Bank SinoPac
Financial Statements for the Nine Months Ended September 30, 2007 and 2006 and Independent Accountants’ Review Report INDEPENDENT ACCOUNTANTS’ REVIEW REPORT
The Board of Directors and Stockholders Bank SinoPac
We have reviewed the accompanying balance sheets of Bank SinoPac as of September 30, 2007 and 2006, and the related statements of income, and cash flows for the nine months then ended. These financial statements are the responsibility of the Bank SinoPac’s management. Our responsibility is to issue a report on these financial statements based on our reviews.
We conducted our reviews in accordance with Statement of Auditing Standards No. 36 “Review of Financial Statements” in the Republic of China. A review of interim financial statements consists primarily of applying analytical procedures, comparisons and making inquiries. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with the Criteria Governing the Preparation of Financial Reports by Public Banks, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China.
As stated in Notes 1 and 30 to the accompanying financial statements, Bank SinoPac merged with International Bank of Taipei Co., Ltd., a wholly-owned subsidiary of SinoPac Financial Holding Company Limited, by means of share swap with Bank SinoPac as the surviving company. In accordance with Statement of Financial Accounting Standards Interpretation No. (91) 243 and 244 issued by the Accounting Research and Development Foundation of the Republic of China, the transaction is treated as reorganization and should be recorded at the book value of both entities’ assets and liabilities. Also in accordance with Statement of Financial Accounting Standards Interpretation No. (95) 141, the financial statements of Bank SinoPac should be retroactively restated assuming both entities to be merged.
- 1 - As stated in Note 3 to the accompanying financial statements, effective January 1, 2006, Bank SinoPac adopted the Statement of Financial Accounting Standards No. 34 “Accounting for Financial Instruments”, No. 36 “Disclosure and Presentation of Financial Instruments” and other standards amended for harmonising with those two standards.
October 29, 2007
Notice to Readers
The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China.
For the convenience of readers, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.
- 2 - BANK SINOPAC
BALANCE SHEETS SEPTEMBER 30, 2007 AND 2006 (In Thousands of New Taiwan Dollars, Except Par Value) (Reviewed, Not Audited)
2006 2006 2007 (Restated, Note 30) 2007 (Restated, Note 30) ASSETS Amount Amount % LIABILITIES AND STOCKHOLDERS’ EQUITY Amount Amount %
CASH AND CASH EQUIVALENTS (Note 4) $ 25,651,345 $ 21,861,708 17 CALL LOANS AND DUE TO BANKS (Notes 17 and 32) $ 55,031,186 $ 101,445,236 (46)
DUE FROM THE CENTRAL BANK AND OTHER BANKS (Notes 5 and 27) 184,003,491 71,468,847 157 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 2, 3, 6, 31 and 37) 6,466,382 3,275,967 97 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 2, 3, 6, 27, 28, 31 and 37) 35,438,697 42,583,603 (17) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Notes 2, 7 and 27) 12,027,881 20,565,220 (42) SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL (Notes 2 and 7) 8,514,597 15,080,062 (44) ACCOUNTS, INTEREST AND OTHER PAYABLES (Notes 2, 18, 25 and 27) 25,569,829 34,312,650 (25)
ACCOUNTS, INTEREST AND OTHER RECEIVABLES, NET (Notes 2, 8, 26 DEPOSITS AND REMITTANCES (Notes 19 and 27) 770,999,254 743,403,071 4 and 27) 32,111,737 47,761,913 (33) BANK DEBENTURES (Notes 2, 20, 32 and 37) 31,010,772 36,010,888 (14) DISCOUNTS AND LOANS, NET (Notes 2, 9, 27, 32 and 37) 599,253,812 598,844,483 - BONDS PAYABLE (Notes 2 and 20) 5,734,080 5,816,800 (1) AVAILABLE-FOR-SALE FINANCIAL ASSETS (Notes 2, 3, 10, 28, 32 and 37) 54,324,448 186,512,494 (71) OTHER FINANCIAL LIABILITIES (Note 2) 1,098,728 1,242,810 (12)
HELD-TO-MATURITY INVESTMENTS (Notes 2, 12, 27, 28, 32 and 37) 2,742,915 2,258,223 21 OTHER LIABILITIES (Notes 2, 21, 25 and 32) 2,725,079 2,612,956 4
EQUITY INVESTMENTS - EQUITY METHOD (Notes 2, 13 and 32) 9,477,033 9,078,197 4 Total liabilities 910,663,191 948,685,598 (4)
OTHER FINANCIAL ASSETS, NET STOCKHOLDERS’ EQUITY (Notes 2, 3, 22, 29 and 32) Unquoted equity instruments (Notes 2, 14, 32 and 37) 722,997 722,259 - Capital stock, $10 par value 45,851,972 45,851,972 - Non-active market debt instruments (Notes 2, 14, 32 and 37) 4,883,990 2,789,443 75 Capital surplus Others (Notes 14 and 37) 2,259,362 1,723,549 31 Additional paid-in capital 118,226 118,226 - Capital surplus from business combination 8,076,524 9,115,773 (11) Other financial assets, net 7,866,349 5,235,251 50 Other 178 178 - Total capital surplus 8,194,928 9,234,177 (11) PROPERTIES (Notes 2 and 15) Retained earnings Cost and revaluation increment Legal reserve 6,927,060 6,280,113 10 Land 4,762,673 5,079,812 (6) Special reserve 282,977 282,977 - Buildings 4,248,878 4,534,385 (6) Unappropriated 1,534,260 2,860,514 (46) Computer and machinery equipment 4,546,635 4,536,992 - Total retained earnings 8,744,297 9,423,604 (7) Transportation equipment 25,015 38,316 (35) Cumulative translation adjustments (7,593 ) 58,374 (113) Total cost 13,583,201 14,189,505 (4) Unrealized gains (losses) on financial instruments (176,998 ) 106,906 (266) Less: Accumulated depreciation 4,871,978 4,707,621 3 Net loss not recognized as pension cost (155,953 ) (221,269 ) (30) 8,711,223 9,481,884 (8) Unrealized revaluation increment on land 1,030,154 1,033,595 - Advances on acquisitions of equipment and construction in progress 176,163 77,210 128 Total stockholders’ equity 63,480,807 65,487,359 (3) Net properties 8,887,386 9,559,094 (7)
INTANGIBLE ASSETS (Notes 3) 178,199 151,957 17
OTHER ASSETS (Notes 2, 16 and 26) 5,693,989 3,777,125 51
TOTAL $ 974,143,998 $ 1,014,172,957 (4) TOTAL $ 974,143,998 $ 1,014,172,957 (4)
The accompanying notes are an integral part of the financial statements.
(With Deloitte & Touche review report dated October 29, 2007)
- 3 - BANK SINOPAC
STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) (Reviewed, Not Audited)
2006 (Restated, 2007 Note 30) Amount Amount %
INTEREST REVENUE (Notes 2, 27 and 32) $30,097,582 $26,479,876 14
INTEREST EXPENSE (Notes 27 and 32) 20,064,226 15,080,981 33
NET INTEREST 10,033,356 11,398,895 (12 )
NET REVENUES OTHER THAN INTEREST Commissions and fee revenues, net (Notes 2, 23 and 27) 3,208,088 2,287,024 40 Losses (gains) from financial assets and liabilities at fair value through profit or loss (Notes 2 and 6) (1,405,336 ) 908,617 (255 ) Realized gains from available-for-sale financial assets 10,317 254,181 (96 ) Income from equity investments - equity method, net (Notes 2 and 13) 891,742 785,499 14 Foreign exchange gain , net (Note 2) 1,421,062 293,570 384 (Losses on) reversal of asset impairment (Note 2) (1,215,052 ) 9,705 (12,620) Gains from unquoted equity instruments (Note 2) 35,096 54,688 (36 ) Recovery of bad debts 557,296 128,332 334 Other net revenues 144,718 128,449 13
Total net revenues 13,681,287 16,248,960 (16 )
PROVISION FOR LOAN LOSSES (Notes 2 and 9) 4,598,000 4,225,687 9
OPERATING EXPENSES (Notes 2 and 24) Personnel expenses 4,848,849 4,368,428 11 Depreciation and amortization 472,390 570,206 (17 ) Others 2,413,796 2,453,064 (2 )
Total operating expenses 7,735,035 7,391,698 5
INCOME BEFORE INCOME TAX 1,348,252 4,631,575 (71 )
INCOME TAX (BENEFIT) EXPENSE (Notes 2 and 26) (186,008 ) 668,485 (128 )
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 1,534,260 3,963,090 (61 )
CUMULATIVE EFFECT OF ACCOUNTING CHANGES (NET OF TAX BENEFIT $8,542) (Note 3) - 294,839 (100 )
NET INCOME $ 1,534,260 $ 4,257,929 (64 )
(Continued)
- 4 - BANK SINOPAC
STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) (Reviewed, Not Audited)
2006 2007 (Restated, Note 30) After After Pretax Tax Pretax Tax
EARNINGS PER SHARE (Note 22) Basic earnings per share $ 0.29 $ 0.33 $ 1.07 $ 0.93 Diluted earnings per share $ 0.28 $ 0.31 $ 1.01 $ 0.87
The accompanying notes are an integral part of the financial statements.
(With Deloitte & Touche review report dated October 29, 2007) (Concluded)
- 5 - BANK SINOPAC
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)
2006 (Restated, 2007 Note 30)
CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,534,260 $ 4,257,929 Cumulative effect of accounting changes - (294,839 ) Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 490,837 567,261 Amortization on (premium) discount of held-to-maturity financial assets (1,451 ) 3,386 Provision for credit and trading losses 4,599,193 4,233,367 (Losses on) reversal of asset impairment 1,215,052 (9,705 ) Unrealized losses (gains) on financial assets and liabilities at fair value through profit or loss 1,651,958 (205,087 ) Accrued pension cost (9,574 ) 6,406 Income from equity investments - equity method (891,742 ) (785,499 ) Losses(gains) on disposal of available-for-sale financial assets 32,862 (12,261 ) Losses on disposal of properties and idle assets, net 9,851 7,887 Gains on disposal of unquoted equity instruments - (25,597 ) Losses (gains) on disposal of collateral assumed, net 416 (792 ) Deferred income tax (631,939 ) 197,362 Increase in held for trading financial assets (8,932,299 ) (5,481,866 ) Increase in held for trading financial liabilities 2,607,591 1,645,110 Foreign exchange (gains) losses on bond payable (2,816 ) 33,440 Decrease (increase) in receivables 744,492 (11,364,779 ) Decrease in payables 2,714,746 9,707,497 Cash dividend received from equity investments 118,045 -
Net cash provided by operating activities 5,249,482 2,479,220
CASH FLOWS FROM INVESTING ACTIVITIES (Decrease) increase in due from the Central Bank and other banks (84,829,582 ) 28,951,801 Increase in securities purchased under agreements to resell (3,733,474 ) (5,349,682 ) Increase in financial assets designated at fair value through profit or loss (2,176,878 ) - Decrease in financial assets designated at fair value through profit or loss 723,855 2,111,042 Increase in non-active market debt instruments (3,476,473 ) (1,485,288 ) Decrease in non-active market debt instruments 908,577 - Increase (decrease) in discounts and loans (14,360,624 ) 5,590,454 Acquisition of properties (348,327 ) (357,836 ) Proceeds from sale of properties 5,459 7,452 Increase in available-for-sale financial assets (45,541,221 ) (72,202,284 ) Decrease in available-for-sale financial assets 161,318,662 - Acquisition of held-to-maturity financial assets (1,005,739 ) (991,231 )
(Continued)
- 6 - BANK SINOPAC
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)
2006 (Restated, 2007 Note 30)
Proceeds from held-to-maturity financial assets matured $ 521,337 $ 2,033,225 Acquisition of unquoted equity instruments (738 ) (5,696 ) Proceeds from sale of unquoted equity instruments - 146,491 Proceeds from sale of equity investments - equity method 188,321 - Acquisition of collateral assumed (186,029 ) (2,812 ) Proceeds from sale of collateral assumed 42,679 76,320 Increase in other financial assets (22,071 ) (733,040 ) Increase (decrease) in other assets (100,097 ) 600,616
Net cash provided by (used in) investing activities 7,927,637 (41,610,468 )
CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in call loans and due to banks (22,104,378 ) 26,847,091 Decrease in securities sold under agreements to repurchase (2,625,980 ) (5,550,664 ) Increase in deposits and remittances 14,534,915 23,849,105 Decrease in bonds payable - (65,720 ) (Decrease) increase in other financial liabilities (69,190 ) 77,805 Decrease in other liabilities (131,741 ) (705,297 ) Remuneration to directors and supervisors and bonus to employees (22,269 ) (43,601 ) Cash dividend (1,487,274 ) (1,116,514 ) Retroactive adjustment for merger - (1,873,140 )
Net cash (used in) provided by financing activities (11,905,917 ) 41,419,065
EFFECTS OF CHANGES IN EXCHANGE RATE 1,538 2,612
INCREASE IN CASH AND CASH EQUIVALENTS 1,272,740 2,290,429
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 24,378,605 19,571,279
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 25,651,345 $ 21,861,708
SUPPLEMENTAL INFORMATION Interest paid $ 19,131,298 $ 14,116,461 Income tax paid $ 461,513 $ 885,968
The accompanying notes are an integral part of the financial statements.
(With Deloitte & Touche review report dated October 29, 2007) (Concluded)
- 7 - BANK SINOPAC
NOTES TO FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 WAS RESTATED - PLEASE REFER TO Note 30) (In Thousands of New Taiwan Dollars, Unless Otherwise Stated) (Reviewed, Not Audited)
1. ORGANIZATION AND OPERATIONS
Organization
August 8,1991 Bank SinoPac (the “Bank”) obtained government approval to incorporate.
January 28, 1992 The Bank started operations.
May 9, 2002 The effective date of the shares swap. The Bank swap shares with SinoPac Securities Corporation and SinoPac Securities Co., Ltd. (the ”SPS”) to established SinoPac Financial Holdings Company Limited (the “SPH”), a financial holding company, resulting in the Bank become an unlisted wholly owned subsidiary of SPH.
December 26, 2005 SPH finished the merger with International Bank of Taipei Co., Ltd. (IBT), through a 100% share swap.
May 8, 2006 The boards of directors of IBT resolved to transfer credit card business and related assets and liabilities to SinoPac Card Corporation (formerly named AnShin Card Services). The transaction has been approved by the authorities on June 22, 2006 and the assets have been transferred using the book value of $5,171,080 on August 4, 2006. Related information regarding net asset value of this transfer please refer to Note 27.
July 21, 2006 The boards of directors of the Bank resolved a merger with IBT. The Bank was the surviving entity and IBT was the company ceasing to exist.
November 13, 2006 The preliminary effective date of the share swap and merger. The Bank acquired the assets and liabilities of IBT through a share swap at ratio of 1.175 shares of the Bank to swap for 1 share of IBT
Operations
The Bank engages in commercial banking, trust, and established International Division and Offshore Banking Unit (OBU) to manage foreign exchange operations as allowed under the Banking Law.
As of September 30, 2007 and 2006, the Bank had a total of 4,956 and 4,739 employees, respectively.
As of September 30, 2007, the Bank’s operating units included Banking, Trust, and International Division of the Head Office, OBU, 128 domestic branches, 3 overseas branches, 2 overseas sub-branches and 1 overseas representative office.
The operations of the Bank’s Trust Department consist ofplanning, managing and operating of trust business and affiliated business. These operations are governed by the Banking Law and the Trust Law.
- 8 - 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Bank’s financial statements were prepared in conformity with Criteria Governing the Preparation of Financial Reports by Public Banks, requirement of the Business Accounting Law, Guidelines Governing Business Accounting and accounting principles generally accepted in the Republic of China (ROC). In determining the fair value of certain financial instruments, allowance for credit losses, depreciation, assets impairment, pension, income tax, losses upon suspended lawsuit and provision for losses on guarantees, the Bank needs to make estimates based on judgment and available information. The estimates were usually made under uncertain conditions; actual results could differ from those estimates. Since the operating cycle could not be reasonably identified in the banking industry, accounts included in the Bank’s financial statements were not classified as current or non-current. Nevertheless, accounts were properly categorized according to the nature of each account, and sequenced by their liquidity. Please refer to Note 32 for maturity analysis of assets and liabilities. Significant accounting policies of the Bank are summarized below:
Basis of Financial Statement Preparation
The accompanying financial statements include the accounts of the Head Office, OBU, all branches and the representative office. All interoffice transactions and balances have been eliminated.
Fair Value Determination
Fair value are determined as follows: (a) listed stocks and GreTai Securities Market (the “GTSM”) stocks - closing prices as of the balance sheet date; (b) beneficiary certificates (open-end fund) - net asset values as of the balance sheet dates; (c) bonds - period-end reference prices published by the GTSM or Bloomberg; and (d) for the financial instruments without active markets, fair value is determined using valuation techniques.
Financial Instruments at Fair Value Through Profit or Loss
Financial instruments at fair value through profit or loss consist of any financial asset and liability that is designated on initial recognition as one to be measured at fair value with fair value changes in profit or loss and financial assets and liabilities which should be classified as held for trading. Those instruments are required to be recognized at fair value and to be measured at fair value through profit or loss on the balance sheet date. The Bank uses trade date accounting when recording transaction.
Derivative instruments transaction which do not meet the specified criteria to obtain hedge accounting treatment are classified as financial assets or liabilities held for trading when the fair value of a derivative is positive, it is carried as an asset and where negative as a liability.
Any financial asset and any financial liability may be designated as financial instruments at fair value through profit or loss to eliminate measurement anomalies for items that provide a natural offset of each other. Besides, the set of financial assets, financial liabilities or combined by both of them managed according to the Bank’s risk management policies and investment strategies will be designated as financial instruments at fair value through profit or loss.
Derivative Financial Instruments
a. Foreign exchange forward
Foreign-currency assets and liabilities arising from forward exchange contracts, which are mainly for accommodating customers’ needs or managing the Bank’s currency positions, are recorded at the contracted forward rates. Gains or losses arising from the differences between the contracted forward rates and spot rates on settlement are credited or charged to current income. Contracts outstanding on the balance sheet dates are measured at fair value through profit or loss.
- 9 - b. Forward rate agreements
Forward rate agreements, which are mainly for accommodating customers’ needs or managing the Bank’s interest rate positions, are recorded by memorandum entries at the contract dates. Gains or losses arising from the differences between the contracted interest rates and actual interest rates upon settlement are credited or charged to current income. On balance sheet dates, outstanding contracts are measured at fair value through profit or loss. c. Currency swaps
Foreign-currency spot-position assets or liabilities arising from currency swaps, which are mainly for accommodating customers’ needs or managing the Bank’s currency positions, are recorded at spot rates when the transactions occur; while corresponding forward-position assets or liabilities are recorded at the contracted forward rates, with receivables netted against the related payables. The interest part of swap points is amortized during the contract period. On balance sheet dates, outstanding contracts are measured at fair value through profit or loss. d. Cross-currency swaps
Cross-currency swaps, which are for the purposes of accommodating customers’ needs or managing the Bank’s exposures, are marked to market on the balance sheet dates. The interest received or paid at each settlement date is recognized as interest income or expense, which is credited or charged to current income. On balance sheet dates, outstanding contracts are measured at fair value through profit or loss. e. Options
Options bought and/or held and options written, which are mainly for accommodating customers’ needs or managing the Bank’s currency positions, are recorded as assets and liabilities when the transactions occur. These instruments are marked to market as of the balance sheet dates. The carrying amounts of the instruments, which are recorded either as assets or liabilities, are charged to income when they are not exercised. Gains or losses on the exercise of options are also included in current income. f. Interest rate swaps
Interest rate swaps, which do not involve exchanges of the notional principals, are not recognized as either assets and/or liabilities on the contract dates. The swaps are entered into for accommodating customers’ needs or managing the Bank’s interest rate positions. The interest received or paid at each settlement date is recognized as interest income or expense. These instruments are marked to market on the balance sheet dates. g. Asset swaps
Asset swaps involve exchanging the fixed interest of convertible bonds or fixed rate notes for floating interest. In addition, asset swaps involve exchanging the fixed or floating interest of credit link notes for floating or fixed interest. These transactions are recorded by memorandum entries at the contract dates. Net interest on each settlement is recorded as current income or expense. On balance sheet dates, outstanding contracts are measured at fair value through profit or loss. h. Futures
Margin deposits paid by the Bank for interest rate futures contracts entered into for trading purpose are recognized as assets. Gains or losses resulting from marking to market and from the settlement of the interest rate futures contracts are classified as realized or unrealized gains or losses depending on whether the gains or losses had been realized. The gains and losses are included in current income.
- 10 - i. Credit default swaps
Credit default swaps involve taking credit the risk of denominated bonds and notes. Such transactions are recorded by memorandum entries at the contract dates. The premium received by the Bank for a credit default swap contract on each settlement is recorded as current income by the accrual method. On balance sheet dates, outstanding contracts are measured at fair value through profit or loss.
j. Commodity - linked interest rate swaps, equity - linked swap, and credit - linked swaps (miscellaneous swap contracts)
Commodity - linked and equity - linked interest rate swaps and credit - linked swaps, which do not involve exchanges of notional principals, are recorded by memorandum entries at the contract dates. The gains and losses resulting from the swapped-in and swapped-out are included in current income on the settlement dates. On balance sheet dates, outstanding contracts are measured at fair value through profit or loss.
Repurchase and Reverse Repurchase Transactions
Securities purchased under agreement to resell (reverse repurchase) agreements and securities sold under agreements to repurchase are generally treated as collateralized financing transactions. Interest earned on reverse repurchase agreements and interest incurred on repurchase agreements is recognized as interest income or interest expense over the life of each agreement.
Nonperforming Loans
Under guidelines issued by the Banking Bureau of Financial Supervisory Commission (the Banking Bureau), the balance of loans and other credits extended by the Bank and the related accrued interest thereon are classified as nonperforming when the loan is overdue and shall be authorized by a resolution passed by the board of directors.
Nonperforming loans reclassified from loans are classified as discounts and loans; otherwise, are classified as other financial assets.
Allowance for Credit Losses and Provision for Losses on Guarantees
In determining the allowance for credit losses and provision for losses on guarantees, the Bank assesses the collectibility on the balances of discounts and loans, accounts receivables, interest receivables, other receivables, nonperforming loans, and other financial assets, as well as guarantees and acceptances as of the balance sheet dates.
Pursuant to “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrual Loans” (the “Regulations”) issued by the Banking Bureau, the Bank evaluates credit losses on the basis of the estimated collectibility. In accordance with the Regulations stated above, the loan assets divided into different classes subject to assets that require special mentioned, assets that are substandard, assets that are doubtful, and assets for which there is loss. The minimum allowance for credit losses and provision for losses on guarantees for the aforementioned classes should be 2%, 10%, 50% and 100% of outstanding credits, respectively.
Write-offs of loans falling under the Banking Bureau guidelines, upon approval by the board of directors, are offset against the recorded allowance for credit losses. Recovery of loans which writes off on the current year is recorded as reverse of allowance whereas recovery of loans wrote off on the previous years is recorded as other revenue.
- 11 - Available-for-sale Financial Assets
Available-for-sale financial assets are carried at fair value. Unrealized gains or losses on available-for-sale financial assets are reported in equity attribute to the Bank’s shareholders. On disposal of an available-for-sale financial asset, the accumulated, unrealized gain or loss in equity attributable to the Bank’s shareholders is transferred to net profit and loss for the period. The Bank uses trade date accounting when recording available-for-sale portfolio transactions.
Dividend income from equity securities is recognized on ex-dividend dates. Cash dividends received a year after investment acquisition is recognized as income, otherwise as a reduction of the carrying value of the investments. The effective interest rate method of amortization and accretion is used; the straight line method is used if there is no significant difference.
If an available-for-sale financial asset is determined to be impaired, the accumulative unrealized loss previously recognized in equity attributable to the Bank shareholders is recognized as impairment loss and reported in income statement. For equity investments, loss reversal is adjusted to the equity attributable to the Bank shareholders. For debt investments, loss reversal is credited to current income.
Financial Asset Securitization
Under the “Regulations for Financial Asset Securitization”, the Bank securitized part of its enterprise loans and entrusted those loans to the commissioned organization for the issuance of the related beneficiary certificates. Thus, the Bank derecognizes the loans and records gain or loss because the control of contractual rights - except for subordinated retained interests for credit enhancement, which were reclassified as available-for-sale financial assets - on the loans has been surrendered and transferred to a special purpose trustee.
The gain or loss on the sale of the loans is the difference between the proceeds and carrying amount of the loans. The previous carrying amount of the loans should be allocated by applying the ratios of the retained subordinated beneficiary certificates and the part sold to their fair values on the date of sale. Because quotes are not available for loans and retained subordinated beneficiary certificates, the Bank estimates fair value at the present value of expected future cash flows, using management’s key assumptions on credit losses and discount rates commensurate to the risks involved.
Subordinated beneficiary certificates - retained interest of securitization are accounted for as available-for-sale financial assets. Interest revenue is recorded when received. The Bank evaluates retained interests by estimating present value of expected future cash flows, the difference will be recognized under stockholders’ equity. If the substantive period the impairment is obviously related to the subject occurred after the recognition of impairment, the difference will be reversed and recognized as current income or loss. However, the book value with the reversal amount must not exceed the amortized cost without recognizing the loss.
Held-to-maturity Investments
Held-to-maturity investments are carried at amortized cost, which are valued by interest method, otherwise use the straight line method if there is no significant difference. At initial recognition, the costs of the financial assets are valued at fair value of the financial assets together with acquire or issue costs. The net profit and loss of the held-to-maturity investments for the period is reported in to income statement when on disposal, impairment or amortization. The Bank uses trade date accounting when recording transaction.
If a held-to-maturity financial asset is determined to be impaired, the impairment loss is recognized and reported in income statement. Loss reversal is credited to current income and should not be more than the carrying amount had the impairment not been recognized.
- 12 - Equity Investments - Equity Method
Equity investments are accounted for by the equity method if the Bank has significant influence over the investees. Under this method, investments are stated at cost plus (or minus) a proportionate share in net earnings (losses) or changes in net worth of the investees. Goodwill is not amortized but test annually for impairment since January 1, 2006. Until December 31, 2005, any difference between the acquisition cost and the equity in the investee is amortized over 15 years. Stock dividends result only in an increase in number of shares and are not recognized as investment income.
In accordance with Statement of Financial Accounting Standards Interpretation No. (91) 33 dated March 8, 2002 issued by the Accounting Research and Development Foundation of the Republic of China (ARDF of ROC), the SPH commences reorganization and the Bank transferred the investment at book value.
Other Financial Assets
Non-active market debt instruments are those which do not have a quoted market price in an active market, and whose fair value cannot be reliably measured. Non-active market debt instruments are carried at amortized cost. The accounting treatment of non-active market debt instruments is similar to the one of held-to maturity investments but there’s no prohibition on sale of non-active market debt instruments.
Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measure are measured at cost. If there is objective evidence that a financial asset is impaired, an impairment loss is recognized and reversal of impairment loss is prohibited.
Properties and Non-operating Assets
Properties and non-operating assets are stated at cost revaluation increment less accumulated depreciation and accumulated impairment. Major renewals and betterments are capitalized, while repairs and maintenance are expensed as incurred.
Upon sale or disposal of properties and non-operating assets, their cost, revaluation increment and related accumulated depreciation and accumulated impairment are removed from the accounts. Any resulting gain (loss) is credited (charged) to current income.
Depreciation is calculated by the straight-line method on the basis of service lives initially estimated as follows: buildings, 5 to 60 years; computer equipment, 3 to 5 years; transportation equipment, 5 years; and office and other equipment, 3 to 15 years. Depreciation on revalued property is computed on the basis of their remaining useful lives at the time of the revaluation. For assets still in use beyond their original estimated service lives, further depreciation is calculated on the basis of any remaining salvage value and the estimated additional service lives.
Intangible Assets
Computer software’s cost is amortized by straight-line method within 5 years.
Other Assets a. Collaterals assumed
Collaterals assumed are recorded at cost (included in other assets) and revalued at the lower of cost or net fair value on the balance sheet dates, and resulting loss is charged to current income. b. Amortization of bond issuance cost
The direct and necessary costs (included in other assets) related to the Euro-convertible bonds issued before December 31, 2005 are amortized using the straight-line method and recognized as issuance expenses over the period from its issuance date to the expiration date of the put option. - 13 - Asset Impairment
SFAS No. 35 requires the impairment review on long-term investments accounted for by the equity method and properties to be made on each balance sheet date. If assets or CGUs are deemed impaired, then the Bank must calculate their recoverable amounts. An impairment loss should be recognized whenever the recoverable amount of the assets or the CGU is below the carrying amount, and this impairment loss either is charged to accumulated impairment or reduces the carrying amount of the assets or CGUs directly. After the recognition of an impairment loss, the depreciation (amortization) should be adjusted in future periods by the revised asset/CGUs carrying amount (net of accumulated impairment), less its salvage value, on a systematic basis over its remaining service life. If asset impairment loss (excluding goodwill) is reversed, the increase in the carrying amount resulting from reversal is credited to current income. However, loss reversal should not be more than the carrying amount (net of depreciation) had the impairment not been recognized. An impairment loss on a revalued asset is recognized directly against capital surplus from revaluation for the asset to the same asset. A reversal of an impairment loss on a revalued asset is credited directly to capital surplus from revaluation under the heading capital surplus from revaluation. However, to the extent that an impairment loss on the same revalued asset was previously recognized as profit or loss, a reversal of that impairment loss is also recognized as profit or loss.
Goodwill is tested for impairment annually or more frequently if events or changes in circumstance indicate goodwill impairment. Impairment is recorded if the book value exceeds value in use. The increase in the recoverable amount of goodwill in the period following the recognition of an impairment loss is likely to be an increase in internally generated goodwill rather than the reversal of the impairment loss recognized for the acquired goodwill. Thus, reversal of impairment loss on goodwill is prohibited.
Bonds Payable
The Euro-convertible bonds issued before December 31, 2005 were recognized as liabilities by its issued price. Under the book value method applied for the conversion of Euro-convertible bonds, the carrying value, interest premium and the related issuance costs were converted into capital stocks in the amount of face value, while the remaining amount were recorded into capital surplus on the conversion date.
Upon repurchase of the Euro-convertible bonds, the face amount plus the premium and bond issuance expense accrued to the date of repurchase are removed from the accounts, and any resulting gain or loss is credited or charged to income.
Recognition of Interest Revenue and Service Fees
Interest revenue on loans is recorded by the accrual method. No interest revenue is recognized in the accompanying financial statements on loans and other credits extended by the Bank that are classified as nonperforming loans. The interest revenue on those loans/credits is recognized upon collection.
Under the Ministry of Finance (MOF) regulations, the interest revenue on credits in which agreements have been reached to extend their maturities is recognized upon collection.
Service fees are recorded as revenue upon receipt or substantial completion of activities involved in the earnings process.
Pension
Pension expense under defined benefit pension plan is determined on the basis of actuarial calculations. Pension under defined contribution pension plan is expensed during the period when the employees rendered their services.
- 14 - Income Tax
Inter-period income tax allocation is applied, in which tax effects of deductible temporary differences unused loss carry forward and unused investment tax credits are recognized as deferred income tax assets, and those of taxable temporary differences are recognized as deferred income tax liabilities. Valuation allowance is provided for deferred income tax assets that are not certain to be realized.
Tax credits for personnel training expenditures and acquisition of equity investments are recognized as reduction of current income tax.
Interest income from short-term bills and asset backed securities have been taxed separately and recorded as tax expenses. The adjustment of prior year’s income tax was included in the current income tax.
Income tax (10%) on inappropriate earnings after January 1, 1998 is recorded as income tax in the year when the stockholders resolve the appropriation of the earnings.
SPH adopted the linked-tax system for income tax filings with its qualified subsidiaries, including the Bank. The different amounts between tax expense and deferred tax liabilities and assets based on consolidation and SPH with its qualified subsidiaries are adjusted on SPH; related amounts are recognized as accounts receivable or accounts payable.
“Income Basic Tax Act” shall come into force on January 1, 2006. The amount of basic income of a profit-seeking enterprise shall be the sum of the taxable income as calculated in accordance with the Income Tax Act and income exempted due to suspension of income tax and other relevant laws, and then multiplied by the tax rate (10%) prescribed by the Executive Yuan. The affect of which higher between regular income tax and basic tax had been considered in current income tax.
Contingencies
A loss is recognized when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. If the amount of the loss cannot be reasonably estimated or the loss is possible, the related information is disclosed in the financial statements.
Foreign-currency Translations
Foreign currency transactions are recorded at the rate of exchange on the date of the transaction. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated into New Taiwan dollars equivalents using the closing exchange rate. Exchange differences arising on the settlement of transactions at rates different from those at the date of the transaction, as well as unrealized foreign exchange differences on unsettled foreign currency monetary assets and liabilities, are recognized in the income statement.
Non-derivative foreign currencies are translated into New Taiwan Dollars using the rate of the trading day. Exchange differences arising on the settlement of transactions at rates different from those at the date of the transaction, are recognized in the income statement. Unrealized exchange differences on non-monetary financial assets (e.g. investments in equity instruments) are a component of the change in their entire fair value. For non-monetary financial investments, which are classified as available-for-sale, unrealized exchange differences are recorded directly in equity. For a non-monetary financial asset classified as held for trading, unrealized exchange differences are recognized in the income statement. For a non-monetary financial asset classified as unquoted equity investments are measured at the rate of trading day.
Hedge Accounting
Non-trading derivatives, which are used primarily as a risk management tool for hedging interest rate risk arising on on-balance sheet liabilities, are accounted for on the same basis as the underlying items being hedged.
- 15 - In order to qualify as a hedge, a derivative must effectively reduce any risk inherent in the hedged item from potential movements in interest rates, exchange rates and market values. Changes in the fair value of the derivative must be highly correlated with changes in the fair value of the underlying hedged item over the life of the hedged contract. At the inception of the hedge, there must be formal designation and documentation of the hedging relationship, the Bank’s risk management objective and strategy for undertaking the hedge, the hedging instrument, the hedged items, overall risk management objectives and strategies and how the entity will assess the hedging instrument’s effectiveness.
A fair value hedge that meets the entire hedge accounting criteria is accounted for as follows:
a. The gain or loss from re-measuring the hedging instrument at fair value (for a derivative hedging instrument) or the foreign currency component of its carrying amount (for a non-derivative hedging instrument) is recognized immediately in profit or loss, and
b. The carrying amount of the hedged item is adjusted through profit or loss for the corresponding gain or loss attributable to the hedged risk.
3. ACCOUNTING CHANGES
a. The amount of the cumulative effect resulting from the change to new accounting principles
Effective January 1, 2007, the Bank adopted the Statement of Financial Accounting Standard No. 37 “Accounting for Intangible Assets” and other standards amended for harmonizing with this standard. The Bank revaluated the service lives or amortization method on recognized intangible asset.
Effective January 1, 2006, the Bank adopted the Statement of Financial Accounting Standard No. 34 “Accounting for Financial Instruments”, No. 36 “Disclosure and Presentation of Financial Instruments” and other standards amended for harmonizing with those two standards.
The Bank properly reclassifies the financial assets and financial liabilities when adopting aforementioned new accounting standards and related amendments to existing standards. The effects of the financial assets and liabilities at fair value through profit or loss and derivative of fair value hedge are included in cumulative effect of accounting changes. The effects of the fair value change of available-for-sale financial assets are included in stockholders’ equity adjustments.
The cumulative effects of accounting changes are as follows:
Cumulative Effect of Stockholders’ Accounting Equity Changes, Adjustments, After Tax After Tax
Financial assets at fair value through profit or loss $ 745,447 $ - Available-for-sale financial assets - 348,270 Financial liabilities at fair value through profit or loss (450,608 ) -
$ 294,839 $ 348,270
b. Future application of accounting standards and interpretation
In accordance with Statement of Financial Accounting Standards Interpretation No. (96) 052 issued by ARDF of ROC bonus to employees and remuneration to directors and supervisors should be recognized as expense rather than recognized as distribution of retained earnings. This interpretation is effective on January 1, 2008.
- 16 - 4. CASH AND CASH EQUIVALENTS
September 30 2007 2006
Due from other banks $ 13,785,158 $ 7,534,624 Notes and checks in clearing 6,188,785 8,730,725 Cash on hand 5,677,402 5,596,359
$ 25,651,345 $ 21,861,708
5. DUE FROM THE CENTRAL BANK AND OTHER BANKS
September 30 2007 2006
Call loans to banks $ 78,180,629 $ 46,331,423 Due from Central Banks - certificate of deposit 76,910,000 - Due from Central Banks - A 7,337,759 7,655,646 Deposit reserve - B 17,352,735 17,379,203 Deposit reserve - foreign currency 4,222,368 102,575
$ 184,003,491 $ 71,468,847
Under a directive issued by the Central Bank of the ROC, NTD-denominated deposit reserves are determined monthly at prescribed rates on average balances of customers’ NTD-denominated deposits. Deposit reserve - B can not be withdrawn momentarily, except for adjusting the deposit reserve account monthly. In addition, the foreign-currency deposit reserves are determined at prescribed rates on balances of additional foreign-currency deposits. The foreign-currency deposit reserves may be withdrawn momentarily and are no interest earning.
6. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Related information regarding financial instruments at fair value through profit or loss please refer to Table 6-1.
The Bank engages in derivative transactions mainly for accommodating customers’ needs and managing its exposure positions. The contract amounts (or notional amounts) of outstanding derivative transactions for accommodating customers’ needs and managing its exposure positions, please refer to Table 6-2. The Bank’s strategy is to hedge most of the market risk exposures using hedging instruments with market value changes that have a highly negative correlation with the changes in the market of the exposures being hedged.
The loss on held for trading financial assets and liabilities for the nine months ended September 30, 2007 was $1,364,881 and the gain for the nine months ended September 30, 2006 was $894,186. The loss on financial assets designated at fair value through profit or loss for the nine months ended September 30, 2007 was $40,455 and gain for the nine months ended September 30, 2006 was $14,431. The loss on derivative transactions for the nine months ended September 30, 2007 and 2006 was $902,270 and $96,706, respectively. The loss on held for trading financial assets and liabilities including loss on fair value adjustment of assets based securities $1,195,040 for the nine months ended September 30, 2007.
- 17 - 7. SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SOLD UNDER AGREEMENTS TO REPURCHASE
As of September 30, 2007 and 2006, securities were sold under agreements to repurchase at $8,536,117 and $15,101,789 between October 2007 and January 2008 and between October 2006 and December 2006, respectively.
As of September 30, 2007 and 2006, securities were purchased under agreements to resell at $12,051,370 and $20,604,288 between October 2007 and January 2008 and between October 2006 and December 2006, respectively.
The details of financial assets sold with agreements to repurchase were summarized bellow:
September 30 Financial Assets 2007 2006
Held for trading $ 9,122,218 $ 6,173,167 Available-for-sale 2,173,688 14,298,816 Held-to-maturity 240,603 93,237 Non-active market debt instruments 491,372 -
8. ACCOUNTS, INTEREST AND OTHER RECEIVABLES, NET
September 30 2007 2006
Accounts receivable - factoring $ 19,292,595 $ 29,340,825 Interest receivable 4,519,781 3,389,307 Receivable from related parties (Note 27) 4,016,430 5,427,038 Acceptances 3,666,974 4,188,861 Accounts receivable and note receivable 464,852 4,672,241 Others 352,777 1,367,688 32,313,409 48,385,960 Less - allowance for credit losses 201,672 624,047
$ 32,111,737 $ 47,761,913
9. DISCOUNTS AND LOANS
September 30 2007 2006
Import and export negotiations $ 2,233,451 $ 2,612,766 Overdrafts 78,342 499,241 Secured overdrafts 952,661 1,132,148 Accounts receivable - financing 3,541,140 3,495,253 Short-term loans 104,600,833 112,435,056 Short-term secured loans 34,452,056 38,482,082 Medium-term loans 73,807,067 84,731,344 Medium - term secured loans 53,857,743 58,246,128 Long-term loans 14,139,813 16,913,062 (Continued)
- 18 - September 30 2007 2006
Long-term secured loans $ 305,520,456 $ 274,088,329 Nonperforming loans transferred from loans 12,231,724 11,078,757 605,415,286 603,714,166 Less - allowance for credit losses 6,161,474 4,869,683
$ 599,253,812 $ 598,844,483 (Concluded)
As of September 30, 2007 and 2006, the balances of nonaccrual interest loans were $13,353,813 and $11,369,663, respectively. The unrecognized interest revenues on nonaccrual interest loans amounted to $434,691 and $313,400 for the nine months ended September 30, 2007 and 2006, respectively.
For the nine months ended September 30, 2007 and 2006, the Bank had not written off credits for which legal proceedings had not been initiated.
The details of and changes in allowance for credit losses of loans, discounts and loans for the nine months ended September 30, 2007 and 2006, respectively, please refer to Table 6-3.
10. AVAILABLE-FOR-SALE FINANCIAL ASSETS
Related information regarding available-for-sale financial assets please refer to Table 6-4.
As of September 30, 2007 and 2006, the Bank both held 120,031 thousand shares of SPH, with carrying amount of $1,968,508 and market value of $1,836,474 and $1,896,490 respectively, based on the closing prices as of September 30, 2007 and 2006. The different amount of $132,034 and $72,018 were recorded as unrealized gain (loss) of financial instruments under stockholders’ equity.
11. SECURITIZATION
Related information regarding financial asset securitization please refer to Table 6-5.
12. HELD-TO-MATURITY FINANCIAL ASSETS
For the nine months ended September 30, 2007, the Bank recognized impairment loss on assets based securities of held-to-maturity financial assets amounted to $80,122.
Related information regarding held-to-maturity financial assets please refer to Table 6-6.
- 19 - 13. EQUITY INVESTMENTS - EQUITY METHOD AND INCOME FROM EQUITY INVESTMENTS
Income from Balance of Equity Investments Equity Investments For the Nine Months Ended September 30 September 30 2007 2006 2007 2006
SinoPac Bancorp $ 6,768,708 $ 6,287,326 $ 419,967 $ 431,887 SinoPac Leasing Corporation 1,283,539 1,230,278 121,037 117,637 SinoPac Capital Limited (H.K.) 1,146,397 1,013,105 133,106 123,916 Grand Cathay Securities Investment Trust Co. - 181,423 4,370 12,230 SinoPac Life Insurance Agent Co., Ltd. 253,149 343,371 196,424 93,777 SinoPac Property Insurance Agent Co., Ltd. 22,962 20,318 16,754 5,931 SinoPac Financial Consulting Co., Ltd. 2,278 2,376 84 121
$ 9,477,033 $ 9,078,197 $ 891,742 $ 785,499
The net income of SinoPac Bancorp for the nine months ended September 30, 2007 amounted to $454,642 was translated into NTD at the average exchange rate for the respective periods. The difference between the translated net income of SinoPac Bancorp and the one recognized by the Bank was generated from some different accounting treatments between ROC GAAP and US GAAP.
The aforementioned income from equity investments under the equity method were recognized on the basis of investees’ review financial statements for the same period, except for the investment income of SinoPac Financial Consulting Co., Ltd. and that of Grand Cathay Securities Investment Trust Corporation which were based on the unreviewed statements for the same period. The Bank believes that the adjustment is immaterial to the investment and investment income if such financial statements for the nine months ended September 30, 2007 and 2006 had been reviewed.
To comply with the reorganization of SPH, the equity investment-equity method, Grand Cathay Securities Investment Trust Corporation as of September 30, 2007 held by the Bank amount to $188,321 had transferred to SPH at book value.
In order to reorganize the operations of life and property insurance agent, IBT Life Insurance Agent Co., Ltd. (“IBT Life Insurance Agent”) and IBT Property Insurance Agent Co., Ltd. (“IBT Property Insurance Agent”), the investee companies of IBT under the equity method, merged with SinoPac Life Insurance Agent Co., Ltd. (“SinoPac Life Insurance Agent”) and SinoPac Property Insurance Agent Co., Ltd. (“SinoPac Property Insurance Agent”), respectively, with IBT Life Insurance Agent and IBT Property Insurance Agent as surviving entities. The merged entities are renamed, as SinoPac Life Insurance Agent and SinoPac Property Insurance Agent, respectively. The effective date is on November 13, 2006.
14. OTHER FINANCIAL ASSETS
Related information regarding other financial assets please refer to Table 6-7.
For the nine months ended September 30, 2007, the Bank recognized impairment loss on assets based securities of non-active market debt instruments amounted to $1,119,196.
Investments in equity and debt instruments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured are measured at cost.
- 20 - 15. PROPERTIES
September 30 2007 2006
Cost and appreciation $ 13,583,201 $ 14,189,505 Accumulated depreciation Buildings 1,494,590 1,522,999 Computer and machinery equipment 3,357,115 3,152,492 Transportation equipment 20,273 32,130 4,871,978 4,707,621 Advances on acquisitions of equipment and construction in progress 176,163 77,210
$ 8,887,386 $ 9,559,094
Under government regulations, the Bank revalued its properties, in the following years: Land in 1961, 1964, 1967, 1974, and 2001; and properties other than land in 1961.
The Bank merged with IBT on November 13, 2006. Under interpretation (91) 128, 243, and 244 issued by ARDF of ROC, the merger should be treated as a reorganization because the Bank and IBT are both 100% owned subsidiaries of SPH. The Bank should recognize all the assets and liabilities of IBT at book value (if the impairment occurs, the impairment loss should be recognized). Under the Financial Institutions Merger Act and interpretation (94) 349 issued by the ARDF of ROC, the Bank did not book the land value increment tax reserve amounted to $555,910 since the land was not revalued when both banks merged.
16. OTHER ASSETS
September 30 2007 2006
Rental properties, net $ 1,546,806 $ 924,671 Deferred tax asset 1,507,213 287,490 Collateral assumed, net of accumulated impairment $35,339 and $35,223 as of 2007 and 2006, respectively 767,632 603,910 Land value increment tax 486,830 - Idle assets, net 453,189 628,207 Prepayment 373,914 785,305 Temporary payment 332,458 289,700 Deferred pension cost 207,052 229,237 Other deferred assets 17,112 21,596 Others 1,783 7,009
$ 5,693,989 $ 3,777,125
17. CALL LOANS AND DUE TO BANKS September 30 2007 2006
Call loans $ 41,254,442 $ 88,662,633 Redeposit from the directorate general of postal remittance 13,694,909 12,610,016 Due to the Central Bank 45,598 53,645 Due to banks 36,237 79,492 Overdrafts of bank - 39,450
$ 55,031,186 $ 101,445,236 - 21 - 18. ACCOUNTS, INTEREST AND OTHER PAYABLES
September 30 2007 2006
Notes and checks in clearing $ 6,188,785 $ 8,730,725 Accounts payable - factoring 7,282,915 13,355,410 Interest payable 4,465,733 3,658,145 Acceptance payable 3,666,974 4,188,861 Accrued expenses 1,603,752 1,164,890 Receipts under custody payable 1,286,836 1,239,520 Tax payable 268,835 216,013 Accounts payable 248,307 1,408,681 Others 557,692 350,405
$ 25,569,829 $ 34,312,650
19. DEPOSITS AND REMITTANCES
September 30 2007 2006
Checking $ 12,362,292 $ 13,267,347 Demand 106,060,568 94,983,630 Savings - demand 169,155,746 156,540,777 Time 240,579,386 228,645,628 Negotiable certificates of deposit 37,330,700 47,444,700 Savings - time 202,067,669 201,436,366 Inward remittances 3,412,721 871,293 Outward remittances 30,172 213,330
$ 770,999,254 $ 743,403,071
20. BONDS PAYABLE
Related information regarding other financial assets please refer to Table 6-8.
The Bank (formerly IBT) issued US$180,000 thousand in zero coupon Euro convertible bonds with par of US$1,000 on December 22, 2004. The terms of the bonds are as follows:
a. Redemption method
The Bank will redeem the bonds on the maturity date at a price equal to 99.95% of the outstanding principal amount unless the bonds have been previously redeemed, repurchased and canceled, or converted.
1) Redemption at the Bank’s option
a) In the period of December 22, 2006 to 2009, the Bank may redeem all or parts of the bonds if the average closing price over 130% of the conversion price of the shares at least 20 consecutive trading days.
- 22 - b) The Bank may redeem all the bonds at any time if at least 90% of the principal of the bonds has already been redeemed, repurchased and canceled, or converted.
c) The Bank may redeem all the bonds at any time if any changes in ROC taxation would require the Bank to gross up the payment of interest or premium.
2) Redemption at the holders’ option
a) Each bondholder has the right to require the Bank to redeem all or parts of the bonds only on December 22, 2006 at 99.98% of the principal unless the bonds had been previously redeemed, repurchased and canceled, or converted.
b) Each holder has the right to require the Bank to buy all of the holder’s bonds at 100% of the principal amount if the shares cease to be listed or admitted for trading on the TSE for at least five consecutive trading days.
c) Each holder has the right to require the Bank to buy all or a portion of the holder’s bonds at 100% of the principal amount if there is change of control over the Bank.
d) On December 26, 2005, the Bank became a wholly owned subsidiary of the Company. This development constitutes a change of control, on which the bond indenture has certain provisions. Thus, under the indenture, each holder has the right to require IBT to repurchase all or a portion of his/her bond holdings. In addition, IBT set February 22, 2006 as the change of control date and the change of put price at 100% of the unpaid principal of the bonds. b. Maturity date
The maturity period is five years after bond issuance. Since the bonds were issued on December 22, 2004, the maturity date is on December 22, 2009. c. Pledged: None. d. Conversion period and object
The bondholders can convert the bonds to IBT’s stock between January 21, 2005 and December 12, 2009. They, however, will not be able to effect conversions during the closed period. A closed period is (i) 60 days before any general stockholders’ meetings; (ii) 30 days before any special stockholders’ meetings; (iii) 5 days before the declaration of dividends or other benefits; (iv) the period from the date following the third trading day before the date of IBT’s notification to the Taiwan Stock Exchange of the record date for the determination of stockholders entitled to the receipt of dividends, subscription for new shares due to capital increase, or appropriation of other benefits and bonuses; and (v) such other periods during which IBT should suspend the trading of its stocks, as required by ROC laws and regulations. e. Conversion price
1) The conversion price on issuance is NT$26.26 per share. The conversion price in U.S. dollars is based on the exchange rate of US$1=NT$32.49. The conversion price is subject to adjustment based on certain terms of the related indenture. (Effective July 8, 2005, the conversion price for distributing cash dividends was adjusted from NT$26.26 to NT$25.22.)
- 23 - 2) If the average closing price of the shares for any 30 consecutive trading days immediately before December 22, 2005, December 22, 2006, December 24, 2007 and December 22, 2008 (the ‘‘special reset dates’’), converted into U.S. dollars at the prevailing rate on the special reset dates, is less than the conversion price then in effect converted into U.S. dollars at the fixed exchange rate, the conversion price may be decreased up to 80% of original conversion price. Effective December 22, 2005, the conversion price was reset from NT$25.22 to NT$22.99. Effective June 30, 2006, the conversion price was reset from NT$22.99 to NT$22.25. Effective November 13, 2006, the conversion price was reset at NT$18.94. When converting to SPH’s shares, the conversion price was $16.31 which was reset at a share swap ratio 1.3646. Effective June 28, 2007, the conversion price was reset from NT$18.94 to NT$18.58 because of distribution of cash dividend. When converting to SPH’s shares, the conversion price was NT$16.00 which was reset at a share swap ratio 1.1614, which according to second augment contract of November 13, 2006.
f. Settlement option
Instead of delivering to the holders some or all of the shares required for the valid exercise of a conversion right, IBT may elect to make cash payment for all or any portion of a holder’s bonds deposited for conversion.
g. Supplemental agreements
On December 26, 2005, IBT became a wholly owned subsidiary of the Company and IBT’s common shares were ceased to be traded on the TSE. In the interest of the bondholders, IBT granted to the bondholders outside the United States the additional rights, after converting the bonds into common shares of IBT, and further exchanging IBT’s common shares for the Company’s shares at a certain ratio. If the bondholders do not choose to convert into the Company’s common shares, their bonds still can be converted into IBT’s common shares.
In 2005, formerly IBT repurchased 2,000 units at discount price 99 and 99.375. And the bondholders sold the aforementioned 2,000 units at exercise price 100 in 2006, hence, as of September 30, 2007 and 2006, the outstanding bonds’ value were both US$176,000.
21. OTHER LIABILITIES
September 30 2007 2006
Deferred tax liabilities $ 1,064,758 $ 868,899 Accrued pension liabilities 724,843 579,788 Reserve of land value increment tax 458,362 622,941 Temporary receipt 268,685 338,803 Advanced receipt 158,382 110,709 Others 50,049 91,816
$ 2,725,079 $ 2,612,956
22. STOCKHOLDERS’ EQUITY
a. Capital stock
The capital stock was $19,728,068 on January 1, 2006. The Bank increased its authorized capital to $80,000,000 to accommodate the need of mergering with IBT and issued 26,123,904 shares for the merger with IBT on November 13, 2006. The capital stock after merger was $45,851,972.
- 24 - b. Capital surplus
Under related regulations, capital surplus may only be used to offset a deficit. However, capital surplus arising from issuance of shares in excess of par value (including issuance in excess of common stock par value, issuance of shares for combinations and treasury stock transactions) and donations may be transferred to common stock on the basis of the percentage of shares held by the stockholders. Any capital surplus transferred to common stock should be within a certain percentage prescribed by law. c. Retained earnings and dividend policy
The Bank’s Articles of Incorporation provide that the Bank may declare dividends or make other distributions from earnings after it has:
1) Deducted any deficit of prior years;
2) Paid all outstanding taxes;
3) Set aside 30% of remaining earnings as legal reserve;
4) Set aside any special reserve or retained earnings allocated at its option;
5) Allocated Stockholders’ dividends
6) Allocated at least 1% of the remaining earnings which allocated stockholders’ dividends as employee bonus.
To comply with the Bank’s globalization strategy, strengthen its market position, integrate its diversified business operation and be a major local bank, the Bank has adopted the “Balanced Dividend Policy”. Under this policy, dividends available for distribution are determined by referring to its capital adequacy ratio (CAR). Cash dividends may be declared if the Bank’s CAR is above 10% and stock dividends may be declared if the CAR is equal to or less than 10%. However, the Bank may make discretionary cash distribution even if the CAR is below 10%, if approved at the stockholders’ meeting, for the purpose of maintaining the cash dividends at a certain level in any given year.
Cash dividends and cash bonus are paid when approved by the stockholders, while the distribution of stock dividends requires the additional approval of the authorities.
Under a directive issued by the SFB, whenever the components of stockholders’ equity excluding treasury stock - have debit balances, a special reserve equal to the total debit balance should be appropriated from retained earnings according to the percentage of ownership, the unrealized loss on long-term equity investments of combination can appropriated no special reserve earnings as well as the investee company. The special reserve so appropriated, except the portion that is reversible because of the reduction of the total debit balance, is not available for appropriation.
Under the Company Law, the appropriation for legal reserve is made until the reserve equals the aggregate par value of the outstanding capital stock of the Bank. This reserve is only used to offset a deficit. When its balance reaches 50% of aggregate par value of the outstanding capital stock of the Bank, and the Bank have no earnings, the legal reserve over 50% can be distributed as stock dividend or bonus, or, the Bank have no deficit, the Bank can retain the legal reserve up to 15% of the outstanding capital and transferred the remaining legal reserve to common stock. In addition, the Banking Law provides that, before the balance of the reserve reaches the aggregate par value of the outstanding capital stock, annual cash dividends, remuneration to directors, and supervisors and bonus to employees should not exceed 15% of aggregate par value of the outstanding capital stock of the Bank.
Under the Financial Holding Company Act, the board of directors is empowered to execute the authority in stockholders’ meeting, which is under no jurisdiction in the related regulations in the Company Law. - 25 - On June 22, 2007 and June 2, 2006, the board of directors which execute rights and functions of stockholders’ meeting resolved the appropriation of 2006 and 2005 earnings, respectively, as follows:
Dividends Per Share Earnings Appropriation (New Taiwan Dollars) 2006 2005 2006 2005
Legal reserve $ 646,947 $ 497,192 Remuneration to directors and supervisors 22,043 32,000 Bonus to employees - cash 226 11,601 Cash dividends 1,486,979 1,116,514 $0.3243 $0.57 Stock dividend 295 -
$ 2,156,490 $ 1,657,307
On March 21, 2006, IBT’s stockholders’ meeting resolved the appropriation of 2005 earningsas follows:
Dividends Per Share Earnings (New Taiwan Appropriation Dollars) 2005 2005
Legal reserve $ 735,310 Remuneration to directors and supervisors 62,531 Cash dividends 1,623,017 $0.73 Bonus to employees - cash 187,592
$ 2,608,450
Unrealized gains or losses on financial instruments
The changes in unrealized gains or losses on financial instruments for the nine months ended September 30, 2007 and 2006, respectively, were summarized below:
For the Nine Months Ended September 30 2007 2006
Balance, January 1 $ 166,778 $ - Adjustment to stockholders’ equity (376,638 ) 119,167 Transferred to current income 32,862 (12,261 )
Balance, September 30 $ (176,998 ) $ 106,906
- 26 - d. Earnings per share
The numerators and denominators used in computing earnings per shares (EPS) were summarized as follows:
Denominator EPS (NT$) Numerator (Amounts) (Shares in After Pretax After Tax Thousands) Pretax Tax For the nine months ended September 30, 2007
Basic EPS Net income to common stockholders $ 1,348,252 $ 1,534,260 4,585,197 $ 0.29 $ 0.33 Influence on diluted common shares Bond payable - - 307,763
Diluted EPS $ 1,348,252 $ 1,534,260 4,892,960 $ 0.28 $ 0.31
For the nine months ended September 30, 2006
Basic EPS Income before cumulative effect of accounting changes $ 4,631,575 $ 3,963,090 4,585,197 $ 1.01 $ 0.86 Cumulative effect of accounting change 286,297 294,839 0.06 0.07 Net income to common stockholders 4,917,872 4,257,929 $ 1.07 $ 0.93 Influence on diluted common shares Bond payable 18,363 13,772 302,356
Diluted EPS $ 4,936,235 $ 4,271,701 4,887,553 $ 1.01 $ 0.87
23. COMMISSIONS AND FEE REVENUES, NET
For the Nine Months Ended September 30 2007 2006 Commissions and fees revenues Mutual funds and linked bonds $ 2,144,906 $ 1,024,941 Loan 507,980 451,106 Foreign exchange 312,803 347,017 Custody 234,902 209,716 Factoring and financing 206,963 208,185 Remittance expenses 62,524 50,375 Automatic equipment service fees 55,907 56,663 Guarantee and acceptance 39,797 53,110 Credit card 2,169 139,769 Others 58,050 78,091 3,626,001 2,618,973 (Continued)
- 27 - For the Nine Months Ended September 30 2007 2006 Commissions and fees expenses Mutual funds and linked bonds $ 149,311 $ 104,720 Financial transaction 79,258 39,265 Automatic equipment service fees 73,484 57,380 Loan 43,343 47,650 Custody 28,154 7,420 Foreign exchange 3,519 1,908 Remittance expenses 3,537 5,318 Credit card - 30,784 Others 37,307 37,504 417,913 331,949
$ 3,208,088 $ 2,287,024 (Concluded)
24. OPERATING EXPENSES
For the Nine Months Ended September 30 2007 2006 Personnel expenses Salaries and wages $ 4,012,505 $ 3,716,944 Pension 346,964 290,163 Labor insurance and national health insurance 209,731 215,419 Others 279,649 145,902 4,848,849 4,368,428 Depreciation 415,181 477,606 Amortization 57,209 92,600 Others 2,413,796 2,453,064
Income tax expense $ 7,735,035 $ 7,391,698
25. PENSION
The Labor Pension Act took effect on July 1, 2005, and the Bank’s employees, who were on service before July 1, 2005, could choose the pension mechanism either under the Labor Standard Law or under this Act. For those employees who choose the pension mechanism regulated by the Labor Standard law, their seniority prior to the enforcement of Labor Pension Act shall be maintained. The newly hired employees, who were hired after July 1, 2005, could only be regulated by the Labor Pension Act.
Since July 1, 2005, for those employees who still choose to be subjected to the Labor Standard Law, the Bank makes monthly contributions, equal to 4% of employee salaries, to the severance payment fund. If the employees quit willingly, they still can receive the severance payment based on the severance payment criteria. On November 13, 2006, for those employees who joined the Bank owning to the merger and still choose to be subjected to the Labor Standard Law, the Bank made monthly contributions, equal to 4% of employee salaries, to the severance payment fund excluding those who are eligible for promoted or enforced retirement project. If the employees quit willingly, they still can receive the severance payment based on the severance payment criteria.
- 28 - For those employees who choose to be subjected to the Labor Pension Act, the Bank ceases to contribute into severance payment fund. The cumulated contributions generated before applying Labor Pension Act is summed up in the balance at that month and retained in the severance payment fund. The employees will receive severance payments according to severance payment criteria when they quit willingly.
For the Bank’s employees choose the pension mechanism regulated by the Labor Standard Law, the retirement payments shall be paid to employees on the basis of the following standard: (i) a lump sum payment of retirement payments equal to two base units shall be paid for each year of service (ii) provided that each year of service exceeding fifteen years shall be entitled to only one base unit of wage (iii) and that the maximum payment shall be forty-five base units. Any fraction of a year which is equal to or more than year shall be counted as one year of service, and any fraction of a year which is less than year shall be counted as half a year of service.
The Bank’s employees contribute a compulsory amount equivalent to 4% of their salaries to the employees’ pension fund, and the Bank also makes monthly contributions to the severance payment fund. The Labor Pension Act took effect on July 1, 2005, therefore the aforementioned employees’ pension fund ceased to contribute, and the employees received their cumulative contributions and related interest thereon.
The Bank applied defined contribution plan regulated by Labor Pension Act after July 1, 2005. Under this Act, the Bank contributed 6% of the employee salaries to the Labor Insurance Administration (according to this Act, the contribution rate by the employer to the Labor Pension Fund per month shall not be less than 6% of the employee’s monthly wages). For the nine months ended September 30, 2007 and 2006, the pension expense amounted to $91,966 and $86,506, respectively, which were contributed to personal pension accounts.
Information related to defined benefit pension plan of the Bank is disclosed as follows: a. The changes in the pension fund were summarized below:
For the Nine Months Ended September 30 2007 2006 SinoPac IBT
Balance, January 1 $ 1,581,140 $ 851,701 $ 996,493 Contributions 228,643 67,165 129,974 Benefits paid (42,206 ) (26,714 ) (506,849 ) Interest revenue 39,274 10,826 10,174
Balance, September 30 $ 1,806,851 $ 902,978 $ 629,792
The aforementioned pension funds were contributed by the Bank. b. The changes in the accrued pension cost (included in other liabilities) were summarized below:
For the Nine Months Ended September 30 2007 2006 SinoPac IBT
Balance, January 1 $ 734,417 $ 114,839 $ 450,506 Provision under defined benefit plans 244,563 65,921 132,902 Contributions (254,137 ) (51,961 ) (132,902 ) Receive from leave employee - 483 -
Balance, September 30 $ 724,843 $ 129,282 $ 450,506
The Bank recognized pension costs (including overseas branches) for the nine months ended September 30, 2007 and 2006 were $346,964 and $290,163, respectively. - 29 - 26. INCOME TAX
Under a directive issued by the MOF, a financial holding company and its domestic subsidiaries which over 90% of shares issued were held by the financial holding company for 12 months within the same tax year may choose to adopt the linked tax system for income tax filings. SPH adopted the linked-tax system for income tax filings with its qualified subsidiaries since 2003.
The accounting treatment applied by the Group to the income tax is to adjust in SPH’s book the difference between the combined current/deferred taxes and the total of each Group member’s current/deferred. Related payables and receivables were recorded in each of the Group members’ books.
a. The components of income tax were as follows:
For the Nine Months Ended September 30 2007 2006
Current income tax payable(Deductible loss carry forward) $ (709,296 ) $ 38,502 Separate taxes on short-term bills interest revenue 377,500 371,016 Change in deferred income taxes 75,293 197,362 Overseas income taxes over limitation 68,138 - The minimum income tax - 65,550 Prior year adjustments 2,357 (3,945 )
$ (186,008 ) $ 668,485
Income tax was based on taxable income from all sources. Foreign income taxes paid can be used as credits against the domestic income tax obligations to the extent of domestic income tax applicable to the foreign-source income.
b. Reconciliation of tax on pretax income at statutory rate and current income tax payable:
For the Nine Months Ended September 30 2007 2006
Tax on pretax income at 25% statutory rate $ 337,063 $ 1,171,742 Add (deduct) tax effects of: Tax-exempt income (169,040 ) (223,481 ) Permanent difference (812,519 ) (724,335 ) Temporary difference (64,800 ) (180,743 ) Investment tax credit - (4,681 )
Current income tax payable (deductible loss carry forward) $ (709,296 ) $ 38,502
- 30 - c. Deferred income tax assets consisted of the tax effects of the following:
September 30 2007 2006
Loss carry forward $ 1,416,695 $ - Deferred pension cost 330,555 263,324 Unrealized loss on foreign exchange and fair value adjustment 106,908 2,911 Effect upon adoption of the linked - tax system (366,156 ) - Staff training 10,560 - Asset retirement losses 5,245 - Cumulative effect of accounting changes - 17,232 Others 3,406 4,023
Deferred income tax assets, net $ 1,507,213 $ 287,490
Deferred income tax liabilities consisted of the tax effects of the following:
September 30 2007 2006
Investment income under the equity method $ (1,018,203 ) $ (822,344 ) Others (46,555 ) (46,555 )
Deferred income tax liabilities, net $ (1,064,758 ) $ (868,899 )
The last year of deductible loss carry forward is 2011.
The unused loss carry forward as of September 30, 2007, are as follows:
Deficit Year The Last Year of Deductible Loss Amount
2006 2011 $ 592,613 2007 2012 462,648
$ 1,055,261 d. The estimated receivables and payables from adopting the linked tax system of income tax filing were as follows:
September 30 2007 2006
Receivable from related party $ 691,658 $ 245,723 e. The related information under the Integrated Income Tax System was as follows:
September 30 2007 2006
Balances of imputed tax credit account $ 1,575,335 $ 59,634
The balance of imputed tax credit account of IBT was $47,865 as of September 30, 2006.
- 31 - The actual creditable tax ratio used for distributing earnings generated in 2006 was 20.94%. The actual creditable tax ratio of Bank SinoPac used for distributing earnings generated in 2005 was 16.35%. The actual creditable tax ratio of IBT used for distributing earnings generated in 2005 was 27.15%.
f. The inappropriate earnings generated before January 1, 1997 as of September 30, 2007 was $8,758, which was recorded as capital surplus owing to merger of IBT.
Regulated by the law of income tax, when distributing the inappropriate earnings generated after January 1, 1997, stockholders will get imputation credit which counted by imputed tax credit ratio as of dividend declared date; as to inappropriate earnings generated before January 1, 1997, no imputation credit will allocate to stockholders.
g. For Bank SinoPac, income tax returns through 2002, except those for 1996, had been examined by the tax authorities. On the income tax returns for the aforementioned years, the tax authorities denied the creditability of 10% withholding tax on interest income on bonds pertaining to the period when those bonds were held by other investors. Bank SinoPac appealed the decision of the tax authorities. Nevertheless, on the basis of conservative principles, Bank SinoPac recognized $111,209 as part of income tax expenses to reflect accrued liabilities and any assets written off in relation to the foregoing withholding taxes. In January 2004, Bank SinoPac reached an agreement with the Taipei National Tax Administration (TNTA) on the above appealing cases, in which TNTA would refund 65% of the withholding tax denied on the interest income on bonds to Bank SinoPac. The income tax return for 2002 had been examined by the tax authorities according to the aforementioned refund percentage. Consequently, IBT accrued 35% of the withholding tax denied on the interest income on bonds as income tax expenses for 2003 to 2006, which were not refunded by tax authorities.
h. For IBT, income tax returns through 2004 had been examined by the tax authorities. For the income tax returns for 1995 to 2001, the tax authorities denied the creditability of 10% withholding tax on interest income on bonds amounting to $173,382 in 2001, which pertained to the period those bonds were held by other investors. IBT accrued this liability and appealed the decision of the tax authorities. In 2003, IBT reached an agreement with the Taipei National Tax Administration (TNTA) on the above appealing cases, in which TNTA would refund 65% of the withholding tax denied on the interest income on bonds to IBT. The income tax return for 2002 to 2004 had been examined by the tax authorities according to the aforementioned refund percentage. Consequently, IBT accrued 35% of the withholding tax denied on the interest income on bonds as income tax expenses for 2005 to 2006, which were not refunded by tax authorities.
27. RELATED-PARTY TRANSACTIONS
In addition to the disclosure in other footnotes, relationship with the Bank and significant transactions between the Bank and related parties were summarized as follows:
a. Related parties
Name Relationship with the Bank
SinoPac Financial Holdings Company Limited (SPH) Parent company SinoPac Securities Corporation (SinoPac Securities) Subsidiary of SPH SinoPac Marketing Consulting Co., Ltd. (SinoPac Subsidiary of SPH (was merged with SinoPac Marketing Consulting) Call Center Co., Ltd. at January 1, 2007) SinoPac Call Center Co., Ltd. (SinoPac Call Center) Subsidiary of SPH SinoPac Venture Capital Co., Ltd. (SinoPac Venture Subsidiary of SPH Capital) (Continued)
- 32 - Name Relationship with the Bank
SinoPac Asset Management International (SinoPac Subsidiary of SPH Asset Management) SinoPac Life Insurance Agent Co., Ltd. (SPLIA) Subsidiary of the Bank SinoPac Property Insurance Agent Co., Ltd. (SPPIA) Subsidiary of the Bank SinoPac Card Services Co., Ltd. (SinoPac Card Subsidiary of SPH Services, formerly known as Anshin Card Services Company, Ltd.) Fuh Hwa Securities Investment Trust Corporation Investee of the Bank Grand Cathay Securities Investment Trust Investee company under the equity method (has Corporation been transferred to SPH using the book value for the six months ended June 30, 2007) Far East National Bank (FENB) Overseas affiliate of the Bank SinoPac Leasing Corporation (SPL) Subsidiary of the Bank RSP Information Service Company Limited (RSP Investee of the Bank’s subsidiary Information) SinoPac Capital Ltd. (Hong Kong) Overseas affiliate of the Bank Grand Capital International Limited (Grand Capital) Subsidiary of SPL Fortune Investment Co., Ltd. (Fortune Investment) Affiliate Ruentex Development Co., Ltd. (Ruentex Affiliate Development) Wal Tech International Corporation (Wal Tech Affiliate International) Ming Shan Investment Co., Ltd. Affiliate of IBT Chuan Construction Co., Ltd. Affiliate of IBT Shinkong Synthetic Fibers Corporation Affiliate of IBT Yi Feng Storage Services Co., Ltd. Affiliate of IBT Yuen Foong Industrial Co., Ltd. Affiliate of IBT Linkou Golf & Country Club Affiliate of IBT Formosa Plastics Corporation Affiliate of IBT An-Long Corporation Affiliate of IBT Continental Engineering Corporation Affiliate of IBT Taiwan Genome Sciences, Inc. Affiliate of IBT Acer Incorporated Affiliate business of Yin, Yan Liang Foxsemicon Integrated Technology Inc. Affiliate business of Yin, Yan Liang Grand Cathay New Century Fund Managed by Grand Cathay Securities Investment Trust Co., Ltd. Grand Cathay Small & Medium Capital Fund Managed by Grand Cathay Securities Investment Trust Co., Ltd. Fuh-Hwa Bond Fund Managed by Fuh Hwa Securities Investment Trust Fuh-Hwa Yuli Bond Fund Managed by Fuh Hwa Securities Investment Trust Fuh-Hwa Digital Economy Fund Managed by Fuh Hwa Securities Investment Trust SinoPac Securities (Asia) Limited Subsidiary of SinoPac Securities SinoPac Futures Corporation (SinoPac Futures) Subsidiary of SinoPac Securities SinoPac Managed Futures Co., Ltd. (SinoPac Subsidiary of SinoPac Securities Managed Futures) SinoPac Securities (Cayman) Holding Subsidiary of SinoPac Securities Rung-Tzung Investment Corp. Affiliate TaiGen Biotechnology Company Ltd. Affiliate BoardTek Electronics Corp. Affiliate (Continued)
- 33 - Name Relationship with the Bank
Yung An Leasing Corporation Affiliate business of He, Shei Chuan Liu, Shiou Fong Manager of SPH Chen Hsu, Yu Rong Affiliate Chen, Yun Xiu Affiliate Guan, Yao Zhan Affiliate Zhong, Dau Cheng Manager of the Bank Other The Bank’s directors, supervisors, managers and their relatives, department chiefs, the investees accounted for by the equity method and their subsidiaries, and the investees of SPH’s other subsidiaries, etc. (Concluded) b. Significant transactions between the Bank and related parties
1) Due from banks
Ending Balance % of Total September 30 September 30 2007 2006 2007 2006
Due from banks - FENB $ 53,094 $ 37,539 0.39% 0.50%
2) Financial assets at fair value through profit or loss
Ending Balance % of Total September 30 September 30 2007 2006 2007 2006
Mutual fund - Fuh Hwa Bond Fund $ 253,448 $ 175,727 0.70% 0.41% Mutual fund - Fuh Hwa Yuli Bond Fund 102,474 206,188 0.28% 0.48% Mutual fund - Fuh Hwa Digital Economy Fund 98,145 72,564 0.27% 0.17% Mutual fund - Grand Cathay Small & Medium Fund 96,904 - 0.27% - Mutual fund - Grand Cathay New Century Fund 75,341 65,000 0.21% 0.15% Other 155,463 286,647 0.43% 0.67%
3) Derivative financial instruments
September 30, 2007 Contract (Notional) Balance Sheet Amount Balance Sheet Date Fair Value Account Balance
Currency swap contracts Grand Capital $ 24,224 2007.2.14-2008.2.29 $ 108 Financial assets at fair value $ 108 through profit or loss SinoPac Capital 996,362 2007.9.24-2007.10.2 (8 ) Financial liabilities at fair (8 ) value through profit or loss Interest rate swap contracts SinoPac Securities 900,000 2006.9.7-2012.1.3 (12,471 ) Financial liabilities at fair (12,471 ) value through profit or loss SPL 100,000 2007.7.24-2009.7.27 462 Financial assets at fair value 462 through profit or loss
- 34 - September 30, 2006 Contract (Notional) Balance Sheet Amount Balance Sheet Date Fair Value Account Balance Currency swap contracts SPH $ 1,500,000 2006.8.2-2006.11.6 $ (623 ) Financial liabilities at fair $ (623 ) value through profit or loss Grand Capital 9,597 2006.8.31-2007.8.31 (6 ) Financial liabilities at fair (6 ) value through profit or loss Interest rate swap contracts SPL 80,000 2002.1.29-2007.2.5 604 Financial assets at fair value 604 through profit or loss
4) Due from/to affiliates
As of September 30, 2007 and 2006, the Bank’s receivables from SinoPac Card Services amounted to $58,696 and $33,920, respectively.
As of September 30, 2007 and 2006, the other receivables from related parties amounted to $15,280 and $10,235, respectively.
In order to provide the customer-leading products and services, pursue the growth of market share and profit, SinoPac Card Services acquired IBT credit card business segment and its net assets at book value.
Items Amount
Receivables $ 5,545,530 Allowance for credit losses (330,323 ) Other assets 297 Payables (14,447 ) Other liabilities (29,977 )
$ 5,171,080
As of September 30, 2007 and 2006, the Bank’s receivable from sale of credit card business at book value to SinoPac Card Services amounted to $3,309,492 and $5,171,080, respectively. Interest on the aforementioned receivable has been received using the short-term bills secondary market rate for thirty days plus 0.3%. The related interest revenues and interest receivable as of and for the nine months ended September 30, 2007 were $57,821 and $13,182, respectively.
As of September 30, 2007 and 2006, the Bank’s estimated receivables resulting from the adoption of the linked-tax system as of September 30, 2007 and 2006 amounted to $691,658 and $245,723, respectively.
5) Loans For the Nine Months Ended September 30, 2007 Is the Transaction at Arm’s Length Account Volume or Highest Ending Commercial Category Name of Related Party Balance Balance Normal Overdue Type of Collaterals Term
Employees 7 $ 2,836 $ 2,108 V None Yes consuming loan Households 45 397,983 380,496 V Real estate Yes mortgages Others: SinoPac Leasing 877,000 659,000 V Real estate Yes Corporation SinoPac Securities 70,000 - V Certificate of deposit Yes and real estate (Continued)
- 35 - For the Nine Months Ended September 30, 2007 Is the Transaction at Arm’s Length Account Volume or Highest Ending Commercial Category Name of Related Party Balance Balance Normal Overdue Type of Collaterals Term
BoardTek Electronics $ 351,000 $ 280,063 V Real estate Yes Corp. Rung-Tzung Investment 246,671 246,671 V Real estate Yes Corp. Yung An Leasing 197,600 175,200 V Real estate Yes Corporation Fortune Investment 72,000 - V Real estate Yes Foxsemicon Integrated 403,770 403,770 V None Yes Technology Liu, Shiou Fong 1,858 1,804 V Real estate Yes Chen Hsu, Yu Rong 6,476 6,142 V Real estate Yes Chen, Yun Xiu 272 268 V Certificate of deposit Yes Guan, Yao Zhan 143 143 V Certificate of deposit Yes Zhong Dau Cheng 8 8 V Certificate of deposit Yes 2,226,798 1,773,069
$ 2,627,617 $ 2,155,673 (Concluded)
For the Nine Months Ended September 30, 2006 Is the Transaction at Arm’s Length Account Volume or Highest Ending Commercial Category Name of Related Party Balance Balance Normal Overdue Type of Collaterals Term
Employees 10 $ 3,539 $ 2,436 V None Yes consuming loan Households 39 324,681 316,673 V Real estate Yes mortgages Others: Ming Shan Investment 35,000 35,000 V Real estate Yes Co., Ltd. Chuan Construction Co., 59,000 48,500 V Real estate Yes Ltd. Shinkong Synthetic 46,154 - V Real estate Yes Fibers Corporation Yi Feng Storage Services 49,700 49,700 V Listed stock Yes Co., Ltd. Yuen Foong Industrial 50,000 50,000 V Listed stock Yes Co., Ltd. BoardTek Electronics 359,000 359,000 V Real estate Yes Corp. Linkou Golf & Country 40,000 40,000 V Real estate Yes Club Rung-Tzung Investment 246,671 246,671 V Real estate Yes Corp. An-Long Corporation 5,000 5,000 V Real estate Yes Grand Capital 528,800 528,800 V None (related party Yes after merger) SinoPac Capital 198,300 198,300 V None (related party Yes after merger) Formosa Plastics Co. 101,252 90,920 V None Yes SPL 880,000 880,000 V Real estate Yes SinoPac Securities 700,000 65,000 V Real estate and Yes certificate of deposit Wal Tech International 20,000 17,000 V Real estate Yes Corporation Fortune Investment 87,000 87,000 V Real estate and Yes marketable securities Continental Engineering 100,000 100,000 V None Yes Corporation 3,505,877 2,800,891 V
$ 3,834,097 $ 3,120,000
- 36 - 6) Guarantees
September 30, 2007 The Highest Balance in Current Ending Related Party Period Balance Provision Rates Type of Collaterals
SinoPac Securities $ 38,000 $ 38,000 $ - 0.30% Real estate and certificate of deposit TaiGen Biotechnology Company Ltd. 18,340 18,340 - 0.45% Certificate of deposit Acer Incorporated 24,729 24,729 - 0.40% Certificate of deposit
September 30, 2006 The Highest Balance in Current Ending Related Party Period Balance Provision Rates Type of Collaterals
SinoPac Securities $ 35,000 $ 35,000 $ - 0.30% Real estate and certificate of deposit TaiGen Biotechnology Company Ltd. 18,340 18,340 - 0.45% Certificate of deposit Taiwan Genome Sciences, Inc. 15,667 15,667 - 1.00% Certificate of deposit
7) Held-to-maturity financial assets
The Bank purchased beneficiary certificates - credit card receivables from SinoPac Card Services. The maturity and fixed interest rate of the beneficiary certificates are February 20, 2009 and 3%, respectively, and the principal was as follows:
September 30 2007 2006
Beneficiary certificates - credit card receivables $ 80,000 $ 80,000
8) Securities sold under agreements to repurchase
Face Amount Cost September 30 September 30 2007 2006 2007 2006
SPH $ - $ 26,500 $ - $ 29,500 Fuh-Hwa Yuli Bond Fund - 114,300 - 127,000 Others 587,405 432,976 655,838 441,096
9) Deposits Ending % of Interest % of Balance Total Interest Rate Expense Total For the nine months ended September 30, 2007
SinoPac Securities $ 2,005,089 0.26% 0.10-2.23 $ 17,211 0.09% SinoPac Securities (Asia) Limited 1,969,137 0.26% 0.0005-6.02 42,296 0.21% SinoPac Futures 815,685 0.11% 0.10-2.475 11,953 0.06% TaiGen Biotechnology 340,359 0.04% 0.10-2.025 5,526 0.03% SinoPac Venture Capital 339,877 0.04% 0.04-2.09 4,052 0.02% Others 4,642,536 0.60% 0.0005-13 69,722 0.35% (Continued)
- 37 - Ending % of Interest % of Balance Total Interest Rate Expense Total For the nine months ended September 30, 2006
SinoPac Securities $ 1,783,374 0.24% 0.05-5.15 $ 16,650 0.11% TaiGen Biotechnology 419,106 0.06% 0.1-1.97 3,988 0.03% SinoPac Venture Capital 415,390 0.06% 0.3-2.2 4,143 0.03% SPH 379,186 0.05% 0.3-8.25 73,008 0.48% SPLIA 326,406 1.56% 0.1 221 - Others 11,563,412 1.56% 0.05-13 164,199 1.09% (Concluded)
10) Revenues and expenses
Amount % of Total For the Nine Months Ended For the Nine Months Ended September 30 September 30 2007 2006 2007 2006
Service fees $ 62,995 $ 13,487 1.74% 0.52% Service expenses 2,429 - 0.58% - Project popularizing expense 1,427 194 0.06% 0.01%
11) Lease
a) The Bank as a lessee
The Bank had leased certain office premises from related parties under several contracts for various periods ranging from 1 to 15 years, with rentals paid monthly. The related information was summarized as follows:
Rental Expenses For the Nine Months Ended September 30 Lessor 2007 2006 Lease Term Payment Frequency
SPL $ 73,278 $ 53,235 February 2020 Rentals paid monthly Ruentex Development 3,000 2,700 September 2010 Rentals paid monthly
b) The Bank as a lessor
Rental Income For the Nine Months Ended September 30 Lessee 2007 2006 Lease Term Payment Frequency
SinoPac Card Services $ 18,254 $ 182 September 2011 Rentals received monthly SinoPac Securities 9,613 1,852 November 2011 Rentals received monthly SPL 4,464 3,573 July 2011 Rentals received monthly SinoPac Call Center 2,160 1,944 October 2007 Rentals received monthly SPLIA 1,500 - January 2012 Rentals received monthly (Continued)
- 38 - Rental Income For the Nine Months Ended September 30 Lessee 2007 2006 Lease Term Payment Frequency
SPPIA $ 264 $ - January 2012 Rentals received monthly SinoPac Asset Management 242 545 April 2007 Rentals received monthly Wal Tech International 45 45 June 2011 Rentals received monthly SinoPac Venture Capital 7 7 June 2010 Rentals received monthly SPH - 2,878 November 2006 Rentals received monthly SinoPac Marketing - 1,348 December 2006 Rentals received monthly Consulting (Concluded)
12) Professional advisory charges
The Bank had entered into several professional advisory contracts with its investees. The professional advisory charges paid for the nine months ended September 30, 2007 and 2006 amounted to $63,650 and $67,530, respectively.
Transactions between the Bank and related parties are at arms length commercial terms except for the preferential interest rates offered to employees for savings and loans up to prescribed limits.
Under the Banking Law, except for government and consumer loans, credit extended by the Bank to any related party should be fully secured, and the credit terms for related parties should be similar to those for unrelated parties.
28. RESTRICTED ASSETS
As of September 30, 2007 and 2006, the Bank provided current assets to Central Bank, OTC and the Court for mortgage and pledge.
Fair Value September 30 Restricted Assets Object 2007 2006
Financial assets at fair value through Government bonds $ 995 $ 1,003 profit or loss Available for sale financial assets Government bonds and 15,588,715 15,470,620 certificate of deposit Held-to-maturity investments Government bonds 206,828 207,839
- 39 - 29. SIGNIFICANT CONTINGENCIES AND COMMITMENTS
In addition to those disclosed in Note 32, financial instruments, significant contingencies and commitments of the Bank, are summarized as follows:
a. Lease contract
The Bank leased certain office premises under several contracts for various periods ranging from one to fifteen years, with rentals paid monthly, quarterly or semiannually. Rentals for the next five years are as follows:
Year Amount
October 1 to December 31, 2007 $ 90,974 2008 310,650 2009 264,489 2010 185,054 2011 134,741
Rentals for the years beyond 2012 amount to $600,064, the present value of which is about $488,570 as discounted at the Bank’s one-year time deposit rate of 2.54% on September 30, 2007.
b. Equipment purchase contract
The Bank had entered into contracts to buy computer equipment and office equipment for $226,984 of which $84,461 had already been paid as of September 30, 2007.
c. Interior decoration contract
The Bank had entered into interior decoration contracts for $122,526, of which $91,702 has already been paid as of September 30, 2007.
d. The Securities and Futures Investors Protection Center (SFIPC) was filing a lawsuit against the Bank and SPL’s subsidiary, Grand Capital, in the ground that Procomp Informatics Ltd. provided deposit US$10,000,000 with the Bank’s Shisung Branch (formally Sungshan Branch) and limited the usage as a condition for short-term loan to Addie International Limited granted by SPL and for helping Yeh, Sue-Fei and Procomp Informatics Ltd. processing irregular trading and appropriating the aforementioned limited deposit for fictitious sales. Finally the Bank directly took compensation from Procomp Informatics Ltd’s account, causing Procomp’s damage. And the Bank was suspected of misleading investors by providing unreal confirmations for conceal with the limited deposit of the Procomp and window-dressing its financial statements. The SFIPC filed additional lawsuit against the Bank, SPL and all other parties related to Procomp Informatics Ltd for involving liability $58.2 hundred millions to pay compensation. The Bank has entered a plea on such charges and the case is under trying in the Shihlin District Court.
e. The SFIPC is believed by investors to be filing a lawsuit against the Bank in the ground that National Aerospace Fasteners Corporation provided an accounts receivable - factoring with the Bank’s Tunpei Branch and recorded the substantially loan transaction as an accounts receivable financing activity to window-dress its financial position which the investors made their investing decision based on. The SFIPC files lawsuit against the Bank and all other parties for compensation $5.7 hundred millions. The Bank has entered a plea on such charges and the case is under trying in the Taipei District Court.
f. The FSC imposed a disciplinary, FSC (6) 09480115211, at December 23, 2005 for restraining the Bank from developing new clients of accounts receivable factoring activities (except for authorized limit of original clients) in the period of January to June 2006, due to believing the Bank accommodated client to increase bank deposit falsely for window dressing the clients’ financial reports, and not sufficiently disclosed the restricted deposit for CPA confirmation. - 40 - Not willing to accept the aforementioned disciplinary as final, the bank has been appealed to Executive Yuan, but it was rejected at July 17, 2006. For aforementioned disciplinary and appeal decision, the Bank filed an administrative lawsuit, but the Taipei High Administrative Court determined the Bank lost on July 5, 2007. It appeals to the court on August 3, 2007.
30. RESTATEMENT OF FINANCIAL STATEMENT
The Bank mergered with IBT on November 13, 2006. Under interpretation (91) 243 and 244 issued by the ARDF of ROC, the merger should be treated as a reorganization and should be recorded at the book value of both entities’ assets and liabilities because of the Bank and IBT are both 100% owned subsidiaries of SPH. In accordance with the interpretation No. (95) 141, the financial statements of Bank SinoPac should be retroactively restated assuming the assets and liabilities of IBT have been included at book value. The Bank acquired net assets, amounted to $35,181,212 of IBT through a share swap at ratio of 1.175 shares and issued 2,612,390 thousand shares. Related information regarding net asset value please refer to Table 6-9.
The aforementioned assets are used for operating purpose. The Bank does not have the plan to dispose any significant assets. The net income of Bank SinoPac for the six months ended June 30, 2006 included the net income of IBT for the six months ended June 30, 2006.
31. AVERAGE AMOUNT AND AVERAGE INTEREST RATE OF INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
Average balances were calculated by the daily average balances of interest-earning assets and interest-bearing liabilities.
For the Nine Months Ended September 30 2007 2006 Average Average Average Average Balance Rate (%) Balance Rate (%) Interest-earning assets
Due from Central Bank and other banks $ 42,816,527 2.45 $ 27,587,040 1.97 Call loans to bank 64,397,586 4.61 54,221,664 3.52 Financial assets at fair value through profit or loss 79,111,022 2.48 34,373,643 2.44 Available-for-sale financial assets 88,970,093 2.06 148,347,457 1.63 Discounts and loans 590,850,220 3.61 592,870,711 3.74 Accounts receivable - factoring 11,169,530 5.47 9,966,597 5.35 Held-to-maturity investments 2,591,669 6.19 2,962,637 4.24 Securities purchased under agreement to resell 6,905,035 1.66 20,819,456 1.46 Other financial assets 5,194,561 6.66 2,010,571 5.23 Accounts receivable - revolving credit for credit card - - 3,095,159 14.33
Interest-bearing liabilities
Due to the Central Bank and other banks 11,036,896 2.34 35,136,700 2.05 Call loans 48,025,949 3.90 35,153,996 4.01 Demand deposits 106,462,567 1.44 99,788,312 1.24 Savings - demand deposits 168,200,454 0.58 156,258,526 0.55 Time deposits 239,684,484 2.99 219,060,302 2.50 Savings - time deposits 203,153,094 2.20 193,792,714 1.94 Negotiable certificates of deposit 33,128,663 1.81 49,237,020 1.50 (Continued)
- 41 - For the Nine Months Ended September 30 2007 2006 Average Average Average Average Balance Rate (%) Balance Rate (%)
Securities sold under agreement to repurchase $ 12,301,258 2.22 $ 30,817,443 1.72 Bank debentures 30,812,267 1.10 35,832,801 1.30 Other liabilities - appropriated loan fund 499,343 0.94 378,081 0.62 Bonds payable 5,796,349 - 5,718,869 - (Concluded)
32. FINANCIAL INSTRUMENTS
a. Fair value of financial instruments
September 30 2007 2006 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Assets
Other short-term financial assets $ 249,572,851 $ 249,572,851 $ 155,910,938 $ 155,910,938 Financial assets at fair value through profit or loss 35,438,697 35,438,697 42,583,603 42,583,603 Discounts and loans 599,253,812 599,253,812 598,844,483 598,844,483 Available-for-sale financial assets 54,324,448 54,324,448 186,512,494 186,512,494 Held-to-maturity financial assets 2,742,915 2,742,067 2,258,233 2,256,441 Equity investment-equity method 9,477,033 9,477,033 9,078,197 9,004,294 Unquoted equity instruments 722,997 - 722,259 - Non-active market debt instruments 4,883,990 4,883,990 2,789,443 2,789,443 Other financial assets 2,259,362 2,259,362 1,723,549 1,723,549
Liabilities
Other short-term financial liabilities 92,360,061 92,360,061 156,107,093 156,107,093 Financial liabilities at fair value through profit or loss 6,466,382 6,466,382 3,275,967 3,275,967 Deposits and remittances 770,999,254 770,999,254 743,403,071 743,403,071 Bonds payable 5,734,080 6,023,651 5,816,800 6,000,785 Other financial liabilities 1,098,728 1,098,728 1,242,810 1,242,810
Effective on January 1, 2006, the Bank adopted the Statement of Financial Accounting Standard No. 34 “Accounting for Financial Instruments” and other standards amended for harmonizing with standards. The amount of the cumulative effect resulting from the change to new accounting principles refers to Note 3.
The gains (losses) on derivative financial instruments for the nine months ended September 30, 2007 and 2006 refer to Table 6-10.
b. Methods and assumptions applied in estimating the fair values disclosures for financial instruments are as follows:
1) The carrying amounts of cash and cash equivalent, due from the Central Bank and other banks, securities purchased under agreements to resell, receivable, call loans and due to banks, payables, securities sold under agreements to repurchase approximate their fair values because of the short maturities of these instruments.
- 42 - 2) For financial assets at fair value through profit or loss, available-for-sale financial assets, held-to-maturity investments and hedged derivative financial instruments, fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Bank’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using available indirect data and appropriate valuation methodologies.
Forward contracts’ and interest rate swap contracts’ fair values are based on estimates using present value techniques. Options’ fair value is based on estimates using Black Scholes model.
Fair value of forward contracts is estimated based on the forward rates provided by Reuters or the Associated Press.
Fair value of structured instruments is provided by the counter parties. All outstanding contracts are based on match basis and market risks will be offset.
Fair value of interest rate swap contracts and cross currency swap contracts are estimated based on the market quotation provided by Reuters.
3) Discounts and loans, and deposits are interest-earning assets and interest-bearing liabilities. Thus, their carrying amounts represent fair values. Fair value of nonperforming loans is based on the carrying amount, which is net of allowance for credit losses.
4) When unquoted equity instruments which the Bank does not have significant influence over the investees do not have a quoted market price in an active market and whose fair value cannot be reliably measured, are measured at cost. There are no quoted market prices for equity investment-equity method and non-active market debt instrument, thus their carrying amounts represent fair values.
5) Fair value of bonds payables are estimated at present value of expected cash flow, the discount rate bases on the available interest rates with similar terms. c. Interest revenue of financial assets and liabilities other than those at fair value through profit or loss amounted to $24,422,782 and $24,279,811, respectively, for the nine months ended September 30, 2007 and 2006. Interest expense of financial assets and liabilities other than those at fair value through profit or loss amounted to $15,304,030 and $14,433,197, respectively, for the nine months ended September 30, 2007 and 2006. d. Financial risk information
1) Market risk
The Bank sets up risk managing indicators according to the characters of the products to achieve the goal of risk management. The Bank evaluates market risk exposure limits approved by the board of directors and informs related units when over the limits timely.
- 43 - Fair value of financial assets and financial liabilities determined based upon quoted market prices or estimates summarized as follows:
Quoted Market Prices Fair Value Based on Estimates September 30 September 30 2007 2006 2007 2006 Financial assets
Financial assets at fair value through profit or loss $ 26,549,938 $ 35,050,632 $ 8,888,759 $ 7,532,971 Available-for-sale financial assets 54,324,448 185,498,251 - 1,014,243 Held-to-maturity investments 2,060,965 2,176,722 681,102 80,000 Other financial assets- non-active market debt instruments - - 4,883,990 2,789,443
Financial liabilities
Financial liabilities at fair value through profit or loss 5,361,043 2,545,538 1,105,339 730,429
The Bank set up independent risk management team to control the market risk, and to carrying the market risk management policy out, including organization frame, responsibility and management process; also set clear market risk regulation and limited. Each sub-risk management team reviews limits on monitoring and managing risk exposures under the respective supervision and reports to head office management team timely.
Market risk reports which include the monitor of outstanding position limitation of loss and quantitative measures of risk indicators (ex: Position, Delta, vega, BPV and etc.) are provided to risk management sector to manage risk exposure, risk premium and capital allocation. The indicators are calculated by the valuation models. The Bank uses the value-at-risk approach and Monte Carlo simulation method to derive quantitative measures for the trading book market risks under normal condition.
The Bank formally document in writing its intention to apply hedge accounting and follow the requirement of related accounting standards. Risk management sector should assess the effectiveness of the hedge relationship periodically.
2) Credit risk
The Bank is exposed to credit risk in the event of default on contracts by counter-parties. The Bank makes credit commitments and issues financial guarantees and standby letters of credit only after careful evaluation of customers’ credit worthiness. On the basis of the result of the credit evaluation, the Bank may require collateral before drawings are made against the credit facilities. As of September 30, 2007 and 2006, ratios of secured loans to total loans were 65.8% and 63.6%, respectively. Ratio of secured financial guarantees and standby letters of credits were from 20.4% to 25.2%. Collaterals held vary but may include cash, inventories, marketable securities, and other properties. When the customers default, the Bank will, as required by circumstances, foreclose the collaterals or execute other rights arising out of the guarantees given. Since most of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash demands. The maximum potential amount of future payments represents the notional amounts that could be lost under the guarantees if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from collateral held or pledged.
- 44 - The maximum credit exposure of the financial instruments held by the Bank equaled the book value except which analyzed as follows:
September 30 2007 2006 Carrying Maximum Carrying Maximum Items Amount Credit Exposure Amount Credit Exposure
Off-balance-sheet credit risk Financial guarantees and standby letter of credit $ - $ 25,325,340 $ - $ 25,459,712 Undrawn loan commitments - 9,181,629 - 19,636,592
Concentrations of credit risk exist when changes in economic, industry or geographic factors similarly affect groups of counterparties whose aggregate credit exposure is material in relation to the Bank’s total credit exposure. The Bank maintains a diversified portfolio, limits its exposure to any one geographic region, country or individual creditor and monitors the exposure on a continuous basis. The Bank’s most significant concentrations of credit risk were summarized as follows:
September 30 2007 2006 Carrying Maximum Carrying Maximum Credit Risk Profile by Counterparty Amount Credit Exposure Amount Credit Exposure
Consumer $ 353,226,919 $ 353,226,919 $ 347,769,632 $ 347,769,632 Private sector 230,073,836 230,073,836 219,592,942 219,592,942 Government 22,337,670 22,337,670 29,418,474 29,418,474
$ 605,638,425 $ 605,638,425 $ 596,781,048 $ 596,781,048
September 30 2007 2006 Carrying Maximum Carrying Maximum Credit Risk Profile by Industry Sector Amount Credit Exposure Amount Credit Exposure
Electricity industry $ 42,722,616 $ 42,722,616 $ 57,925,591 $ 57,925,591 Wholesale trade 33,316,293 33,316,293 28,166,460 28,166,460 Insurance and real estate activities 15,258,440 15,258,440 10,555,600 10,555,600
$ 91,297,349 $ 91,297,349 $ 96,647,651 $ 96,647,651
September 30 2007 2006 Carrying Maximum Carrying Maximum Credit Risk Profile by Region Amount Credit Exposure Amount Credit Exposure
Domestic area $ 564,206,374 $ 564,206,374 $ 550,881,961 $ 550,881,961 Asia 17,199,306 17,199,306 12,513,990 12,513,990 North America 10,277,528 10,277,528 4,605,586 4,605,586
$ 591,683,208 $ 591,683,208 $ 568,001,537 $ 568,001,537
3) Liquidity risk
As of September 30, 2007 and 2006, the liquidity reserve ratio was 25.18% and 38.55%, respectively. The Bank has sufficient capital and working capital to execute all the obligation of contract and had no liquidity risk. The possibility of the derivative financial instruments held by the Bank fail to liquidate quickly with minimal loss in value is low.
The management policy of the Bank is to match in the contractual maturity profile and interest rate of its assets and liabilities. As a result of the uncertainty, the maturities and interest rates of assets and liabilities usually didn’t fully match. The gap may arise potential gain or loss.
- 45 - The Bank applied appropriate way to group assets and liabilities. The maturity analysis of assets and liabilities was as follows: September 30, 2007 Due Between Due Between Due Between Due Between Due in One Month and Three Months Six Months and One Year and Due After One Month Three Months and Six Months One Year Seven Years Seven Years Total Assets
Cash and cash equivalents $ 25,651,345 $ - $ - $ - $ - $ - $ 25,651,345 Due from the Central Bank and other banks 168,463,780 7,982,686 7,557,025 - - - 184,003,491 Financial assets at fair value through profit or loss 32,313,458 480,515 1,596,128 816,195 217,500 14,901 35,438,697 Securities purchased under agreements to resell 7,063,687 1,150,910 300,000 - - - 8,514,597 Receivables 14,190,860 12,934,239 3,855,425 774,942 356,271 - 32,111,737 Discounts and loans 61,972,947 52,950,232 32,845,295 30,527,773 112,659,609 314,459,430 605,415,286 Available-for-sale financial assets 14,102,711 29,000,000 4,884,202 1,829,516 4,407,278 100,741 54,324,448 Held-to-maturity investments 244,161 325,852 - - 1,552,346 620,556 2,742,915 Non-active market debt instruments - 65,097 36,148 - 2,276,695 2,506,050 4,883,990 Hedged derivative financial assets - - - - 443,859 - 443,859 324,002,949 104,889,531 51,074,223 33,948,426 121,913,558 317,701,678 953,530,365 Liabilities
Call loans and due to banks 29,471,405 13,837,953 4,924,344 6,797,484 - - 55,031,186 Financial liabilities at fair value through profit or loss 4,648,065 159,481 449,960 1,208,876 - - 6,466,382 Securities sold under agreements to repurchase 10,099,110 1,820,274 108,497 - - - 12,027,881 Payables 13,589,658 6,592,110 2,068,363 1,613,088 1,706,610 - 25,569,829 Deposits and remittances 181,853,998 134,837,520 176,781,164 189,338,321 88,188,251 - 770,999,254 Bank debentures - - - - 31,010,772 - 31,010,772 Corporate bonds - - - - 5,734,080 - 5,734,080 Hedge derivative financial liabilities - - - - 233,087 - 233,087 239,662,236 157,247,338 184,332,328 198,957,769 126,872,800 - 907,072,471
Net liquidity gap $ 84,340,713 $ (52,357,807 ) $ (133,258,105 ) $ (165,009,343 ) $ (4,959,242 ) $ 317,701,678 $ 46,457,894
September 30, 2006 Due Between Due in One Year and Due After One Year Seven Years Seven Years Total Assets
Cash and cash equivalents $ 21,861,708 $ - $ - $ 21,861,708 Due from the Central Bank and other banks 71,468,847 - - 71,468,847 Financial assets at fair value through profit or loss 32,488,156 4,668,943 5,426,504 42,583,603 Securities purchased under agreements to resell 15,080,062 - - 15,080,062 Receivables 46,238,590 1,523,323 - 47,761,913 Discounts and loans 197,652,485 123,335,240 282,726,441 603,714,166 Available-for-sale financial assets 174,456,862 6,201,613 5,854,019 186,512,494 Held-to-maturity investments 249,812 1,677,436 330,975 2,258,223 Non-active market debt instruments - 1,966,322 823,121 2,789,443 Hedged derivative financial assets - 488,317 - 488,317 559,496,522 139,861,194 295,161,060 994,518,776 Liabilities
Call loans and due to banks 101,445,236 - - 101,445,236 Financial liabilities at fair value through profit or loss 3,275,580 387 - 3,275,967 Securities sold under agreements to repurchase 20,565,220 - - 20,565,220 Payables 33,976,401 336,249 - 34,312,650 Deposits and remittances 697,657,488 45,745,583 - 743,403,071 Bank debentures 5,000,000 31,010,888 - 36,010,888 Corporate bonds 5,816,800 - - 5,816,800 Hedged derivative financial liabilities - 277,429 - 277,429 867,736,725 77,370,536 - 945,107,261
Net liquidity gap $ (308,240,203 ) $ 62,490,658 $ 295,161,060 $ 49,411,515 - 46 - 4) Cash flow risk and fair value risk arising from interest rate fluctuations
Interest rate risk is the risk to earnings and value of financial instruments caused by fluctuations in interest risk. The risk is considered to be material to the Bank, and the Bank enters into interest rate swap contracts to manage the risk.
e. Fair value hedge
The Bank enters into interest rate swap contracts and cross currency swap contracts to hedge the risk the interest rate fluctuation of the bank debenture.
September 30 2007 2006 Hedged Items Hedging Instruments Notion Amount Fair Value Notion Amount Fair Value
Bank debentures Interest rate swap $ 11,200,000 $ (101,400 ) $ 11,200,000 $ (176,317 ) Cross currency swap 14,300,000 312,172 14,300,000 387,205
33. MARKET RISK CONTROL AND HEDGE STRATEGY
The Bank documents the risk management policies, including overall operating strategies and risks control philosophy. The Bank’s overall risk management policies are to minimize the possibility of potential unfavorable factors. The board of directors approves the documentation of overall risk management policies and specific risk management policies; including exchange rate risk, interest rate risk, credit risk, derivative instruments transactions and managements. The board of directors reviews the policies regularly, and reviews the operation to make sure the Bank’s policies are executed properly.
34. ASSET QUALITY, CONCENTRATION OF CREDIT EXTENSIONS, INTEREST RATE SENSITIVITY, PROFITABILITY AND MATURITY ANALYSIS OF ASSETS AND LIABILITIES
a. Statement of capital adequacy
Capital Adequacy
June 30, 2007 Tier 1 capital $ 58,339,206 Tier 2 capital 2,770,964 Eligible capital Tier 3 capital - Eligible capital 61,110,170 Standardized approach 505,760,674 Credit risk Internal rating - based approach N/A Securitization 3,612,354 Basic indicator approach 38,097,163 Risk-weighted Operational Standardized approach/Alternative standardized approach N/A assets risk Advanced measurement approach N/A Standardized approach 38,500,575 Market risk Internal models approach N/A Total risk - weighted assets 585,970,766 Capital adequacy rate 10.43% Tier 1 risk - based capital ratio 9.96% Tier 2 risk - based capital ratio 0.47% Tier 3 risk - based capital ratio - Ratios of common stockholders’ equity to total assets 4.72%
- 47 - Consolidated Capital Adequacy
June 30, 2007 Tier 1 capital $ 61,344,922 Tier 2 capital 7,446,880 Eligible capital Tier 3 capital - Eligible capital 68,791,802 Standardized approach 560,089,404 Credit risk Internal rating - based approach N/A Securitization 3,612,354 Basic indicator approach 43,264,359 Risk-weighted Operational Standardized approach/Alternative standardized approach N/A assets risk Advanced measurement approach N/A Standardized approach 42,528,925 Market risk Internal models approach N/A Total risk - weighted assets 649,495,042 Capital adequacy rate 10.59% Tier 1 risk - based capital ratio 9.44% Tier 2 risk - based capital ratio 1.15% Tier 3 risk - based capital ratio - Ratios of common stockholders’ equity to total assets 4.41%
If consolidated financial statements are prepared, the consolidated capital adequacy should be disclosed.
Note 1: These tables were filled according to “Regulations Governing the Capital Adequacy Ratio of Banks” and related calculation tables.
Note 2: The bank shall disclose the capital adequacy ratio for the current and previous period in annual financial reports. For semiannual financial report, the Bank shall disclose the capital adequacy ratio for the current period, previous period, and previous year end.
Note 3: The formula:
1) Eligible capital = Tier 1 capital + Tier 2 capital + Tier 3 capital.
2) Total risk - weighted asset = Risk-weighted assets for credit risk + (Capital requirements for operational risk + Capital requirement for market risk) x 12.5.
3) Ratio of capital adequacy = Eligible capital/Total risk - weighted assets.
4) Tier 1 risk - based capital ratio = Tier 1 capital/Risk - weighted assets.
5) Tier 2 risk - based capital ratio = Tier 2 capital/Risk - weighted assets.
6) Tier 3 risk - based capital ratio = Tier 3 capital/Risk - weighted assets.
7) Ratios of common stockholders’ equity to total assets = Common stock/Total assets.
- 48 - (In Thousands of New Taiwan Dollars; %)
December 31, June 30, 2006 2006 BSP IBT Net eligible capital $ 70,412,031 $ 37,562,670 $ 34,220,668 Total risk-weighted assets 568,543,823 293,844,100 285,958,992 Capital adequacy ratios 12.38 12.78 11.97 Ratios of tier 1 capital to risk-weighted assets 11.00 9.63 12.03 Ratios of tier 2 capital to risk-weighted assets 1.59 3.24 0.48 Ratios of tier 3 capital to risk-weighted assets - - - Ratios of the deduction from capital to risk-weighted assets (0.21 ) (0.09 ) - Ratios of common stockholders’ equity to total assets 6.49 5.39 8.27
Note: Capital adequacy ratio = Eligible capital/Risk-weighted assets, which is pursuant to the Banking Law and related regulations. b. Asset quality
The overdue loans and receivables information please refer to Table 7. c. Maturity analysis of asset and liabilities
Maturity Analysis of Assets and Liabilities (In New Taiwan Dollars) September 30, 2007
(In Thousands of New Taiwan Dollars)
The Amount of Remaining Period to Maturity Total 1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Main capital inflow on maturity $ 842,714,545 $ 194,535,009 $ 88,733,050 $ 41,320,009 $ 82,061,643 $ 436,064,834 Main capital outflow on maturity 850,656,584 162,851,821 117,747,374 82,496,039 148,759,115 338,802,235 Gap (7,942,039 ) 31,683,188 (29,014,324 ) (41,176,030 ) (66,697,472 ) 97,262,599
Note: The above amounts included only New Taiwan dollar amounts held in the onshore branches of the Bank (i.e. excludes foreign currency).
Maturity Analysis of Assets and Liabilities (In U.S. Dollars) September 30, 2007
(In Thousands of U.S. Dollars)
The Amount of Remaining Period to Maturity Total 1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Main capital inflow on maturity $ 7,330,111 $ 2,596,539 $ 1,902,718 $ 1,013,550 $ 1,326,258 $ 491,046 Main capital outflow on maturity 6,267,807 2,772,178 1,314,464 867,091 193,921 1,120,153 Gap 1,062,304 (175,639 ) 588,254 146,459 1,132,337 (629,107 )
Note 1: The above amounts are book value held by the onshore branches and offshore banking unit of the Bank in U.S. dollars, without off-balance amounts (for example, the issuance of negotiable certificate of deposits, bonds or stocks).
Note 2: If the overseas assets amounting to at least 10% of the total assets, there should be additional disclosures.
- 49 - Maturity Analysis of Assets and Liabilities (In New Taiwan Dollars) September 30, 2006
Bank SinoPac
(In Millions of New Taiwan Dollars)
The Amount of Remaining Period to Maturity Total 1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Main capital inflow on maturity $ 536,598,978 $ 132,525,277 $ 48,625,437 $ 53,644,148 $ 58,570,238 $ 243,233,878 Main capital outflow on maturity 538,080,486 117,250,494 92,898,520 105,551,668 114,709,716 107,670,088 Gap (1,481,508 ) 15,274,783 (44,273,083) (51,907,520 ) (56,139,478 ) 135,563,790
IBT
(In Thousands of New Taiwan Dollars)
The Amount of Remaining Period to Maturity Total 1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Main capital inflow on maturity $ 400,842,000 $ 96,561,000 $ 52,944,000 $ 36,013,000 $ 33,249,000 $ 182,075,000 Main capital outflow on maturity 422,047,000 77,861,000 52,452,000 37,121,000 72,987,000 181,626,000 Gap (21,205,000 ) 18,700,000 492,000 (1,108,000) ( 39,738,000) 449,000
Note: The above amounts included only New Taiwan dollar amounts held in the onshore branches of the Bank (i.e. excludes foreign currency).
Maturity Analysis of Assets and Liabilities (In U.S. Dollars) September 30, 2006
Bank SinoPac
(In Thousands of U.S. Dollars)
The Amount of Remaining Period to Maturity Total 1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Main capital inflow on maturity $ 7,598,204 $ 2,419,607 $ 1,883,705 $ 1,754,822 $ 1,401,707 $ 138,363 Main capital outflow on maturity 7,666,957 3,112,642 1,698,388 1,174,457 1,246,975 434,495 Gap (68,753 ) (693,035 ) 185,317 580,365 154,732 (296,132 )
IBT
(In Thousands of U.S. Dollars)
The Amount of Remaining Period to Maturity Total 1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Main capital inflow on maturity $ 1,735,253 $ 397,476 $ 272,576 $ 226,368 $ 87,117 $ 751,716 Main capital outflow on maturity 1,747,389 488,822 391,866 151,191 69,507 646,003 Gap (12,136 ) (91,346 ) (119,290 ) 75,177 17,610 105,713
Note 1: The above amounts are book value held by the onshore branches and offshore banking unit of the Bank in U.S. dollars, without off-balance amounts (for example, the issuance of negotiable certificate of deposits, bonds or stocks).
Note 2: If the overseas assets amounting to at least 10% of the total assets, there should be additional disclosures.
- 50 - d. Profitability
(%)
For the Nine For the Nine Months Ended Months Ended Items September 30, September 30, 2007 2006 Before income tax 0.14 0.50 Return on total assets After income tax 0.16 0.43 Before income tax 2.12 7.59 Return on net worth After income tax 2.41 6.57 Profit margin 11.21 26.20
Note 1: Return on total assets = Income before (after) income tax/Average total assets
Note 2: Return on net worth = Income before (after) income tax/Average net worth
Note 3: Profit margin = Income after income tax/Total operating revenues
Note 4: Income before (after) income tax represents income for the nine months ended September 30, 2007 and 2006. e. Interest rate sensitivity information
Interest Rate Sensitivity (New Taiwan Dollars) September 30, 2007
(In Thousands of New Taiwan Dollars, %)
1 to 90 Days 91 to 180 Days 181 Days to One Items Over One Year Total (Included) (Included) Year (Included) Interest-rate sensitive assets $ 388,276,123 $ 90,888,956 $ 92,105,716 $ 63,605,068 $ 634,875,863 Interest-rate sensitive liabilities 224,475,191 265,213,088 65,565,036 104,041,849 659,295,164 Interest-rate-sensitive gap 163,800,932 (174,324,132 ) 26,540,680 (40,436,781 ) (24,419,301 ) Net worth 64,277,952 Ratio of interest-rate sensitive assets to liabilities 96.30% Ratio of interest-rate sensitive gap to net worth (37.99%)
September 30, 2006
Bank SinoPac
(In Thousands of New Taiwan Dollars, %)
1 to 90 Days 91 to 180 Days 181 Days to One Items Over One Year Total (Included) (Included) Year (Included) Interest-rate sensitive assets $ 328,500,283 $ 39,025,857 $ 36,063,070 $ 14,156,210 $ 417,745,420 Interest-rate sensitive liabilities 173,252,555 141,269,031 42,134,416 16,601,508 373,257,510 Interest-rate-sensitive gap 155,247,728 (102,243,174 ) (6,071,346 ) (2,445,298 ) 44,487,910 Net worth 28,909,869 Ratio of interest-rate sensitive assets to liabilities 111.92% Ratio of interest-rate sensitive gap to net worth 153.88%
- 51 - IBT
(In Thousands of New Taiwan Dollars, %)
1 to 90 Days 91 to 180 Days 181 Days to One Items Over One Year Total (Included) (Included) Year (Included) Interest-rate sensitive assets $ 216,409,000 $ 34,931,000 $ 28,054,000 $ 64,544,000 $ 343,938,000 Interest-rate sensitive liabilities 168,891,000 121,754,000 31,424,000 4,314,000 326,383,000 Interest-rate-sensitive gap 47,518,000 (86,823,000 ) (3,370,000 ) 60,230,000 17,555,000 Net worth 35,035,000 Ratio of interest-rate sensitive assets to liabilities 105.38% Ratio of interest-rate sensitive gap to net worth 50.11%
Note 1: The above amounts included only New Taiwan dollar amounts held by the onshore branches of the Bank (i.e., excluding foreign currency). In compliance with Central Bank’s supervision policies, the above data is prepared for off-site monitoring by 15th of next month.
Note 2: Interest-rate sensitive assets and liabilities mean the revenues or costs of interest-earnings assets and interest-bearing liabilities are affected by interest-rate changes.
Note 3: Interest-rate sensitive gap = Interest-rate sensitive assets － Interest-rate sensitive liabilities.
Note 4: Ratio of interest-rate sensitive assets to liabilities = Interest-rate sensitive assets/Interest-rate sensitive liabilities (in New Taiwan dollars).
Interest Rate Sensitivity (USD) September 30, 2007
(In Thousands of U.S. Dollars, %)
1 to 90 Days 91 to 180 Days 181 Days to One Items Over One Year Total (Included) (Included) Year (Included) Interest-rate sensitive assets $ 3,901,798 $ 779,356 $ 198,615 $ 390,679 $ 5,270,448 Interest-rate sensitive liabilities 3,403,509 1,897,468 207,512 126,745 5,635,234 Interest-rate-sensitive gap 498,289 (1,118,112 ) (8,897 ) 263,934 (364,786 ) Net worth 32,606 Ratio of interest-rate sensitive assets to liabilities 93.53% Ratio of interest-rate sensitive gap to net worth (1,118.77% )
September 30, 2006
Bank SinoPac
(In Thousands of U.S. Dollars, %)
1 to 90 Days 91 to 180 Days 181 Days to One Items Over One Year Total (Included) (Included) Year (Included) Interest-rate sensitive assets $ 2,393,624 $ 281,004 $ 226,593 $ 175,788 $ 3,077,009 Interest-rate sensitive liabilities 2,647,699 1,202,004 227,831 431,451 4,508,985 Interest-rate-sensitive gap (254,075 ) (921,000 ) (1,238 ) (255,663 ) (1,431,976 ) Net worth 5,890 Ratio of interest-rate sensitive assets to liabilities 68.24% Ratio of interest-rate sensitive gap to net worth (24,311.99%)
- 52 - IBT
(In Thousands of U.S. Dollars, %)
1 to 90 Days 91 to 180 Days 181 Days to One Items Over One Year Total (Included) (Included) Year (Included) Interest-rate sensitive assets $ 717,602 $ 239,551 $ 112 $ 5,000 $ 962,265 Interest-rate sensitive liabilities 858,699 67,137 68,101 - 993,937 Interest-rate-sensitive gap (141,097 ) 172,414 (67,989 ) 5,000 (31,672 ) Net worth 30,470 Ratio of interest-rate sensitive assets to liabilities 96.81% Ratio of interest-rate sensitive gap to net worth (103.94% )
Note 1: The above amounts include only USD amounts held by the onshore branches, OBU and offshore branches of the Bank, excludes contingent assets and contingent liabilities. In compliance with Central Bank’s supervision policies, the above data is prepared for off-site monitoring by 15th of next month.
Note 2: Interest-rate sensitive assets and liabilities mean the revenues or costs of interest-earnings assets and interest-bearing liabilities are affected by interest-rate changes.
Note 3: Interest-rate sensitive gap = Interest-rate sensitive assets － Interest-rate sensitive liabilities.
Note 4: Ratio of interest-rate sensitive assets to liabilities = Interest-rate sensitive assets/Interest-rate sensitive liabilities (in U.S. dollars) f. Concentration of credit extensions September 30, 2007
(In Thousands of New Taiwan Dollars, %)
Total Credit Percentage of Rank Group Name (Note 2) Consists of Net Worth (%) (Note 1) Loans (Note 3) (Note 4) 1 BenQ Corporation, Ltd. 5,770,928 9.26% 2 Formosa Plastics Group 5,424,414 8.71% 3 CHIMEI Optoelectronics 4,992,880 8.01% 4 Hontai Construction 4,950,000 7.95% 5 Far East Group 4,943,122 7.93% 6 China Airlines 4,828,000 7.75% 7 Chinatrust Group 4,430,057 7.11% 8 China Metal Products Group 4,113,909 6.60% 9 Quanta Computer 3,282,825 5.27% 10 Foxconn 3,024,542 4.85%
- 53 - September 30, 2006 BSP (In Thousands of New Taiwan Dollars, %)
Total Credit Percentage of Rank Group Name (Note 2) Consists of Net Worth (%) (Note 1) Loans (Note 3) (Note 4) 1 Dell Inc. 4,223,974 6.71% 2 Foxconn 3,435,872 5.46% 3 China Metal Products Group 3,384,519 5.37% 4 BenQ Corporation, Ltd. 3,046,502 4.84% 5 Lone Star 2,912,278 4.62% 6 China Airlines 2,000,000 3.18% 7 Cullinan 1,547,972 2.46% 8 Far East Group 1,224,605 1.94% 9 Formosa Plastics Group 1,228,415 1.95% 10 TPV 1,219,234 1.94%
IBT
(In Thousands of New Taiwan Dollars, %)
Total Credit Percentage of Rank Group Name (Note 2) Consists of Net Worth (%) (Note 1) Loans (Note 3) (Note 4) 1 Formosa Plastics Group 6,500,420 10.32% 2 BenQ Corporation, Ltd. 3,413,900 5.42% 3 Quanta Computer 3,322,700 5.28% 4 Far East Group 2,921,990 4.64% 5 China Airlines 2,879,000 4.57% 6 Continental Engineering 2,840,720 4.51% 7 Fuhwa Financial Holding Co., Ltd. 2,600,000 4.13% 8 CHIMEI Optoelectronics 2,150,000 3.41% 9 HoTai Motor 1,855,160 2.95% 10 Hontai Construction 1,839,500 2.92%
Note 1: Ranking top ten groups (excluded the government or state - owned utilities) accounting to total credit consists of loans.
Note 2: Groups were regulated in the Banking Law Article 33-3.
Note 3: Total credit consists of loans were totalized each credit (included import bill negotiated, export bill negotiated discounted, overdrafts, short-term loans, short-term secured loans, marginal receivables, medium-term loans, medium-term secured loans, long-term loans, long-term secured loans, and overdue receivables), exchange bills negotiated, accounts receivable - without recourse factoring, acceptances receivable, and grantees issued.
Note 4: Net worth after distribution of previous year end.
- 54 - 35. INFORMATION REGARDING THE TRUST BUSINESS UNDER THE TRUST LAW
a. Balance sheets and trust properties of trust accounts
Balance Sheets of Trust Accounts September 30, 2007 and 2006
Trust Assets 2007 2006 Trust Liabilities 2007 2006
Bank deposits $ 3,479,661 $ 1,739,780 Payables $ 19,199 $ 1,457 Short-term investments 147,404,498 124,715,682 Unearned revenue 15,479 - Receivables 21,474 83,328 Other liabilities 26,776 - Prepayments 8,465 147 Trust capital 171,673,394 145,506,491 Long-term investment 9,804,877 9,623,867 Reverses and cumulative Real estate 13,430,117 10,501,917 earnings 2,500,611 1,490,101 Other assets 86,367 - Net asset value of collective investment trust fund - 333,328
Total trust assets $ 174,235,459 $ 146,998,049 Total trust liabilities $ 174,235,459 $ 146,998,049
Trust Properties of Trust Accounts September 30, 2007 and 2006
Investment Portfolio 2007 2006
Short-term investments Bonds $ 46,489,303 $ 41,326,657 Common stock 3,265,170 4,951,743 Funds 97,650,025 78,421,628 Beneficiary certificate - 15,654 147,404,498 124,715,682 Long-term investment Investment on bond 9,804,877 9,623,867 Real estate Land 9,928,729 9,149,938 Buildings 1,404,925 1,827 Work in process 2,096,463 1,350,152 13,430,117 10,501,917 Net asset value of collective investment trust fund - 333,328
Total $ 170,639,492 $ 145,174,794
b. The contents of operations of the trust business under the Trust Law refer to Note 1.
36. CROSS SELLING INFORMATION
For the nine months ended September 30, 2007 and 2006, the Bank charged SinoPac Securities for $4,093 and $741, respectively, as marketing and opening accounts and paid SinoPac Securities $120 and $192, respectively, as commission of promoting real estate loan financing under cross selling business.
In February 2003, the Bank had contracts with SPLIA and SPPIA, respectively, for cross selling business. The contracts refer to the rules of promoting cross selling business and how to allocate the related expenses to sites, personnel, and equipments and how to calculate the related compensation. For the nine months ended September 30, 2007, the Bank charged SPPIA for $6,086 as incentive rewards under cross selling business. For the nine months ended September 30, 2006, the Bank charged SPPIA and SPLIA for $2,914 and $2,889, respectively, as incentive rewards and charged SPLIA for $6,239 as promoting rewards under cross selling business. - 55 - 37. ADDITIONAL DISCLOSURES
a. Following are the additional disclosures required by the SFB for the Bank and investees:
1) Financing provided: Table 1;
2) Endorsement/guarantee provided: Table 2;
3) Marketable securities held: Table 3;
4) Marketable securities acquired and disposed of, at costs or prices of at least NT$300 million or 10% of the issued capital: None;
5) Acquired and disposed of investee investment at cost or prices of at least NT$300 million or 10% of the issued capital: None;
6) Acquisition of individual real estate at costs of at least NT$300 million or 10% of the issued capital: None;
7) Disposal of individual real estate at prices of at least NT$300 million or 10% of the issued capital: None;
8) Financial asset securitization: Please refer to Note 6-5;
9) Allowance for service fees to related-parties amounting to at least NT$5 million: None;
10) Receivables from related parties amounting to at least NT$300 million or 10% of the issued capital: Table 4;
11) Sale of nonperforming loans: Table 5;
12) Other significant transactions which may affect the decisions of users of financial reports: Table 6;
13) Derivative financial transactions: Except the disclosure in other footnotes, the derivative financial instruments of the Bank are disclosed in Notes 6 and 32, and the derivative financial instrument transactions of Far East National Bank (“FENB”, a wholly owned subsidiary of SinoPac Bancorp, which is a wholly owned subsidiary of the Bank) are summarized below:
FENB engages in derivative financial instrument transactions mainly for accommodating customers’ needs and managing its exposure positions.
FENB is exposed to credit risk if the counter-parties default on the contracts on maturity date. FENB enters into contracts with customers that have satisfied its credit approval process and have provided the necessary collateral. Transactions are made within each customer’s credit line; guarantee deposits may be required, depending on the customer’s credit standing. Transactions with other banks are made within the trading limit set for each bank based on the bank’s credit rating and its worldwide ranking. The associated credit risk has been considered in the evaluation of provision for credit losses.
- 56 - As of September 30, 2007 and 2006, the contract amounts (or notional amounts), credit risks and fair values of outstanding contracts were as follows:
September 30, 2007 Contract (Notional) Financial Instruments Amount Credit Risk Fair Value
For the purpose of accommodating customers’ needs or managing FENB’s exposures: Forward contracts - short position $ 7,255 $ 363 $ (7,484 ) Forward contracts - not involve settle of the notional principals 3,258 326 (3,305 )
The fair value of each contract is determined on the basis of quotations from Reuters or the Telerate Information System.
The notional amounts of derivative contracts are used solely for the purpose of calculating receivables and payables to all contract parties. Thus, the notional amounts do not represent the actual cash inflows or outflows. The possibility that derivative financial instruments held or issued by FENB cannot be sold at reasonable prices is remote; thus, no significant cash demand is expected. b. Information related to investment in Mainland China: None.
- 57 - TABLE 1
BANK SINOPAC AND INVESTEES
FINANCING PROVIDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 (In Thousands of New Taiwan Dollars)
Collateral Financing Financing Maximum Ending Limit for Company’s Financial Statement Balance for Interest Rate Financing Transaction Financing Allowance for No. Financing Name Counter-party Balance Each Financing Account the Period (%) Type Amount Reasons Bad Debt Item Value (Note 1) Borrowing Amount (Note 1) Company Limits
1 SinoPac Leasing Wal-Tech Other receivable - $179,000 $174,700 2.42%-3.838% Short-term $ - Pay for loan $1,747 - $ - $179,000 $949,286 Corporation International related parties financial (Note 1) (Note 2) Corporation
Note 1: According to the Operational Procedures for Making Loans to Others, the financing limit for the borrowing company is 30% of the audited net asset value NT$2,373,216 (in thousand) of SinoPac Leasing Corporation as of September 30, 2007. The maximum amount approved by the board of directors is $179,000 in May 2007.
Note 2: According to the Operational Procedures for Making Loans to Others, the financing company’s financing amount limits are 40% of the audited net asset value NT$2,373,216 (in thousand) of SinoPac Leasing Corporation as of September 30, 2007.
- 58 - TABLE 2
BANK SINOPAC AND INVESTEES
ENDORSEMENT/GUARANTEE PROVIDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 (In Thousands of New Taiwan Dollars)
Counter-party Ratio of Accumulated Amount of Limits on Endorsement/ Maximum Endorsement/ Endorsement/Guarantee Individual Maximum Guarantee Amount Endorsement/ No. Nature of Ending Balance Guarantee to Net Asset Provider Name Endorsement/ Balance for the Period Collateralized by Guarantee Amounts Relationship Value of the Latest Guarantee Amounts Properties Allowable Financial Statement (Note 4)
1 SinoPac Leasing Corporation Grand Capital International Limited Subsidiary (Note 3) $ 7,657,340 $ 6,809,220 $ - 286.92% (Note 5)
Note 1: Foreign-currency amounts were translated to New Taiwan dollars at the closing exchange rate as of September 30, 2007.
Note 2: The reviewed net asset value of SinoPac Leasing Corporation as of September 30, 2007 is NT$2,373,216 (in thousand).
Note 3: The limit on individual endorsement or guarantee amounts is up to 200% of the net asset value of the Corporation. As of September 30, 2007, the limit was NT$4,746,432 (in thousand). But no limit applied on subsidiaries reinvested over 50% of the Corporation.
Note 4: The net asset value of SinoPac Leasing Corporation was based on its reviewed financial statements as of September 30, 2007.
Note 5: The maximum amount of endorsement or guarantee amounts is up to 500% of the net asset value of the Corporation. As of September 30, 2007, the limit was NT$11,866,080 (in thousands). But no limit applied on subsidiaries reinvested over 50% of the Corporation.
- 59 - TABLE 3
BANK SINOPAC AND INVESTEES
MARKETABLE SECURITIES HELD SEPTEMBER 30, 2007 (In Thousands of New Taiwan Dollars)
September 30, 2007 Shares/Units/ Carrying Market Value or Name of Holding Company Type and Name of Marketable Securities Relationship Financial Statement Account Percentage of Note Face Amount Amount Net Asset Value Ownership (In Thousand) (Note 1) (Note 1)
SinoPac Bancorp Stock Far East National Bank Subsidiary Equity investments - equity method 180 $ 6,928,962 100.00% $ 6,928,962 Note 4 SinoPac Financial Service (USA) Ltd. Subsidiary Equity investments - equity method 2.5 24,482 100.00% 24,482 Note 4
Far East Capital Corporation Stock (common stock) PCRS Capital Partners, LLC - Available-for-sale financial assets - 1,121 4.00% 1,121 Note 5 TVIA, Inc. - Available-for-sale financial assets 33 65 0.20% 65 Note 5 Metropolos Digital - Available-for-sale financial assets 1,257 - 8.00% - Note 5
Stock (preferred stock) AgraQuest, Inc. - Available-for-sale financial assets 100 878 0.80% 878 Note 5 Silicon Motion, Inc. - Available-for-sale financial assets 1 733 - 733 Note 5 Zone Reactor, Inc. - Available-for-sale financial assets 23 33 1.50% 33 Note 5 iPhysician Net, Inc. - Available-for-sale financial assets 115 - 0.30% - Note 5 Softknot Corporation - Available-for-sale financial assets 250 - 2.00% - Note 5
SinoPac Leasing Corporation Stock Grand Capital International Limited Subsidiary Equity investments - equity method 29,900 733,597 100.00% 733,597 Note 4
Fund SinoPac Global Fixed Income Portfolio Fund Affiliate Trading financial assets - current 3,000 31,632 - 31,632 Note 6
SinoPac Capital Limited Stock SinoPac Capital (B.V.I.) Ltd. Subsidiary Equity investments - equity method 4,450 34,764 100.00% 61,284 Note 4 SinoPac Insurance Brokers Ltd. Subsidiary Equity investments - equity method 100 1,257 100.00% 25,738 Note 4 China-Metal - Trading financial assets 300 3,382 0.03% 3,382 Note 2 Wealthmark - Trading financial assets 4,441 32,010 0.78% 32,010 Note 2 Magna Chip - Unquoted equity investments 16 42,240 - 42,240 Note 2 Bestfield Enterprises Ltd. - Financial assets designated at fair 38 53,951 - 53,951 Note 2 value through profit or loss FerroChina Ltd. - Trading financial assets 700 36,655 0.16% 36,655 Note 2
Fund China Enterprise Capital - Unquoted equity investments 0.02 32,492 - 32,492 Note 3
(Continued)
- 60 - September 30, 2007 Shares/Units/ Carrying Market Value or Name of Holding Company Type and Name of Marketable Securities Relationship Financial Statement Account Percentage of Note Face Amount Amount Net Asset Value Ownership (In Thousand) (Note 1) (Note 1)
SinoPac Capital (B.V.I.) Ltd. Stock Shanghai International Asset Management Subsidiary Equity investments - equity method 4,800 $ 36,766 60.00% $ 16,708 Note 4 (Hong Kong) Co., Ltd. Pinnacle Investment Management Ltd. Subsidiary Equity investments - equity method 200 6,516 100.00% 3,575 Note 4 RSP Information Service Company Limited Subsidiary Equity investments - equity method 1,000 4,177 100.00% 3,319 Note 4
Shanghai International Asset Hidili Industry - Trading financial assets 7,000 363 - 363 Note 2 Management (Hong Kong) Co., Ltd. Sino-Ocean Land - Trading financial assets 21,500 991 - 991 Note 2
SinoPac Property Insurance Agent Bond Government bond 88-3 - Guarantee deposits 600 647 - 752 Pledge
SinoPac Life Insurance Agent Bond Government bond 88-3 - Guarantee deposits 600 647 - 752 Pledge
Note 1: Foreign-currency amounts were translated to New Taiwan dollars at the exchange rate as of the balance sheet date.
Note 2: Market prices of listed and GreTai Securities Market stocks were determined by closing prices at September 30, 2007.
Note 3: Net asset values were based on the investees’ unaudited or unreviewed financial statements for latest period.
Note 4: Net asset values were based on the investees’ audited or reviewed financial statements for the latest period.
Note 5: Net asset values were based on the carrying amounts.
Note 6: Market prices were based on closing prices or net value of funds at September 28, 2007. (Concluded)
- 61 - TABLE 4
BANK SINOPAC AND INVESTEES
RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$300 MILLION OR 10% OF THE ISSUED CAPITAL SEPTEMBER 30, 2007 (In Thousands of New Taiwan Dollars)
Overdue Amounts Received Ending Turnover Allowance for Bad Company Name Related Party Relationship in Subsequent Balance Rate Amount Action Taken Debts Period
Bank SinoPac SinoPac Card Services Subsidiary of SinoPac Financial $ 3,309,492 - $ - - $ - $ - Holdings Company Limited SinoPac Financial Holdings The parent company of the Bank 691,658 - - - - - Company Limited
- 62 - TABLE 5
BANK SINOPAC AND INVESTEES
TRADING INFORMATION - SELLING NONPERFORMING LOANS SEPTEMBER 30, 2007 (In Thousands of New Taiwan Dollars)
Carrying Amount Gain or Loss on Date Counter-parties Loans Selling Price Attachment Relation (Note) Disposal
May 16, 2007 Hong, Ming Hua, Hsieh, Jian Chih, Jiang, Han Tang, Hsu, Loans to enterprises $43,452 $64,000 $9,685 None None Ming Shun, and Peng, Yu Yen
Note: Carrying amount is the original credit amount deducted allowance for bad debt.
- 63 - TABLE 6-1
BANK SINOPAC
FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS SEPTEMBER 30, 2007 AND 2006 (In Thousands of New Taiwan Dollars)
September 30 2007 2006 Held for trading financial assets
Negotiable certificates of deposit $ 6,998,053 $ 1,205,093 Corporate bonds 6,362,388 7,039,161 Assets based securities 5,814,385 5,897,637 Bank debentures 3,280,836 3,298,701 Interest rate swap 2,617,448 979,895 Beneficiary certificates 2,462,096 4,968,316 Forward contracts 2,280,018 1,976,580 Premium paid on option contracts 1,680,052 669,740 Listed stock 578,843 1,128,028 Government bonds 340,285 7,275,070 Structured instruments 100,938 678,378 Commercial papers - 6,265,215 Credit default swap 77,634 1,423 Cross-currency swap contract 56,595 127,968 Currency swap contracts 97,659 489,121 Futures 2,138 88 Asset swap contract - 29,715 32,749,368 42,030,129 Financial assets designated at fair value through profit or loss
Corporate bonds 2,107,295 387,487 Credit linked notes 582,034 165,987 2,689,329 553,474
Total of Financial assets at fair value through profit or loss $ 35,438,697 $ 42,583,603
Held for trading financial liabilities
Interest rate swap contracts $ 2,519,581 $ 825,421 Premium paid on option contract 1,512,555 642,505 Securities purchased under agreement to resell 1,221,972 - Forward contracts 833,385 605,983 Currency swap contracts 145,275 552,769 Structured instruments 100,938 11,122 Cross-currency swap contracts 85,849 32,514 Bond option - 547,432 Credit default swap 41,026 58,134 Future 5,801 87
$ 6,466,382 $ 3,275,967
- 64 - TABLE 6-2
BANK SINOPAC
THE CONTRACT AMOUNTS OF OUTSTANDING DERIVATIVE TRANSACTIONS SEPTEMBER 30, 2007 AND 2006 (In Thousands of New Taiwan Dollars)
September 30 2007 2006
Currency swap contracts $ 204,925,103 $ 273,735,534 Interest rate swap contracts 470,310,512 233,187,578 Options Long position 91,180,700 67,941,177 Short position 87,626,238 66,110,699 Forward contracts Long position 106,391,555 93,062,212 Short position 108,634,711 83,188,648 Cross-currency swap contracts 16,335,665 22,369,950 Assets swap contracts 2,622,690 2,661,913 Credit default swap contracts 1,588,700 628,862 Commodity linked interest rate swap contracts - 103,265 Equity linked swap contracts 2,387,943 407,436 Futures Long position 7,111,074 - Short position 8,787,021 125,850 Credit linked swap contract 5,400,000 4,300,000
- 65 - TABLE 6-3
BANK SINOPAC
ALLOWANCE FOR CREDIT LOSS SEPTEMBER 30, 2007 AND 2006 (In Thousands of New Taiwan Dollars)
For the Nine Months Ended September 30, 2007 Non-performing Receivable Discounts and Loans Transferred Provisions for General Account From Other Acceptance and Specific Reserve Reserve Subtotal Receivable Than Loans Guarantees Other Assets Total
Balance January 1 $ 3,916,746 $ 1,788,618 $ 5,705,364 $ 544,149 $ 91,530 $ 6,945 $ 7,140 $ 6,355,128 Provision 3,040,409 1,480,251 4,520,660 61,340 - 16,000 - 4,598,000 Write-off (4,128,579 ) - (4,128,579 ) (34,905 ) - - - (4,163,484 ) Recovery of written-off credits 76,318 - 76,318 (328,716 ) - - - (252,398 ) Reclassifications 1,001,219 (1,015,308 ) (14,089 ) (43,895 ) 64,405 (6,421 ) - - Result from change of foreign exchange rate 1,800 - 1,800 3,699 (1 ) - - 5,498
Balance, September 30 $ 3,907,913 $ 2,253,561 $ 6,161,474 $ 201,672 $ 155,934 $ 16,524 $ 7,140 $ 6,542,744
For the Nine Months Ended September 30, 2006 Non-performing Receivable Discounts and Loans Transferred Provisions for General Account From Other Acceptance and Specific Reserve Reserve Subtotal Receivable Than Loans Guarantees Other Assets Total
Balance January 1 $ 2,036,800 $ 1,910,498 $ 3,947,298 $ 817,752 $ 21,637 $ 7,730 $ 7,140 $ 4,801,557 Provision 3,015,219 31,537 3,046,756 130,882 1,047,974 75 - 4,225,687 Write-off (2,209,527 ) - (2,209,527 ) (44,772 ) (1,148,382 ) - - (3,402,681 ) Recovery of written-off credits 83,295 - 83,295 3,932 87,572 - - 174,799 Reclassifications 357,251 (356,629 ) 622 (278,771 ) 76,498 (469 ) - (202,120 ) Result from change of foreign exchange rate 1,803 - 1,803 (4,976 ) - - - (3,173 ) Others (564 ) - (564 ) - - - - (564 )
Balance, September 30 $ 3,284,277 $ 1,585,406 $ 4,869,683 $ 624,047 $ 85,299 $ 7,336 $ 7,140 $ 5,593,505
- 66 - TABLE 6-4
BANK SINOPAC
AVAILABLE-FOR-SALE FINANCIAL ASSETS SEPTEMBER 30, 2007 AND 2006 (In Thousands of New Taiwan Dollars)
September 30 2007 2006
Negotiable certificate of deposit $ 44,402,415 $ 153,416,907 Government bonds 3,605,514 13,566,772 Bank debentures 2,437,111 1,206,670 Listed stock 2,006,647 2,186,114 Corporate bonds 1,872,761 815,879 Subordinated beneficiary certificates of securitization - 1,014,243 Commercial papers - 9,359,801 Treasury bills - 4,946,108
$ 54,324,448 $ 186,512,494
- 67 - TABLE 6-5
BANK SINOPAC
FINANCIAL ASSET SECURITIZATION SEPTEMBER 30, 2007 AND 2006 (In Thousands of New Taiwan Dollars)
1. Characteristic, gain (loss) recognized and key economic assumptions used in measuring retained interests
In August 2004, the Bank sold part of its enterprise loans under securitization transactions. The Bank entrusted these loans to Fuhwa Bank for issuing beneficiary certificates. The terms and key economic assumptions used in measuring retained interests were as follows:
Enterprise Loans under Terms Securitization
Date of issuance August 3, 2004 Carrying amount of enterprise loans $ 4,900,000 Gain (loss) on securitization -
September 30, 2006 Senior Subordinated First Second Third Fourth Fifth Series of Certificates Tranche Tranche Tranche Tranche Tranche
Principal amount $ 1,188,100 $ 534,100 $ 441,000 $ 122,500 $ 1,014,300 Annual interest Floating Floating Floating Floating - interest rate interest rate interest rate interest rate plus 0.4% plus 0.6% plus 1.0% plus 1.2% (Note) (Note) (Note) (Note)
Key assumptions used in measuring retained interests
Expected weighted-average 3 life (in years) Expected credit losses - (annual rate) Discounted rate for residual 1.691% cash flows
Note: Floating rate is the average rate of the 90-day short-term bills in the secondary market of Telerate Information Inc., at 11:00 a.m. of Taipei time two working days prior to the first day of interest period of financial assets (shown on page 6165).
- 68 - The investors of the subordinated certificates have a right over any remaining interest paid after fixed interest has been paid to the holders of the senior certificates in accordance with the principal amount. Any prepayment of principal shall be paid to the tranche in the order mentioned above. When the debtors fail to pay on schedule, the investors and Fuhwa Bank have no recourse to the other assets of the Bank. The Bank has a right over the subordinated certificates. The value of the subordinated certificates is subject to credit and interest rate risks on the transferred financial assets.
2. Sensitivity analysis
As of September 30, 2007 and 2006, key economic assumptions and the sensitivity of the current fair value of residual cash flows to immediate 10 percent and 20 percent adverse changes in these assumptions were as follows:
Enterprise Loans September 30, 2006
Carrying amount of retained interest $ 1,014,243 Weighted-average life (in years) 3 Discount rate of residual cash flows (annual rate) 1.691% Impact on fair value of 10% adverse change (97 ) Impact on fair value of 20% adverse change (257 )
3. Due to the loans for securitized having no actual credit losses, the rate of expected static group loss equals to that of expected credit loss. The expected credit losses for the nine months ended September 30, 2006 are $57.
4. The financial asset securitization was matured on August 2007 and the carrying amount of retained interest have already compensated.
- 69 - TABLE 6-6
BANK SINOPAC
HELD-TO-MATURITY FINANCIAL ASSETS SEPTEMBER 30, 2007 AND 2006 (In Thousands of New Taiwan Dollars)
September 30 2007 2006
Bank debentures $ 710,573 $ 893,473 GSE debentures 601,102 - Assets based securities 408,578 330,980 Government bonds 449,939 292,161 Floating rate notes 329,823 - Negotiable certificate of deposit 162,900 165,490 Beneficiary certificates - credit card receivables 80,000 80,000 Corporate bonds - 496,119
$ 2,742,915 $ 2,258,223
- 70 - TABLE 6-7
BANK SINOPAC
OTHER FINANCIAL ASSETS SEPTEMBER 30, 2007 AND 2006 (In Thousands of New Taiwan Dollars)
September 30 2007 2006
Unquote equity instruments Unlisted equity investments $ 721,707 $ 722,259 Emerging stock 1,290 - 722,997 722,259 Non-active market debt instruments Assets based securities 4,082,698 1,963,823 Bank debenture 651,600 661,000 Credit link notes 113,544 112,160 Floating rate notes 36,148 52,460 4,883,990 2,789,443 Other financial assets Guarantee deposits 1,283,568 987,978 Hedged derivative financial instruments 443,859 488,317 Excess margin 286,030 95,781 Short-term advancement 175,781 28,510 Nonperforming receivables transferred from other than loans, net 67,205 121,741 Bills purchased 2,919 1,222 2,259,362 1,723,549
$ 7,866,349 $ 5,235,251
- 71 - TABLE 6-8
BANK SINOPAC
BANK DEBENTURES SEPTEMBER 30, 2007 AND 2006 (In Thousands of New Taiwan Dollars)
September 30 2007 2006 Maturity Date Terms
First dominant bank $ - $ 5,000,000 2001.12.20-2006.12.20 Fixed interest rate of 3.08%. Interest debenture issued in 2001 Principal is repayable on is paid annually. maturity date. First subordinated bank 2,000,000 2,000,000 2002.12.23-2008.03.23 Floating interest rate except for the debenture issued in 2002 Principal is repayable on first two years fixed at 2.15%. maturity date. Interest is paid semiannually. First dominant bank 1,000,000 1,000,021 2003.02.14-2008.02.14 3.65% minus 6-month LIBOR. debenture issued in 2003 Principal is repayable on Interest is paid semiannually. maturity date. Second dominant bank 500,035 500,155 2003.03.19-2008.09.19 3.48% minus 6-month LIBOR. debenture issued in 2003 Principal is repayable on Interest is paid semiannually. maturity date. Third dominant bank 1,504,980 1,502,984 2003.05.09-2008.11.09 4.15% minus 6-month LIBOR except debenture issued in 2003 Principal is repayable on for the first year fixed at 2.50%. maturity date. Interest is paid semiannually. Fourth dominant bank 412,785 418,295 2003.05.09-2008.11.09 2% plus 180-day-NTD CP rate in debenture issued in 2003 Principal is repayable on secondary market and minus maturity date. 6-month LIBOR. Interest is paid semiannually. First subordinated bank 2,500,000 2,500,000 2003.06.18-2008.12.18 180-day CP rate in secondary market debenture issued in 2003 Principal is repayable on plus 0.3%. Interest is paid maturity date. semiannually. Fifth dominant bank 1,017,049 999,926 2003.08.11-2010.08.11 Floating rate. Interest is paid debenture issued in 2003 Principal is repayable on semiannually. maturity date. Sixth dominant bank 700,757 698,348 2003.08.20-2009.02.20 Floating rate. Interest is paid debenture issued in 2003 Principal is repayable on semiannually. maturity date. Seventh dominant bank 782,400 799,920 2003.09.16-2008.09.16 Floating rate. Interest is paid debenture issued in 2003 Principal is repayable on semiannually. maturity date. Eighth dominant bank 486,944 499,712 2003.09.16-2008.09.16 Floating rate. Interest is paid debenture issued in 2003 Principal is repayable on semiannually. maturity date. Ninth dominant bank 292,215 300,264 2003.09.22-2008.09.22 Coupon rate at 2.55% for the first debenture issued in 2003 Principal is repayable on year of the issuance and 5% minus maturity date. index rate for the years thereon. Tenth dominant bank 1,003,957 1,001,537 2003.11.05-2008.11.05 Floating rate. Interest is paid debenture issued in 2003 Principal is repayable on semiannually. maturity date. Eleventh dominant bank 1,000,237 999,118 2003.11.14-2008.11.14 Floating rate. Interest is paid debenture issued in 2003 Principal is repayable on semiannually. maturity date. Twelfth dominant bank 501,425 501,608 2003.11.21-2008.11.21 Floating rate. Interest is paid debenture issued in 2003 Principal is repayable on semiannually. maturity date. Thirteenth dominant bank 500,916 499,883 2003.11.28-2008.11.28 Floating rate except for the first year debenture issued in 2003 Principal is repayable on fixed at 4%. Interest is paid maturity date. semiannually. Fourteenth dominant bank 2,219,272 2,211,991 2003.12.02-2009.06.02 Floating rate. Interest is paid debenture issued in 2003 Principal is repayable on semiannually. maturity date. (Continued)
- 72 - September 30 2007 2006 Maturity Date Terms
Second subordinated bank $ 3,600,000 $ 3,600,000 2004.03.18-2009.09.18 Fixed interest rate of 2.3%, interest is debentures issued in 2003 Principal is repayable on paid semiannually. maturity date. First dominant bank 527,013 529,784 2004.04.26-2009.10.26 Floating rate. Interest is paid debentures issued in 2004 Principal is repayable on semiannually with simple interest maturity date. based on actual days. Second dominant bank 302,565 300,412 2004.04.28-2009.10.28 Floating rate. Interest is paid debentures issued in 2004 Principal is repayable on semiannually. maturity date. Third dominant bank 485,794 502,101 2004.04.29-2009.04.29 Floating rate. Interest is paid debentures issued in 2004 Principal is repayable on semiannually with simple interest maturity date. based on actual days. Fourth dominant bank 198,360 200,440 2004.05.14-2009.05.14 Floating rate. Interest is paid debentures issued in 2004 Principal is repayable on semiannually. maturity date. Fifth dominant bank 302,671 300,628 2004.05.17-2009.05.17 Floating rate. Interest is paid debentures issued in 2004 Principal is repayable on semiannually. maturity date. Sixth dominant bank 507,328 503,728 2004.05.17-2009.05.17 Floating rate. Interest is paid debentures issued in 2004 Principal is repayable on semiannually. maturity date. Seventh dominant bank 198,427 200,114 2004.05.21-2009.05.21 Floating rate. Interest is paid debentures issued in 2004 Principal is repayable on semiannually. maturity date. Eighth dominant bank 534,257 519,382 2004.05.21-2011.05.21 Floating rate. Interest is paid debentures issued in 2004 Principal is repayable on semiannually with simple interest maturity date. based on actual days. Ninth dominant bank 299,358 301,713 2004.06.03-2009.06.03 Floating rate. Interest is paid debentures issued in 2004 Principal is repayable on semiannually. maturity date. Tenth dominant bank 515,542 509,360 2004.06.07-2009.06.07 Floating rate. Interest is paid debentures issued in 2004 Principal is repayable on semiannually with simple interest maturity date. based on actual days. Eleventh dominant bank 203,395 203,057 2004.06.15-2009.06.15 Floating rate. Interest is paid debentures issued in 2004 Principal is repayable on semiannually with simple interest maturity date. based on actual days. Twelfth dominant bank 520,016 516,649 2004.06.15-2010.06.15 Floating rate. Interest is paid debentures issued in 2004 Principal is repayable on semiannually with simple interest maturity date. based on actual days. Thirteenth dominant bank 306,294 304,971 2004.06.30-2009.06.30 Floating rate. Interest is paid debentures issued in 2004 Principal is repayable on semiannually. maturity date. Fourteenth dominant bank 518,613 511,480 2004.07.09-2010.07.09 Floating rate. Interest is paid debentures issued in 2004 Principal is repayable on semiannually. maturity date. Fifteenth dominant bank 535,117 523,427 2004.07.13-2011.07.13 Floating rate. Interest is paid debentures issued in 2004 Principal is repayable on semiannually. maturity date. First subordinated bank 1,533,050 1,549,880 2004.09.14-2010.06.14 Floating rate. Interest is paid debentures issued in 2004 Principal is repayable on semiannually. maturity date. Second subordinated bank 500,000 500,000 2004.09.14-2010.06.14 Index rate plus 0.50%. Interest is debentures issued in 2004 Principal is repayable on reset semiannually since the maturity date. issuance date. Interest is paid semiannually. First subordinated 3,000,000 3,000,000 2005.12.13-2011.06.13 Index rate plus 0.35%. Interest is debentures issued in 2005 Principal is repayable on reset semiannually since the maturity date. issuance date. Interest is paid semiannually.
$ 31,010,772 $ 36,010,888 (Concluded)
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BANK SINOPAC
THE NET ASSET OF IBT ON NOVEMBER 13, 2006 (In Thousands of New Taiwan Dollars)
Item Amount
Cash and cash equivalents $ 6,342,189 Due from the central bank and other banks 15,714,110 Financial assets at fair value through profit or loss 6,063,884 Securities repurchased under agreement to resell 2,402,443 Available-for-sale financial assets 52,027,862 Accounts, interest and other receivables, net 18,419,324 Discounts and loans, net 280,008,538 Held-to-maturity investments 1,408,522 Equity investments - equity method 352,417 Properties, net 4,894,493 Other assets 2,934,318 Other financial assets 1,519,023 Call loans and due to banks (4,406,710 ) Accounts interest and other payables (4,850,796 ) Accrued pension liability (450,506 ) Other financial liability (394,356 ) Deposits and remittances (322,750,636 ) Due to the Central Bank and other banks (5,669,748 ) Convertible bond (5,776,144 ) Other liabilities (1,330,784 ) Securities sold under agreements to repurchase (11,064,014 ) Financial liabilities at fair value through profit or loss (212,217 ) Net assets 35,181,212 Cumulative translation adjustments (13,386 ) Unrealized gain (loss) on financial instruments (155,072 ) Unrecognized net loss as pension cost 221,269 Unrealized revaluation increment on land (1,033,595 ) Shares issued (26,123,904 )
Capital surplus due to merger $ 8,076,524
- 74 - TABLE 6-10
BANK SINOPAC
THE GAINS (LOSSES) ON DERIVATIVE FINANCIAL INSTRUMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (In Thousands of New Taiwan Dollars)
For the Nine Months Ended September 30 Account 2007 2006 For hedging purposes: Cross-currency swap contracts - Realized Interest revenue $ 81,601 $ 92,777 Interest expense (574,147 ) (517,845 ) Foreign exchange gain (loss) 5,880 (4,088 ) Interest rate swap contracts - Realized Interest revenue 22,107 29,070 Interest expense (125,786 ) (121,913 ) Foreign exchange loss (25,790 ) (10,104 ) (616,135 ) (532,103 ) For the purposes of accommodating customers’ needs or managing the Bank’s exposures: Forward contracts - Realized Interest revenue 225,625 216,272 Interest expense (73,035 ) (61,391 ) - Realized Foreign exchange gain (loss) 121,942 (36,426 ) - Unrealized Loss on derivative financial (2,489 ) (30,314 ) instruments transactions - Unrealized Foreign exchange gain 52,772 5,516,986 Currency swap contracts - Realized Interest revenue 2,854,819 2,515,012 Interest expense (2,134,179 ) (1,805,722 ) Loss on derivative financial (374,105 ) - instruments transactions - Unrealized Income from (loss on) derivative 32,561 (152,914 ) financial instruments transactions - Realized Foreign exchange gain 1,433,105 - Interest rate swap contracts - Realized Interest revenue 3,942,773 1,234,450 Interest expense (3,929,668 ) (1,218,832 ) - Realized Income from (loss on) derivative (71,714 ) 2,468 financial instruments transactions - Unrealized Income from (loss on) derivative (64,257 ) 38,703 financial instruments transactions (Continued)
- 75 - For the Nine Months Ended September 30 Account 2007 2006 Foreign-currency options contracts - Realized Loss on derivative financial $ (615,567 ) $ (259,893 ) instruments transactions Foreign exchange gain 1,692,188 886,443 - Unrealized Income from (loss on) derivative (223,274 ) 116,274 financial instruments transactions Interest rate futures contracts - Realized Income from derivative financial 46,032 28,257 instruments transactions Foreign exchange gain 665 1,126 - Unrealized Income from (loss on) derivative (1,894 ) 2,092 financial instruments transactions Cross-currency swap contracts - Realized Interest revenue 163,132 219,997 Interest expense (135,382 ) (219,190 ) Income from derivative financial 379,488 350,690 instruments transactions - Unrealized Income from (loss on) derivative (119,086 ) 21,358 financial instruments transactions Credit default swap contracts - Realized Loss on derivative financial (18,157 ) (7,550 ) instruments transactions - Unrealized Income from (loss on) derivative 72,256 (16,118 ) financial instruments transactions Miscellaneous swap contracts - exchange rate - Realized Income from (loss on) derivative (254 ) 1,039 financial instruments transactions Miscellaneous swap contracts - stock index - Realized Income from derivative financial 59,468 3,313 instruments transactions Commodity linked interest rate swap contracts - Realized Loss on derivative financial (1,278 ) (699 ) instruments transactions 3,312,487 7,345,431
$ 2,696,352 $ 6,813,328
(Concluded)
- 76 - TABLE 7
BANK SINOPAC
OVERDUE LOANS AND RECEIVABLE SEPTEMBER 30, 2007 AND 2006 (In Thousands of New Taiwan Dollars, %)
September 30, 2007 September 30, 2006 Non-Performing Loan Loss Loan Loss Items NPL Ratio Coverage Ratio Non-Performing Loan (NPL) Total Loans Reserves Total Loans NPL Ratio Reserves Coverage Ratio (Note 2) (Note 3) Loan (NPL) (Note 1) (LLR) (LLR) Secured 2,484,139 78,945,334 3.15% 914,082 36.80% 2,537,720 94,020,884 2.70% 444,991 17.54% Corporate loan Non-secured 3,289,843 173,243,032 1.90% 2,307,364 70.14% 3,980,322 172,029,955 2.31% 2,240,706 56.29% Mortgage (Note 4) 5,497,042 327,797,589 1.67% 1,540,116 28.02% 2,925,427 298,685,101 0.98% 964,626 32.97% Cash card 23,415 260,227 9.00% 26,093 111.44% 6,297 703,781 0.89% 3,238 51.42% Consumer loan Micro credit (Note 5) 2,090,596 17,434,128 11.99% 1,313,029 62.81% 3,022,158 28,990,693 10.42% 1,169,456 38.70% Secured Other (Note 6) 58,979 7,734,976 0.76% 60,790 103.07% 133,427 9,283,752 1.44% 46,666 34.97% Non-secured Total 13,444,014 605,415,286 2.22% 6,161,474 45.83% 12,605,351 603,714,166 2.09% 4,869,683 38.63% Overdue Account Allowance for Overdue Account Allowance for Diliquency Ratio Coverage Ratio Diliquency Ratio Coverage Ratio Receivable Receivable Credit Losses Receivable Receivable Credit Losses Credit card ------Account receivable - factoring with no recourse (Note 7) 59,506 10,022,000 0.59% 70,121 117.84% 9,761 15,921,535 0.06% 42,206 432.39%
Note 1: For Loan business: Overdue loans represent the amounts of reported overdue loans pursuant to “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrual Loans” issued by the MOF. For Credit card business: Overdue receivables are regulated by the Banking Bureau dated July 6, 2005 (Ref. No. 0944000378).
Note 2: For Loan business: NPL ratio = NPL/Total loans. For Credit card business: Delinquency ratio = Overdue receivable/Account receivable.
Note 3: For loan business: Coverage ratio = LLR/NPL For credit card business: Coverage ratio = Allowance for credit losses/Overdue receivables.
Note 4: Household mortgage means the purpose of financing is to purchase, build, or fix up the dwelling and provides dwelling owned by the borrower, spouse, or children to fully secured the loan.
Note 5: Micro credit is regulated by the Banking Bureau dated December 19, 2005 (Ref. No. 09440010950).
Note 6: Others in consumer loans refer to secured or non-secured loans excluding mortgage, cash card, micro credit, and credit cards.
Note 7: Account receivable - factoring with no recourse as required by the Banking Bureau letter dated July 19, 2005 (Ref. No. 094000494), provision for bad debt are recognized once no compensation are made from factoring or insurance company.
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