserve appropriated - - - - 8,801,584 (8,801,584 ) ------Cash dividends of common share - - - - - (16,549,348 ) - - - - (16,549,348 ) - (16,549,348 ) Cash dividends from capital surplus - - (2,920,473 ) ------(2,920,473 ) - (2,920,473 ) Issue of shares - 3,333,300 16,648,774 ------19,982,074 - 19,982,074 Others - - - - 2 - - - - - 2 - 2 Balance at December 31, 2017 $ 194,969,896 3,333,300 50,366,018 20,467,553 30,688,581 37,417,514 (8,728,029 ) (5,608,490 ) (1,422,950 ) (582,754) 320,900,639 83,532 320,984,171

84 85 (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES 6. Consolidated Statements of Cash Flows For the years ended December 31, 2017 and 2016 (Expressed in Thousands of New Taiwan Dollars) For the years ended December 31 2017 2016 Cash Flows from Operating Activities: Net Income Before Tax $ 44,726,295 33,952,175 Adjustments: Income and expenses items with no effect on cash flow Depreciation expense 2,785,320 2,566,334 Amortization expense 1,184,438 1,173,382 Provision for bad debt expense 2,519,102 5,896,362 Net (gains) losses on financial assets or liabilities measured at fair value through profit or loss (12,786,132 ) 2,314,374 Interest expense 20,481,110 18,806,920 Interest income (112,086,276 ) (102,274,095 ) Dividends earned (4,308,810 ) (2,939,824 ) Net change in insurance liabilities 239,860,214 220,215,855 Net change in other provisions (671,285 ) (18,643 ) Proportionate share of gains from associates or joint ventures under the equity method (1,632,737 ) (234,639 ) Losses on disposal and retirement of premises and equipment 50,888 32,640 Losses on disposal of investment properties 51,659 - Losses (gains) on disposal and retirement of intangible assets 4,999 (10,292 ) Gains on disposal of stock investments under cost method (62,339 ) (48,841 ) Impairment losses on financial assets 169,335 117,556 Impairment losses on non-financial assets 15,011 87,028 Losses on disposal of foreclosed properties 2,461 2,090 Unrealized foreign exchange gains on insurance liabilities (20,944,433 ) (5,507,810 ) Other adjustments (675,909 ) (1,505,005 ) Subtotal of income and expense items with no effect on cash flows 113,956,616 138,673,392

86 87 Financial Information

For the years ended December 31 2017 2016 Changes in operating assets and liabilities: Net Changes in Operating Assets: Decrease in due from the central bank and call loans to banks $ 3,027,731 19,097,410 Decrease (increase) in financial assets at fair value through profit or loss 34,341,347 (42,340,521 ) Decrease (increase) in available-for-sale financial assets 337,103,081 (154,001,395 ) Decrease (increase) in hedging derivative financial assets 279,332 (308,816 ) (Increase) decrease in receivables (20,278,906 ) 24,667,523 Increase in loans (82,942,594 ) (36,365,265) Decrease (increase) in reinsurance assets 233,618 (462,259 ) (Increase) decrease in held-to-maturity financial assets (521,165,548 ) 8,454,782 Increase in other financial assets (171,465,018 ) (159,949,247 ) Net Changes in Operating Assets (420,866,957 ) (341,207,788 ) Net Changes in operating liabilities: Increase in deposits from Central Bank and other banks 11,376,100 17,864,409 Decrease in financial liabilities measured at fair value through profit or loss (35,087,691 ) (25,107,262 ) Decrease in hedging derivative financial liabilities (286,734 ) (137,829 ) Increase in payables 7,450,769 11,001,927 Increase in deposits and remittances 196,553,913 48,617,095 Decrease in employee benefits reserve (178,148 ) (300,913 ) Decrease in liability reserve (632,020 ) (1,006,355 ) Decrease in other financial liabilities (8,656,966 ) (10,800,295 ) Net Changes in Operating Liabilities 170,539,223 40,130,777 Net Changes in Operating Assets and Liabilities (250,327,734 ) (301,077,011 ) Sum of Adjustments (136,371,118 ) (162,403,619 )

86 87 (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES 6. Consolidated Statements Of Cash Flows For the years ended December 31, 2017 and 2016 (Expressed in Thousands of New Taiwan Dollars) For the years ended December 31 2017 2016 Cash Used in Operating Activities $ (91,644,823 ) (128,451,444 ) Interest received 109,022,046 100,445,293 Dividends received 5,743,363 3,026,255 Interest paid (19,632,260 ) (20,510,749 ) Income tax paid (5,380,524 ) (6,569,511 ) Net Cash Used in Operating Activities (1,892,198 ) (52,060,156 ) Cash Flows from Investing Activities: Purchase of financial assets carried at cost (1,341,724 ) (1,184,616 ) Disposal of financial assets carried at cost 204,359 75,157 Return of capital from financial assets carried at cost 254,686 594,460 Disposal of financial assets under equity method - 92,223 Purchase of financial assets under equity method (15,478,437 ) (1,617,473 ) Purchase of premises and equipment (2,779,511 ) (3,511,298 ) Disposal of premises and equipment 47,311 557,777 Purchase of intangible assets (1,143,222 ) (1,176,390 ) Disposal of intangible assets - 11,231 Disposal of foreclosed properties 37,606 20,088 Purchase of investment properties (2,006,803 ) (18,530,284 ) Disposal of investment properties 191,294 - Increase in securities purchased under resell agreements (24,312,285 ) - Decrease in receivables - 12,979,683 Decrease in other assets 3,742,492 7,401,413 Net Cash Used in Investing Activities (42,584,234 ) (4,288,029 ) Cash Flows from Financing Activities: Decrease in due to Central Bank and other banks (281,855 ) (12,173,478 ) Increase in commercial papers payable 23,529,425 16,554,346 Proceeds from issuing financial debentures 16,000,000 - Repayments of financial debentures (2,981,460 ) (45,284,127 ) Increase (decrease) in securities sold under repurchase agreements 24,627,142 (8,768,029 ) Increase in financial liabilities designated as at fair value through profit or loss, upon initial recognition 5,372,640 25,177,620 Repayments of preference share liabilities - (2,030,000 ) Increase (decrease) in payables 4,555 (158,228 ) Increase in other liabilities 977,833 8,625,854 Cash dividends paid (19,469,821 ) (14,602,366 ) Proceeds from issuing shares 19,982,074 - Changes in capital surplus - (17,043 ) Net Cash Flows Provided by (Used in) Financing Activities 67,760,533 (32,675,451 ) Effect of exchange rate changes on cash and cash equivalents (4,177,391 ) (1,044,720 ) Increase (decrease) in Cash and Cash Equivalents 19,106,710 (90,068,356 ) Cash and Cash Equivalents, at the Beginning of the Period 360,203,705 450,272,061 Cash and Cash Equivalents, at the End of the Period $ 379,310,415 360,203,705 Components of Cash and Cash Equivalents: Cash and cash equivalents recognized in balance sheet $ 154,080,461 128,881,516 Due from the Central Bank and call loans to bank which meet IAS 7 definition of cash and cash 224,883,436 205,811,205 equivalents Securities purchased under resell agreements which meet IAS 7 definition of cash and cash equivalents 346,518 25,510,984 Cash and Cash Equivalents at the End of Period $ 379,310,415 360,203,705

88 89 VII. Review and Analysis of Financial Position, Financial Performance, and Risk Management

1. Financial Position In thousands of NT dollars

Difference

2016 2017 Amount %

Cash and cash equivalents 755,937 18,680,129 17,924,192 2,371.12%

Financial assets 971,101 2,050,701 1,079,600 111.17%

Receivables-net 70,688 9 (70,679) (99.99%)

Investments under equity method-net 333,729,060 373,126,916 39,397,856 11.81%

Other assets 490,171 496,952 6,781 1.38%

Total assets 336,016,957 394,354,707 58,337,750 17.36%

Payables 974,165 1,481,375 507,210 52.07%

Financial liabilities 27,000,162 27,000,000 (162) -

Other liabilities 25,935,843 44,972,693 19,036,850 73.40%

Total liabilities 53,910,170 73,454,068 19,543,898 36.25%

Capital stock 194,969,896 198,303,196 3,333,300 1.71%

Capital surplus 36,637,717 50,366,018 13,728,301 37.47%

Retained earnings 67,810,916 88,573,648 20,762,732 30.62%

Other equity interest (16,728,988) (15,759,469) 969,519 (5.80%)

Treasury stock (582,754) (582,754) - -

Total equity 282,106,787 320,900,639 38,793,852 13.75%

Explanation: Analysis of differences exceeding NT$100 million and deviations over 20%. 1. Increase in cash and cash equivalents is due to an increase in demand deposits. 2. Increase in ﬁnancial assets is due to an increase in commercial paper in available-for-sale ﬁnancial assets. 3. Increase in payables is due to an increase in salary payables. 4. Increase in other liabilities is due to an increase in commercial paper payables. 5. Increase in capital surplus is due to the issuance of preferred shares B. 6. Increase in retained earnings is due to an increase in net income.

88 89 2. Financial Performance In thousands of NT dollars Change 2016 2017 % amount Proportionate share of gains from associates or 28,958,149 38,938,119 9,979,970 34.46% joint ventures under equity method

Other income 80,619 55,024 (25,595) (31.75%)

Operating expenses (911,117) (1,420,982) (509,865) 55.96%

Other expenses and losses (486,998) (594,243) (107,245) 22.02%

Net income before tax 27,640,653 36,977,918 9,337,265 33.78%

Net income after tax 27,928,977 37,222,217 9,293,240 33.27%

Explanation: Analysis of differences exceeding $100 million and deviations over 20%. 1. Increase in proportionate share of gains from associates or joint ventures under equity method is due to an increase in the investment income recognized by subsidiaries in 2017. 2. Increase in operating expenses is due to an increase in employee beneﬁts expenses. 3. Increase in other expenses and losses is due to an increase in interest expenses.

3. Cash Flows Cash flow analysis for 2018 In thousands of NT dollars Cash surplus Cash balance Annual net cash Remedial measures for cash deficit Annual cash (deficit) at beginning of flow from operat- outflow period ing activities Amount + - Investment plan Financial plan

18,680,129 15,617,859 (33,312,218) 985,770 None None

Analysis of cash flow change in 2018: Operating activities: Net cash inflow of NT$15,617,859 thousand from operating activities in 2018 is estimated. Investment and financing activities: Net cash outflow of NT$33,312,218 thousand from investment and financing activities in 2018 is estimated. Remedial measures for estimated cash deficit and liquidity analysis: None

4. 2017 Effect of Capital Spending on Financial Position and Business Operations: None.

90 91 Review and Analysis of Financial Conditions, Financial Performance and Risk Management

5. 2017 Investment Policy and Main Sources of Proﬁts or Losses, and Improvement and Investment Plans for the Coming Year

(1) Reinvestment Policy in 2017 CTBC Holding's reinvestment policy is based on Articles 36 and 37 of the Financial Holding Company Act within the regulations of the competent authority and involves evaluating the expected return on each investment and cross-selling benefits and strategic values of CTBC Holding subsidiaries to yield stable returns for shareholders.

(2) Main Sources of Profits in 2017 CTBC Holding's profits in 2017 primarily originated from subsidiaries CTBC Bank and Taiwan Life. CTBC Bank generated a pre-tax net profit totaling NT$36.6 billion in 2017, accounting for 82% of the consolidated pre-tax net profit. Taiwan Life generated a pre-tax net profit totaling NT$11.2 billion in 2017, accounting for 25% of the consolidated pre-tax net profit. Please refer to the Market and Business Overview subsection in Section V. Business Overview for details on the main sources for profits and losses of CTBC Holding subsidiaries and their improvement plans.

(3) 2018 Investment Plans Continue to evaluate merger and acquisition between CTBC and foreign and domestic financial institutions with significant potential synergies that could complement the services of our group and increase our market share, thereby further cementing CTBC's place as a regional banking leader.

90 91 VIII. Special Disclosure

1. Afﬁliated Enterprise Information

(1) Consolidated Financial Statement of Affiliated Enterprises For 2017, the consolidated financial statement of affiliates that CTBC must provide, as required by the Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports, and Consolidated Financial Statements of Affiliated Enterprises, is the same as that which should be included in the consolidated financial statements of the parent and subsidiary companies, as required for IFRS No. 10. The Company shall not be required to prepare separate consolidated financial statements for affiliates.

(2) Consolidated Operation Report of Affiliated Enterprises 1) Affiliate organization chart: Please refer to III. Corporate Governance Report. 2) Operation overview of affiliated enterprises In thousands of NT dollars As of Dec. 31, 2017 Operating Earnings per Net income Total Operating (loss) share Companyname Paid-in capital Total assets Total equity and losses liabilities income income (after tax, in) (after tax) (Note 6) NT dollars) CTBC Bank Co., 140,685,719 2,972,787,975 2,693,155,336 279,632,639 Note 5 77,896,723 30,021,451 2.13 Ltd. Taiwan Life 31,944,991 1,536,859,099 1,454,886,657 81,972,442 338,702,445 11,335,773 10,205,001 3.19 Insurance Co., Ltd. CTBC Securities 6,027,140 25,333,365 17,961,825 7,371,540 1,469,350 309,438 310,396 0.51 Co., Ltd. CTBC Venture 3,000,000 4,413,524 500,118 3,913,406 497,442 277,979 272,410 0.91 Capital Co., Ltd. CTBC Asset Management Co., 5,358,820 7,551,913 2,081,737 5,470,176 29,371 (31,438) 55,115 0.10 Ltd. CTBC Investments 425,000 600,326 99,892 500,434 344,752 (21,575) (26,968) (0.63) Co., Ltd. CTBC Security 47,695 117,778 60,653 57,125 239,418 6,470 5,707 1.20 Co., Ltd. Taiwan Lottery 500,000 1,362,511 285,963 1,076,548 1,460,169 483,067 408,670 8.17 Corporation USD2,060 CTBC Capital Exchange rate on International Co., reporting date 57,698 220 57,478 - (346) (346) (0.03) Ltd. 29.848 (Note 8) NTD61,487 CTBC Venture USD2,000 Capital Investment Exchange rate on Management reporting date 25,083 1,278 23,805 - (7,274) (7,540) N/A (Shanghai) Co., Ltd. 29.848 (Note 8) NTD59,696 USD70,000 CTBC Exchange rate International Co., on reporting 2,013,095 220 2,012,875 119 (257) (257) (0.0037) Ltd. date 29.848 (Note 7) NTD2,089,360

92 93 Special Disclosure

Operating Earnings per Net income Total Operating (loss) share Companyname Paid-in capital Total assets Total equity and losses liabilities income income (after tax, in) (after tax) (Note 6) NT dollars)

RMB433,802 CTBC Leasing Co., Exchange rate on Ltd. reporting date 9,333,980 7,864,136 1,469,844 838,475 78,968 58,829 N/A (Note 7) 4.579 NTD1,986,466

USD6.43028 Exchange rate on CTBC Capital reporting date 96,741,795 82,762,521 13,979,274 Note 5 3,453,320 375,049 58,325.45 Corp. (Note 1) 29.848 NTD120 USD771.108 CTBC Bank Corp. Exchange rate on (USA) (Notes 1 reporting date 96,719,743 83,492,990 13,226,753 Note 5 3,447,232 374,732 136,840.41 and 2) 29.848 NTD23,016 CAD37,000 CTBC Bank Corp. Exchange rate on (Canada) reporting date 10,505,882 9,059,544 1,446,338 Note 5 293,501 89,535 32.61 (Note 1) 23.776 NTD879,712 PHP2,479,687 CTBC Bank Exchange rate on (Philippines) Corp. reporting date 24,113,846 19,725,147 4,388,699 Note 5 1,368,079 174,299 0.70 (Note 1) 0.5979 NTD1,482,605 IDR150,000,000 PT Bank CTBC Exchange rate on Indonesia reporting date 30,036,599 24,044,110 5,992,489 Note 5 1,530,273 101,087 67,391.33 (Note 1) 0.0022007 NTD330,105 JPY26,000,000 Exchange rate on The Tokyo Star reporting date 698,198,547 660,282,627 37,915,920 Note 5 13,432,955 3,521,002 5,030.00 Bank, Ltd. (Note 1) 0.2649 NTD6,887,400 JPY500,000 Exchange rate on TSB Servicer, Ltd. reporting date 521,712 15,943 505,769 42,111 165,114 29,017 72,542.50 (Notes 1 and 3) 0.2649 NTD132,450 JPY 500,000 Tokyo Star Exchange rate on Business Finance, reporting date 3,048,911 55,037 2,993,874 136,374 567,213 89,164 46.05 Ltd. (Notes 1 and 0.2649 3) NTD132,450 USD17,363 CTBC (Mauritius) Exchange rate on Holding Co., Ltd. reporting date 211,616 0 211,616 0 (3,149) (3,213) (0.19) (Note 4) 29.848 NTD518,251

92 93 Operating Earnings per Net income Total Operating (loss) share Companyname Paid-in capital Total assets Total equity and losses liabilities income income (after tax, in) (after tax) (Note 6) NT dollars) CTBC Securities Investment Service 20,000 27,643 5,627 22,016 26,667 1,690 1,636 0.82 Co., Ltd. (Note 4) HKD134,526 Exchange rate on CTBC Asia Ltd. reporting date 220,036 10,663 209,373 20,200 (5,451) (3,089) (0.02) (Note 4) 3.819 NTD513,755 TLG Insurance 2,000,000 4,748,888 2,947,190 1,801,698 2,010,369 31,387 17,845 0.09 Co., Ltd. (Note 9) TLG Capital Co., 663,250 8,797,543 7,957,121 840,422 5,954,864 37,942 119,218 1.80 Ltd. (Note 9) Note 1: The company's net income and losses are already reflected in CTBC Bank Co., Ltd. Note 2: The company's net income and losses are already reflected in CTBC Capital Corp. Note 3: The company's net income and losses are already reflected in The Tokyo Star Bank, Ltd. Note 4: The company's net income and losses are already reflected in CTBC Securities Co., Ltd. Note 5: Banking industry is subjected to the Regulations Governing the Preparation of Financial Reports by Public Banks and, therefore, operating income was not categorized. Note 6: Bank subsidiaries are expressed in terms of net revenue. Note 7: The company's net income and losses are already reflected in CTBC Asset Management Co., Ltd. Note 8: The company's net income and losses are already reflected in CTBC Venture Capital Co., Ltd. Note 9: The company's net income and losses are already reflected in Taiwan Life Insurance Co., Ltd.

3) Profiles of affiliated enterprises In thousands of NT dollars As of Dec. 31, 2017 Date of Companyname Address Paid-in capital Main business scope establishment No. 166, 168, 170, 186, and 188, Commercial banking CTBC Bank Co., Ltd. March 14, 1966 140,685,719 Jingmao 2nd Road, Taipei City and financing business Taiwan Life Insurance 8F, No. 188, Jingmao 2nd Road, Dec. 1, 1947 31,944,991 Insurance business Co., Ltd. Taipei City CTBC Securities Co., 3F, No. 168, Jingmao 2nd Road, Securities and futures July 5, 1989 6,027,140 Ltd. Taipei City business CTBC Venture Capital 21F, No. 168, Jingmao 2nd Road, Venture capital March 11, 2003 3,000,000 Co., Ltd. Taipei City investment CTBC Asset 19F, No. 168, Jingmao 2nd Road, Asset management May 20, 2003 5,358,820 Management Co., Ltd. Taipei City business CTBC Investments Co., 12F, No. 188, Jingmao 2nd Road, Investment and trust March 3, 1998 425,000 Ltd. Taipei City business CTBC Security Co., 5F, No. 188, Jingmao 2nd Road, Protection, fire and life Feb. 15, 1995 47,695 Ltd. Taipei City safety service Operating the public welfare lottery for the Taiwan Lottery 15F, No. 188, Jingmao 2nd Road, July 10, 2006 500,000 issue, sale, promotion, Corporation Taipei City drawing, payment of prize and management. USD 2,060 Room 511, 5F, Tower 1, Silvercord CTBC Capital Exchange rate on April 30, 2012. Centre, No. 30 Canton Road, Holding company International Co., Ltd. reporting date 29.848 Tsim Sha Tsui, Hong Kong NTD 61,487

94 95 Special Disclosure

Date of Companyname Address Paid-in capital Main business scope establishment CTBC Venture USD 2,000 Hongqiao Road, Changing District, Venture capital Capital Investment Exchange rate on Nov. 22, 2012 Shanghai Wenguang 1386, 12th management and Management (Shanghai) reporting date 29.848 ﬂoor, Room 1202 Building consulting Co., Ltd. NTD 59,696 USD 70,000 Room 511, 5F, Tower 1, Silvercord CTBC International Exchange rate on April 24, 2012 Centre, No. 30 Canton Road, Holding company Co., Ltd. reporting date 29.848 Tsim Sha Tsui, Hong Kong NTD 2,089,360

RMB 433,802 Hongqiao Road, Changing District, Exchange rate on CTBC Leasing Co., Ltd. July 3, 2012 Shanghai Wenguang 1386, 12th Financial leasing reporting date 4.579 ﬂoor, Room 1201 Building NTD 1,986,466

USD 6.43028 Exchange rate on 801 S. Figueroa Street, Suite 2300, CTBC Capital Corp. Feb. 27, 1989 reporting date Investment business Los Angeles, CA 90017, USA 29.848 NTD 120 USD 771.108 Exchange rate on CTBC Bank Corp. 801 S. Figueroa Street, Suite 2300, Commercial banking Feb. 27, 1995 reporting date (USA) Los Angeles, CA 90017, USA and financing business 29.848 NTD 23,016 CAD 37,000 Exchange rate on CTBC Bank Corp. 1518 West Broadway, Vancouver Commercial banking Nov. 12, 1998 reporting date (Canada) B.C., Canada, V6J1W8 and financing business 23.776 NTD 879,712 PHP 2,479,687 16th to 19th Floors., Fort Legend Exchange rate on Commercial bank CTBC Bank Towers, 31st St.reet Corner 3rd Sept. 7, 1995 reporting date deposit and financing (Philippines) Corp. Avenue, Bonifacio Global City, 0.5979 business Taguig City, 1634 Philippines NTD 1,482,605 IDR 150,000,000 Tamara Center, 15th-17th F1, JI Exchange rate on PT Bank CTBC Commercial banking Oct. 15, 1996 Jenderal Sudirman Kev. 24 Jakarta reporting date Indonesia and financing business 12920 Indonesia 0.0022007 NTD 330,105 JPY 26,000,000 Exchange rate on The Tokyo Star Bank, 2-3-5 Akasaka, Minato-Ku, Tokyo, Commercial banking June 11, 2001 reporting date Ltd. 107-8480, Japan and financing business 0.2649 NTD 6,887,400 JPY 500,000 Exchange rate on TSB Servicer, Ltd. Jan. 17, 1997 2-2-17 Akasaka, Minato, Tokyo reporting date Financing business 0.2649 NTD 132,450 JPY 500,000 Exchange rate on Tokyo Star Business 2-7-1, Nishi-Shinjuku, Shinjuku, Sept. 10, 2010 reporting date Financing business Finance, Ltd. Tokyo 0.2649 NTD 132,450

94 95 Date of Companyname Address Paid-in capital Main business scope establishment USD 17,363 3rd Floor, Rafﬂes Tower, 19 CTBC (Mauritius) Exchange rate on Dec. 19, 2002 Cybercity, Ebene, Republic of Holding company Holding Co., Ltd. reporting date 29.848 Mauritius NTD 518,251 CTBC Securities 14F, No. 188, Jingmao 2nd Rd., Securities investment Investment Service Co., May 21, 2015 20,000 Taipei City consultant company Ltd. HKD 134,526 Suite 2809, 28F, Two International Exchange rate on CTBC Asia Ltd. April 4, 2003 Finance Centre, No. 8, Finance St., reporting date Securities business Central, Hong Kong 3.819 NTD 513,755 18F-1 No. 17, Xuchang St., Property insurance TLG Insurance Co., Ltd. May 8, 2006 Zhongzheng Dist., Taipei City 100, 2,000,000 business Taiwan 17F, No. 17, Xuchang St., Installment, leasing, TLG Capital Co., Ltd. Aug. 1, 2003 Zhongzheng Dist., Taipei City 100, 663,250 and account receivable Taiwan factoring business

(3) Affiliation Reports CTBC Holding is not an affiliate of another company as defined in the Company Act and, therefore, did not compile an affiliation report.

2. CTBC Holding Private Placement of Securities in the Past Year up to April 27, 2018: None

3. Shares in the Company Held or Disposed of by Subsidiaries in the Past Year up to April 27, 2018: None

4. Other Necessary Supplements Information on the CTBC Holding Code of Ethical Conduct is published on our website: http://ir.ctbcholding.com/html/gov_practice.php#c1