Stock Code:2812 2017 Annual Report Annual Report 2017
We Do Our Best For You 總行 臺中市西區民權路87號 電話：04-22236021 Date of publication:March 2018 Website:http://www.tcbbank.com.tw M.O.P.S:http://mops.twse.com.tw No.87, Min-Chuan Road, Taichung, Taiwan, R.O.C. Taichung Commercial Bank Company Limited Address:No. 87, Min Chuan Road, Taichung, Taiwan, R.O.C. Tel.:(04)2223-6021 Website: http://www.tcbbank.com.tw
Company Spokesman Name: Cheng-Yuan Chen Taichung Commercial Bank Job title: Executive Vice President Tel.:(04)2223-6021 Email:[email protected]
Acting Spokesman Name: Kai-Yu Lin Job title: Executive Vice President Tel.:(04)2223-6021 Eamil:[email protected]
Shares Registrar Name: by internal function Address: 11F., NO. 50, Sec. 1, XinSheng South Road, ZhongZheng District, Taipei, Taiwan, R.O.C. Website：http://www.tcbbank.com.tw Tel.：(02)2395-7388
Credit Rating Agency Chairman : Name: Fitch Australia Pty Ltd, Taiwan Branch Address: Suite 1306, 13F., No. 205, Tun Hwa N. Road, Taipei, Taiwan, R.O.C. Tel.:(02)8175-7600
External Auditors in the Most Recent Year Name of CPA firm: Deloitte & Touche Name of CPA: Kuan-Chung Lai & Wen-Ya Hsu Address: 12F., No. 156, MinSheng East Road, Sec. 3, Song Shan District, Taipei, Chin-Yuan Lai Taiwan, R.O.C. Wesbsite:http://www.deloitte.com.tw Tel.:(02)2545-9988
Name of any exchanges where the Company’s securities are traded overseas, and the method by which to access information on said offshore securities: None. CONTENTS I. MESSAGE TO THE SHAREHOLDERS ...... 1 II. A PROFILE OF TAICHUNG BANK ...... 5 III. CORPORATE GOVERNANCE REPORT ...... 6
1. ORGANIZATION ...... 6
2. PROFILES OF DIRECTORS, PRESIDENT, EXECUTIVE VICE PRESIDENTS, ASST. VP, AND SUPERVISORS OF THE VARIOUS
DEPARTMENTS AND BRANCHES ...... 9
3. REMUNERATION TO DIRECTORS, PRESIDENT AND EXECUTIVE VICE PRESIDENTS, AND ALLOCATION OF
REMUNERATION TO EMPLOYEES ...... 22
4. STATUS OF CORPORATE GOVERNANCE ...... 28
5. DISCLOSURE OF THE ACCOUNTANT’S FEE ...... 49
6. CHANGES OF ACCOUNTANTS ...... 49
7. THE CHAIRMAN, PRESIDENT, CHIEF FINANCIAL OR ACCOUNTING MANAGER OF THE BANK WHO HOLDS POSITION IN THE
BUSINESS UNDER THE COMMISSIONED CPA FIRM OR ITS AFFILIATES IN 1 YEAR ...... 49
9. INFORMATION ON SHAREHOLDERS AMONG THE TOP 10 BY PROPORTION OF SHAREHOLDING WHO ARE STAKEHOLDERS
TO ONE ANOTHER OR SPOUSE, KINDRED WITHIN THE 2ND TIER UNDER THE CIVIL CODE ...... 54
10. QUANTITY OF SHAREHOLDINGS OF THE SAME INVESTEE BY THE BANK AND DIRECTORS, PRESIDENTS, EXECUTIVE
VICE PRESIDENTS, ASST. EXECUTIVE VICE PRESIDENTS, SUPERVISORS OF THE VARIOUS DEPARTMENTS AND BRANCHES,
AND DIRECT OR INDIRECT SUBSIDIARIES IN PROPORTION TO THE COMBINED HOLDINGS OF ALL ...... 55 IV. STATUS OF CAPITAL PLANNING ...... 56
1. SHARES AND DIVIDENDS ...... 56
2. ISSUANCE OF FINANCIAL BONDS ...... 60
3. NO PREFERRED SHARE, OVERSEAS DEPOSITORY RECEIPT, EMPLOYEE STOCK OPTIONS, AND MERGERS AND
ACQUISITIONS OR ACCEPTANCE OF THE ASSIGNED INSTRUMENTS FROM OTHER FINANCIAL INSTITUTIONS ...... 65
4. IMPLEMENTATION OF FUND UTILIZATION PLAN ...... 65 V. OPERATION PROFILE ...... 66
1. BUSINESS CONTENTS...... 66
2. EMPLOYEES ...... 82
3. ENTERPRISE RESPONSIBILITIES AND ETHICAL BEHAVIOR ...... 84
4. NUMBER OF NON-EXECUTIVE BANKING STAFF, AVERAGE FRINGE BENEFIT OF EMPLOYEE IN THE YEAR AND THE
DIFFERENCE FROM THE PREVIOUS YEAR ...... 84
5. IT EQUIPMENT ...... 84
6. LABOR-MANAGEMENT RELATIONS ...... 87
7. IMPORTANT CONTRACTS ...... 89
8. SECURITIZED PRODUCTS AND RELATED INFORMATION ...... 89 VI. FINANCIAL STATUS ...... 90
1. BALANCE SHEET AND COMPREHENSIVE INCOME STATEMENT IN THE LAST FIVE YEARS ...... 90
2. FINANCIAL ANALYSIS FOR THE MOST RECENT FIVE YEARS ...... 94
3. AUDIT COMMITTEE’ REVIEW REPORT ON THE FINANCIAL STATEMENT OF 2017 ...... 99
4. CONSOLIDATED FINANCIAL STATEMENTS 2017 ...... 99
5. FINANCIAL STATEMENTS 2017 ...... 99
6. IN THE CASE OF ANY INSOLVENCY OF THE BANK AND ITS AFFILIATES ...... 99 VII. REVIEW AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS, AND RISK MANAGEMENT MATTERS ...... 100
1. FINANCIAL ANALYSIS ...... 100
2. FINANCIAL PERFORMANCE ANALYSIS ...... 101
3. CASH FLOWS ...... 101
4. THE MATERIAL EFFECT ON FINANCIAL STRUCTURE FROM SUBSTANTIAL CAPITAL EXPENDITURE IN THE LAST FEW
YEARS...... 102
5. DIRECT INVESTMENT POLICY, THE MAIN REASONS FOR PROFIT OR LOSS, AND CORRECTIVE ACTION PLAN IN THE MOST
RECENT YEAR, AND INVESTMENT PLAN IN THE NEXT YEAR ...... 105
6. RISK MANAGEMENT ...... 106
7. CRISIS MANAGEMENT MECHANISM ...... 112
8. OTHER IMPORTANT NOTES ...... 112 VIII. SPECIAL NOTES ...... 113
1. INFORMATION REGARDING THE BANK’S SUBSIDIARIES ...... 113
2. IN THE MOST RECENT YEAR TO THE DATE THIS REPORT WAS PRINTED, PRIVATE PLACEMENT OF SECURITIES AND BANK
DEBENTURES ...... 118
3. IN THE MOST RECENT YEAR TO THE DATE THIS REPORT WAS PRINTED, THE HOLDING OR DISPOSITION OF THE SHARES
OF THE BANK HELD BY THE SUBSIDIARIES ...... 118
4. OTHER SUPPLEMENTARY DISCLOSURE ...... 118
5. THE OCCURRENCE OF EVENTS AS STATED IN ARTICLE 36-3-(2) OF THE SECURITIES AND EXCHANGE ACT IN
THE PREVIOUS YEAR TO THE DATE THIS REPORT WAS PRINTED AND THE INFLUENCE ON SHAREHOLDERS’ EQUITY OR
STOCK PRICE ...... 118 IX. BRANCHES OF TAICHUNG COMMERCIAL BANK AT A GLANCE ...... 119
I. Message to the Shareholders 1. Business result in 2017 (1) Domestic and foreign financial environment Economic recovery continued to spillover worldwide in 2017. With the advanced nations and newly emerging economies taking the lead in recovery, global investment, trade, and industrial production picked up momentum, to the extent that consumers resumed their confidence and the trade in the financial market thrived. According to the forecasting of major international institutions, global economic performance in 2018 will be better than last year. This will help to bring about momentum for the export of Taiwan. Likewise, the Directorate- General of Budget, Accounting, and Statistics, Executive Yuan, forecasted that economic growth in Taiwan will achieve 2.42% in 2018. Yet, the spillover of the tax reform in the USA and the speed of rising interest rates, the localization and structural adjustment of the supply chain in Mainland China, the Brexit negotiation of the UK, the risk of geopolitics, the fluctuation of international oil prices and wholesale goods, the volatility of the global financial market and stock market, trade protectionism and other uncertainties will affect economic development worldwide. (2) Changes in organization 1. The Board of Directors (the Board) appointed the Compliance Officer of the corporate headquarters to perform the role as designated person in charge of anti-money laundering and the combating of the financing of terrorism (AML/CFT) so as to vitalize the function of AML/CFT. This officer will be fully empowered to coordinate and monitor AML/CFT duties. In addition, the “AML Section” was established under the Legal Affairs and Compliance Department solely for performing related duties. 2. In responding to the rapid development of financial information and the protection of the rights of the consumers, the Bank has established the “Information Security Section” under the IT Department. This body will be responsible for administering the policy of information security and advocacy of related systems for assisting the Bank to upgrade its capacity in information security. 3. The Bank has made positive efforts in the development of consumer banking and expansion of its business territory, thereby establishing the “Consumer Banking Center” under the Consumer Banking Department. (3) Operating result of business plans and strategies 1. The Bank had net income amounting to NTD3,633 million, which surpassed the amount of NTD3,515 million as was in the same period of the previous year. The ROA was 0.57% and ROE was 8.57%. In the scale of operation, the Bank had total assets of NTD663.0 billion, which indicated growth of NTD35.9 billion from the same period of the previous year. The overall operation indicated stable growth with wealth management, and consumer banking performed splendidly. 2. The capital adequacy rate was 12.68%, NPL rate was 0.42%, and bad debts coverage rate at 343.87%. In general, the overall level of capital adequacy and asset quality is sound and better than the same period of the previous year. 3. The Bank has been granted the patent in the technologies of “Over-the-Counter Identity authentication system of banking” and “ATM Combining the Biological Features and Barcode Authentication Functions”, and will continue to innovate for maintaining competitive advantages and optimizing the environment of consumer banking service. 4. The Bank has been approved by the competent authority to establish the “Yan Chao Branch” in Kaohsiung City in June 2017 after making tremendous efforts for the cause. This will be essential for the performance of corporate social responsibility and improvement of balanced development in the urban and rural zones. The Bank has been previously approved 1
TAICHUNG BANK 2017 ANNUAL REPORT 1 to establish the “Xin Gang Branch” in Chiayi County. This branch was opened in October 2017. Currently, the Bank has 81 branches across Taiwan and a viable system of market channels. 5. The Bank has been conferred the “Financial Security Award” by the Joint Credit Information Center for 3 consecutive years. This is the recognition of the Bank for efforts and the pursuit of credit information security control, accuracy of credit information and protection of customer information. 6. The Bank won the “2017 Wealth Management Award”, “The Most Preferred Bank of Customers”, the 2017 “Excellent Potential Award” of the “Survey of Banking Industry” by Excellence magazine, and the “18th Gold Peak Award (Big Business) Top 10 Enterprises/Top 10 Entrepreneurs” awards. These awards show the trust and recognition of the customers of the Bank. (4) Budget execution in December 2017 1. The average deposit balance (including foreign currency) amounted to NTD 560.710 billion. The budget achievement rate was 100.49%, representing 4.62% growth from the NTD 535.924 billion in the same period of the previous year. 2. The average loan balance (including foreign currencies, but excluding guarantees, acceptances and delinquent accounts) amounted to NTD432.072 billion, which was an increase of NTD7,198 million or 1.69% from the same period of the previous year. 3. The average deposit balance in foreign currencies amounted to USD1,669 million or at the attainment rate of 110.04%, which was an increase by 21.03% from USD1,379 million in the same period of the previous year. 4. Commission income from wealth management amounted to NTD1,330 million or at the attainment rate of 139.26% of the goal, or growth of 13.52% from NTD1,172 million in the same period of the previous year. (5) Financial income and expenditure, and profitability analysis 1. In 2017, the consolidated earnings before taxation amounted to NTD4.355 billion and the corporate earnings amounted to NTD3.633 billion. Earnings per share after taxation are NTD1.10. The EPS of the Bank has been higher than NTD1 for 6 consecutive years. 2. KPI: Key Performance Indicator Indicators 2017 (consolidated) Capital adequacy ratio (BIS) 12.68% Return on Assets (ROA) 0.57% Return on Equity (ROE) 8.57% Earnings Per Share (EPS) $1.10 NPL ratio 0.42% Coverage ratio 343.87% 3. Information about the most recent credit rating
Date of Credit rating Rating agency rating Long-term Short-term Outlook Fitch Rating Taiwan Company Limited Branch in 2017.9.20 A-(twn) F2(twn) Stable Taiwan
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2 TAICHUNG BANK 2017 ANNUAL REPORT (6) R&D In the wake of the development of digital banking, the Bank established the “digital banking technology development strategy meeting” for the continuation of planning for the cloud payment and related banking technologies and services of the Bank. In addition, a digital big platform was constructed with dynamic differentiated services and digital analysis to provide customers innovative and diverse banking services. 2. Effect of external competitive environment, laws & regulations and entire business environment (1) the Bank instituted the “Important Notice to AML/CFT”, “Regulations Governing the Assessment of the Risk of Money Laundering and Financing of Terrorism” and related control mechanism for the reinforcement of AML/CFT, complying with applicable laws, reducing the risks of transactions, products or services from being exploited as tools and media for money laundering and financing of terrorism, and the eventual discovery of illegal or illicit transactions. These will be essential for making a viable internal control system. (2) The rapid development of banking technologies made information security of banks exposed to higher levels of risk. For better protection of information security, the Financial Supervisory Commission (FSC) recommended banks take incremental measures to establish a designated body for administering information security led by a designated officer at relevant levels of the hierarchy by taking the size of operation of domestic banks the complexity of business and operation risk in the conference for the “Discussion of the Establishment of Designated Information Security Body and Officers in Domestic Banks and Related Issues of Information Security”. This designated body shall be staffed with sufficient manpower and allocation of resources for the effective implementation of information security plans of banks and information security protection. In the future, this functional unit of information security will be upgraded to an independent department to maintain its independence in the pursuit of information security. The Bank has established an Information Security Section under the IT Department and will accomplish related plans and organization on schedule for proper performance of work in information security and intensification of related training. 3. Future development strategies Despite the optimism of global economic recovery, the attention to potential risks cannot be neglected. The Bank will continue its stable pace in banking operation in 2018 with continued pursuit of risk management, compliance, and performance management. The Bank will continue its corporate policy of “Moving forward at stable paces in operation and create high return” and realize the 5 business strategies of “Careful about risk”, “Concern for quality”, “Widen interest spread”, “Increase revenues” , and “Yield synergy”. 4. Summary of business plan 2018 (1) The Bank will continue to support the rules and regulations promulgated by the competent authority in establishing related internal code in responding to the assessment of the AML organizations in Asia-Pacific and the proper pursuit of AML/CFT. In addition, the Bank will also organize related training to strengthen the employees with related knowledge of anti- money laundering and make them well-prepared in launching AML. (2) To upgrade the risk reduction techniques and advocacy of low capital consumption business, the Bank made capital consumption and risk reduction efficiency an integral part of performance evaluation of the branches in 2018. Further to reducing the influence of loans on capital adequacy, the Bank also seeks to upgrade the overall return on assets. (3) The Bank established 3 lines of defense for internal control to fortify risk management and internal control, and makes all functional units understand their roles in the overall risk a control structure of the bank. To fortify the function of the 2nd line of defense, the management functions of the corporate headquarters established the means and control measures for the identification and assessment of risks so that all could effectively assist and monitor the 1st line of defense in the identification and management of risk, and reduce operation risk. 3
TAICHUNG BANK 2017 ANNUAL REPORT 3 (4) In response to the unpredictable change in asset quality and economic development, the Bank treasures the adjustment of lending policy and materialization of the early warning system for credit review to safeguard the quality of loans, handle poorly performed loan position with full effort, and monitor the change in credit risk. These will be essential for the stable growth of loan assets of the Bank. (5) The Bank will make the best use of its advantage in low cost and SME operation for yielding marketing results through integrated operation. With an emphasis on proper planning in financing and integration of the diversity of financial products, the Bank links the business for yielding synergy in making profit and the efficient use of capital. Further cultivation of customer relations with stronger bonding and permeability, and refining the operation between the parent and subsidiaries for synergy. Activate the planning for digital transformation in operation and establish the consumer banking center in lieu of physical channel deployment. (6) Expected business objectives
Scope of business Targets of December 2018
Deposits (including NTD 581.987 billion foreign currencies) Lending (including NTD 455.699 billion foreign currencies) Foreign Exchanges Annual amount USD 16,100 million Operations In 2018, the Bank will make further efforts in pursuing government policy, compliance with external legal requirements and internal code. The Bank will spare no effort in the development of different aspects of banking service and the continuation of broadening the scope of digital banking service. Under the fundamental philosophy of “We Do Our Best For You”, the Bank will move forward without procrastination to satisfy the needs of customers, will take “Whole-hearted concern for a bright future” as its mission, and “The first line in Taiwan”, “The most expected in society” and “The most trusted by customers” as its vision. The Bank will make its best efforts to emerge as the best financial institution and demonstrate the efficiency of its banking team. With equal concern in observation of applicable laws, performance management, information security and risk management, the Bank will achieve the goal of protecting the rights of customers, upgrading the core value of the organization, and protection of the rights and interests of the shareholders. Best regards, To All Shareholders May I wish you all good health and good luck.
President______Chairman______
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4 TAICHUNG BANK 2017 ANNUAL REPORT II. A profile of Taichung Bank: 1. Date of establishment and history Formerly a cooperative savings company in Taichung established in April 1953, the predecessor of Taichung Bank started its operation in savings and loans in August 1st of the same year. The scope of business then covered Taichung City, Taichung County, Chang Hwa County and Nantou County. In 1978, the Bank was reorganized as the “Taichung Small and Medium Business Bank” in responding to the promulgation of the Bank Act and business development needs. On May 15 1984, the Bank publicly offered its shares at the centralized market for broaden the base of operation and public participation in equity. Since then, the Bank has laid down a solid foundation for development in the future. In September 1995, the Taipei Branch was established with business covering different districts, which set a new milestone of the operation of the Bank. The Bank continued to relocate its branches, which were previously located in central Taiwan, to northern and southern Taiwan. After this process of expansion, the Bank has banking locations across western Taiwan. Since then, the Bank has emerged as a national commercial bank. The paid-in capital of the Bank has increased from NTD 500,000 at its initial stage of operation to NTD 32,932 million as of December 31, 2017. The Bank also expanded to 81 branches and 1 OBU from 5 branches at the time of its establishment. For the upgrade of the competitive advantage in “local banking”, “SME financing”, “diversified banking”, the Bank has invested to established the “Taichung Bank Insurance Brokers Co., Ltd.”, “Taichung Bank Leasing Co., Ltd.”, “Taiuchng Commercial Bank Leasing (Suzhou) Co., Ltd.”, and “Taichung Commercial Bank Securities Co., Ltd.”, which in turn jointly invested to establish the “Reliance Securities Investment Trust Co., Ltd.” so as to build up the framework of diversified banking for the accomplishment of the mission of sustainable corporate development and for the vision of establishing overseas business territories. The scope and volume of business of the Bank multiplied over the years. The variety and size of the operation far exceeded that at the time of its establishment as a cooperative saving company. The achievement was the feedback of the whole-hearted operation of the Bank. The growth and the excellence in operation of Taichung Commercial Bank have been witnessed by the public. 2. Mergers and acquisitions of banks, direct investment or reorganization of affiliates in the most recent year to the date this report was printed: The Bank has no corporate merger and reorganization, and has invested in 6 affiliates for the time being. They are: 1. Three Subsidiaries to the Bank, including “Taichung Bank Insurance Brokers Co., Ltd.”, “Taichung Commercial Bank Securities Co., Ltd.”, and “Taichung Bank Leasing Co., Ltd.” 2. The wholly owned subsidiary of “TCCBL Co., Ltd.” and the “Taichung Commercial Bank Leasing (Suzhou) Ltd.” of “Taichung Bank Leasing Co., Ltd.” 3. Strategic investments in affiliated enterprises “Reliance Securities Investment Trust Co., Ltd.” 3. Subordination to particular financial holding company: None. 4. Any massive transfer or replacement of equity by directors or as required for declaration under Article 25-III of the Banking Act in the most recent year to the date this report was printed. 5. Change in the management, mode of operation, or significant change in the content of business and any other that significantly affected the equity of shareholders: None.
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TAICHUNG BANK 2017 ANNUAL REPORT 5 III. Corporate Governance Report 1. Organization (1) Organizational Structure
Shareholder's Meeting Audit Committee
Remuneration Committee Board of Directors
Risk Management General Manager Office Committee Board of Managing Directors Asset and Liability Management Committee
Chairman Trust Assess Assessment Committee
Loan Supervision Committee Solid Line: Direct control and management Vice Chairman Dotted Line: Functional assistance Personal Appraisal Cum Evaluation Committee
President Investment Committee Chief Auditor
Financial Products Review Directors Office ofBoard the of Board Officethe of Auditing Committee Executive Vice President NPL Management Committee Asset Recovery Dept of Debt Collection and Business Development Dept. Dept. Development Business District Center. Loan AdministrationDept. Offshore Banking Unit Dept. Banking International Treasury Marketing Dept. Dept. Treasury Marketing Legal & Compliance Dept. Wealth ManagementDept. Corporate Finance Dept. Dept. Accounting Human ResourcesDept. Dept. Affairs General Treasury Dept. Risk ManagementDept. Dept. Information Trust Dept. Consumer BankingDept.
Business location (including Business Dept.)
(2) Functions of Major Departments 1. Office of the Board of Directors: Call for sessions and elections of the Standing Committee of the Board, the Board of Directors and Audit Committee, General Meeting of the Shareholders, shares registration and related matters, public relations, press release. 2. Audit Office of the Board: Administer the general auditing of the Bank, including operation audit, computer information audit, internal self-audit, internal audit, corrective actions as per the requests of competent authority, and related reporting. 3. General Manager Office: Assist the General Manager to map out the corporate strategy and business plan of the Bank, supervise the pursuit of channel development strategy and keep track with review on the budget settlement of each year. 4. Business Development Dept: Administer the design and pursuit of corporate strategy and business development plans, administer the planning, implementation, supervision, evaluation of deposit, remittances, and eCommerce, and the study of banking in practice, interpret and advocate the financial 6
6 TAICHUNG BANK 2017 ANNUAL REPORT policy of the government. 5. International Banking Dept.: Administer the planning, promotion, management and operation of foreign exchanges. 6. Trust Dept.: Administer the planning, management and operation of trust business. 7. Information Dept.: Administer the planning, configuration and operation of IT system and banking information package software. 8. Risk Management Dept.: Administer the draft of the Bank’s overall risk management policies, the planning of risk strategies and risk control mechanism, the monitoring and control of the business risk exposures and other risk management related matters. 9. Treasury Dept.: Administer the appropriation of funds and investments of the whole bank and other financial matters. 10. General Affairs Dept.: Administer the articles of incorporation, organization, important documents and corporate seals, business affairs, cashier service, general purchase, custody of assets, procurement and lease of real properties, improvement and repair of properties, and labor safety & health issues, security protection drill and management and supervision, property insurance, and any matters other than those administered by the other departments/offices. 11. Human Resource Dept.: Administer human resources management and review, and employee welfare, and also administer employee continuing education and training. 12. Accounting Dept.: Administer accounting affairs, management accounting, annual budget settlement, and inter-branch transactions. 13. Corporate Finance Dept.: Administer the corporate financing, factoring, syndicated loans, and financing of overseas Taiwanese business. 14. Wealth Management Dept.: Administer the planning and execution of the financial planning businesses throughout the nation, management of financial advisors, preparation and revision of the wealth management policy and operating procedure, and promotion, supervision and management of wealth management customers’ investment asset. 15. Loan Administration Dept.: The planning, review, management of lending and credit information background check, the survey and compilation of statistics, study, analysis, and consultation service of the financial market. 16. Department of Debt Collection and Asset Recovery: Administer the precautionary and review after granting loan, and planning, executing, supervision and statistic analysis of the collection of delinquent accounts, performance appraisal of the collection, review of writing off non-performing loans, examination and management of Collaterals Assumed.
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TAICHUNG BANK 2017 ANNUAL REPORT 7 17. Legal & Compliance Department: Supervise the enforcement of AML/CFT, administer the design, management, execution of the compliance system and participate and assist in legal matters and appoint legal counsels. 18. Consumer Banking Department: Administer the planning and management, review and approval, marketing and promotion of consumer banking loans and credit card business, and the customer telephone service hotline, collection, marketing, and CRM. 19. Treasury Marketing Department: Administer the design of financial derivatives and marketing planning of new financial products and market development. 20. Business Dept.: Administer the operation of different types of deposits, loans, foreign exchange settlements and banking matters. 21. District Center: Review and approve the lending at the branches beyond consumer banking under its jurisdiction, and assist marketing development. 22. Offshore Banking Unit: Administer the planning, promotion, management and operation of international banking.
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8 TAICHUNG BANK 2017 ANNUAL REPORT 2. Profiles of Directors, President, Executive Vice Presidents, Asst. VP, and supervisors of the various departments and branches (1) Profiles of Directors 1. Directors Information February 28, 2018
Other Chief, Current Shares Held by Shareholding under the Supervisors or Directors Shares at Election Current shareholding Spouse & Dependents title of a third party with a Spousal or Other Nationality Election Inauguration Major (academic degree) Current Bank & Other Immediate Relative Title or place of Name Gender (Appointment) Duration date experience positions registration Date Ratio of Ratio of Ratio of Ratio of Quantity Shareholding Quantity Shareholding Quantity Shareholding Quantity Shareholding Title Name Relation % % % % Hsu Tian Institutional Taiwan Institutional Director of the Investment 2017/6/7 3 2014/6/19 42,752,261 1.32 43,790,115 1.33 0 0 0 0 None None None None Director R.O.C. Bank Co., Ltd. Pan Asia Institutional Taiwan Institutional Director of the Chemical 2017/6/7 3 2002/5/17 187,495,449 5.79 190,682,871 5.79 0 0 0 0 None None None None Director R.O.C. Bank Corporation Ho Yang Institutional Taiwan Management Institutional Director of the 2017/6/7 3 2011/6/22 1,719,802 0.05 1,749,038 0.05 0 0 0 0 None None None None Director R.O.C. Consultant Bank Co., Ltd. President, Shin Kong Hsu Tian Commercial Bank Investment Co., Ltd.; Vice President, Taiwan Mega International Chairman Co., Ltd. Male 2017/6/7 3 2015/6/16 678,059 0.02 689,586 0.02 0 0 0 0 None None None None R.O.C. Commercial Bank Representative: Co., Ltd.; Department of Chin-Yuan Lai Economics, Tung Hai University Director, Tai Yi Investment Co., Ltd.; Director, Chou Chin TAICHUNG BANK2017 ANNUALREPORT Industrial Co., Ltd.; Director, Chung Chien Investment Co., Ltd.; Director, Nan Chung Petrochemical Corp.; Director, Ge Ling Co., Ltd.; Director, Chou Chang Co., Ltd.; Director, Hsu Tian Sheng Jen Knitted Investment VP, Corporate Financing Vice Taiwan Textiles Co., Ltd.; Co., Ltd. Male 2017/6/7 3 2006/3/13 365,833 0.01 372,052 0.01 0 0 0 0 Dept., BNP Paribas Hong None None None Chairman R.O.C. Director, Ta Yi Representative: Kong; MBA of NYU Development Co., Ltd.; Kuei-Fong Wang Director, Ge Ling Co., Ltd.; Chairman, Pan Asia Chemical Corporation; Chairman, Director, Chou Chang Co., Ltd.; Supervisor, Hsu Tian Investment Co., Ltd.; Director, Pan Asia Investment Co., Ltd.; Director, Je Mi Fang Corporation; Director, Deh Hsing Investment 9 9 10 TAICHUNG BANK2017 ANNUALREPORT Other Chief, Current Shares Held by Shareholding under the Supervisors or Directors Shares at Election Current shareholding Spouse & Dependents title of a third party with a Spousal or Other Nationality Election Inauguration Major (academic degree) Current Bank & Other Immediate Relative Title or place of Name Gender (Appointment) Duration date experience positions registration Date Ratio of Ratio of Ratio of Ratio of Quantity Shareholding Quantity Shareholding Quantity Shareholding Quantity Shareholding Title Name Relation % % % % Co., Ltd.; Chairman, Taichung Commercial Bank Insurance Agency Co., Ltd.; Director and President, China Man-Made Fiber Corporation; Ta Fa Investment Co., Ltd. Director, China Man- Made Fiber Hsu Tian Corporation; Director, Investment Taichung Bank Leasing Managing Taiwan Co., Ltd. Department of International Co., Ltd.; Chairman, Male 2017/6/7 3 2017/6/7 0 0 0 0 0 0 0 0 None None None Director R.O.C. Representative: Trade, Tamkang University Deh Hsing Investment Ming-Hsiung Co., Ltd.; Director, Huang Ge Ling Co., Ltd.; Director, Chou Chin Industrial Co., Ltd. Managing Director, Co- Head of FICC EM Asia of UBS AG; Managing Director & Responsible Officer, Merrill Lynch Managing (Asia Pacific) Limited of Director Bank of America Singapore Li-Woon Lim Male 2017/6/7 3 2017/6/7 0 0 0 0 0 0 0 0 Merrill Lynch; Bachelor of None None None None (Independent Arts (Economics), Stanford director) University; Master of Science (Electrical Engineering), Stanford University; Master of Business Administration, Stanford University Chief Financial Officer, South Asia, HTC; Department of Finance and Director and chief Independent Taiwan Hsin-Chang Tsai Male 2017/6/7 3 2017/6/7 0 0 0 0 0 0 0 0 Banking, National Taiwan financial, Dimension None None None director R.O.C University; EMBA, Data Taiwan Ltd. National Taiwan University College Responsible person of JP Morgan Chase in China; Co-responsible person of CEO of Cathay Independent BNP in Asia; CEO of Hong Kong Jin-Yi Lee Male 2017/6/7 3 2011/6/22 0 0 0 0 0 0 0 0 International None None None director Fubon Bank (Hong Holdings Ltd. Kong) Limited; and graduated from Harvard Business School Hsu Tian Investment Department of Statistics, Taichung Commercial Taiwan Director Co., Ltd. Male 2017/6/7 3 2017/6/7 165,255 0.01 128,064 0.00 392 0.00 0 0 National Cheng Kung Bank Co., Ltd. None None None R.O.C. Representative: University President Te-Wei Chia Department of Public Taiwan Hsu Tian Taichung Commercial Director Male 2017/6/8 3 2017/6/8 79,885 0.00 134,051 0.00 0 0 0 0 Finance and Taxation, None None None R.O.C. Investment Bank Securities National Taipei University 10 Other Chief, Current Shares Held by Shareholding under the Supervisors or Directors Shares at Election Current shareholding Spouse & Dependents title of a third party with a Spousal or Other Nationality Election Inauguration Major (academic degree) Current Bank & Other Immediate Relative Title or place of Name Gender (Appointment) Duration date experience positions registration Date Ratio of Ratio of Ratio of Ratio of Quantity Shareholding Quantity Shareholding Quantity Shareholding Quantity Shareholding Title Name Relation % % % % Co., Ltd. of Business Co., Ltd. Representative: Chairman Ching-Tai Huang
Hsu Tian Chairman, Taichung President, Chang Hwa Investment Bank Leasing Co., Ltd.; Taiwan Bank, Department of Director Co., Ltd. Male 2017/6/7 3 2012/6/8 0 0 0 0 0 0 0 0 Independent Director, None None None R.O.C Accounting and Statistics, Chun Yuan Steel Representative: Tamkang University Wei-Liang Lin Industry Co., Ltd. Hsu Tian Investment Chief Auditor, Land Bank Taiwan Co., Ltd. of Taiwan; Master in Land Supervisor of Taichung Director Male 2017/6/7 3 2005/5/20 0 0 0 0 0 0 0 0 None None None R.O.C. Representative: Administration, National Bank Leasing Co., Ltd. Hsin-Ching Chung Hsing University Chang Pan Asia Director of ITOCHU Chemical Vice Chairman, China CORPORATION, Taipei Taiwan Corporation Man-Made Fiber Director Male 2017/6/7 3 2010/6/17 0 0 0 0 71,947 0.00 0 0 Branch; Department None None None R.O.C. Corporation; Chairman, Representative: of Political Science, Je Mi Fang Corporation Ming-Shan National Taiwan University Chuang Director, Rothschild Investment Co., Ltd.; Director, Bao Ho Yang Jia Property Management Management Co., Ltd; Consultant Director, Hong-Wei Taiwan Legislator, Institute of Law, Development Co., Ltd.; Director Co., Ltd. Male 2017/6/7 3 2014/6/19 0 0 0 0 0 0 0 0 None None None R.O.C. Chinese Culture University Chairman, Pau Jar Real Representative: Estate Co, Ltd.; Chien-Hui Chairman, Chu Ho TAICHUNG BANK2017 ANNUALREPORT Huang Construction Co. Ltd.; Director, Lucia Manor Corporation; SunlineNP Telecom
11 11 2. Major Shareholders of Corporate Shareholders February 28, 2018 Major shareholder of corporate shareholder and shareholding Ratio of Corporate shareholder Name Shareholding thereof Hsu Tian Investment Co., Ltd. Chia-Chun Chiang (50%), Kuei-Fong Wang (50%). China Man-Made Fiber Co., Ltd. (44.40%); Sheng Jen Knitted Textiles Co., Ltd. (6.20%); CMFC Investment (5.12%); Deh Hsing Investment Co., Ltd. (4.69%); Yu Hui Limited (1.88%); Tai Yi Investment Co., Ltd. Pan Asia Chemical Corporation (1.75%); Ke Yi Bao Investment Co., Ltd (0.76%); Pan Asia Employee Welfare Committee (0.62%); Chien-Hsing Wu (0.56%); Ching Yung Chang (0.46%). Ho Yang Management Consultant Chen-Hai Lin (18.875%), Shu-Cyong Zen (31%), Yi-Tsai Lin (25%), Yi- Co., Ltd. Wen Lin (12.5%), Ching-Hua Hsieh (0.125%). 3. The major shareholder of the juristic person shareholder is a juristic person February 28, 2018 Major shareholder of corporate shareholder and shareholding Ratio of Corporate shareholder Name Shareholding thereof Pan Asia Chemical Corporation (15.51%), Sheng Jen Knitted Textiles Co., Ltd. (4.36%), Chou Chin Industrial Co., Ltd.(3.65%), PACC.(3.11%), CMFC Investment Co., Ltd. (2.61%), Hsien-Jin Star Fund Series – Advanced International ETF Investment Account in custody of JP Morgan Chase Bank Taiwan Branch (1.03%), Vanguard International Equity Fund Investment China Man-Made Fiber Account – Emerging Market Funds under the Custody of Standard Chartered Co., Ltd. Bank (1.01%), Central Bank of Norway Investment Account in custody of Citibank Taiwan (0.87%), Mitsubishi UFJ Morgan Stanley Securities Investment Account in custody of HSBC (0.86%), CitiBank was commissioned and management investor account of Dimension emerging market estimate fund (0.78%) Chung Chien Investment Co., Ltd. (53.47%), Yu Hui Limited (40.40%), Sheng Jen Knitted Textiles Chao-Chang Wang (5.57%), Kuei-Hsien Wang (0.25%), Shang-Jr Chiang Co., Ltd. (0.15%), Shi-Yi Chiang (0.10%), Chao-Ching Wang (0.05%). Ta Fa Investment Co., Ltd. (28.08%); Pan Asia Investment Co., Ltd. (17.67%); Tung Hao Enterprises Corp. (15.64%); Chin-Yuan Huang Chung Chien Investment (14.72%); Yu Hui Limited (10.52%); Hsu Tian Investment Co., Ltd. (9.57%); Co., Ltd. Kuei-Hsien Wang (1.70%); Kuei-Fong Wang (1.55%); Sheng Jen Knitted Textiles Co., Ltd. (0.44%); Tsai-Lien Cheng (0.06%). Deh Hsing Investment China Man-Made Fiber Co., Ltd. (100%) Co., Ltd. Kuei-Hsien Wang (99.27%), Meng-Liang Chang (0.69%), Hsiao-Chieh Lin Yu Hui Limited (0.04%) Pan Asia Investment Co., Ltd. (41.80%), Ta Fa Investment Co., Ltd. Tai Yi Investment Co., Ltd. (38.17%), Tsung Hao Enterprise Co., Ltd. (9.93%), Kuei-Hsien Wang (6.31%), Sian-Jhang Syu (2.53%), Hsu Tian Investment Co., Ltd. (1.26%). Ke Yi Bao Investment Yun-Jyun Deng (100%). Co., Ltd. Pan Asia Chemical Corporation Employee Not applicable. Welfare Committee
12 TAICHUNG BANK 2017 ANNUAL REPORT 12 4. Information on Directors in professionalism and impartiality
Have more than 5 years of experience and the Status of independence (note) following professional qualifications Conditions Passed the qualification Lecturer or examination with Number of above in Required proper licensing by public commerce, law, Work the national companies finance, experience in Government where the accounting or commerce, Apparatus as court person holds the subjects law, finance, 1 2 3 4 5 6 7 8 9 10 judge, prosecutor, title as required by the accounting or lawyers, certified independent business of the others public accountant or director bank in pubic or required by other professional Name private colleges the Bank designations required or universities by the business of the Bank Chin-Yuan Lai 9 9 9 9 9 9 9 9 9 9 0 Kuei-Fong 9 9 9 9 9 9 9 0 Wang
Ming-Hsiung 9 9 9 9 9 9 9 9 0 Huang
Li-Woon Lim 9 9 9 9 9 9 9 9 9 9 9 0 Hsin-Chang 9 9 9 9 9 9 9 9 9 9 9 0 Tsai Jin-Yi Lee 9 9 9 9 9 9 9 9 9 9 9 0 Te-Wei Chia 9 9 9 9 9 9 9 9 9 9 0 Ching-Tai 9 9 9 9 9 9 9 9 9 0 Huang Hsin-Ching 9 9 9 9 9 9 9 9 9 0 Chang Ming-Shan 9 9 9 9 9 9 9 9 0 Chuang Wei-Liang Lin 9 9 9 9 9 9 9 9 9 1 Chien-Hui 9 9 9 9 9 9 9 9 9 9 0 Huang
Note: Respective director and supervisor who meet the following qualifications 2 years before assumption of office and at the time of assumption office shall put a “9” in the appropriate space. (1) Not an employee of the Bank or its affiliates. (2) Not a director or supervisor of the Bank or its affiliates (excluding the capacity of independent director of the Bank or its parents, or a subsidiary directly or indirectly held by the Bank with more than 50% of the stakes). (3) Not a natural person, spouse, underage children, or under the title of a third party who holds more than 1% of the outstanding shares issued by the Bank or among the top 10 natural person shareholders. (4) Not a spouse, kin at the second pillar under the Civil Code, or the lineal blood relatives within the third pillar under the Civil Code as specified in (1) through (3). (5) Not a director, supervisor or employee of an institutional shareholder who holds more than 5% of the outstanding shares issued by the Bank, or a director, supervisor or employee of an institutional shareholder who is among the top 5 shareholders. (6) Not a director, supervisor, manager or shareholder holding more than 5% of the outstanding shares of specific company or institution in business or financial relation with the Bank. (7) Not a professional, owner, partner, director, supervisor, manager of proprietorship, partnership, company or institution that provide business, legal, financial and accounting services to the Bank or a spouse to the aforementioned persons. Except the members of the Remuneration Committee in exercising their authority within the scope of empowerment pursuant to Article 7 of the Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock is Listed on the Stock Exchange or Traded Over the Counter. (8) Not a spouse to or kin at the immediate relaive under the Civil Code to any other director. (9) Not under any of the categories stated in Article 30 of the Company Act. (10) No Government Apparatus agency, juristic person or its representative is elected under Article 27 of the Company Act.
13 TAICHUNG BANK 2017 ANNUAL REPORT 13 14 TAICHUNG BANK2017 ANNUALREPORT (2) President, Executive Vice Presidents, Assistant Executive Vice Presidents and managers of the departments and branches
February 28, 2018
Spouse or kin within the Shares Held by Spouse & Shareholding under the second pillar under the Status of shareholding Dependents title of a third party Civil Code and who is a Election Positions with other manager Title Nationality Name Gender (Appointment) Major (academic degree) experience companies Date Ratio of Ratio of Ratio of Quantity Shareholding Quantity Shareholding Quantity Shareholding Title Name Relation % % %
Director of Taichung Taiwan Senior Vice President; Department of Statistics, President Te-Wei Chia Male 2017/07/05 128,064 0.00 392 0.00 0 0 Commercial Bank None None None R.O.C. National Cheng Kung University Co., Ltd.
Director, Taichung Assistant VP, Loan Administration Dept.; Banking Bank Leasing Co., Ltd.; Executive Taiwan Yi-Yuan Tung Male 2016/12/21 277,356 0.01 0 0 0 0 and Insurance, Taichung Institute of Technology Director, Taichung None None None Vice President R.O.C. (Open Education Program) Commercial Bank Securities Co., Ltd.
Chief Compliance Taiwan Assistant VP, Legal & Compliance Department; Tsung-Yi Liu Male 2016/12/21 130,775 0.00 0 0 0 0 None None None None Officer R.O.C. Department of Law, National Taiwan University
Director, Rai Chia Investment Co., Ltd.; Executive Taiwan Chief Compliance Officer; Department of Law, Kai-Yu Lin Male 2016/12/21 38,008 0.00 0 0 0 0 Supervisor, Director, None None None Vice President R.O.C. National Chengchi University Taichung Bank Insurance Brokers Co., Ltd.
President, Taichung Bank Leasing Co., Ltd.; Executive Taiwan Director, Taichung Kuo-Chun Liu Male 2017/06/26 390,502 0.01 0 0 0 0 Department of Business Administration, National None None None Vice President R.O.C. Bank Leasing Co., Ltd. Taipei University
Taiwan Chief Auditor and Director-General of Cosmos Bank; Chief Auditor Ming-Chin Shen Male 2009/09/14 331,289 0.01 0 0 0 0 None None None None R.O.C. Graduate Institute of Finance, Tamkang University
District Supervisory Senior Assistant Vice President, Executive Taiwan Cheng-Yuan Chen Male 2016/12/21 0 0 0 0 0 0 Office of the President, Dept. of Business None None None None Vice President R.O.C. Administration, Tung Hai University.
Director, Rai Chia Investment Co., Ltd.; Chief Secretary, Taiwan Kai-Yu Lin Chief Compliance Officer; Department of Law, Male 2016/12/21 38,008 0.00 0 0 0 0 Supervisor, Director, None None None Office of the Board R.O.C. (concurrent post) National Chengchi University Taichung Bank Insurance Brokers Co., Ltd.
Director, Rai Chia Assistant VP, Investment Co., Ltd.; Taiwan Kai-Yu Lin Chief Compliance Officer; Department of Law, General Affairs Male 2017/10/01 38,008 0.00 0 0 0 0 Supervisor, Director, None None None R.O.C. (concurrent post) National Chengchi University Dept. Taichung Bank Insurance Brokers Co., Ltd.
Assistant VP, Senior Manager, Sinfong Branch; Department of Taiwan Business Chien-Hung Lin Male 2017/06/26 47,778 0.00 0 0 0 0 Taxation and Public Finance, National Chung Hsing None None None None R.O.C. Development Dept. University
Assistant VP, Loan Project Assistant Vice President, Northern Loan Taiwan Administration Rung-Kuo Cheng Male 2016/12/21 202,673 0.01 0 0 0 0 Administration Center, Loan Administration Dept., None None None None R.O.C. Dept. Dept. of Law, Soochow University
14 Spouse or kin within the Shares Held by Spouse & Shareholding under the second pillar under the Status of shareholding Dependents title of a third party Civil Code and who is a Election Positions with other manager Title Nationality Name Gender (Appointment) Major (academic degree) experience companies Date Ratio of Ratio of Ratio of Quantity Shareholding Quantity Shareholding Quantity Shareholding Title Name Relation % % %
Director, Rai Chia Assistant VP, Investment Co., Ltd.; Taiwan Deputy Manager, Human Resource Dept.; School of Human Resource Chung-Ping Yang Male 2012/07/02 29,714 0.00 0 0 0 0 Supervisor, Supervisor, None None None R.O.C. Chemistry, Stellenbosch University of South Africa Dept. Taichung Bank Insurance Brokers Co., Ltd.
Shareholder, Assistant VP, Taiwan Deputy function head of Finance Dept., Hao Liao Ltd.; Director, Chin-Min Liao Male 2017/03/01 140,424 0.00 0 0 0 0 None None None Accounting Dept. R.O.C. MBA Program, Chaoyang University of Technology Taichung Commercial Bank Securities Co., Ltd.
Director, Taichung Assistant VP, Taiwan Deputy Manager, Business Department; Department Chun-Sheng Lin Male 2013/01/25 358,312 0.01 35,317 0.00 0 0 Commercial Bank None None None Information Dept. R.O.C. of Information Science, Fengchia University Securities Co., Ltd.
Assistant VP, Vice President, Taichung Bank Leasing Co., Ltd.; Taiwan International Ya-Mei Chen Female 2015/03/13 24,605 0.00 0 0 0 0 Department of Banking, National Chengchi None None None None R.O.C. Banking Dept. University
Deputy function head of Accounting Dept.; Graduate Assistant VP, Taiwan Chien-Min Chou Male 2017/12/18 30,190 0.00 0 0 0 0 Institute of Industrial Management, National Cheng None None None None R.O.C. Trust Dept. Kung University
Assistant VP, Dept of Debt Collection Taiwan Senior Manager, Chungkung Branch; Department Yi-Pin Lin Male 2017/06/26 48,123 0.00 0 0 0 0 None None None None and Asset R.O.C. of Law, Fu Jen Catholic University Recovery
Assistant VP, Taiwan Asst Vice President, Chang An Branch, Shin Kong Consumer Banking Yao-Tien Lee Male 2016/03/25 0 0 0 0 0 0 None None None None TAICHUNG BANK2017 ANNUALREPORT R.O.C. Bank, Dept. of Economics, Tung Hai University. Department
Assistant VP of Treasury Taiwan Senior Deputy Manager, Cathay United Bank; Master Po-Mao Huang Male 2015/10/06 34,337 0.00 0 0 0 0 None None None None Marketing R.O.C. of Finance, Jinan University Department
Assistant VP, Taiwan Assistant VP, Lukang Branch; Department of Corporate Finance Shu-Chen Chen Female 2017/06/26 467,740 0.01 0 0 0 0 None None None None R.O.C. Accounting, National Cheng Kung University Dept.
Asst. Executive Vice Presidents, Taiwan Deputy Manager, International Business Dept.; MBA, Chih-Hung Lu Male 2012/12/17 6,422 0.00 0 0 0 0 None None None None Offshore Banking R.O.C. National Chengchi University Unit
Assistant VP, Legal Taiwan Tsung-Yi Liu Assistant VP, Legal & Compliance Department; & Compliance Male 2017/08/16 130,775 0.00 0 0 0 0 None None None None R.O.C. Department of Law, National Taiwan University Department (concurrent post)
Assistant VP, Risk Taiwan Deputy function head of Business Dept.; National Kuang-Chung Hsiao Male 2017/06/26 251,700 0.01 1,048 0.00 0 0 None None None None Management Dept. R.O.C. Taiwan University College of Management
Assistant VP, Taiwan Manager, Risk Management Department; Department Chen-Ying Wu Female 2015/03/13 140,540 0.00 0 0 0 0 Supervisor, Taichung None None None Treasury Dept. R.O.C. of Finance and Banking, National Taiwan University Commercial Bank 15 15 16 TAICHUNG BANK2017 ANNUALREPORT Spouse or kin within the Shares Held by Spouse & Shareholding under the second pillar under the Status of shareholding Dependents title of a third party Civil Code and who is a Election Positions with other manager Title Nationality Name Gender (Appointment) Major (academic degree) experience companies Date Ratio of Ratio of Ratio of Quantity Shareholding Quantity Shareholding Quantity Shareholding Title Name Relation % % % Securities Co., Ltd.
Assistant VP, Senior Manager, Taipei Fubon Bank; MBA of Taiwan Wealth Hsien-Chih Liu Female 2015/10/01 23,995 0.00 0 0 0 0 National Taiwan University of Science and None None None None R.O.C. Management Dept. Technology
Asst Vice President, Shin Kong Bank, Graduate Assistant VP, Taiwan Chih-Chi Chen Male 2016/03/21 0 0 0 0 0 0 Institute of Business Administration, Dayeh None None None None Business Dept. R.O.C. University
Senior Manager, Shalu Branch of Shin Kong Assistant VP, West Taiwan Hung-Ching Chu Male 2015/10/01 18,451 0.00 0 0 0 0 Commercial Bank Co., Ltd.; MBA of National Chung None None None None Taichung Branch R.O.C. Hsing University
Senior Manager, Taiwan Deputy Manager, Chungcheng Branch ; Department Chungcheng Chin-Pei Chen Male 2017/06/26 28,774 0.00 0 0 0 0 None None None None R.O.C. of Cooperative Economics, Feng Chia University Branch
Deputy Manager, Wealth Management Dept.; Assistant Manager, Taiwan Li-Chu Chen Female 2016/02/16 13,451 0.00 0 0 0 0 Taichung Institute of Technology, Banking and None None None None Hsitun Branch R.O.C. Insurance
Manager, Corporate Finance Dept. of Shin Kong Assistant VP, Taiwan Ming-Huang Lin Male 2016/03/14 0 0 0 0 0 0 Commercial Bank Co., Ltd.; Business Administration, None None None None Nantun Branch R.O.C. Taichung Commercial School
Assistant VP, Taiwan Manager, Minghsiung Branch; MBA of National Ching-Tang Tsai Male 2016/02/16 24,481 0.00 0 0 0 0 None None None None Neihsin Branch R.O.C. Changhua University of Education
Assistant VP, Tatu Taiwan Assistant VP, Shalu Branch; International Trade, Zai-Hong Yang Male 2016/02/16 54,547 0.00 0 0 0 0 None None None None Branch R.O.C. Tamsui Institute of Business Administration
Senior Manager, Taiwan Acting function head of Business Dept.; MBA of North Taiping Hung-Hsiang Wei Male 2017/06/26 40,151 0.00 0 0 0 0 None None None None R.O.C. National Chung Hsing University Branch
Assistant VP, Taiwan Manager, Longjing Branch; Business Taichungkang Kuo-Chin Chi Male 2015/09/14 193,022 0.01 6,255 0.00 0 0 None None None None R.O.C. Administration, Ling Tung College Branch
Assistant VP, Taiwan Deputy Manager, Chingshui Branch; International Yi-Lo Female 2016/07/18 0 0 0 0 0 0 None None None None Szumin Branch R.O.C. Trade, Taichung Commercial School
Assistant VP, Dept. of Debt Collection and Asset Cheng Assistant VP, Taiwan Assistant Cheng-Wen Ni Male 2017/06/28 23,395 0.00 0 0 0 0 Recovery; Department of Business None -Hsien Brothers Chungkung Branch R.O.C. VP Administration, Ling Tung College Ni
Deputy Manager, Taiping Branch; Applied Assistant VP, South Taiwan Wen-Hsin Chiu Male 2014/03/14 30,759 0.00 3,591 0.00 0 0 Foreign Language, Taichung Commercial School on None None None None Taichung Branch R.O.C. Continuing Education
Assistant VP, North Taiwan Assistant VP, Wufeng Branch; MBA, Institute of Chao-Chi Tseng Male 2017/06/26 25,505 0.00 146 0.00 0 0 None None None None Taichung Branch R.O.C. Health and Management
Assistant VP, Taiwan Chi-Hsien Lee Male 2015/03/13 709,645 0.02 17,666 0.00 0 0 Manager, Huatan Branch; MBA of National Chung None None None None
16 Spouse or kin within the Shares Held by Spouse & Shareholding under the second pillar under the Status of shareholding Dependents title of a third party Civil Code and who is a Election Positions with other manager Title Nationality Name Gender (Appointment) Major (academic degree) experience companies Date Ratio of Ratio of Ratio of Quantity Shareholding Quantity Shareholding Quantity Shareholding Title Name Relation % % % Taiping Branch R.O.C. Hsing University
Assistant VP, Houli Taiwan Manager, Taichungkang Branch; Business Hsin-Ru Kao Female 2015/09/14 287,171 0.01 0 0 0 0 None None None None Branch R.O.C. Administration, Taichung Commercial School
Assistant VP, Taya Taiwan Manager, Fengyuan Branch; Department of Statistics, Pao-Yuan Chen Male 2015/03/13 291,159 0.01 0 0 0 0 None None None None Branch R.O.C. Tung Hai University
Senior Manager, Taiwan Deputy Manager, Banking Development Dept., Dept. Chi-Hsing Yi Male 2016/12/21 0 0 0 0 0 0 None None None None Tantzu Branch R.O.C. of Finance and Banking, National Taipei University.
Assistant VP, Chingshui Branch; Department of Assistant VP, Taiwan Ming-Ren Hsu Male 2016/02/16 26,624 0.00 0 0 0 0 Insurance Management, Chao Yang University of None None None None Shengkang Branch R.O.C. Technology
Senior Assistant District Supervisory Senior Assistant Vice President, Taiwan Vice President, Tsung-Hsien Lee Male 2017/07/19 488,324 0.01 0 0 0 0 Marketing District V; Shin Min Commercial & None None None None R.O.C. Fengyuan Branch Industrial Vocational High School
Manager, Puli Branch Branch; Business Assistant VP, Taiwan Ming-Yu Chiu Male 2016/02/16 2,121 0.00 0 0 0 0 Administration, Taichung Commercial School on None None None None Tachia Branch R.O.C. Open education program
Assistant VP, Taiwan Manager, S. Fengyuan Branch; Department of Yung-Chang Lai Male 2016/03/14 41,461 0.00 1,308 0.00 0 0 None None None None Chingshui Branch R.O.C. Accounting, Feng Chia University
Assistant VP, Shalu Taiwan Assistant VP, Tachia Branch Branch; International Tung-Po Yang Male 2016/02/16 490,864 0.01 61,333 0.00 0 0 None None None None Branch R.O.C. Trade, Ling Tung College
Assistant VP, Risk Management Dept.; Graduate Assistant VP, Taiwan TAICHUNG BANK2017 ANNUALREPORT Yi-Ying Chung Female 2017/06/26 24,057 0.00 0 0 0 0 Institute of Accounting, National Chengchi None None None None Wufeng Branch R.O.C. University
Manager, Manager, West Taichung Branch; Assistant VP, Taiwan Tung-Hsu Liu Male 2018/01/05 1,115 0.00 0 0 0 0 International Trade, Accounting and Statistics, Tamsui None None None None Tungshih Branch R.O.C. Institute of Business Administration
Senior Manager, Tachia Branch of Shin Kong Assistant VP, East Taiwan Commercial Bank Co., Ltd.; Institute of Public Te-Chuan Wang Male 2015/10/12 18,451 0.00 0 0 0 0 None None None None Fengyuan Branch R.O.C. Affairs Management, National Sun Yat-sen University
Assistant VP, Taiwan Manager, Nanyang Branch; Finance, Taichung Chun-Chun Yu Female 2015/09/14 15,403 0.00 0 0 0 0 None None None None Wujih Branch R.O.C. Institute of Technology (Open Education Program)
Manager, Houli Branch; Department of Applied Assistant VP, Taiwan Pi-Hua Chang Female 2015/09/14 30,356 0.00 3,570 0.00 0 0 Commerce, Taichung Institute of Technology (Open None None None None Nanyang Branch R.O.C. Education Program)
Senior Manager, Taiwan Deputy Manager, Changhua Branch; MBA of Shih-Yuan Yeh Male 2016/12/21 0 0 0 0 0 0 None None None None Nanto Branch R.O.C. National Changhua University of Education
Assistant VP, Taiwan Manager, Shankong Branch; Department of Business Wen-Tung Yu Male 2016/08/10 202,358 0.01 0 0 0 0 None None None None Chushan Branch R.O.C. Administration, Feng Chia University
17 17 18 TAICHUNG BANK2017 ANNUALREPORT Spouse or kin within the Shares Held by Spouse & Shareholding under the second pillar under the Status of shareholding Dependents title of a third party Civil Code and who is a Election Positions with other manager Title Nationality Name Gender (Appointment) Major (academic degree) experience companies Date Ratio of Ratio of Ratio of Quantity Shareholding Quantity Shareholding Quantity Shareholding Title Name Relation % % %
Assistant VP, Puli Taiwan Senior Manager, Chushan Branch; Department of Shin-Hsiung Huang Male 2016/07/18 24,584 0.00 0 0 0 0 None None None None Branch R.O.C. International Trade, University of Chinese Culture.
Assistant VP, Taiwan Deputy Manager, Hsitun Branch; Institute of Business Hsiang-Lieh Huang Male 2016/02/16 343,822 0.01 120,232 0.00 0 0 None None None None Tsaotun Branch R.O.C. and Management, Chung Hua University
Manager, Corporate Finance Dept. of Shin Kong Assistant VP, Taiwan Commercial Bank Co., Ltd.; Graduate Institute of Shih-Chi Chang Male 2015/10/01 18,451 0.00 0 0 0 0 None None None None Changhua Branch R.O.C. Finance and Banking, National Yunlin University of Technology and Science
Assistant Taiwan Assistant VP, Hsiushui Branch; Department of Wei-Huang You Male 2017/06/26 24,357 0.00 0 0 0 0 None None None None VP, Lukang Branch R.O.C. Accounting, National Chung Hsing University
Assistant VP, Homei Branch; Department of Business Assistant VP, Taiwan Jui-Cheng Yang Male 2016/02/16 233,238 0.01 0 0 0 0 Administration, Mingshin University of Science and None None None None Hsihu Branch R.O.C. Technology
Manager, Shankong Branch; Enterprise Information Assistant VP, Taiwan Ming-Cheng Wu Male 2016/07/18 136,612 0.00 0 0 0 0 Management, Chung Chou Institute of Technology, None None None None Erhlin Branch R.O.C. Affiliated College of Continuing Education
Assistant VP, Pitou Taiwan Manager, Yuanlin Branch; Business, Holy Savior Hsin-Hsin Lee Female 2015/09/14 222,682 0.01 199,657 0.01 0 0 None None None None Branch R.O.C. High School
Senior Assistant Assistant VP, Trust Dept.; Department of Business Taiwan Vice President, Chung-Cheng Wu Male 2017/09/11 100,987 0.00 0 0 0 0 Administration, Tamsui Institute of Business None None None None R.O.C. Tienchung Branch Administration
Assistant VP, Taiwan Manager, Shin Kong Commercial Bank Co., Ltd.; Shih-Yi Hsiao Male 2015/09/16 18,451 0.00 0 0 0 0 None None None None Yuanlin Branch R.O.C. International Trade, Ling Tung College
Manager, Puhsin Branch; Applied Foreign Language, Assistant VP, Taiwan Chih-Hao Liang Male 2016/02/16 5,177 0.00 0 0 0 0 Taichung Commercial School on Continuing None None None None Homei Branch R.O.C. Education
Deputy Manager, Wujih Branch ; Department of Assistant VP, Taiwan Min-Hsuan Chiang . Male 2016/03/17 9,574 0.00 3,102 0.00 0 0 International Trade, Overseas Chinese College of None None None None Shetou Branch R.O.C. Commerce
Cheng Assistant VP, Taiwan Senior Manager, Nanto Branch; Department of Assistant Cheng-Hsien Ni Male 2016/12/21 24,525 0.00 0 0 0 0 None -Wen Brothers Huatan Branch R.O.C. Business Administration, Feng Chia University VP Ni
Assistant VP, Taiwan Senior Manager, Pitou Branch; Tourism Department, Yungchiung Shih-Huei Wang Male 2017/06/26 0 0 1,840 0.00 0 0 None None None None R.O.C. Tamsui Institute of Business Administration Branch
Senior Manager, North Taiping Branch; Department Assistant VP, Taiwan Chung-Rong Lin Male 2017/06/26 26,742 0.00 1,750 0.00 0 0 of Applied Commerce, Taichung Institute of None None None None Hsiushui Branch R.O.C. Technology (Open Education Program)
Assistant VP, Taiwan Assistant VP, Erhlin Branch; International Yu-Chen Yang Female 2016/07/18 44,553 0.00 20,674 0.00 0 0 None None None None Shankong Branch R.O.C. Trade, Ling Tung College
18 Spouse or kin within the Shares Held by Spouse & Shareholding under the second pillar under the Status of shareholding Dependents title of a third party Civil Code and who is a Election Positions with other manager Title Nationality Name Gender (Appointment) Major (academic degree) experience companies Date Ratio of Ratio of Ratio of Quantity Shareholding Quantity Shareholding Quantity Shareholding Title Name Relation % % %
Assistant VP, Taiwan Senior Manager, Tantzu Branch; Institute of Business Shareholder, Huan Lin Hui-Chin Lu Female 2016/12/21 2,882 0.00 0 0 0 0 None None None Tachu Branch R.O.C. and Management, Feng Chia University Sheng Co., Ltd.
Assistant VP, North Taiwan Deputy function head of Human Resources Dept.; Chih-Hua Yao Male 2017/06/26 336,901 0.01 0 0 0 0 None None None None Yuanlin Branch R.O.C. National Chung Hsing University
Assistant VP, Pitou Taiwan Manager, Yuanlin Branch; Department of Business Chun-Min Huang Male 2017/06/26 25,272 0.00 0 0 0 0 None None None None Branch R.O.C. Administration, National Chung Hsing University
Assistant VP, Tungshih Branch; Department of Assistant Taiwan Chang-Chi Liu Male 2018/01/05 299,575 0.01 730 0.00 0 0 Cooperative Economics, National Chung Hsing None None None None VP, Peitun Branch R.O.C. University
Assistant Taiwan Manager, Tsaotun Branch; Business Administration, Kuang-Chih Chen Male 2016/02/16 153,485 0.00 2 0.00 0 0 None None None None VP, Puhsin Branch R.O.C. Taitung Institute of Technology
Assistant VP, Shin Kong Commercial Bank Co., Ltd.; Assistant VP, Taiwan Yu-Hsien Shen Male 2015/10/01 0 0 0 0 0 0 Department of Taxation and Public Finance, Aletheia None None None None Taipei Branch R.O.C. University
Assistant Taiwan Deputy Manager, Tachu Branch ; MBA of National VP, Longjing Hui-Chen Chao Female 2015/09/14 152,936 0.00 0 0 0 0 None None None None R.O.C. Changhua University of Education Branch
Assistant VP, Shin Kong Commercial Bank Co., Ltd.; Assistant VP, Sung Taiwan Yung-Chiang Yu Male 2016/02/16 0 0 0 0 0 0 Graduate Institute of Industrial Economics, Tamkang None None None None Shan Branch R.O.C. University
Head of legal affairs and banking, Banqiao Branch, Assistant VP, San Taiwan Wen-Cheng Wang Male 2017/03/13 1,017 0.00 0 0 0 0 Bank SinoPac, Dept. of Economics, Chinese Culture None None None None
TAICHUNG BANK2017 ANNUALREPORT Chung Branch R.O.C. University.
Senior Manager, Kaohsiung-Pingtung Corporate Assistant VP, Taiwan Yao-Chi Wu Male 2017/03/01 0 0 0 0 0 0 Banking Center, Taipei Fubon Bank, Dept. of None None None None Kaohsiung Branch R.O.C. Business Administration, Soochow University.
Assistant VP, Lin Taiwan Deputy Manager, Tucheng Branch; Department of Yin-Ta Tsai Male 2013/01/25 26,883 0.00 0 0 0 0 None None None None ko Branch R.O.C. International Trade, Tamkang University
Assistant VP, Taiwan Deputy Manager, Shankong Branch; Department of Shun-Chi Ke Male 2017/06/26 140,907 0.00 148 0.00 0 0 None None None None Huwei Branch R.O.C. Commerce, National Open University
Assistant VP, Taiwan Deputy Manager, Tachia Branch; International Liu Chin-Shan Male 2015/09/14 11,880 0.00 0 0 0 0 None None None None Yuan Li Branch R.O.C. Trade, Ling Tung College
Assistant VP, Taiwan Deputy Manager, Yuan Li Branch; Department of Yu-Jui Liu Male 2015/09/14 23,974 0.00 5,823 0.00 0 0 None None None None Chu Nan Branch R.O.C. Accounting, Tung Hai University
Manager, Huwei Branch, Erhlin Branch; Bank Assistant VP, Taiwan Chen-Hsiang Male 2014/03/14 66,206 0.00 0 0 0 0 Management, Tamsui Institute of Business None None None None Dounan Branch R.O.C. Chuang Administration
Assistant VP, Sung Shan Branch; Business Assistant VP, Taiwan Jui-Chang Lee Male 2016/02/16 72,293 0.00 0 0 0 0 Administration, National Taipei Junior College of None None None None Neihu Branch R.O.C. Business on Air education program 19 19 20 TAICHUNG BANK2017 ANNUALREPORT Spouse or kin within the Shares Held by Spouse & Shareholding under the second pillar under the Status of shareholding Dependents title of a third party Civil Code and who is a Election Positions with other manager Title Nationality Name Gender (Appointment) Major (academic degree) experience companies Date Ratio of Ratio of Ratio of Quantity Shareholding Quantity Shareholding Quantity Shareholding Title Name Relation % % %
Assistant VP, Ban Taiwan Assistant VP, Shin Kong Commercial Bank Co., Ltd.; Liang-Wen Chiang Female 2015/10/12 20,520 0.00 0 0 0 0 None None None None Ciau Branch R.O.C. MBA of Tamkang University
Manager, Kaohsiung Branch; Graduate Institute of Assistant VP, Taiwan Chiang-Kai Liu Male 2015/03/16 112,701 0.00 0 0 0 0 Financial Operations, National Kaohsiung First None None None None Fongshan Branch R.O.C. University of Science and Technology
Assistant VP, Taiwan Manager, Tucheng Branch; Graduate School of Shu-Lan Huang Female 2016/02/16 4,436 0.00 0 0 0 0 None None None None Sinjhuang Branch R.O.C. Management, Yuan Ze University
Assistant Taiwan Manager, South Taichung Branch; Department of VP,Minsyong Huan-Chang Tseng Male 2016/03/14 4,998 0.00 0 0 0 0 None None None None R.O.C. Taxation and Public Finance, Feng Chia University Branch
Senior Manager, Shin Kong Commercial Bank Assistant VP, Taiwan Cheng-Ming Yang Male 2015/10/12 18,451 0.00 0 0 0 0 Co., Ltd.; Department of International Trade, Fu Jen None None None None Taoyuan Branch R.O.C. Catholic University
Senior Manager, Entie Commercial Bank, Ltd.; Assistant VP, Taiwan Chien-Chung Tseng Male 2016/08/10 0 0 0 0 0 0 Department of International Trade, Soochow None None None None Yongkang Branch R.O.C. University
Assistant VP, Taiwan Manager, Chu Nan Branch; Department of Cheng-Huan Huang Male 2015/09/14 204,023 0.01 16,814 0.00 0 0 None None None None Jhubei Branch R.O.C. Economics, Tung Hai University
Assistant VP, Trust Dept.; Graduate Institute of Assistant VP, Nan Taiwan Yu-Chung Lin Male 2017/06/26 87,409 0.00 0 0 0 0 Information Management, National Sun Yat-Sen None None None None Kang Branch R.O.C. University
Assistant VP, Taiwan Deputy Manager, Neili Branch; National Taiwan Hua-Hsing Wen Male 2014/11/11 87,397 0.00 62,868 0.00 0 0 None None None None Nei Li Branch R.O.C. University College of Management
Assistant VP, Shin Kong Commercial Bank Co., Ltd.; Assistant VP, Taiwan Chao-Ching Wu Male 2015/10/01 23,995 0.00 0 0 0 0 Graduate Institute of Technology Management, None None None None Hsinchu Branch R.O.C. National Chiao Tung University
Assistant VP, Taiwan Manager, Tayuan Branch; Graduate School of Yu-Hui Tseng Male 2015/09/14 23,043 0.00 0 0 0 0 None None None None Kueishan Branch R.O.C. Management, Yuan Ze University
Deputy Manager, Jhongli Branch; Department of Senior Manager, Taiwan Wen-Yi Kuan Male 2016/12/21 17,701 0.00 0 0 0 0 Business Administration, National Cheng Kung None None None None Jhongli Branch R.O.C. University
Senior Manager, Taiwan Deputy Manager, Hsinchu Branch; UC Riverside Hsiao-Mei Hsu Female 2017/03/22 1,034 0.00 0 0 0 0 None None None None Sinfong Branch R.O.C. MBA
Senior Manager, Taiwan Deputy Manager, Sinfong Branch; Department of Ching-Chung Li Male 2016/12/21 102,592 0.00 0 0 0 0 None None None None Tayuan Branch R.O.C. Business Administration, Feng Chia University
Manager, Jhongli Branch; Department of Applied Assistant VP, Taiwan Jr-Hsin Lee Male 2015/09/14 154,938 0.00 0 0 0 0 Business, Taipei Institute of Commerce and None None None None Yangmei Branch R.O.C. Technology
Assistant VP, Taiwan Hsin-Fa Wang Male 2017/06/26 992 0.00 0 0 0 0 Assistant VP, Nan Kang Branch; Graduate Institute of None None None None Tucheng Branch R.O.C. Management Science, National Chiao Tung
20 Spouse or kin within the Shares Held by Spouse & Shareholding under the second pillar under the Status of shareholding Dependents title of a third party Civil Code and who is a Election Positions with other manager Title Nationality Name Gender (Appointment) Major (academic degree) experience companies Date Ratio of Ratio of Ratio of Quantity Shareholding Quantity Shareholding Quantity Shareholding Title Name Relation % % % University
Manager, Business development Dept., Cathay Senior Manager,, Taiwan Fang-Yu Li Female 2017/03/01 0 0 0 0 0 0 United Bank; Takming University of Science and None None None None Fuxing Branch R.O.C. Technology, Banking and Insurance
Deputy Manager, Corporate Finance Dept.; Graduate Assistant VP, Taiwan Chi-Jen Chang Male 2016/02/16 19,017 0.00 0 0 0 0 Institute of Finance and Banking, Tamkang None None None None Zhongshan Branch R.O.C. University
Manager, Pizgzhen Branch; Department of Industrial Assistant VP, Taiwan Chien-Min Feng Male 2015/06/25 21,854 0.00 0 0 0 0 Management, National Taiwan University of Science None None None None Taitung Branch R.O.C. and Technology
Senior Manager, Yongkang Branch; Comprehensive Assistant VP, Taiwan Tsung-Hsien Lee Male 2016/07/25 26,211 0.00 0 0 0 0 Commerce Department, National Tainan Commercial None None None None Tainan Branch R.O.C. Vocational Senior High School
Deputy manager, Minhisung Branch, Department of Senior Manager, Taiwan Chia-Tse Wu Male 2017/10/24 3,081 0.00 0 0 0 0 Business Administration, Oakland Institute of None None None None Xinkang Branch R.O.C. Technology, New Zealand.
Senior Assistant District Supervisory Senior Assistant Vice President, Vice President, Taiwan Chun-Ying Wang Male 2017/07/19 568,956 0.02 0 0 0 0 Marketing District IV; Department of Technology None None None None Central Regional R.O.C. Management, Chung Hua University Center
Assistant VP, South Taiwan Assistant VP, Fengyuan Branch; Department of Kuo-Chi Lin Male 2017/07/19 435,262 0.01 9,952 0.00 0 0 None None None None Regional Center R.O.C. International Trade, Feng Chia University
TAICHUNG BANK2017 ANNUALREPORT Senior Assistant Vice President, Taiwan District Supervisory Senior Assistant Vice President, Li-Chin Ko Female 2017/07/19 5,000 0.00 0 0 0 0 None None None None North Regional R.O.C. Marketing District I; MBA, Chang Kung University Center
21 21 22 TAICHUNG BANK2017 ANNUALREPORT 3. Remuneration to Directors, President and Executive Vice Presidents, and allocation of remuneration to employees: (1) Remuneration to Directors (including independent directors) Unit: NTD thousand; %
Remuneration to Directors Remuneration in the capacity as employees The sum of A, B, The sum of A, B, C and C, D, E, F and G in D in proportion to Salaries, bonus and special Pension Remuneration (C) Pension Remuneration to employees (G) proportion to Remuneration Director fees (A) For services (D) Earnings subsidies (B) (Note 1) (F) (Note 1) Earnings paid to (E) directions from an Title Name invested All companies company other All All All All All All All The Bank mentioned in the than the companies All companies companies companies companies companies companies companies financial statements company’s The The mentioned The The The The The mentioned in the The mentioned mentioned in mentioned in mentioned in mentioned in mentioned in subsidiary Bank Bank in the Bank Bank Bank Bank Bank financial Bank in the the financial the financial the financial the financial the financial financial statements financial statements statements statements statements statements statements Cash Stock Cash Stock statements
Chin-Yuan Lai Chairman 4,080 4,080 - - - - 2,885 2,885 0.19 0.19 16,615 16,615 - - 90 - 90 - 0.65 0.65 - (Note 3)
Chun-Sheng Lee Chairman (Note 3) Kuei-Fong Wang Ming-Hsiung Huang, Jer-Shyong Tsai Managing Li-Woon Lim (Independent Director Director) Hsi-Rong Huang (independent director) (Note 3)
Independent Hsin-Chang Tsai, Jin-Yi Lee Director Chen-Le Liu (Note 3)
Te-Wei Chia, Ming-Shan Chuan 37,532 47,005 - - 14,855 14,855 3,585 3,935 1.54 1.81 3,129 3,129 ------1.63 1.90 16 Hsin-Ching Chang, Wei-Liang Lin Chien-Hui Huang, Ching-Tai Director Huang Meng-Liang Chang, Ching-Hsin Chang Shu-Yuan Lin, Yu-Chun Chen (Note 3) Pan Asia Chemical Corporation
Ho Yang Management Consultant Co., Ltd.
I Joung Investment Co., Ltd.
Hsu Tian Investment Co., Ltd. 4,560 4,560 - - 46,140 46,140 - - 1.40 1.40 ------1.40 1.40 -
Note 1: The remuneration to employee and directors are allocated according to the earnings allocation motion in the most recent year. The proportion of allocation this year is imputed based on the proportion of allocation in the most recent year. Note 2: The annual cost for driver service totaled NTD1,835 thousand. Note 3: The term of office for Chairman Chun-Sheng Lee expired on 2017.06.06; Executive Directors Jer-Shyong Tsai, Hsi-Rong Huang, Independent Director Chen-Le Liu, Directors Meng-Liang Chang, Ching-Hsin Chang, and Yu-Chun Chen were relieved on 2017.06.06. Director Shu-Yuan Lin was relieved on 2017.06.07; Chairman Chin-Yuan Lai, Executive Director Ming-Hsiung Huang, Independent Directors Hsin-Chang Tsai and Li-Woon Lim, and Director Te-Wei Chia assumed office on 2017.06.07. Director Ching-Tai Huang assumed office on 2017.06.08.
22 Classification of remuneration Unit:NTD
Name of Directors
Classification of remuneration paid to directors Total (A+B+C+D) Total (A+B+C+D+E+F+G) All companies mentioned in All companies mentioned in The Bank The Bank the financial statements the financial statements Te-Wei Chia, Ming-Hsiung Te-Wei Chia, Hsin-Chang Ming-Hsiung Huang, Hsin- Hsin-Chang Tsai, Li- Huang, Hsin-Chang Tsai, Li- Tsai, Li-Woon Lim, Jin- Chang Tsai, Li-Woon Lim, Woon Lim, Jin-Yi Lee, Ming- Woon Lim, Jin-Yi Lee, Ming- Yi Lee, Ming-Shan Chuang, Jin-Yi Lee, Ming-Shan Shan Chuang, Hsin-Ching Shan Chuang, Hsin-Ching Hsin-Ching Chang, Chien-Hui Chuang, Hsin-Ching Chang, Chang, Chien-Hui Huang, Chang, Wei-Liang Lin, Chien- Huang, Ching-Tai Huang, Wei-Liang Lin, Chien-Hui Ching-Tai Huang, Hsi-Rong Hui Huang, Ching-Tai Huang, Hsi-Rong Huang, Huang, Ching-Tai Huang, Hsi- Huang, Chen-Le Liu, Less than 2,000,000 Hsi-Rong Huang, Chen-Le Liu, Meng-Liang Rong Huang, Chen-Le Liu, Meng-Liang Chang, Ching- Chen-Le Liu, Meng-Liang Chang, Ching-Hsin Chang, Meng-Liang Chang, Ching- Hsin Chang, Shu-Yuan Lin, Chang, Ching-Hsin Chang, Shu-Yuan Lin, Yu-Chun Hsin Chang, Shu-Yuan Lin, Yu-Chun Chen, I Joung Shu-Yuan Lin, Yu-Chun Chen, I Joung Investment Yu-Chun Chen, I Joung Investment Co., Ltd. Chen, I Joung Investment Co., Ltd. Investment Co., Ltd. Co., Ltd. Ming-Hsiung Huang, Ming-Hsiung Huang, 2,000,000(inclusive) ~ 5,000,000 (exclusive) None Te-Wei Chia Wei-Liang Lin Wei-Liang Lin, Te-Wei Chia Jer-Shyong Tsai, Pan Asia Jer-Shyong Tsai, Pan Asia Jer-Shyong Tsai, Pan Asia Jer-Shyong Tsai, Pan Asia TAICHUNG BANK2017 ANNUALREPORT Investment Co., Ltd., Ho Yang Investment Co., Ltd., Ho Investment Co., Ltd., Ho Yang Investment Co., Ltd., Ho Yang 5,000,000(inclusive)~ 10,000,000 (exclusive) Management Consultant Yang Management Consultant Management Consultant Management Consultant Co., Ltd. Co., Ltd. Co., Ltd. Co., Ltd. Chun-Sheng Lee, Kuei-Fong Chun-Sheng Lee, Kuei-Fong Chun-Sheng Lee, Kuei-Fong Chun-Sheng Lee, Kuei-Fong 10,000,000(inclusive) ~ 15,000,000 (exclusive) Wang Wang Wang Wang
15,000,000(inclusive) ~ 30,000,000 (exclusive) None None None None
30,000,000(inclusive) ~ 50,000,000 (exclusive) None None None None
50,000,000(inclusive) ~ 100,000,000 (exclusive) None None None None
100,000,000 above None None None None
Total 22 persons 22 persons 22 persons 22 persons 23 23 24 TAICHUNG BANK2017 ANNUALREPORT (2) Remuneration to President and Executive Vice Presidents Unit: NTD thousand; % The sum of A, B, Number of new Bonus and special Remuneration to the Employee share Salaries Pension C and D in restricted Remuneration Disbursement employees (D) subscription (A) (B) proportion to employee shares paid to (C) (Note 1) warrants Earnings acquired directions All companies from an All All All All All All Title Name mentioned in invested companies companies companies The Bank companies companies companies the financial company The mentioned The mentioned The mentioned The mentioned The mentioned The mentioned statements other than the Bank in the Bank in the Bank in the Bank in the Bank in the Bank in the company’s financial financial financial financial financial financial Cash Stock subsidiary statements statements statements statements statements statements
President Chin-Yuan Lai (Note 4)
President Te-Wei Chia (Note 4)
Senior Vice President Ching-Tai Huang (Note 3)
Senior Vice President Hsueh-Hsuan Liao (Note 3)
Executive Vice President Kai-Yu Lin
Executive Vice President Yi-Yuan Tung 29,000 29,000 3,434 3,434 31,911 32,696 580 - 580 - 1.79 1.81 - - - - 3
Executive Vice President Cheng-Yuan Chen
Executive Vice President Kuo-Chun Liu (Note 4)
Executive Vice President Chi-Chuan Fang (Note 3)
Chief Auditor Ming-Chin Shen
Chief Compliance Officer Tsung-Yi Liu
Note 1: The remuneration to employee is allocated according to the earnings allocation motion in the most recent year. The proportion of allocation this year is imputed based on the proportion of allocation in the most recent year. Note 2: The annual cost for driver service totaled NTD860 thousand. Note 3: SVP Hsueh-Hsuan Liao and VP Chih-Chuan Fang retired on 2017.02.01. SVP Ching-Tai Huang resigned on 2017.06.16. Note 4: President Chin-Yuan Lai was appointed as the Chairman on 2017.06.07. VP Te-Wei Chia assumed office as the new President on 2017.07.05. VP Kuo-Chun Liu assumed office on 2017.06.26.
24 Classification of remuneration
Classification of Remuneration paid to presidents and Name of Presidents and Executive Vice Presidents Executive Vice Presidents The Bank All companies mentioned in the financial statements Less than 2,000,000 Kuo-Chun Liu, Chi-Chuan Fang Kuo-Chun Liu, Chi-Chuan Fang 2,000,000(inclusive) ~ 5,000,000 (exclusive) Yi-Yuan Tung, Cheng-Yuan Chen, Tsung-Yi Liu Cheng-Yuan Chen, Tsung-Yi Liu Te-Wei Chia, Ching-Tai Huang, Hsueh-Hsuan Liao, Kai-Yu Lin, Te-Wei Chia, Ching-Tai Huang, Hsueh-Hsuan Liao, Kai-Yu Lin, 5,000,000(inclusive)焍 10,000,000 (exclusive) Ming-Chin Shen Yi-Yuan Tung, Ming-Chin Shen 10,000,000(inclusive) ~ 15,000,000 (exclusive) None None 15,000,000(inclusive) ~ 30,000,000 (exclusive) Chin-Yuan Lai Chin-Yuan Lai 30,000,000(inclusive)~100,000,000 above None None Total 11 persons 11 persons TAICHUNG BANK2017 ANNUALREPORT 25 25 (3) Names of managers with remuneration as employees and the status of payment Unit: NTD thousand; % Total/after-tax Title Name Stock Cash Total profit Chin-Yuan Lai President (Note ) President Te-Wei Chia Senior Hsueh-Hsuan Liao Vice President Executive Kai-Yu Lin, Cheng-Yuan Chen, Yi-Yuan Tung, Chi- Vice President Chuan Fang, Kuo-Chun Liu Chief Auditor Ming-Chin Shen Chief Compliance Tsung-Yi Liu Officer Ching-hu Hsieh, Rung-Kuo Cheng, Chung-Ping Yang, Chin-Min Liao, Chun-Sheng Lin, Cheng-Wen Ni, Po- Mao Huang, Chien-Hung Lin, Yi-Ying Chung, Chen- Ying Wu, Hsien-Chih Liu, Yu-Chung Lin, Ya-Mei Chen, Chih-Hung Lu, Tsung-Hsien Lee, Chun-Ying Wang, Chung-Cheng Wu, Hung-Ching Chu, Chin-Pei Chen , Li-Chu Chen, Ching-Tang Tsai, Zai-Hong Yang, Chung-Rong Lin, Kuo-Chin Chi, Yi-Lo, Yi-Pin Lin, Wen-Hsin Chiu, Chih-Hua Yao, Chi-Hsien Lee, Hsin-Ru 0 3,582 3,582 0.10 Kao, Pao-Yuan Chen, Chi-Hsing Yi, Ming-Ren Hsu, Kuo-Chi Lin, Ming-Yu Chiu, Yung-Chang Lai, Tung-Po Yang, Chao-Chi Tseng, Chang-Chi Liu, Te-Chuan Wang, Chun-Chun Yu, Pi-Hua Chang, Shih-Yuan Yeh, Wen- Various Tung Yu, Shin-Hsiung Huang, Hsiang-Lieh Huang, departments and Shih-Chi Chang, Shu-Chen Chen, Jui-Cheng Yang, branches Ming-Cheng Wu, Hsin-Hsin Lee, Shun-Chi Ke, Shih-Yi Institutional Hsiao, Chih-Hao Liang, Min-Hsuan Chiang, Cheng- Manager Hsien Ni, Tung-Hsu Liu, Wei-Huang You, Yu-Chen Yang, Hui-Chin Lu, Chun-Min Huang, Shih-Huei Wang, Ching-Kun Lin, Kuang-Chih Chen, Yu-Hsien Shen, Hui- Chen Chao, Yin-Ta Tsai, Chia-Tse Wu, Liu Chin-Shan, Yu-Jui Liu, Chen-Hsiang Chuang, Jui- Chang Lee, Liang-Wen Chiang, Chiang-Kai Liu, Shu-Lan Huang, Huan-Chang Tseng, Cheng-Ming Yang, Cheng-Huan Huang, Hsin-Fa Wang, Hua-Hsing Wen, Chao-Ching Wu, Yu-Hui Tseng, Wen-Yi Kuan, Ching- Chung Li, Jr-Hsin Lee, Hsiao-Mei Hsu, Chi-Jen Chang, Chien-Min Feng, Tsung-Hsien Lee, Chien-Min Chou, Kuang-Chung Hsiao, Hung-Hsiang Wei, Yung-Chiang Yu, Ming-Huang Lin, Chih-Chi Chen, Yao-Tien Li, Li- Chin Ko, Chien-Chung Tseng Note : President Chin-Yuan Lai was appointed as the Chairman on 2017.06.07.
(4) Compare and analyze the total remuneration to the Directors, President, and Vice Presidents of the Bank and all companies included in the consolidated statements in the last 2 years in proportion to the corporate earnings, and specify the policy, standard, combination, decision-making process of remuneration and its association with operation performance:
26
26 TAICHUNG BANK 2017 ANNUAL REPORT 1. Analysis on Proportion to Earnings Unit: NTD thousand; % 2017 2016 All companies All companies contained in the contained in the The Bank consolidated The Bank consolidated financial financial statements statements Director 113,637 123,460 126,908 137,062 President/Executive 64,925 65,710 60,067 60,939 Vice Presidents Total 178,562 189,170 186,975 198,001 Total/after-tax profit 4.92 5.21 5.32 5.63 Note: The remuneration to directors less the salary received by President for assuming employees concurrently.
2. The compensation policy, standard, combination of compensation items, and codify the procedures of compensation determination and the linkage between compensation: (1) The remuneration to the Directors are regulated by Article 27-1 of the Articles of Incorporation of TCB, “The remuneration to the Chairman, Vice Chairman, in-house Executive Directors and Independent Directors shall be determined by the Board under authorization with reference to industry standards”. Independent Directors are not eligible for our bank’s earnings distribution. Our bank may pay for liability insurance policies that cover the liabilities for damages as defined by statutes or court ruling within the scope of the business of Directors. Article 35, “If there is a profit, the Bank shall appropriate 0.5% to 3% as remuneration to the employees. The Board shall determine if stock or cash shall be released for such purpose. In addition, the Bank may allocate no more than 1.5% of the aforementioned amount as remuneration to the Directors and Supervisors.” The Remuneration Committee shall propose the remuneration to Directors and Supervisors and present to the Board for resolution and to the Shareholders’ Meeting for ratification. (2) The remuneration to the President and the Vice Presidents shall commensurate with their individual professional standing and experience with reference to industry standard subject to the review of the Remuneration Committee and the final approval of the Board. Further to the fixed monthly salaries, a performance bonus and special bonus will be released based on the overall operation performance of the year in accordance with the regulation governing rewards to the employees. For linking with possible risk in the future, the performance bonus of personnel at the level of department head or higher shall be retained in part for deferred payment pending on no involvement of misconduct in business operation and no violation of law that may cause significant loss and risk to the Bank.
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TAICHUNG BANK 2017 ANNUAL REPORT 27 4. Status of Corporate Governance (1) The function of the Board The Board called 10 (A) meetings in 2017. The attendance of directors is specified as follows: Actual number Attend through Attendance rate Title Name of attendance Remarks proxy (B/A) (%) (B) 2017.6.7 Elected as Chin-Yuan Lai Chairman in the Chairman [Representative of Hsu Tian 10 0 100 Managing Directors Investment Co., Ltd.] Meeting. Kuei-Fong Wang Vice Chairman [Representative of Hsu Tian 9 1 90 Investment Co., Ltd.] 2017.6.7 - Election Ming-Hsiung Huang held in the regular Managing [Representative of Hsu Tian 7 0 100 session of the Director Investment Co., Ltd.] Shareholders’ Meeting 2017.6.7 - Election Managing held in the regular Director Li-Woon Lim 7 0 100 session of the (Independent Shareholders’ director) Meeting Independent Jin-Yi Lee 8 2 80 director 2017.6.7 - Election held in the regular Independent Hsin-Chang Tsai 6 0 85.71 session of the director Shareholders’ Meeting 2017.6.7 - Chun- Sheng Lee resigned, Te-Wei Chia Te-Wei Chia was Director [Representative of Hsu Tian 6 1 85.71 appointed as the Investment Co., Ltd.] new representative of Hsu Tian Investment Co., Ltd. Hsin-Ching Chang Director [Representative of Hsu Tian 10 0 100 Investment Co., Ltd.] Wei-Liang Lin Director [Representative of Hsu Tian 10 0 100 Investment Co., Ltd.] 2017.6.8 - Hsu Tian Ching-Tai Huang Investment Co., Ltd. Director [Representative of Hsu Tian 6 0 100 appointed Ching-Tai Investment Co., Ltd.] Huang as the representative Ming-Shan Chuang Director (Representative of Pan Asia 10 0 100 Chemical Corporation) Chien-Hui Huang (Representative of Ho Yang Director 9 1 90 Management Consultant Co., Ltd.) 2017.6.7 resigned, Hsu Tian Chun-Sheng Lee Former Investment Co., Ltd. [Representative of Hsu Tian 3 0 100 Chairman appointed Te-Wei Investment Co., Ltd.] Chia as the representative 2017.6.7 - Election Former Jer-Shyong Tsai of a new Board by Executive [Representative of Hsu Tian 3 0 100 Shareholders’ Director Investment Co., Ltd.] Meeting in a regular
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28 TAICHUNG BANK 2017 ANNUAL REPORT Actual number Attend through Attendance rate Title Name of attendance Remarks proxy (B/A) (%) (B) session, and relieved from office 2017.6.7 - Election Former of a new Board by Executive Shareholders’ Director Hsi-Rong Huang 3 0 100 Meeting in a regular (Independent session, and relieved Director) from office 2017.6.7 - Election of a new Board by Former Shareholders’ Independent Chen-Le Liu 3 0 100 Meeting in a regular Director session, and relieved from office 2017.6.7 - Election of a new Board by Ching-Hsin Chang Former Shareholders’ (Representative of I Joung 3 0 100 Director Meeting in a regular Investment Co., Ltd.) session, and relieved from office 2017.6.7 - Election of a new Board by Meng-Liang Chang Former Shareholders’ (Representative of Pan Asia 2 1 66.67 Director Meeting in a regular Chemical Corporation) session, and relieved from office 2017.6.8 - Hsu Tian Shu-Yuan Lin Investment Co., Ltd. Former [Representative of Hsu Tian 4 0 100 appointed Ching-Tai Director Investment Co., Ltd.] Huang as the representative 2017.6.7 - Election Yu-Chun Chen of a new Board by Former (Representative of Ho Yang Shareholders’ 3 0 100 Director Management Consultant Meeting in a regular Co., Ltd.) session, and relieved from office 1. Other notes: (1) If any of the following is applied to the operation of the Board, specify the date and the session, the content of the motions, the opinions of all Independent Directors, and how the Company handled the opinions of the Independent Directors: 1. The content of the particulars inscribed in Article14-3 of the Securities and Exchange Act. (1) 2017.3.16 – the 23rd session of the 22nd term of the Board with point of discussion on “the proposal for the distribution of earnings in 2016”: no opinion from all the Independent Directors. (2) 2017.3.16 – the 23rd session of the 22nd term of the Board with point of discussion on “the appointment of certified public accountants as external auditors and remunerations for 2017”: no opinion from all the Independent Directors. (3) 2017.3.16 – the 23rd session of the 22nd term of the Board with point of discussion on “Capitalization of retained earnings in 2016 into new shares”: no opinion from all the Independent Directors. (4) 2017.3.16 – the 23rd session of the 22nd term of the Board with point of discussion on “the amendment to the Procedure for the Acquisition and Disposition of Assets of the Bank”: no opinion from all the Independent Directors. (5) 2017.4.20 – the 24th session of the 22nd term of the Board with point of discussion on “the nomination of the candidates to the seats of Independent Directors for the 23rd term of the Board by shareholders holding more than 1% of the outstanding shares issued by the Bank”: no opinion from all the Independent Directors. (6) 2017.5.4 – the 25th session of the 22nd term of the Board with point of discussion on “the amendment to the internal control system regulations for the share registration function of the Bank”: no opinion from all the Independent Directors. (7) 2017.5.4 – the 25th session of the 22nd term of the Board with point of discussion on “the amendment to part of the provisions in the internal control procedures regulations of the Bank”: no opinion from all the Independent Directors. (8) 2017.5.4 – the 25th session of the 22nd term of the Board with point of discussion on “lending of Taichung Commercial Bank (person in charge: Shu-Yuan Lin)”: no opinion from all the Independent Directors. (9) 2017.6.7 – the 1st special session for the 23rd term of the Board with point of discussion on “the appointment of the members to the 3rd term of the Remuneration Committee”: no opinion from all the Independent Directors. (10) 2017.6.15 – the 1st session of the 23rd term of the Board with point of discussion on “the appointment of the President”: no opinion from all the Independent Directors. (11) 2017.6.15 – the 1st session of the 23rd term of the Board with point of discussion on “decision of the remuneration to the Chairman”: no opinion from all the Independent Directors. (12) 2017.6.15 – the 1st session of the 23rd term of the Board with point of discussion on “decision of the remuneration to 29
TAICHUNG BANK 2017 ANNUAL REPORT 29 Actual number Attend through Attendance rate Title Name of attendance Remarks proxy (B/A) (%) (B) the Vice Chairman”: no opinion from all the Independent Directors. (13) 2017.6.15 – the 1st session of the 23rd term of the Board with point of discussion on “decision of the remuneration to the Independent Directors”: no opinion from all the Independent Directors. (14) 2017.7.13 – the 2nd session of the 23rd term of the Board with point of discussion on “the appointment of the Chief Auditor”: no opinion from all the Independent Directors. (15) 2017.7.13 – the 2nd session of the 23rd term of the Board with point of discussion on “decision of remuneration to the resident Executive Director”: no opinion from all the Independent Directors. (16) 2017.8.10 – the 3rd session of the 23rd term of the Board with point of discussion on “the amendment to the procedures and points of control of the internal control system for insurance trust business under special money trusts of TCB”: no opinion from all the Independent Directors. (17) 2017.8.10 – the 3rd session of the 23rd term of the Board with point of discussion on “the amendment to the standard operation procedures of the internal control system for the share registration function of TCB”: no opinion from all the Independent Directors. (18) 2017.9.7 – the 4th session of the 23rd term of the Board with point of discussion on “the activation of all idle assets – the subject matter of the former Xiang Shang Branch”: no opinion from all the Independent Directors. (19) 2017.11.2 – the 5th session of the 23rd term of the Board with point of discussion on “the Guidelines for the 3 Lines of Defense in Internal Control of TCB”: no opinion from all the Independent Directors. (20) 2017.11.2 – the 5th session of the 23rd term of the Board with point of discussion on “the motion of the split up of the return on the sale of insurance products in joint marketing with Taichung Bank Insurance Brokers Co., Ltd.”: Taichung Bank Insurance Brokers Co., Ltd. (21) 2017.11.2 – the 5th session of the 23rd term of the Board with point of discussion on “Taichung Commercial Bank Securities Co., Ltd. in leasing the part of the office space in Min Zu Building of the Bank for adjustment and application for the expansion of the original site for non-commercial use”: Taichung Bank Insurance Brokers Co., Ltd. (22) 2017.11.2 – the 5th session of the 23rd term of the Board with point of discussion on “the application of Taichung Bank Leasing Co., Ltd. for the renewal of the lease for the office space at 2 F, Min Zu Building of TCB”: Taichung Bank Insurance Brokers Co., Ltd. (23) 2017.12.14 – the 6th session of the 23rd term of the Board with point of discussion on “the amendment to the operation of the special money trust of the Bank – standard operation procedures for the internal control system of evaluation, reward and punishment, and the points of control”: Taichung Bank Insurance Brokers Co., Ltd. (24) 2017.12.14 – the 6th session of the 23rd term of the Board with point of discussion on “the standard of bonus payment to the deposit accounts of the customers of Taichung Commercial Bank Securities Co., Ltd.”: Taichung Bank Insurance Brokers Co., Ltd. (2) Except for the aforementioned matters, the resolutions reached by the Board of Directors with the objections or reservations of the independent directors documented or declared in writing: None. 2. The avoidance of the conflict of interest by the Directors on related motions, specify the names of the Directors, the content of the motions, the principle of the avoidance of the conflict of interest, and the participation in casting the ballots: (1) 2017.04.20 - the 24th session of the 22nd term of the Board with point of discussion on “the shareholders each holding more than 1% of the outstanding shares of the Bank nominated the candidates for the seats of the 23rd term of independent directors of the Bank”. Independent Director Hsi-Rong Huang, Independent Director Chen-Le Liu, and Independent Director Jin-Yi Lee were excused from discussion of the aforementioned motion to avoid conflict of interest. Other Directors in the meeting passed the motion as stated. (2) 2017.5.4 - the 25th session of the 22nd term of the Board with point of discussion on “The Financing of TC Bank Securities Co., Ltd. (Deputy Agent: Shu-Yuan Lin)”, except for the Director, Shu-Yuan Lin, abstained from attending the discussion, the motion was resolved by the attending directors. (3) 2017.6.7 - the 1st special session of the 23rd term of the Board with point of discussion on “the appointment of the members of the 3rd term of the Remuneration Committee of the Bank”. Independent Director Li-Woon Lim and Independent Director Hsin-Chang Tsai, were excused from discussion of the aforementioned motion to avoid conflict of interest. Other Directors in the meeting passed the motion as stated. (4) 2017.6.15 - the 1st session of the 23rd term of the Board with point of discussion on “the appointment of the General Manager of the Bank”. Director Te-Wei Chia was excused from the discussion of the aforementioned motion to avoid conflict of interest. Other Directors in the meeting passed the motion as stated. (5) 2017.6.15 - the 1st session of the 23rd term of the Board with point of discussion on “determination of the remuneration to the Chairman”. Chairman Chin-Yuan Lai was excused from the discussion of the aforementioned motion to avoid conflict of interest. Other Directors in the meeting passed the motion as stated. (6) 2017.6.15 - the 1st session of the 23rd term of the Board with point of discussion on “determination of the remuneration to the Vice Chairman”. Vice Chairman Kuei-Fong Wang was excused from the discussion of the aforementioned motion to avoid conflict of interest. Other Directors in the meeting passed the motion as stated. (7) 2017.6.15 - the 1st session of the 23rd term of the Board with point of discussion on “determination of the remuneration to the Independent Directors”. Independent Director Li-Woon Lim was excused from the discussion of the aforementioned motion to avoid conflict of interest. Other Directors in the meeting passed the motion as stated. (8) 2017.7.13 - the 2nd session of the 23rd term of the Board with point of discussion on “determination of the remuneration to the Executive Director”. Executive Director Ming-Hsiung Huang was excused from the discussion of the aforementioned motion to avoid conflict of interest. Other Directors in the meeting passed the motion as stated. (9) 2017.11.2 - the 5th session of the 23rd term of the Board with point of discussion on “proposal for the sharing of return on joint marketing of insurance products between the Bank and TCB Insurance Brokerage Co., Ltd”. Vice Chairman Kuei- Fong Wang was excused from the discussion of the aforementioned motion to avoid conflict of interest. Other Directors 30
30 TAICHUNG BANK 2017 ANNUAL REPORT Actual number Attend through Attendance rate Title Name of attendance Remarks proxy (B/A) (%) (B) in the meeting passed the motion as stated. (10) 2017.11.2 – the 5th session of the 23rd term of the Board with point of discussion on “Taichung Commercial Bank Securities Co., Ltd. in leasing the part of the office space in Min Zu Building of the Bank for adjustment and application for the expansion of the original site for non-commercial use”, Director Ching-Tai Huang voluntarily recused from the discussion and the motion was passed as stated by all other Directors in the session in common consent. (11) 2017.11.2 – the 5th session of the 23rd term of the Board with point of discussion on “the application of Taichung Bank Leasing Co., Ltd. for the renewal of the lease for the office space at 2 F, Min Zu Building of TCB”, Director Wei-Liang Lin voluntarily recused from discussion and the motion was passed by all other Directors as stated in the session in common consent. (12) 2017.12.14 - the 6th session of the 23rd term of the Board with point of discussion on “in the matter of setting the payment standard as a bonus for deposit customers of TCB Securities by TCB”, Director Ching-Tai Huang was excused from the discussion to avoid a conflict of interest, the others in the session voted in favor of the motion as presented. 3. The objective for fortifying the function of the Board in the current period and the most recent period (e.g. the establishment of the Auditing Committee, and the upgrade of transparency in information) and the evaluation of the state of accomplishment: the Bank established its Parliamentary Procedure for its Board of Directors in accordance with the “Regulations Governing the Procedures of Board Meetings of Public Companies” as the guideline and has disclosed the information on the attendance of the Directors to the meetings at MOPS. There are 3 seats of Independent Directors and an Auditing Committee established at TCB. Note 1: For institutional Directors and Supervisors, disclose the names and the representative of institutional shareholders. Note 2: (1) Where a specific director or supervisor may be relieved from duties before the end of the fiscal year, specify their date of discharge. Their attendance (%) to Board session shall be calculated on the basis of the actual number of sessions held and the number of sessions they attended. (2) Where an election may be held for filling the vacancies of director or supervisor before the end of the fiscal year, list out both the new and the discharged directors and supervisors, and specify if they are the former director or supervisor, or newly elected, re-elected and the date of the election. Their attendance (%) at the Board session shall be calculated on the basis of the actual number of sessions held and the number of sessions they attended.
(2) The function of Audit Committee The Auditing Committee convened for 8 times (A) in FY2017. The attendance of the independent directors is shown below: Actual number of Attend through Attendance rate (%) Title Name Remarks attendance (B) proxy (B/A) 2017.6.7 - Election of a Independent new Board by Managing Hsi-Rong Huang 2 0 100 Shareholders’ Meeting Director in a regular session, and relieved from office 2017.6.7 - Election of a new Board by Independent Chen-Le Liu 2 0 100 Shareholders’ Meeting director in a regular session, and relieved from office Independent Jin-Yi Lee 7 1 87.5 director 2017.6.7 - Election held Independent in the regular session of Hsin-Chang Tsai 6 0 100 director the Shareholders’ Meeting 2017.6.7 - Election held Independent in the regular session of Managing Li-Woon Lim 6 0 100 the Shareholders’ Director Meeting
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TAICHUNG BANK 2017 ANNUAL REPORT 31 Other notes: 1. For the operation of the Audit Committee in any of the following circumstances, please specify the date, term, the contents of the proposals, the resolution of the Audit Committee, and the process of the opinions proposed by the Audit Committee: (1) The content of the particulars inscribed in Article14-5 of the Securities and Exchange Act: Opinions of the Session of the Issues and materiality that required the consent Date of Auditing Independent date of Board the term of Auditing of the Auditing Committee pursuant to Article Resolution Committee Directors and meeting the Board Committee 14-5 of the Securities and Exchange Act. responses 23rd session 22nd session of Common consent for of the 22nd 2017.3.9 the 1st term of Proposal for distribution of earnings in 2016 No objection 2017.3.16 forwarding to the Board term of the the Board Board 23rd session 22nd session of Compilation of the individual and consolidated Common consent for of the 22nd 2017.3.9 the 1st term of No objection 2017.3.16 financial statements of the Bank in 2016. forwarding to the Board term of the the Board Board 23rd session 22nd session of The appointment of certified public accountants Common consent for of the 22nd 2017.3.9 the 1st term of No objection 2017.3.16 as external auditors and remuneration in 2017. forwarding to the Board term of the the Board Board 23rd session 22nd session of Capitalization of retained earnings into new Common consent for of the 22nd 2017.3.9 the 1st term of No objection 2017.3.16 shares in 2016 forwarding to the Board term of the the Board Board 23rd session 22nd session of The issuance of the declaration of internal Common consent for of the 22nd 2017.3.9 the 1st term of No objection 2017.3.16 control of the Bank in 2016 forwarding to the Board term of the the Board Board 23rd session 22nd session of Common consent for of the 22nd 2017.3.9 the 1st term of Business Report in 2016 No objection 2017.3.16 forwarding to the Board term of the the Board Board 23rd session 22nd session of Amendment to the “Procedure for the Common consent for of the 22nd 2017.3.9 the 1st term of No objection 2017.3.16 Acquisition and Disposition of Assets of TCB” forwarding to the Board term of the the Board Board 25th session 23rd session of Amendment to the “standard operation Common consent for of the 22nd 2017.5.3 the 1st term of procedures of the internal control system for No objection 2017.5.4 forwarding to the Board term of the the Board the share registration function of TCB” Board 25th session 23rd session of Amendment to the “Regulations Governing the Common consent for of the 22nd 2017.5.3 the 1st term of Implementation of the Internal Control System No objection 2017.5.4 forwarding to the Board term of the the Board of TCB” Board 25th session 23rd session of Amendment to part of the provisions in Common consent for of the 22nd 2017.5.3 the 1st term of “Standard Operation Procedures of the Internal No objection 2017.5.4 forwarding to the Board term of the the Board Control System of TCB”. Board 2nd session 1st session of Common consent for of the 23rd 2017.6.15 the 2nd term of Appointment of the Chief Auditor of the Bank No objection 2017.7.13 forwarding to the Board term of the the Board Board In responding to the opinions prescribed by 2nd session 2nd session of FSC in the general examination in 2016 for Common consent for of the 23rd 2017.7.12 the 2nd term of No objection 2017.7.13 improvement, the Bank planned to institute the forwarding to the Board term of the the Board “Pricing Policy of Derivatives” of the Bank. Board 3rd session 3rd session of Amendment to the “standard operation Common consent for of the 23rd 2017.8.8 the 2nd term of procedures of the internal control system for No objection 2017.8.10 forwarding to the Board term of the the Board the share registration function of TCB. Board 3rd session 3rd session of Compilation of the individual and consolidated Common consent for of the 23rd 2017.8.8 the 2nd term of No objection 2017.8.10 financial statements of the Bank in Q2 2017. forwarding to the Board term of the the Board Board 3rd session 3rd session of Amendment to the “Regulations Governing the Common consent for of the 23rd 2017.8.8 the 2nd term of No objection 2017.8.10 Derivatives of Customers”. forwarding to the Board term of the the Board Board The amendment to the procedures and points of 3rd session 3rd session of control of the internal control system for Common consent for of the 23rd 2017.8.8 the 2nd term of No objection 2017.8.10 insurance trust business under special money forwarding to the Board term of the the Board trusts of the Bank. Board 3rd session 3rd session of Amendment to “Standard Operation Procedure Common consent for of the 23rd 2017.8.8 the 2nd term of No objection 2017.8.10 of Wealth Management Operation of TCB”. forwarding to the Board term of the the Board Board 4th session 4th session of Amendment to the “Regulations Governing Common consent for of the 23rd 2017.9.6 the 2nd term of No objection 2017.9.7 Structured Products of TCB”. forwarding to the Board term of the the Board Board 1. Common consent on 4th session 4th session of forwarding to the Board Agreed to sell Activation of idle assets – the subject matters of of the 23rd 2017.9.6 the 2nd term of 2. The bottom price shall be the subject 2017.9.7 the former Xiang Shang Branch. term of the the Board subject to discussion of the matter Board Board. 32
32 TAICHUNG BANK 2017 ANNUAL REPORT In the matter of Taichung Commercial Bank 1. Information on Appendix 2 to 5th session 5th session of Securities Co., Ltd. in leasing the part of the amendment of the 23rd 2017.10.26 the 2nd term of office space in Min Zu Building of the Bank for No objection 2017.11.2 2. Common consent for term of the the Board adjustment and application for the expansion of forwarding to the Board Board the original site for non-commercial use. In the matter of the application of Taichung 5th session 5th session of Bank Leasing Co., Ltd. in the renewal of the Common consent for of the 23rd 2017.10.26 the 2nd term of No objection 2017.11.2 lease of office space at 2F of Min Zu Building forwarding to the Board term of the the Board of TCB. Board Amendment to the “Regulations for the Management of the Financial Examination 5th session 5th session of Report of the Competent Authority of TCB”, Common consent for of the 23rd 2017.10.26 the 2nd term of “Regulations Governing the Implementation of No objection 2017.11.2 forwarding to the Board term of the the Board Internal Audit System of TCB”, and the Board “Regulations Governing the Implementation of the Self-Assessment System of TCB”. 5th session 5th session of Amendment to the “Regulations Governing the Common consent for of the 23rd 2017.10.26 the 2nd term of No objection 2017.11.2 Management of Risk of Derivatives of TCB”. forwarding to the Board term of the the Board Board 5th session 5th session of The institution of the “Guidelines of the 3 Lines Common consent for of the 23rd 2017.10.26 the 2nd term of of Defense in Internal Control System of TCB” No objection 2017.11.2 forwarding to the Board term of the the Board (hereinafter referred to as “the Guidelines”). Board Amendment to the “Regulations Governing the 5th session 5th session of Goodness of Fit for Derivatives” in response to Common consent for of the 23rd 2017.10.26 the 2nd term of the “Regulations Governing the Internal No objection 2017.11.2 forwarding to the Board term of the the Board Operation System and Procedures of Banks in Board Offering Financial Derivatives”. 6th session 6th session of the Bank appropriated the bonus reserve for the Common consent for of the 23rd 2017.12.12 the 2nd term of deposit of customers from Taichung No objection 2017.12.14 forwarding to the Board term of the the Board Commercial Bank Securities Co., Ltd. Board 6th session 6th session of Common consent for of the 23rd 2017.12.12 the 2nd term of Map out the 2018 Internal Audit Plan No objection 2017.12.14 forwarding to the Board term of the the Board Board Amendment to the “Special Money Trust” – “Investment in Offshore Structured Products” 6th session 6th session of and the addition of “Human Resources Common consent for of the 23rd 2017.12.12 the 2nd term of Management Cycle” – “Performance No objection 2017.12.14 forwarding to the Board term of the the Board Evaluation, Reward and Punishment” as an Board integral part of the operation procedures and points of control in the internal control system. (II) In addition to the aforementioned motions, other motions without approval by the Auditing Committee but passed by the Board with 2/3 of the Directors: None. 2. The avoidance of the conflict of interest by the Independent Directors on related motions, specify the names of the Independent Directors, the content of the motions, the principle of the avoidance of the conflict of interest, and the participation in casting the ballots: None. 3. Communication between Independent Directors and internal audit officers and CPA: (1) The Chief Internal Auditor of the Bank liaises with the members of the Auditing Committee on the audit findings regularly, and present audit reports in the quarterly meeting of the Auditing Committee. In case of special situation, report to the members of the Auditing Committee. No such event occurred in FY2017 and communication with the Chief Internal Auditor is positive. (2) The certified public accountants commissioned as external auditors of the Bank report to the Auditing Committee on the audit opinions or results of the interim and annual financial reports on current period semi-annually and annually. Is there any materiality that worth the attention of the Bank in the audit period as compared with the previous period, such as the change in the quality of assets showing signs of impairment with objective evidence, the analysis of aging account receivables, and evaluation of financial assets? Is there any proper communication with the Auditing Committee on their review of financial statements for fair presentation?
(3) Items to be disclosed according to the Corporate Governance Best-Practice Principles for the Banking Industry Please refer to the Bank’s website (www.tcbbank.com.tw) About Taichung Bank → Disclosure of Information → Information to be Disclosed under Laws
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TAICHUNG BANK 2017 ANNUAL REPORT 33 (4) Status of Corporate Governance as required for banks, and any nonconformity to the Corporate Governance Best-Practice Principles for Banking Industry and reasons thereof Implementation Status Deviation from the Corporate Governance Items for evaluation Yes No Summary Best-Practice Princip les for the Banking Industry and reasons 1. Equity structure and shareholders’ equity (1) Has the Bank instituted an internal 9 The spokesman liaison hotline is in place and announced on the official Currently, all the procedure for handling recommendations, website of the Bank. This function solely aims at share registration and suggestions, queries, queries, disputes of the shareholders and services to shareholders including responding to the suggestions and disputes and legal legal actions, and comply with the the queries of the shareholders and related matters. actions of the procedure properly? shareholders are handled by this designated body. Yet, there is no formal operation procedure established for this purpose.
(2) Has the Bank kept track on the dominant 9 The Bank shall keep track on the change in equity shares or pledge of No difference shareholders of the Bank and the parties equity shares under lien by shareholders holding more than 5% of the controlling these shareholders? stakes and shareholders who are also directors of the Bank, and shall disclose the update information in “MOPS” as required. (3) Has the Bank established and implemented 9 The transactions between the Bank and the subsidiaries have been No difference the risk control mechanism and firewall conducted in accordance with applicable legal rules. As such, it is between the corporate headquarters and the necessary to monitor, control and handle. There are also the criteria for affiliates? the “monitoring and handling of subsidiaries” in place. 2. The organization of the Board and their duties (1) Further to the establishment of the 9 Please refer to I. Organization System; (I) Organizational Structure on Remuneration Committee and the Auditing page 6. Committee, has the Bank voluntarily established other functional committees? (2) Has the Bank assessed the independence of 9 The commissioned CPA will be subject to assessment on the status of the commissioned certified public independence annually. The last assessment was made pursuant to accountants regularly? Article 38 of the “Best Practice Principles of Corporate Governance for Banking Industry” and Article 3 of the “Organization Code of the Auditing Committee” of the Bank with reference to Articles 46-48 of No difference the “Certified Public Accountant Act” thereby items for assessment of the independence of the CPA were established. The content covers whether or not the CPA is affiliated with Bank directly or significantly but indirectly in financial interest, major unusual financing relation, or involvement in guarantee of financing not under normal business transactions, the rendering of auditing and non-auditing services simultaneously, and the effect on the 8 status of independence. The findings were passed by the 22nd term of the Board in the 23rd session on March 16, 2017 on record, which indicated relevance with related regulations governing the independent status of the CPA. 3. If the Bank is a TWSE/GTSM-listed 9 The Office of the Board will be a part-time body playing the role of company, is it necessary to establish a full- corporate governance for the Company. time (part-time) position or body charged with the corporate governance affairs of the Bank (including but not limited to providing information for the Directors and Supervisors necessary for their performance No difference of duties, organization of sessions for the Board and the General Meeting of shareholders, administering company registration and making changes in the registration content, preparation of the minutes of Board meetings and General Meeting of shareholders on record)? 4. Has the Bank established channels for 9 (1) The Bank has already disclose it on the Bank’s intranet pursuant communication with stakeholders (including to the Banking act and the competent authority’s requirements but not limited to shareholders, employees, about limitation on the credit extended to stakeholders, and also and customers)? held the seminars for laws and regulations irregularly to enable the persons-in-charge to comply with and know the laws and regulations, and request completion of the stakeholder No difference information list immediately upon the stakeholder’s transfer. The communication channel is considered uninterrupted. (2) The Bank not only disclosed the message on the MOPS site as required but also published it on the Bank’s official website to help investors’ search.
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34 TAICHUNG BANK 2017 ANNUAL REPORT Implementation Status Deviation from the Corporate Governance Items for evaluation Yes No Summary Best-Practice Princip les for the Banking Industry and reasons 5. Disclosures (1) Has the Bank established a website for the 9 The company has established a website for the disclosure of its disclosure of financial position, operation, Financial Status and status of corporate governance. and corporate governance? (2) Has the Bank adopted other means of 9 (1) The Bank has established the spokesman system for release of disclosures (e.g., the installation of a information to ensure investors accessible to accurate website in English language, appointment information. No difference of designated persons for the gathering and (2) For the proper handling of materiality and disclosure, the Bank disclosure of information, the proper has established the “Criteria for Handling Materiality” whereby implementation of the spokesman system, relevant departments shall appoint designated personnel to and the minutes of the institutional handle materiality. investor’s conference on record posted on (3) At the worldwide web disclosure of institutional investors the website)? conference. There is also a website in the English language for disclosure of information on financial position and operation. 6. Any other vital information that helps to 9 (1) For information on the rights and privileges of the employees, understand the status of corporate refer to (I) important rights and privileges of the employees, governance at the Bank (including but not labor-management agreement and implementation on Page 87. limiting to the rights of employees, concern (2) For the protection of rights and obligations, stakeholders are for the employees, investor relation, the regulated on files in accordance with the Banking Act. In rights of the stakeholders, continuing addition, there is also the provision for the avoidance of the education of the directors and the conflict of interest for Board meetings. supervisors, risk management policy and the (3) The information on the continuing education of the Directors, implementation of risk assessment, the and their attendance to Board meetings are updated regularly and pursuit of customer policy, the liability disclosed at MOPS of TWSE. insurance taken by the Bank for the (4) For information on the pursuit of risk management policy and No difference protection of the Directors and Supervisors, the standard for risk assessment, refer to VI. Risk Management donations to political parties, stakeholders, Issues on Page 106. and social charity groups)? (5) The Bank has established the “Consumer Protection Policy” for the protection of consumer rights. In case of dispute in financial consumption, proceed to the procedure for complaints of the Bank with follow-up actions. (6) The Bank has established the “Criteria for Making Donation” to regulate the donation to political parties, stakeholders, and charity groups. For information on social charity in FY2017, refer to Page 38. 7. State of corrective action taken for 9 The Corporate Governance Center of Taiwan Stock Exchange responding to the results of the corporate Corporation has recently announced the evaluation of corporate governance assessment announced by governance. The Bank was ranked among the top 36% to 50% and the Taiwan Stock Exchange Corporation in the items not being scored were disclosed. Corporate Governance Center the most recent fiscal year, and the priority for No difference improvement on issues pending further corrective action and related measures. (The companies that are not subject to an evaluation do not need to fill out this form.)
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TAICHUNG BANK 2017 ANNUAL REPORT 35 (5) Establishment, functions and operations of Remuneration committee 1. Information on the members of the Remuneration Committee
Have more than 5 years of experience and Conditions Status of independence the following professional qualifications Lecturer or Passed the Required Number of above in qualification Work public commerce, examination with experience companies law, proper licensing in where the finance, by the national commerce, members of accounting Government law, the or subjects Apparatus as finance, Remuneration By identity required by court judge, accounting Committee Remarks the business prosecutor, or others 1 2 3 4 5 6 7 8 are also the of the bank lawyers, certified required by members of in pubic or public accountant the Bank the private or other remuneration colleges or professional committees of universities designations these required by the companies business of the Name Bank Independent Hsin-Chang Tsai 9 9 9 9 9 9 9 9 9 0 - director Independent Managing Li-Woon Lim 9 9 9 9 9 9 9 9 9 0 - Director Others Ying-Hui Wu 9 9 9 9 9 9 9 9 9 0 -
Note 1: If any of the following conditions is applicable to the members within 2 years before office and during the term of office, please put the “9” sign in the appropriate box below (1) Not an employee of the Bank or its affiliates. (2) Not a director or supervisor of the Bank or its affiliates. Excluding the capacity of independent director of the Bank or its parents, or a subsidiary directly or indirectly held by the Company with more than 50% of the stakes (3) A third party and spouse, underage children, or under the title of a third party who holds more than 1% of the outstanding shares of the Bank or the top 10 shareholders who are natural persons. (4) Not a spouse, kin at the second pillar under the Civil Code, or the lineal blood relatives within the third pillar under the Civil Code as specified in (1) through (3). (5) The directors, supervisors or employees of institutional shareholders indirectly holding more than 5% of the outstanding shares of the Bank, or, the directors, supervisors, or employees of the top 5 institutional shareholders. (6) The directors and supervisors, manager or shareholders holding more than 5% of the shares of specific companies or institutions that do not have financial or business transactions with the Bank (7) Not a professional, owner, partner, director, supervisor, manager of proprietorship, partnership, company or institution that provide business, legal, financial and accounting services to the Company or a spouse to the aforementioned persons. (8) Not under any of the categories stated in Article 30 of the Company Act. Note 2: If the members are Directors, specify if Article 6-5 of the “Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock is Listed on the Stock Exchange or Traded Over the Counter” is duly complied.
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36 TAICHUNG BANK 2017 ANNUAL REPORT 2. The operation of the Remuneration Committee (1) The Remuneration Committee of the Bank is consisted of 3 members. (2) Term of office of current committee members: June 7, 2017 to June 6, 2020. The Remuneration Committee has convened for 5 times in the most recent year (A). The qualifications of the members and their attendance to the meetings are shown below: Actual number Attend through Attendance rate (%) Title Name of attendance Remarks proxy (B/A) (B) Convener Hsin-Chang Tsai 5 0 100 Committee Li-Woon Lim 5 0 100 Committee Ying-Hui Wu 4 1 80 Other notes: 1. Where the Board may not take or revise the advice of the Remuneration Committee, specify the date and the session of the Board, the content of the motion, the resolution of the Board, and the response to the opinions of the Company towards the advice of the Remuneration Committee (if the resolution of the Board suggested better position of remuneration than the advice of the Remuneration Committee, specify the reasons and the variations). 2. Where members of the Remuneration Committee may have adverse opinions or qualified opinions in their resolutions on record or in written declaration, specify the date and session of the committee, the content of the motion, the opinions of all other members, and the responses to the adverse opinions.
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TAICHUNG BANK 2017 ANNUAL REPORT 37
(6) Corporate Social Responsibility Implementation Status Deviations from “Corporate Social Responsibility Best Practice Principle Items for evaluation Yes No Summary s for TWSE/GTSM Listed Companies” and reasons 1. Realization of corporate governance (1) Has the Bank established the policy or system 9 (1) The Bank has established the “Best Practice Principles of Corporate Social of corporate social responsibility, and reviewed Responsibility” for governing the Board in its obligation in the the effect of implementation? performance of corporate social responsibility under due diligence, and has reviewed the result with continued effort in the improvement of corporate social responsibility. (2) Has the Bank organized education and training 9 (2) The content of consumer protection, compliance of laws, corporate ethics, programs in corporate social responsibility? and financial corruptions has been incorporated into the curriculum for routine education. (3) Has the Bank established a designated (part- 9 (3) The Business Department of the Bank has been designated for time) body for the advocacy of corporate social administering the pursuit of “Best Practice Principles of Corporate Social No difference responsibility headed by a senior executive at Responsibility” and is responsible for the proposal of the action plans for the authorization of the Board, and report to the the pursuit of corporate social responsibility policy, system or related Board on the performance of corporate social management policies and report to the Board on the outcomes. responsibility? (4) Has the Bank established reasonable 9 (4) The Bank has established reasonable remuneration policy through the remuneration policy, and linked the institutionalization of relevant rules and regulations. In addition, the Bank performance evaluation system of employees to has also established the system clearing specifying the punishment of the corporate social responsibility policy, and employees in accordance with the work regulations and the evaluation of has explicitly specified the policy for reward employees for corruption and fraud so as to bolster social stability and and punishment? realize business ethics and social responsibility. 2. Fostering a Sustainable Environment (1) Has the Bank made effort to enhance the 9 (1) Continue the streamlining of operation process with the reduced use of efficient use of all resources and used papers. The annual report was printed on recycled paper. Dumps are regenerated materials to mitigate the impact on classified and recycled with the use of environmental friendly tableware the environment? and avoid the use of disposable tableware. (2) Has the Bank established a suitable 9 (2) The General Affairs Department of the Bank has been designated to environment management system by nature of administer the “Best Practice Principles of Corporate Social the industry? Responsibility” in the aspect of environmental management and is responsible for the establishment, advocacy and maintenance of related environmental management system and action plans, and facilitates the education on environment. The Bank has also established the “Particulars for the Management of Corporate Headquarters Building” and “Rules for Occupational Safety and Health”. No difference (3) Has the Bank paid attention to the effect of 9 (3) The “Best Practice Principles of Corporate Social Governance” of the climatic change on the operation, and has Bank is established in consideration of the influence on the ecology by the conducted inspection on green house gas and operation and aims at the reduction of energy and resource consumption, mapped out the strategy for energy saving and proper handling of dumps, advocacy of green purchase. In practice, the the reduction of carbon and greenhouse gas? Bank seeks to use low energy consumption materials, promote digital banking service and provide education on environmental protection, and encourage the recycle and reuse of regenerated resources, advocate environmental protection and realize carbon reduction and energy saving through research, development, purchase, operation, and services. Disclosure of power consumption, fuel consumption and the emission of greenhouse gas have been made in the “Corporate Social Responsibility Report” being released. 3. Preserving Public Welfare (1) Has the Bank established related management 9 (1) The Bank has established its “Best Practice Principles in Corporate Social policy and procedure in accordance with Responsibility” in accordance with the “Corporate Social Responsibility applicable legal rules and international Best Practice Principles for TWSE/GTSM-listed Companies”. conventions on human rights? (2) Has the Bank established the mechanism and 9 (2) The Bank has opened a compliant hotline. Employees may file their channels for the employees in filing complaints complaints through the hotline on any illegal practice, sexual harassment, and properly responded to the complaints? or any other complaints. The Bank will respond to such complaints immediately and keep the identity of the informants in strict confidence. (3) Has the Bank provided a safe and health work 9 (3) Please refer to (IV) Work Environment and the Safety of environment for the employees, and provided Employees Policy on Page 82. education on labor safety and health regularly? (4) Has the Bank developed the mechanism for 9 (4) The Bank holds labor-management meeting quarterly to coordinate labor- communication with the employees at regular management relation and encourage labor-management cooperation. In intervals and informed the employees of any addition, the Bank also discussed the issues of employee welfare and change in the operation of the Bank that may rights in full detail. cause significant influence on the employees No difference through reasonable means? (5) Has the Bank established the training program 9 (5) The Bank has mapped out the annual training plan in accordance with the for the effective planning of career development development strategy and the career development roadmap of the for the employees? employees, and provides exclusive training for relevant functions. (6) Has the Bank mapped out the policy for the 9 (6) The Bank has mapped out its “Consumer Protection Policy” for the protection of consumer rights through the R&D, protection of consumer rights, and has established the channels for procurement, operation, and service process and customer opinions and complaints and the procedure for the settlement of the procedure for handling consumer disputes. complaints? (7) Has the Bank duly observed applicable laws and 9 (7) Related financial products and services are offered in accordance with the international standards in the marketing and regulations of the competent authority and the Bank. labeling of products and services? (8) Before the engagement with suppliers in 9 (8) Check if specific supplier has a record of environmental and social impact business, has the Bank evaluated the suppliers on by nature of the content of procurement and the industry. If the supplier any record showing their impact on the has a negative record, the Bank shall go for other suppliers. environment and the society in the past?
38 38 TAICHUNG BANK 2017 ANNUAL REPORT
Implementation Status Deviations from “Corporate Social Responsibility Best Practice Principle Items for evaluation Yes No Summary s for TWSE/GTSM Listed Companies” and reasons (9) Are there provisions contained in major 9 (9) In case the Bank discovers specific contractor or contractor has negative agreements binding the Bank and the suppliers social image in the course of procurement, the Bank shall notify the specifying that if the suppliers are allegedly contractor to give explanation and take corrective action. If the situation involved in the violation of its corporate social is critical, terminate the purchase or proceed to return of sales depending No difference responsibility policy and have caused significant on the content of the contracts. influence on the environment and the society, the Bank may terminate or discharge the agreements at any time? 4. Enhancing Information Disclosure Has the Bank disclosed relevant and reliable 9 The Bank has installed a website for the disclosure of information on corporate No difference information on corporate social responsibility at its social responsibility, and has disclosed such information at MOPS as required. official website and MOPS? 5. If the bank has established corporate social responsibility principles based on “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies”, please describe any discrepancy between the principles and their implementation: The Bank has established the “Best Practice Principles for Corporate Social Responsibility” and practiced corporate social responsibility while doing business. The business performance of the Bank is congruent with the principles. 6. Other information critical to the understanding of our bank’s corporate social responsibility and how it is put into practice: (1) The Bank is always dedicated to taking part in social welfare activities, and sponsoring the following activities: 1. Work with “Eden Social Welfare Foundation” in the charity petty cash donation activity and install petty cash donation boxes at the business locations of the Bank’s branches. 2. In supporting the advocacy of government policy, all banking units have played related footage on the prevention of fraud and money laundering through the multimedia broadcasting system. 3. To work with the Child Welfare League Foundation in the fund-raising event entitled “Heart United Makes Home Reunion”, the Bank helps find missing children and juvenile, and establishes the link from the Bank’s site to the official site of Foundation. 4. The Bank bought tickets for the “2017 9th TIPC Competition” to support the development of arts and cultural activities, with the performance of “The Charm of Percussion” by Percossa (The Netherlands) at Taichung National Operation – the Theatre. 5. The Bank brought from Strength Master Fitness Tech Co., Ltd. health equipment and organized a small size dynamic conference room for the improvement of the health of its employees and a positive corporate image. 6. The Bank donated to the Taichung Chen Lan Home for the Children under the Da Jia Ma Welfare Foundation for performance of corporate social responsibility. 7. The Business Development Department organized the “Donation of happiness to do our best for you in dealing with blood shortages” on August 29 to help the blood bank in Taichung in dealing with the problem of blood shortages. Almost 200 bags of blood were donated on that day. This is of great concern for those who badly need a blood transfusion. 8. The “Performance of Corporate Social Responsibility Reward Program for the Branches” has been launched. Each branch starts with their local community. Through the encouragement of the branch staff in the planning and participation in social events or charity service, all personnel of the Bank embedded the spirit of CSR deep inside and manifest in action. They also rallied the support from their families and the customers and have organized 50 events from January to December in 2017. 9. The Bank offered scholarships for “Changhua Private Da Der Commercial and Technical Vocational High School” and “Taiwan Provincial Changhua County Private Wen Hsing Senior High School”, and supported Taichung Youth Senior High School to hold the 2017 Youth Cup Friendship Basketball Invitation Game. 10. Supported Changhwa County Tianzhong Town Office to hold the “2017 Taiwan Rice Heaven-Tienzhong Marathon” aimed at the promotion of tourist resources of Tienzhong by bringing together sports, leisure, agriculture and commercial activities. 11. TCB assisted the Social Welfare Foundation for the Homeless in organizing the “Dragon Boat Festival Celebration- Surf Through the Wind for the Misfortunates” and the “Mid-Autumn Festival Celebration for the Misfortunates” activities to provide free medical consultation, free haircuts, and free meals for the low-income class, single parents, the misfortunates and the homeless for the festivities. 12. Jointly held the “Light Out Moon Shine” campaign with the city broadcasting network by switching off the lights at the Mid-Autumn Festival in supporting energy saving and carbon reduction as a positive response to the common problem of global warming. 13. The Bank jointly advocated the “Elephant Circle Project for the Social Vulnerable Communities” with “Eden Social Welfare Foundation” through the supply of the mascot of the Bank, the Chung Musical Doll to rally for the support of the public for donation. 14. To help the “Dajiama Society Welfare Foundation Taichung City Private Zhen Lan Children Home” to raise invoices, and set up the invoice box at the lobby of the Bank’s Central Taiwan Branch. 15. The Bank allocates specific percentage of the transactions by using the Mazu Safety Card to Zheng Lang Temple at Da Jia for commemoration of the blessing of Mazu. This move helps the advocacy of religious activities for contribution to the welfare of the local community. 16. The Bank established the “TCB Cultural and Educational Foundation” on September 30, 1975 for purpose of helping good students in poverty with subsidies and scholarships. The cause is to train good people for the country and society. TCB convenes to determine the amount and the number of recipients of the scholarship every year. This move helps students in not-well-off families to continue their studies and make ends meet in their daily lives. 17. The Bank supports Juexiu Temple in funding the misfortune students in tuition fees and daily expenses so that they could complete their education. 18. Support the Taiwan Aboriginal Baseball Development Association to hold the “24th Aboriginal Cup” baseball game for the concern of the aboriginal groups and national sports development. Support Chen Chung-Kuang Cultural and Educational Foundation to hold the “9th Chung Kuang Cup Youth Baseball Match”. 19. The Bank engaged in cooperative education programs with 20 schools of higher education in 2017 and has recruited 40 students in the part-time work program for students. These students were assigned to different functional units of the Bank for practical training. 20. The Bank supports the “2017 Taichung Floral Capital Arts Festival” organized by Taichung City Government. The “Story of Taichung” was the theme with more than 200 performances at 50 venues arranged at Shanhaitun City. Outstanding art performance teams and members of Taiwan and other countries were chosen to present the public a glamorous floral season. 21. The Bank participated in the “2017 Financial Service Charity Carnival” organized by Taiwan Federation of Financial Unions (the events in Taichung and Kaohsiung) with the setting up of booth at the fair for the advocacy of fraud prevention and anti-money laundering. 22. In 2017, the Bank organized 41 seminars in schools and local communities to educate the people in finance and help the students and the public to develop a proper concept in finance and wealth management. 23. TCB was engaged in cooperative education of higher education in 2017. There were 21 students participating in practical training with the Bank and they were assigned to different positions for practice work. At the conclusion of the training, 3 students have been accepted as full-time banking staff, and the other 15 who will graduate in June 107 will be made a referral transfer after graduation. (2) As of the end of February 2018, TCB had employed 19 physically and mentally impaired employees (of whom 4 are at a severe level of being handicapped). 7. If the corporate social responsibility reports have received assurance from external institutions, they should state so below: The “2017 Corporate Social Responsibility Report” has been authenticated and validated by BSI but not yet released by the time this report was printed.
39 TAICHUNG BANK 2017 ANNUAL REPORT 39
(7) The best-practice of business integrity Implementation Status Difference with other companies listed in Items for evaluation TWSE/GTSM in best- Yes No Summary practice principles of business integrity 1. The policy and plan of business integrity (1) Has the Bank publicly declared its policy and means in 9 (1) The Bank has made declaration at the website and in the ethical corporate management in its internal code and declaration of internal control that it shall duly observe the external documents, and the Board and the management of regulation governing internal control and internal audit system the Bank has made positive effort in the commitment of its of financial holding companies and banks, and announced the corporate policy? issues requiring additional internal control and corrective action for improvement. (2) Has the Bank established the scheme for the prevention of 9 (2) The Bank has set up the stop loss point for transactions, unethical practices, related operation procedures, code of investment, and lending by nature of the operation or different No difference conduct, the punishment of unethical practices, and the levels of risk concentration, and adjusts these standards with system of complaints, and properly implemented the reference to relevant economic indicators and the business systems? development of the Bank at regular intervals. (3) Has the Bank taken relevant preventive measures against 9 (3) The Bank has establishment the system of compliance officer business activities as stated in Paragraph 2 in Article 7 f and related training to educate employees in banking and the “Ethical Corporate Management finance in compliance with the principle of integrity and Best Practice Principles for TWSE/GTSM-listed applicable laws. The Bank has instituted the criteria for external Companies” or within the scope of business entailing donations in compliance with applicable laws thereby regulate higher risk of unethical practices ? the recipients and amount of donations. 2. The Materialization of Business Integrity (1) Has the Bank evaluated the record on ethical practices of 9 (1) Has the Bank paid attention to the record of ethical practices of its counterparties, and has specified the clause of business contractors in procurement or tender invitation, and has signed ethic in the agreements binding the Bank and its the clauses in the agreements on the consequences of the counterparties? violation of ethical practices. (2) Has the Bank established a designated (part-time) body for 9 (2) Relevant functional departments advocate ethical corporate the advocacy of ethical corporate management under the management by their assigned duties. An auditing office has Board, and this body has report to the Board of the been established under the Board and present audit reports to implementation of ethical corporate management the Board at regular intervals. regularly? (3) Has the Bank mapped out the policy for the avoidance of 9 (3) According to the “Regulation Governing the Control of the conflict of interest and has provided suitable channels Information on the Financing of Stakeholders” of the Bank, all for such purpose, and properly pursued the policy? stakeholders are subject to control with record on file. In addition, the Bank has also established the “Regulation Governing Transactions with Stakeholders beyond Financing” to avoid the conflict of interest. Related internal code has also No difference contained the clause of the avoidance of the conflict of interest for the realization of ethical corporate management. (4) Has the Bank established effective accounting system, 9 (4) The Bank has established the “Auditing Office of the Board” internal control system for purpose of ethical corporate and this office has conducted routine audits in accordance with management, and the internal audit function has conducted the “Regulation Governing the Conduct of Internal Audit audit regularly, or the Bank has appointed certified public System” of the Bank. In addition, the Bank has established the accountants to conduct internal audits? “Accounting Department” and the “accounting system”. Deloitte Taiwan has audited the financial statements of the Bank at regular intervals. (5) Has the Bank organized internal and external training on 9 (5) Issues within the scope of ethical corporate management, such ethical corporate management? as case study on corruption, consumer protection, and compliance, have been included as an essential part of the teaching materials for training. In addition, the Bank also sends its personnel to receive training organized by external institutions. 3. The reporting system of the Bank in action (1) Has the Bank established a reporting and reward system 9 (1) The Bank has established the “Human Resources Management and the channels for facilitating the report on unethical Regulation” and “Employees Work Regulation”, and a hotline practices, and has appointed designated personnel to for reporting. A designated body will respond to and keep track handle the subject of reporting? on the reports. (2) Has the Bank established the standard operation procedure 9 (2) The Bank has established the “Regulation for Human Resources for handling report on unethical practices and keep it Evaluation and the Establishment of the Evaluation Committee” confidential? and the “Regulation Governing the Complaints of Sexual Harassment and Related Punishment”, and also the review and No difference investigation procedure, provisions for the avoidance of the conflict of interests by stakeholders, and confidentiality and no- disclosure mechanism. (3) Has the Bank taken protection measures to protect the 9 (3) Under the “Regulations Governing the Implementation of informant from improper treatment after reporting on Compliance System”, the heads of all functional units shall not unethical practices? take any revenge or harmful action against the Compliance Officer. The Legal and Compliance Department shall pay close attention to safeguard the rights and interest of the compliance officers of relevant functional units. 4. Enhancing Information Disclosure 9 The Bank has disclosed its Criteria for Material Has the Bank disclosed the content of ethical corporate Information Processing, Parliamentary Procedure of the Board, and management best practice principles and the result at its the Organization Code of the Auditing Committee in its official official website and MOPS? website and MOPS for governing the Directors, managers, and employees in their obligations of business integrity and ethics under No difference due diligence, and run the business in good faith, the avoidance of interests by the Directors on issues of the Board where they are stakeholders, and the attentiveness of the members of the Auditing Committee in due diligence for business performance under the principle of good faith. 5. If the bank has established performance of good-faith management best practice principles based on “Ethical Corporate Management Best Practice Principles for TWSE/GTSM-Listed Companies”, please describe any discrepancy between the principles and their implementation: The Bank runs its operation in accordance with the “Ethical Corporate Management Best Practice Principles for TWSE/GTSM-Listed Companies”. 6. Other vital information that helps to understand the practice of ethical corporate management of the Bank (e.g., the review and amendment to the ethical corporate management best practice principles of the Bank): None.
40 40 TAICHUNG BANK 2017 ANNUAL REPORT
(8) Corporate Governance Practices and the relevant regulations: Please refer to http://mops.twse.com.tw/ corporate governance. (9) Other important information: Please refer to http://mops.twse.com.tw/important information. (10) Status of Internal Control 1. Statement of Declaration of Internal Control System
Statement of Declaration of Internal Control System of Taichung Commercial Bank On behalf of Taichung Commercial Bank Co ., Ltd, we hereby certify that January 1 to December 31, 2017 , the Bank has duly complied with the “Implementation Rules of Internal Audit and Internal control System of Financial Holding Companies and Banking Industries” to establish its internal control system and implementing risk management procedures. The Bank has been audited by independent auditors who submit reports to the Board of Directors and the Audit Committee on a regular basis. After prudent evaluation, except for the items listed in the attached schedule, the Bank’s each department has implemented effective internal control and compliance systems during the year to which this statement relates. This statement constitutes the summary content of Taichung Commercial Bank Annual Report of current year and the Offering Prospectus, and shall be disclosed to the public. Any misrepresentation or concealment of the aforementioned disclosures shall be liable to violation of Articles 20, 32,171 and 174 of the Securities and Exchanges Act and the legal consequences thereof. To: Financial Supervisory Commission
Declarant:
Chairman: Chin-Yuan Lai
President: Te-Wei Chia
Chief Auditor: Ming-Chin Shen
Chief Compliance Officer: Tsung-Yi Liu
Date: March 14, 2018
41 TAICHUNG BANK 2017 ANNUAL REPORT 41
Improvement and Corrective Action of Internal Control System of Taichung Commercial Bank (Record Date: December 31, 2017) Scheduled to Complete Improvement Corrective Action Corrective Action on 1. In the case of financing Ting X Group, FSC found that TCB 1. The Bank has updated its “Loan Policy and Procedure Corrective action did not properly conduct a credit information check or Handbook” and “Important Notice to the Pledge of Financial was performed and authenticate and validate the case, and conducted an Instruments as a Subordinate Guarantee”, and requested the completed. improper process of loan application and review. These account management staff to authenticate and validate the items may jeopardize TCB in healthy operation and rationality of the transaction, and effect drawdown on the basis corrective action should be taken. of the terms and conditions of financing. [2017.2.9 Letter Jin-Guan-Yin-Kong-Zi No. 10500296662] 2. The training for the corporate banking and loan officers of the Bank has to be intensified to prevent the recurrences of similar kinds of events. 2. FSC cited the following defects in the acquisition of the 1. The Bank has amended the “Loans Processing Manual” for Corrective action messages related to the securities issued by JSC Bank fortifying its management of international syndicated loans. was performed and TuranAlem of Kazakhstan due to the act of default of a This amendment included the operation procedure and risk completed. customer. This move is a concern of the health operations of management of international syndicated loans. the Bank and should be corrected. The Bank shall not 2. The Bank has amended the “Foreign Exchange Processing undertake any other syndicated loans before the approval of Manual” in the area of “Important Notice to International FSC after taking proper corrective action: (1) In the Telecommunication Operation” to fortify the management of acquisition of securities issued by BTA due to the act of telex messages with the addition of control measures and default of a customer, the custodian bank has sent several internal control through check and balance. telex messages to the Bank from November 2012 to 3. The Bank will continue to bolster the training and development December 2015 urging the Bank to present instruction via of human resources in international syndicated loans. electronic means to exercise the right of participating in the 4. The Bank has reported the measures taken for corrective action request for conversion. However, the processing banking of the defects in correspondence dated 2017.7.21, and staff did not properly understand the content of the petitioned to lift the ban on undertaking new cases in messages and did not request the lawyers to provide international syndicated loans. FSC replied with consent in a assistance in reviewing the messages after January 2013, or, letter dated 2017.10.23. submitted the messages to the supervisor for review, to the extent that they failed to participate in the rights for request for conversion by the deadlines specified in relevant messages. There are defects in handling these telex messages. (2) the Bank has instituted the “Guidelines for the Management of Securities Acquired from Reorganization” for regulating the securities in this case. However, the Bank failed to institute regulations governing “Telex Messages not for Transactions”, which indicated the weakness in internal control. [2017.4.20 Letter Jin-Guan-Yin-Piao-Zi No. 10500313920] 3. The FSC suggested that TCB cannot effectively exercise 1. The Bank has reviewed related operation requirements and Corrective action internal audits and control and the evaluation of employee taken appropriate measures for the improvement of internal was performed and management on the basis of the case of banking staff control with sustained intensification of the training in completed. assisting customers in private financing and fund compliance and code of operation for the banking staff. transactions with customers. These items may jeopardize 2. As stated in the Letter of FSC dated February 15, 2017, how TCB in healthy operation and corrective action should be TCB can prevent banking staff from assisting customers in taken. borrowing, and intensify the substantive improvement of the [2017.2.15 Letter Jin-Guan-Yin-Piao-Zi No.10500302580] banking staff in internal management and evaluation has been reported to the board of directors on March 16, 2017 for approval so as to strengthen all the banking staff in internal management. 4. FSC cited an opinion on the Bank for failure to declare the 1. The Bank has notified all banking units in writing requesting Corrective action transactions of currency in large sum in the last all currency transactions at designated amount be declared on was performed and examination. In this examination (General Examination in the day of transaction with adjustment of the screen for such completed. 2016), there were 8 transactions of currency in large sum mode of operation in the system for “Declaration of not reported to the Investigation Bureau of the Ministry of Transactions at Designated Amount” to avoid the banking Justice, which is a violation of Paragraph 1, Article 7 of the units deleting the codes of currency transactions in large sum Anti-Money Laundering Act and Article 4 of the by mistake. “Regulations Governing the Declaration of Currency 2. The Bank will continue the intensification of the training on Transactions at Designated Amount and Suspected compliance and operation procedures for the banking staff. Money Laundering by Financial Institutions” and was punished with a fine of NTD600,000. [2017.7.3 Letter Jin-Guan-Yin-Piao-Zi No.10640002291 Ruling] 5. The Bank has sold offshore structured products limited to 1. The customer has provided proof of financial capacity. The Corrective action the subscription of professional investors only to non- Applicant is a professional investor and is in compliance with was performed and professional customers, which is a violation of Item 1, applicable legal rules. completed. Subparagraph 3, Paragraph 1, Article 22 of the “Rules for 2. The Bank has reviewed related operation requirements and the Management of Offshore Structured Products” taken appropriate measures for the improvement of internal authorized under Paragraph 2, Article 18-1 of the Trust Act. control with sustained intensification of the training in A fine of NTD600,000 was imposed. compliance and code of operation for the banking staff. [2017.7.3 Letter Jin-Guan-Yin-Piao-Zi No.10640002291 Ruling] 6. It was defected in the inspection of customer interaction 1. The Bank has notified all banking units in writing reminding Corrective action records at random that customers at the age of over 70 were them of no referral of the socially vulnerable groups without was performed and 42 42 TAICHUNG BANK 2017 ANNUAL REPORT
Scheduled to Complete Improvement Corrective Action Corrective Action on recommended to purchase foreign securities, which is a the written consent of the parties concerned. completed. violation of Subparagraph 3, Paragraph 1, Article 21 of the 2. Effective October 2016, visits or interviews with the socially “Regulations Governing the Disclosure of Risks of vulnerable groups of customers by the wealth management Restriction in the Assignment of Rights in Trust Operation staff of the Bank shall be subject to the review of the and Agreements on Marketing” authorized under Paragraph supervisors to ensure the process is in compliance with 2, Article 18-1 of the Trust Act. A fine of NTD600,000 was applicable rules and regulations. From 1st Quarter, 2017 imposed. onward, the corporate headquarters started to audit the [2017.7.3 Letter Jin-Guan-Yin-Piao-Zi No.10640002291 interview records of the wealth management staff to ensure Ruling] they are in compliance with applicable rules and regulations. 7. FSC discovered the following defects in the offering of 1. The Bank has instituted the “Regulations Governing Corrective action derivatives by the Bank, which is a concern for healthy the Performance Evaluation and Reward of TMU Personnel” was performed and operations and demanded for corrective action: (1) The and has included non-financial indicators into the evaluation. completed. “2015 Reward Program for Financial Marketing”, based on 2. The Bank has notified all banking units in writing for an which the bonus of marketing personnel on financial explanation on unjustifiable content of the financial statements products was released, only specified the deduction of compiled and provided by the customers. scores in the performance evaluation of sales personnel 3. TCB has amended its “Important Notice to Review engaged in unlawful acts or violation of related rules and of Processing Derivative Trade”. The assessment of the limit regulations. Non-financial indicators were not fully and considering the limits granted by other financial included in the evaluation. (2) In reviewing the limits of institutions to the customers, the amount drawn from derivative trade for the customers, the unjustifiable financial individual institutions, and reviewing the key financial statements from the customers are not fully explained. In indicators of the customers as part of the verifiable financial addition, the standard for granting limits to customers for capacity of the customers. hedging and non-hedging is not differentiated. The limit for 4. The Bank has amended its “Regulations Governing customers in trading in a particular industry has not been Derivatives Business with Customers” with adjustment of taken into consideration. These are acts of defiance of the related systems to derivatives. In addition, the limit for “Self-Regulatory Regulations for Banks in Derivatives derivative trade is classified as hedging and non-hedging for Business”. proper control. [2017.7.3 Letter Jin-Guan-Yin-Piao-Zi No.10640002291 Ruling] 8. FSC have discovered that XX Branch of the Bank failed to 1. The Bank has notified all banking units in writing reminding Corrective action comply with the regulations of the Bank in checking and all banking staff to check and confirm all financial instruments was performed and keeping the financial instruments brought back after in collection (brought back after processing), blank cheques, completed. processing, and the review officers failed to perform their vouchers, and other important forms and documents for duty of supervision to the extent that 230 financial keeping, and not leave them unattended. instruments brought back after cash-in were missing on 2. The Bank will continue the intensification of the training on 2017.5.2. When the processing staff of checking accounts compliance and operation procedures for the banking staff. brought back the processed financial instruments to the accounting staff, the accounting staff did not count the instruments at once for confirmation, to the extent that the branch failed to discover the shortage of the processed financial instruments being brought back. This is a defect in processing and is a concern for healthy operations. Corrective action is necessary. [2017.8.9 Letter Jin-Guan-Yin-Piao-Zi No. 10600155400] 9. In processing the 5 special monetary trust accounts for 1. The Bank has reviewed related operation requirements and Corrective action investment in domestic and foreign securities, including the taken appropriate measures for the improvement of internal was performed and accounts of Yang xx at xx Branch from June 2016 to January control with sustained intensification of the training in completed. 2017, FSC found out that the branch allegedly promised the compliance and code of operation for the banking staff. customers in guarantee the principal or minimum return on 2. The Bank has amended the “Guide for the Release of Bonus the financial products. In addition, the difference between for the Wealth Management Personnel” to strengthen the the amount of redemption from subscription in book entry performance evaluation of wealth management personnel. and the subscription amount were covered by the advance in cash from the branch staff or from the public account of the fund for depositing in the deposit accounts of respective customers so as to compensate the loss from the subscription of the fund. This is a violation of Article 31 of the Trust Act. In consideration of the proposal of appropriate measures for corrective action by the Bank and proper action to the wrongdoing branch staff, a fine of NTD1.8 million was imposed. [2017.10.13 Letter Jin-Guan-Yin-Piao-Zi No.10640003921 Ruling] 10. FSC has discovered that the fund appropriation officer Chao 1. The Bank has notified all banking units in writing to reiterate Corrective action xx of xx Branch of the Bank failed to follow the regulations the observation of related operation procedures and demanded was performed and of the notice when finding a cash surplus in cash balancing they strengthen internal control to avoid the recurrence of completed. by filling in a report and singling out the item. Instead, Chao material shortcomings. In addition, the banking units shall deposited the cash into their own account. In addition, the fortify the notions of law and legality among the staff and supervisor and the officer responsible for receiving cash demand all staff to duly observe applicable laws and the from outside also failed to follow the “Guidelines for the internal regulations of the Bank for the proper pursuit of Service of Important Item Delivery and Designated related operation procedures. Collection and Payment”, to the extent that they failed to 2. The Bank will continue the intensification of training of new detect that Chao failed to enter the full amount in the book. entrants and banking staff of compliance and observation of There are defects in related operations and this is a concern the operation procedures. for healthy operation. The Bank shall take corrective action.
43 TAICHUNG BANK 2017 ANNUAL REPORT 43
Scheduled to Complete Improvement Corrective Action Corrective Action on [2017.11.24 Letter Jin-Guan-Yin-Piao-Zi No.10600224310]
11. In the financing of xx Shipbuilding Co., Ltd. by the Bank, 1. The Bank has amended the “Important Notice of Construction Corrective action FSC found that that the customer had already settled the Contract Financing” to strengthen the control of verifying the was performed and debts, but the system and management function of related contracts on construction projects with the addition of the completed. business was not good enough and remained a concern for means of verification and remittance for construction contract healthy operation. Corrective action should be taken: (1) financing. Shortcoming in processing the financing for xx 2. The Bank has notified all banking units in writing to reiterate Shipbuilding Co., Ltd: (i) Failure to cross check if the that if the credit standing, joint credit information check, and photocopy of the purchase agreement obtained from the certified copy information was obtained longer than 1 month customer is a certified true copy. In addition, the after the day of initial inquiry before drawdown (entering into background check of the seller in the contract was made just agreement on credit limit), the credit information check must verbally without further confirmation. The Bank failed to be repeated. Drawdown may be effected only if the credit get references from related entities or obtain other objective status of the borrower and/or guarantor remain unchanged. evidence for verification. The payee in this case is not the 3. The Bank has notified all banking units to take caution in seller of the purchase agreement. Yet, the Bank failed to processing “Contract, Agreement” related financing, or the request the borrower provide related transaction documents drawdown of loan in regular lending cases in foreign or company profiles of the seller and the payee to prove the currencies and subsequent remittances to strengthen rationality of the cash flow. NOne of the guarantors was AML/CFT. This will be necessary for the banking units to found to have a bad record on credit standing before the keep track of the transactions and declaration of the drawdown. Yet, the Bank still effected the drawdown. (2) transactions. Defects in AML operation: the recipient country/region in remittance and the country/region of the purchase agreements are different. The Bank failed to properly verify suspicious transactions and keep the audit trail. [2017.12.29 Letter Jin-Guan-Yin-Kong-Zi No.1066000610M] 12. FSC discovered that xx Branch and xx Branch of the Bank The Bank has notified all banking units in writing to reiterate that Corrective action have to make improvement in the verification of the any transaction suspected of money laundering shall be subject was performed and background of transactions and the rationality of the to proper verification of the background and the rationality of the completed. transactions suspected of money laundering in performing transaction, and to keep the related audit trail. If the result of AML. In addition, these branches failed to keep the audit verification indicated that the transaction is not suspicious, do not trail intact, which is a concern for healthy operation. just put down “no sign of abnormality found in the review”. [2018.1.2 Letter Jin-Guan-Yin-Piao-Zi No.10600241540] Write down the analysis in full detail, the reason for preclusion as money laundering and keep the audit trail for cross-reference of accounts and continue monitoring transactions. If the findings of the analysis indicated the transaction is suspicious of money laundering, fill in the “Declaration of Suspected Money Laundering or Financing of Terrorism” and proceed to declaration.
2. Disclose the audit report by independent external auditors with a special audit on internal control system: None.
44 44 TAICHUNG BANK 2017 ANNUAL REPORT
(11) Penalty to the Bank due to violation of applicable laws, the major shortcomings and the status of corrective action in the last 2 years to the date this report was printed. Item Case Status of corrective action Processing officer or staff charged by public prosecutors on None None professional misconducts 1. FSC cited an opinion on the Bank for failure to 1. The Bank has notified all banking units in writing declare the transactions of currency in large sum in requesting all currency transactions at designated the last examination. In this examination (General amount be declared on the day of transaction with Examination in 2016), there were 8 transactions of adjustment of the screen for such mode of operation currency in large sum not reported to the in the system for “Declaration of Transactions at Investigation Bureau of the Ministry of Justice, Designated Amount” to avoid the banking units which is a violation of Paragraph 1, Article 7 of the deleting the codes of currency transactions in large Anti-Money Laundering Act and Article 4 of the sum by mistake. “Regulations Governing the Declaration of Currency Transactions at Designated Amount and Suspected Money Laundering by Financial Institutions” and was punished with a fine of NTD600,000. 2. The Bank has sold offshore structured products 2. The customer has provided financial statement. The limited to the subscription of professional investors Applicant is a professional investor and is in only to non-professional customers, which is a compliance with applicable legal rules. The Bank violation of Item 1, Subparagraph 3, Paragraph 1, has reviewed related operation requirements and Article 22 of the “Rules for the Management of taken appropriate measures for the improvement of Offshore Structured Products” authorized internal control with sustained intensification of the under Paragraph 2, Article 18-1 of the Trust Act. A training in compliance and code of operation for the fine of NTD600,000 was imposed. banking staff. 3. It was defected in the inspection of customer 3. The Bank has notified all banking units in writing interaction records at random where customers at the reminding them of no referral of the socially age of over 70 were recommended to purchase vulnerable groups without the written consent of the foreign securities, which is a violation of parties concerned. Effective October 2016, visits or Fined by Financial Supervisory Subparagraph 3, Paragraph 1, Article 21 of the interviews with the socially vulnerable groups of Commission for violation of laws “Regulations Governing the Disclosure of Risks of customers by the wealth management staff of the and regulations Restriction in the Assignment of Rights in Trust Bank shall be subject to the review of the supervisors Operation and Agreements on Marketing” to ensure the process is in compliance with authorized under Paragraph 2 Article 18-1 of the applicable rules and regulations. From 1st Quarter, Trust Act. A fine of NTD600,000 was imposed. 2017 onward, the corporate headquarters started to audit the interview records of the wealth management staff to ensure they are in compliance with applicable rules and regulations. 4. In processing the 5 special monetary trust accounts 4. The Bank has reviewed related operation for investment in domestic and foreign securities, requirements and taken appropriate measures for the including the accounts of Yang xx at xx Branch from improvement of internal control with sustained June 2016 to January 2017, FSC found out that the intensification of the training in compliance and branch allegedly promised the customers in code of operation for the banking staff. The Bank has guarantee the principal or minimum return on the amended the “Guide for the Release of Bonus for the financial products. In addition, the difference Wealth Management Personnel” to strengthen the between the amount of redemption from performance evaluation of wealth management subscription in book entry and the subscription personnel. amount were covered by the advance in cash from the branch staff or from the public account of the fund for depositing in the deposit accounts of respective customers so as to compensate the loss from the subscription of the fund. This is a violation of Article 31 of the Trust Act. In consideration of the proposal of appropriate measures for corrective action by the Bank and proper action to the wrongdoing branch staff, a fine of NTD1.8 million was imposed. 1. The FSC has conducted a special audit on TCB in 1. The Bank has redesigned for the needs of the floor 2015, and discovered the following defects on the areas for the new building of the corporate issue of the planning for the construction of the new headquarters and reported to the Board. Previously, building for corporate headquarters, these defects the construction permit was expected to be issued as may jeopardize the healthy operation of the Bank scheduled. However, it was just the time that and corrective action should be taken: (1) The Taichung City Government amended the draft content of the needs of relevant functional units version of the “Self-Governing Statue for Disciplined by FSC under Article presented by the Board is not congruent with the Urban Planning in Taichung under the 61-1 of the Banking Act actual situation of the corporate headquarters. The Urban Planning Act” pending on the review of the administrative function of TCB shall provide Construction and Development Administration, supplementary information. (2) No information on Ministry of Interior for reference filing. As such, the the search for the subject premises by the legal reference is uncertain to the extent that the intermediary commissioned by TCB before the land construction permit and related design fell behind purchase could be found, and the process for schedule. The architect estimated that the commission of the intermediary lacks transparency. construction permit for new building may be delayed until the 2nd quarter of 2018. TCB has amended its
45 TAICHUNG BANK 2017 ANNUAL REPORT 45
Item Case Status of corrective action “Regulations Governing Real Estate Management” with the addition of the related internal control procedure for the acquisition or lease of real estate, and the qualification and restriction of outsourcing of contractors. 2. In the case of financing Ting X Group, FSC found 2. The Bank has updated its “Loan Policy that TCB did not properly conduct a credit and Procedure Handbook” and “Important Notice to information check or authenticate and validate the the Pledge of Financial Instruments as Subordinate case, and conducted an improper process of loan Guarantee”, and requested the account management application and review. These items may jeopardize staff to authenticate and validate the rationality of TCB in healthy operation and corrective action the transaction, and effect drawdown on the basis of should be taken. the terms and condition of financing. TCB will continue to provide training for the corporate banking staff and the loan officers to avoid the recurrence of the same mistake. 3. The FSC suggested that TCB cannot effectively 3. The Bank has reviewed the related operation rules exercise internal audits and control and the and regulations and has taken corrective action for evaluation of employee management on the basis of related internal control measures. In addition, the case of banking staff assisting customers in training for the banking staff on topics of compliance private financing and fund transactions with and operation procedure have also been intensified. customers. These items may jeopardize TCB in According to FSC Letter February 15, 2017, healthy operation and corrective action should be substantive measures have been mapped out for taken. avoiding banking staff assisting customers in loans, and additional efforts have been made in internal management of personnel and related evaluations. These plans have been presented to the Board for approval on March 16, 2017 for bolstering the management of banking staff all through TCB. 4. FSC cited the following defects in the acquisition of 4. The Bank has amended the “Loans Processing the messages related to the securities issued by JSC Manual” to fortify its management of international Bank TuranAlem of Kazakhstan due to the act of syndicated loans. This amendment included the default of a customer. This move is a concern for the operation procedure and risk management of healthy operation of the Bank and should be international syndicated loans. The Bank has corrected. The Bank shall not undertake any other amended the “Foreign Exchange Processing syndicated loans before the approval of FSC after Manual” in the area of “Important Notice to taking proper corrective action: (1) In the acquisition International Telecommunication Operation” to of securities issued by BTA due to the act of default fortify the management of telex messages with the of a customer, the custodian bank has sent several addition of control measures and internal control telex messages to the Bank from November 2012 to through check and balance. The Bank will continue December 2015 urging the Bank to present to bolster the training and development of human instruction via electronic means to exercise the right resources in international syndicated loans. The of participating in the request for conversion. Bank has reported the measures taken for corrective However, the processing banking staff did not action of the defects in correspondence dated properly understand the content of the messages and 2017.7.21, and petitioned to lift the ban on did not request the lawyers provide assistance in undertaking new cases in international syndicated reviewing the messages after January 2013, or, loans. FSC replied with consent in a letter dated submitted the messages to the supervisor for review, 2017.10.23. to the extent that they failed to participate in the rights for request for conversion by the deadlines specified in relevant messages. There are defects in handling these telex messages. (2) the Bank has instituted the “Guidelines for the Management of Securities Acquired from Reorganization” for regulating the securities in this case. However, the Bank failed to institute regulations governing “Telex Messages not for Transactions”, which indicated the weakness in internal control. 5. FSC discovered the following defects in the offering 5. The Bank has instituted the “Regulations Governing of derivatives by the Bank, which is a concern for the Performance Evaluation and Reward of healthy operation, and demanded corrective action: TMU Personnel” and has included non-financial (1) The “2015 Reward Program for Financial indicators into the evaluation. The Bank has notified Marketing”, based on which the bonus of marketing all banking units in writing for an explanation on personnel on financial products was released, only unjustifiable content of the financial statements specified the deduction of scores in the performance compiled and provided by the customers. The Bank evaluation of sale personnel engaged in unlawful has amended the “Note to Review of Limit for acts or violation of related rules and regulations. Derivative Trade” specifying that the evaluation of Non-financial indicators were not fully included in limits shall include the limits granted by other the evaluation. (2) In reviewing the limits of financial institutions to the customers, the separate derivative trade for the customers, the unjustifiable amount of each drawdown, and review the key financial statements from the customers are not fully financial indicators of the customers and the explained. In addition, the standard for granting verifiable financial capacity of the customers in the limits to customers for hedging and non-hedging is transactions. The Bank has amended its not differentiated. The limit for customers in trading “Regulations Governing Derivatives Business with in a particular industry has not been taken into Customers” with adjustment of related systems to consideration. These are acts of defiance of the derivatives. In addition, the limit for derivative trade “Self-Regulatory Regulations for Banks in is classified as hedging and non-hedging for proper Derivatives Business”. control.
46 46 TAICHUNG BANK 2017 ANNUAL REPORT
Item Case Status of corrective action 6. FSC have discovered that XX Branch of the Bank 6. The Bank has notified all banking units in writing failed to comply with the regulations of the Bank in reminding all banking staff to check and confirm all checking and keeping the financial instruments financial instruments in collection (brought back brought back after processing, and the review after processing), blank cheques, vouchers, and officers failed to perform their duty of supervision to other important forms and documents for keeping, the extent that 230 financial instruments brought and not leave them unattended. The Bank will back after cash-in were missing on 2017.5.2. When continue to intensify the training of banking staff in the processing staff of checking accounts brought compliance and observation of applicable rules and back the processed financial instruments to the regulations. accounting staff, the accounting staff did not count the instruments at once for confirmation, to the extent that the branch failed to discover the shortage of the processed financial instruments being brought back. This is a defect in processing and is a concern for healthy operations. Corrective action is necessary. 7. FSC has discovered that the fund appropriation 7. The Bank has notified all banking units in writing to officer Chao xx of xx Branch of the Bank failed to reiterate the observation of related operation follow the regulations of the notice when finding a procedures and demanded they strengthen internal cash surplus in cash balancing by filling in a report control to avoid the recurrence of material and singling out the item. Instead, Chao deposited shortcomings. In addition, the banking units shall the cash into their own account. In addition, the fortify the notions of law and legality among the staff supervisor and the officer responsible for receiving and demand all staff to duly observe applicable laws cash from outside also failed to follow the and the internal regulations of the Bank for the “Guidelines for the Service of Important Item proper pursuit of related operation procedures. The Delivery and Designated Collection and Payment”, Bank will continue the intensification of training of to the extent that they failed to detect that Chao new entrants and banking staff of compliance and failed to enter the full amount in the book. There are observation of the operation procedures. defects in related operations and this is a concern for healthy operation. The Bank shall take corrective action. 8. In the financing of xx Shipbuilding Co., Ltd. by the 8. The Bank has amended the “Important Notice of Bank, FSC found that that the customer had already Construction Contract Financing” to strengthen the settled the debts, but the system and management control of verifying the contracts on construction function of related business was not good enough projects with the addition of the means of and remained a concern for healthy operation. verification and remittance for construction contract Corrective action should be taken: (1) Shortcoming financing. The Bank has notified all banking units in in processing the financing for xx Shipbuilding writing to reiterate that if the credit standing, joint Co., Ltd: (i) Failure to cross check if the photocopy credit information check, and certified copy of the purchase agreement obtained from the information was obtained longer than 1 month after customer is a certified true copy. In addition, the the day of initial inquiry before drawdown (entering background check of the seller in the contract was into agreement on credit limit), the credit made just verbally without further confirmation. The information check must be repeated. Drawdown Bank failed to get references from related entities or may be effected only if the credit status of the obtain other objective evidence for verification. The borrower and/or guarantor remain unchanged. The payee in this case is not the seller of the purchase Bank has notified all banking units to take caution in agreement. Yet, the Bank failed to request the processing “Contract, Agreement” related financing, borrower provide related transaction documents or or the drawdown of loan in regular lending cases in company profiles of the seller and the payee to prove foreign currencies and subsequent remittances for the rationality of the cash flow. NOne of the strengthening AML/CFT. This will be necessary for guarantors was found to have a bad record on credit the banking units to keep track on the transactions standing before the drawdown. Yet, the Bank still and declaration of the transactions. effected the drawdown. (2) Defects in AML operation: the recipient country/region in remittance and the country/region of the purchase agreements are different. The Bank failed to properly verify suspicious transactions and keep the audit trail. 9. FSC discovered that xx Branch and xx Branch of the 9. The Bank has notified all banking units in writing to Bank have to make improvement in the verification reiterate that any transaction suspected of money of the background of transactions and the rationality laundering shall be subject to proper verification of of the transactions suspected of money laundering in the background and the rationality of the transaction, performing AML. In addition, these branches failed and to keep the related audit trail. If the result of to keep the audit trail intact, which is a concern for verification indicated that the transaction is not healthy operation. suspicious, do not just put down “no sign of abnormality found in the review”. Write down the analysis in full detail, the reason for preclusion as money laundering and keep the audit trail for cross- reference of accounts and continue monitoring transactions. If the findings of the analysis indicated the transaction is suspicious of money laundering, fill in the “Declaration of Suspected Money Laundering or Financing of Terrorism” and proceed to declaration. Casualty or accident due to 1. The Bank suffered losses amounting to NTD75,921 1. The Bank has updated its “Loan Policy corruption, major incident or failure thousand due to the fraud of Ting X Group in lending and Procedure Handbook” and “Important Notice to to comply with the safety measures, (converted as bad debts). the Pledge of Financial Instruments as Subordinate which caused damage exceeding Guarantee”, and requested the account management
47 TAICHUNG BANK 2017 ANNUAL REPORT 47
Item Case Status of corrective action NTD 50 million in a particular staff to authenticate and validate the rationality of incident or in particular fiscal year the transaction, and effect drawdown on the basis of the terms and condition of financing. TCB will continue to provide training for the corporate banking staff and the loan officers to avoid the recurrence of the same mistake. 2. The foreign securities acquired by TCB from the 2. The Bank has amended the “Loans Processing default loan account cannot be realized for cash or Manual” to fortify its management of international new bond distribution on time due to negligence in syndicated loans. This amendment included the operation. It is estimated that the loss will amount to operation procedure and risk management of USD1,326 thousand (sufficient asset impairment has international syndicated loans. The Bank has been recognized) as of the market value on amended the “Foreign Exchange Processing December 29, 2017. Manual” in the area of “Important Notice to International Telecommunication Operation” to fortify the management of telex messages with the addition of control measures and internal control through check and balance. The Bank will continue to bolster the training and development of human resources in international syndicated loans. Other matters requiring disclosure None None commanded by FSC
(12) Major decision of the Shareholders’ Meeting and the Board in the most recent year to the date this report was printed 1. Major resolutions of the regular session of the Shareholders’ Meeting in 2017 (2017.6.7) and the status of pursuit Cause of motion The implementation of the resolutions The proposal of the 2016 Business Ratified by the General Meeting of Shareholders for the 2016 Report and financial statements Business Report and financial statements. The Shareholders’ Meeting has approved the proposal for The 2016 proposed profit distribution of earnings in 2016 (capitalization of retained distribution. earnings into new shares) and has been successfully accomplished on September 4, 2017. As resolved by the General Meeting of shareholders, the transfer The issuance of new shares for of shares to shareholders and the offering of new shares for capitalization for earnings in 2016. trading in the market have been successfully accomplished on September 4, 2017. Amendments to Company Corporate Approved by Ministry of Economic Affairs under Letter Jing- Charter (Articles of Incorporation) Shou-Shang-Zi No. 10601076030 dated April 14, 2017. Amendments to the Regulations Passed by the Shareholders’ Meeting of 2017 for announcement Governing the Acquisition or on the official website of the Bank and MOPS. Disposal of Assets 2. Important resolutions of the Board sessions (1) 23rd Board session of 22nd term of the Board on March 16, 2017 A. Ratify the motion for capital increase by recapitalization of earnings in 2016. B. The proposal for the distribution of earnings in 2016 has been resolved in favor of the motion. C. Passed the motion of remuneration to the employees and Directors of the Bank for 2017. D. Ratify the date, location and cause of the general shareholders’ meeting 2017. (2) 2017.6.7 – the 1st special session of the 23rd term of the Board resolved to appoint the members of the 3rd term of the Remuneration Committee. (3) 2017.6.15 – the 1st session of the 23rd term of the Board resolved to appoint the President. (4) 2017.7.13 – the 2nd session of the 23rd term of the Board resolved to set the ex-dividend day and ex-right day for dividend payment in 2016. (5) 2nd Board session of 23rd term of the Board on September 7, 2017 A. Resolved to apply for the issuance of no maturity non-accumulated subordinate bank debentures amounting to NTD5 billion in tranches. B. Resolved to sell the property located at No. 291., Section 1, Meicun Road, West District, Taichung City.
48 48 TAICHUNG BANK 2017 ANNUAL REPORT
(13) Adverse opinion from directors over important resolution of the Board in the most recent year until the day the Annual Report was printed with records and written declaration, and the contents of such opinion: None. (14) In the most recent year to the date this report was printed, the information on the resignation and discharge of parties related to financial reporting (including the Directors, Chairman, President, chief financial officer, chief accountant, chief internal auditor, and chief of R&D): Cause of Resignation or Title Name Election Date Termination Date Termination Chairman Chun-Sheng Lee June 17, 2015 June 7, 2017 Resignation The 1st session of the standing committee of the 23rd Board President Chin-Yuan Lai June 30, 2015 June 7, 2017 resolved to appoint as the Chairman 5. Disclosure of the accountant’s fee: Firm Name CPA Name Duration of Audit Remarks Deloitte & Touche Kuan-Chung Lai Wen-Ya Hsu 2017
Fee items Non-Auditing Auditing fee Total Fee levels fee 1 Less than 2,000 thousand 2 2,000 thousand(inclusive)~4,000 thousand 3 4,000 thousand(inclusive) ~6,000 thousand 9 9 4 6,000 thousand(inclusive)~8,000 thousand 5 8,000 thousand(inclusive) ~10,000 thousand 6 10,000 thousand above 9 (1) When non-audit fee paid to the auditing CPA, the CPA’s firm, and its related business entity exceeds one fourth of the audit fee, the amount of audit and non-audit fees and the content of the non-audit service should be disclosed. Audit fee is defined as the fee for financial statement audit, review, compilation, financial statement forecast, and corporate tax filing. Unit: NTD thousand
Non-Auditing fee Auditing The duration Firm Name CPA Name System Corporate Human Remarks fee Others Subtotal of the audit design Registration Resources
Kuan- Wen-Ya Deloitte & Touche 4,800 - - - 5,625 5,625 2017 - Chung Lai Hsu
Note: The fees beyond auditing services are other service charges for Deloitte Taiwan, including the inspection of personal information protection and AML/CFT amounting to NTD3,000 thousand, evaluation of the risk of money laundering and financing of terrorism and consulting on AML amounting to NTD1,584 thousand, consulting service in compliance with taxation on foreign accounts amounting to NTD454 thousand, the service for the installation of the personal information management system amounting to NTD237 thousand, accounting service charge on capitalization of retained earnings into new shares and the issuance of no maturity non-accumulative subordinated bank debentures amounting to NTD190 thousand, and second review of the disclosure of capital adequacy and risk management amounting to NTD160 thousand.
(2) Change of Accounting firm and the auditing fee of the year changing the Accounting firm less than that of the previous year: None. (3) Auditing fee were 15% less than that of the previous year: None. 6. Changes of Accountants: None. 7. The chairman, president, chief financial or accounting manager of the Bank who holds position in the business under the commissioned CPA firm or its affiliates in 1 year: None.
49 TAICHUNG BANK 2017 ANNUAL REPORT 49
8. In the most recent year to the date this report was printed, Directors, managers, and the parties stated in Article 11 of the Regulations Governing the Percentage of Holding of Voting Shares Issued by Particular Bank by Particular Person or Particular Related Party that required the declaration of the holding of equity shares in the transfer of shares or pledge of shares under lien, and any change thereof. (1) Changes in shareholdings: 2017 Until February 28, 2018 Increase Increase Increase Increase (decrease) in Title Name (decrease) in (decrease) in (decrease) in No. No. of Pledged No. of Shares No. of Shares of Pledged Shares Shares Institutional Director Hsu Tian Investment Co., Ltd. 762,854 19,200,000 0 0 Institutional Director Pan Asia Chemical Corporation 3,187,422 0 0 0 Ho Yang Management Consultant Institutional Director 29,236 0 0 0 Co., Ltd. Chairman Chin-Yuan Lai 11,527 0 0 0 Vice Chairman Kuei-Fong Wang 6,219 0 0 0 Managing Director Ming-Hsiung Huang 0 0 0 0 Managing Director Li-Woon Lim 0 0 0 0 (Independent director) Independent director Hsin-Chang Tsai 0 0 0 0 Independent director Jin-Yi Lee 0 0 0 0 Director (and Te-Wei Chia (37,191) 0 0 0 concurrent President) Director Ming-Shan Chuang 0 0 0 0 Director Hsin-Ching Chang 0 0 0 0 Director Wei-Liang Lin 0 0 0 0 Director Ching-Tai Huang 54,166 0 0 0 Director Chien-Hui Huang 0 0 0 0 Independent director Hsin-Chang Tsai 0 0 0 0 Independent director Jin-Yi Lee 0 0 0 0 Executive Vice President Kuo-Chun Liu 390,502 0 0 0 Executive Vice President Kai-Yu Lin 635 0 0 0 Executive Vice President Yi-Yuan Tung 4,636 0 0 0 Executive Vice President Cheng-Yuan Chen 0 0 0 0 Chief Compliance Officer Tsung-Yi Liu 2,186 0 0 0 Chief Auditor Ming-Chin Shen 5,537 0 0 0 Chief Secretary, Office of the Kai-Yu Lin (concurrent post) 635 0 0 0 Board Assistant VP, General Affairs Kai-Yu Lin (concurrent post) 635 0 0 0 Dept. Assistant VP, Business Dept. Chien-Hung Lin 47,778 0 0 0 Assistant VP, Loan Rung-Kuo Cheng 3,387 0 0 0 Administration Dept. Assistant VP, Human Resource Chung-Ping Yang 496 0 0 0 Dept. Assistant VP, Accounting Dept. Chin-Min Liao 140,424 0 0 0 Assistant VP, Information Dept. Chun-Sheng Lin 5,989 0 0 0 Assistant VP, International Ya-Mei Chen 411 0 0 0 Banking Dept. Assistant VP, Trust Dept. Chien-Min Chou 30,190 0 0 0 Assistant VP, Dept of Debt Yi-Pin Lin (89,196) 0 0 0 Collection and Asset Recovery Assistant VP, Consumer Yao-Tien Li 0 0 0 0 Banking Department Assistant VP of Treasury Po-Mao Huang 573 0 0 0 Marketing Department Assistant VP, Corporate Finance Shu-Chen Chen 7,818 0 0 0 Dept. Asst. Executive Vice Presidents, Chih-Hung Lu (35,893) 0 0 0 Offshore Banking Unit Assistant VP, Legal & Tsung-Yi Liu (concurrent post) 2,186 0 0 0 Compliance Department
50 50 TAICHUNG BANK 2017 ANNUAL REPORT
2017 Until February 28, 2018 Increase Increase Increase Increase (decrease) in Title Name (decrease) in (decrease) in (decrease) in No. No. of Pledged No. of Shares No. of Shares of Pledged Shares Shares Assistant VP, Risk Management Kuang-Chung Hsiao 4,207 0 0 0 Dept. Assistant VP, Treasury Dept. Chen-Ying Wu 2,349 0 0 0 Assistant VP, Wealth Hsien-Chih Liu 401 0 0 0 Management Dept. Assistant VP, Business Dept. Chih-Chi Chen 0 0 0 0 Assistant VP, West Taichung Hung-Ching Chu 308 0 0 0 Branch Senior Manager, Chungcheng Chin-Pei Chen 28,774 0 0 0 Branch Assistant VP, Hsitun Branch Li-Chu Chen (4,692) 0 0 0 Assistant VP, Nantun Branch Ming-Huang Lin 0 0 0 0 Assistant VP, Neihsin Branch Ching-Tang Tsai 409 0 0 0 Assistant VP, Tatu Branch Zai-Hong Yang 911 0 0 0 Senior Manager, North Taiping Hung-Hsiang Wei (10,504) 0 0 0 Branch Assistant VP, Taichungkang Kuo-Chin Chi 3,226 0 0 0 Branch Assistant VP, Szumin Branch Yi-Lo 0 0 0 0 Assistant VP, Chungkung Cheng-Wen Ni (35,609) 0 0 0 Branch Assistant VP, South Taichung Wen-Hsin Chiu 514 0 0 0 Branch Assistant VP, North Taichung Chao-Chi Tseng 426 0 0 0 Branch Assistant VP, Taiping Branch Chi-Hsien Lee 11,862 0 0 0 Assistant VP, Houli Branch Hsin-Ru Kao 4,800 0 0 0 Assistant VP, Taya Branch Pao-Yuan Chen 4,866 0 0 0 Senior Manager, Tantzu Branch Chi-Hsing Yi 0 0 0 0 Assistant VP, Shengkang Ming-Ren Hsu 445 0 0 0 Branch Senior Assistant Vice President, Tsung-Hsien Lee 8,162 0 0 0 Fengyuan Branch Assistant VP, Tachia Branch Ming-Yu Chiu 35 0 0 0 Assistant VP, Chingshui Branch Yung-Chang Lai 693 0 0 0 Assistant VP, Shalu Branch Tung-Po Yang 8,205 0 0 0 Assistant VP, Wufeng Branch Yi-Ying Chung (221,067) 0 0 0 Assistant VP, Tungshih Branch Tung-Hsu Liu 26 0 0 0 Assistant VP, East Fengyuan Te-Chuan Wang 308 0 0 0 Branch Assistant VP, Wujih Branch Chun-Chun Yu 257 0 0 0 Assistant VP, Nanyang Branch Pi-Hua Chang 507 0 0 0 Senior Manager, Nanto Branch Shih-Yuan Yeh 0 0 0 0 Assistant VP, Chushan Branch Wen-Tung Yu 3,382 0 0 0 Assistant VP, Puli Branch Shin-Hsiung Huang 410 0 0 0 Assistant VP, Tsaotun Branch Hsiang-Lieh Huang 5,747 0 0 0 Assistant VP, Changhua Branch Shih-Chi Chang 308 0 0 0 Assistant VP, Lukang Branch Wei-Huang You 407 0 0 0 Assistant VP, Hsihu Branch Jui-Cheng Yang (158,102) 0 0 0 Assistant VP, Erhlin Branch Ming-Cheng Wu 2,283 0 0 0 Assistant VP, Pitou Branch Hsin-Hsin Lee 3,722 0 0 0 Senior Assistant Vice President, Chung-Cheng Wu 2,671 0 0 0 Tienchung Branch Assistant VP, Yuanlin Branch Shih-Yi Hsiao 308 0 0 0 Assistant VP, Homei Branch Chih-Hao Liang 86 0 0 0 Assistant VP, Shetou Branch Min-Hsuan Chiang . 160 0 0 0 Assistant VP, Huatan Branch Cheng-Hsien Ni 409 0 0 0 Assistant VP, Yungchiung Shih-Huei Wang (7,080) 0 0 0 Branch Assistant VP, Hsiushui Branch Chung-Rong Lin 447 0 0 0 Assistant VP, Shankong Branch Yu-Chen Yang 744 0 0 0
51 TAICHUNG BANK 2017 ANNUAL REPORT 51
2017 Until February 28, 2018 Increase Increase Increase Increase (decrease) in Title Name (decrease) in (decrease) in (decrease) in No. No. of Pledged No. of Shares No. of Shares of Pledged Shares Shares Assistant VP, Tachu Branch Hui-Chin Lu 48 0 0 0 Assistant VP, North Yuanlin Chih-Hua Yao 336,901 0 0 0 Branch Assistant VP, Pitou Branch Chun-Min Huang 422 0 0 0 Assistant VP, Peitun Branch Chang-Chi Liu 5,007 0 0 0 Assistant VP, Puhsin Branch Kuang-Chih Chen 2,565 0 0 0 Assistant VP, Taipei Branch Yu-Hsien Shen 0 0 0 0 Assistant VP, Longjing Branch Hui-Chen Chao 2,556 0 0 0 Assistant VP, Sung Shan Branch Yung-Chiang Yu 0 0 0 0 Assistant VP, San Chung Wen-Cheng Wang 1,017 0 0 0 Branch Assistant VP, Kaohsiung Branch Yao-Chi Wu 0 0 0 0 Assistant VP, Lin ko Branch Yin-Ta Tsai 449 0 0 0 Assistant VP, Huwei Branch Shun-Chi Ke 140,907 0 0 0 Assistant VP, Yuan Li Branch Liu Chin-Shan 198 0 0 0 Assistant VP, Chu Nan Branch Yu-Jui Liu 400 0 0 0 Assistant VP, Dounan Branch Chen-Hsiang Chuang 1,106 0 0 0 Assistant VP, Neihu Branch Jui-Chang Lee 1,208 0 0 0 Assistant VP, Ban Ciau Branch Liang-Wen Chiang 343 0 0 0 Assistant VP, Fongshan Branch Chiang-Kai Liu 1,883 0 0 0 Assistant VP, Sinjhuang Branch Shu-Lan Huang 74 0 0 0 Assistant VP,Minsyong Branch Huan-Chang Tseng (123,811) 0 0 0 Assistant VP, Taoyuan Branch Cheng-Ming Yang 308 0 0 0 Assistant VP, Yongkang Branch Chien-Chung Tseng 0 0 0 0 Assistant VP, Jhubei Branch Cheng-Huan Huang 3,410 0 0 0 Assistant VP, Nan Kang Branch Yu-Chung Lin (7,539) 0 0 0 Assistant VP, Nei Li Branch Hua-Hsing Wen 1,460 0 0 0 Assistant VP, Hsinchu Branch Chao-Ching Wu 401 0 0 0 Assistant VP, Kueishan Branch Yu-Hui Tseng 385 0 0 0 Senior Manager, Jhongli Branch Wen-Yi Kuan 295 0 0 0 Senior Manager, Sinfong Hsiao-Mei Hsu 1,034 0 0 0 Branch Senior Manager, Tayuan Branch Ching-Chung Li 1,714 0 0 0 Assistant VP, Yangmei Branch Jr-Hsin Lee 2,589 0 0 0 Assistant VP, Tucheng Branch Hsin-Fa Wang (21,984) 0 0 0 Senior Manager,, Fuxing Fang-Yu Li 0 0 0 0 Branch Assistant VP, Zhongshan Chi-Jen Chang 317 0 0 0 Branch Assistant VP, Taitung Branch Chien-Min Feng 365 0 0 0 Assistant VP, Tainan Branch Tsung-Hsien Lee 438 0 0 0 Senior Manager, Xinkang Chia-Tse Wu 3,081 0 0 0 Branch Senior Assistant Vice President, Chun-Ying Wang 9,510 0 0 0 Central Regional Center Assistant VP, South Regional Kuo-Chi Lin 7,275 0 0 0 Center Senior Assistant Vice President, Li-Chin Ko 5,000 0 0 0 North Regional Center Shareholders holding more than Chen-Hai Lin (129,901,994) 0 0 0 5% The same related party to the Ho Yang Management Consultant shareholder holding more than 29,236 0 0 0 Co., Ltd. 5% Shareholders holding more than China Man-Made Fiber Co., Ltd. 12,290,049 0 0 0 10% The same related party to the shareholder holding more than Kuei-Fong Wang 6,219 0 0 0 10%
52 52 TAICHUNG BANK 2017 ANNUAL REPORT
2017 Until February 28, 2018 Increase Increase Increase Increase (decrease) in Title Name (decrease) in (decrease) in (decrease) in No. No. of Pledged No. of Shares No. of Shares of Pledged Shares Shares The same related party to the shareholder holding more than Pan Asia Chemical Corporation 3,187,422 0 0 0 10% The same related party to the shareholder holding more than Chou Chang Co., Ltd. 190,533 0 0 0 10% The same related party to the shareholder holding more than Deh Hsing Investment Co., Ltd. 170,249 0 0 0 10% The same related party to the Formosawine Vintners shareholder holding more than 58,772 0 (805,000) 0 Corporation 10% The same related party to the shareholder holding more than Hsu Tian Investment Co., Ltd. 762,854 19,200,000 0 0 10% The same related party to the shareholder holding more than Chou Chin Industrial Co., Ltd. 95,387 0 0 0 10% The same related party to the shareholder holding more than Yu Hui Limited 11,791 0 0 0 10%
(2) Information of shares ownership transfer: Not applicable, because the counterparts of said shares ownership transfer are not stakeholders. (3) Information of shares ownership pledge: Not applicable, because the counterparts of said shares ownership pledge are not stakeholders.
53 TAICHUNG BANK 2017 ANNUAL REPORT 53 54
TAICHUNG BANK2017 ANNUALREPORT 9. Information on shareholders among the top 10 by proportion of shareholding who are stakeholders to one another or spouse, kindred within the 2nd tier under the Civil Code February 28, 2018 If there are related parties, spouses, kindred within the 2nd Shares Held by Spouse Shareholdings under the Own shareholdings tier under the Civil Code among the top 10 shareholders, Remarks & Dependents title of a third party Name give the names and affiliations of such shareholders Shareholding Ratio of Ratio of Quantity Quantity Quantity Name Relation Proportion Shareholding Shareholding Brother of the Chairman China Man-Made Fiber Co., Ltd. 735,234,126 22.33 0 0 0 0 Pan Asia Chemical Corporation of Board of its parents Pan Asia Chemical Corporation China Man-Made Fiber Co., Ltd. 0 0 0 0 0 0 Responsible person: Brothers Responsible person: Kuei-Hsien Wang Kuei-Fong Wang Brother of the Chairman China Man-Made Fiber Pan Asia Chemical Corporation 190,682,871 5.79 0 0 0 0 of Board of its Co., Ltd. subsidiary China Man-Made Fiber Co., Ltd. Brothers Responsible person: Pan Asia Chemical Corporation 372,052 0.01 0 0 0 0 Kuei-Hsien Wang Responsible person: Kuei-Fong Wang Spouses Hsu Tian Investment Co., Ltd. Responsible Person: Chia-Chun Chiang Far Glory Life Insurance Corporation Ltd. 153,430,918 4.66 0 0 0 0 None None Far Glory Life Insurance Corporation Ltd. 0 0 0 0 0 0 None None Responsible Person: Chi-Hua Tung Chen-Hai Lin 118,151,860 3.59 0 0 0 0 None None Wan Bau Development Lin Yuan Investment Co., Ltd. 108,260,031 3.29 0 0 0 0 The same as chairman Co., Ltd. Lin Yuan Investment Co., Ltd. 0 0 0 0 0 0 None None Responsible person: Ong-Chuan Lin the Bank employee shareholding trust asset 52,281,871 1.59 0 0 0 0 None None account Wan Bau Development Co., Ltd. 51,389,405 1.56 0 0 0 0 Lin Yuan Investment Co., Ltd. The same as chairman Wan Bau Development Co., Ltd. 0 0 0 0 0 0 None None Responsible person: Ong-Chuan Lin Hsu Tian Investment Co., Ltd. 43,790,115 1.33 0 0 0 0 None None Pan Asia Chemical Corporation Hsu Tian Investment Co., Ltd. 0 0 0 0 0 0 Responsible person: Spouses Responsible Person: Chia-Chun Chiang Kuei-Fong Wang Taiwan Fire & Marine Insurance Co., Ltd. 38,064,898 1.16 0 0 0 0 None None Taiwan Fire & Marine Insurance Co., Ltd. 3,123,666 0.09 0 0 0 0 None None Responsible person: Tai-Hung Lee Chi Hsiang Investment Co., Ltd. 36,103,500 1.10 0 0 0 0 None None Chi Hsiang Investment Co., Ltd. 0 0 0 0 0 0 None None Responsible Person: Li-Hua Lu
54
10. Quantity of shareholdings of the same investee by the Bank and directors, presidents, Executive Vice Presidents, Asst. Executive Vice Presidents, supervisors of the various departments and branches, and direct or indirect subsidiaries in proportion to the combined holdings of all Proportion of overall shareholding December 31, 2017 Unit: share; % Investment made by directors, presidents, executive vice Investment made by the Bank presidents, assistant VPs, Combined investment Investee supervisors of branches, and (Note) direct or indirect subsidiaries Ratio of Ratio of Ratio of Quantity Quantity Quantity Shareholding Shareholding Shareholding
Taichung Bank Insurance 105,600,000 100.00 - - 105,600,000 100.00 Brokers Co., Ltd.
Reliance Securities 12,000,000 38.46 979,200 3.14 12,979,200 41.60 Investment Trust Co., Ltd.
Taichung Bank Leasing 185,000,000 100.00 - - 185,000,000 100.00 Co., Ltd.
Taichung Commercial 150,000,000 100.00 - - 150,000,000 100.00 Bank Securities Co., Ltd.
Note: Investment made pursuant to Article 74 of the Banking Act.
55 TAICHUNG BANK 2017 ANNUAL REPORT 55
IV. Status of Capital Planning 1. Shares and Dividends (1) Sources of shares and dividends (Office of the Board of Directors)
Authorized shares capital Paid-in shares capital Remarks
Year and Issuing Sources month price Quantity of Stock Quantity of Stock of shares Amount (NTD) Amount (NTD) Others (Shares) (Shares) and dividends Recapitali August 2017 10 4,320,000,000 43,200,000,000 3,293,178,983 32,931,789,830 zation of None earnings Note: The Shareholders’ Meeting passed the capitalization of retained earnings amounting to NTD550,482,230 into 55,048,223 shares at NTD10/share in the session on June 7, 2017.
Authorized shares capital Stock Remarks Type Outstanding shares Unissued Shares Total
Registered common shares 3,293,178,983 1,026,821,017 4,320,000,000 Listed (shares) (2) Composition of Shareholders (Office of the Board of Directors) February 28, 2018
Composition of Foreign Government Financial Shareholders Other Juridical Individual Institution and Total Apparatus Institution Amount Foreigner No. of Person 3 2 226 101,232 184 101,647 Shares 31 191,495,816 1,390,051,002 1,316,765,964 394,866,170 3,293,178,983 Ratio of Shareholding (%) 0.00 5.81 42.21 39.99 11.99 100.00
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56 TAICHUNG BANK 2017 ANNUAL REPORT
(3) Diversification of Shareholdings NTD10/share February 28, 2018 Ratio of Range of Shares No. of Shareholders Shares Shareholding (%)
1 to 999 43,577 8,382,349 0.25
1,000 to 5,000 28,848 64,529,761 1.96
5,001 to 10,000 10,194 69,216,216 2.10
10,001 to 15,000 6,472 75,913,878 2.31
15,001 to 20,000 2,291 38,931,811 1.18
20,001 to 30,000 3,463 81,597,818 2.48
30,001 to 50,000 2,437 91,403,373 2.78
50,001 to 100,000 2,131 141,762,079 4.30
100,001 to 200,000 1,173 153,965,730 4.68
200,001 to 400,000 574 153,494,427 4.66
400,001 to 600,000 158 76,887,606 2.33
600,001 to 800,000 80 55,357,447 1.68
800,001 to 1,000,000 50 44,233,514 1.34
1,000,001 to 1,200,000 47 51,209,876 1.56
1,200,001 to 1,400,000 24 30,601,030 0.93
1,400,001 to 1,600,000 10 15,065,227 0.46
1,600,001 to 1,800,000 12 20,442,307 0.62
1,800,001 to 2,000,000 7 13,081,366 0.40
2,000,001 and above 99 2,107,103,168 63.98
Total 101,647 3,293,178,983 100.00
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TAICHUNG BANK 2017 ANNUAL REPORT 57
(4) Name of Principle shareholder February 28, 2018
Stock Ratio of Shares Name of Principle shareholder Shareholding
China Man-Made Fiber Co., Ltd. 735,234,126 22.33%
Pan Asia Chemical Corporation 190,682,871 5.79%
Far Glory Life Insurance Corporation Ltd. 153,430,918 4.66%
Chen-Hai Lin 118,151,860 3.59%
Lin Yuan Investment Co., Ltd. 108,260,031 3.29%
the Bank employee shareholding trust asset account 52,281,871 1.59%
Wan Bau Development Co., Ltd. 51,389,405 1.56%
Hsu Tian Investment Co., Ltd. 43,790,115 1.33%
Taiwan Fire & Marine Insurance Co., Ltd. 38,064,898 1.16%
Chi Hsiang Investment Co., Ltd. 36,103,500 1.10%
(5) Information on market price, net value, earnings and dividends per share in the most recent 2 years Unit: NTD; Thousand shares; % Year 2016 2017 February 28, 2018 Item The Highest 9.61 10.40 10.35 Market Price The Lowest 8.73 9.14 9.78 Per Share Average 9.15 9.82 10.11
Net Value Per Before Distribution 12.78 13.18 13.44 Share After Distribution 12.57 - - Weighted average shares 3,238,131 3,293,179 3,293,179 Earnings per EPS (before adjustment) 1.09 1.10 0.17 share EPS (after adjustment) 1.07 - - Cash dividends 0.55 - - Retained Shares - 0.17 - Dividend Per Free-Gratis Distribution Share Dividends Capital Reserve - - - Shares Distribution Retained Dividends - - - P/E ratio (before the distribution) 8.37 8.84 - Return on P/E ratio (after the distribution) 8.52 - - investment Analysis Dividend Yield 16.58 - - Cash Dividend Yields 6.03 - - 58
58 TAICHUNG BANK 2017 ANNUAL REPORT
(6) Dividend Policy and the Status of Implementation 1. Dividend policy in the Bank’s Articles of Incorporation: Refer to Note 30 to the consolidated financial statements, under the title of Shareholder’ Equity (III) Distribution of earnings and dividend policy. 2. The proposal of the distribution of earnings in current session of the General Meeting of Shareholders: Refer to Note 30 to the consolidated financial statements, under the title of Shareholder’ Equity (III) Distribution of earnings and dividend policy. (7) The effect of stock dividend proposed to the General Meeting of the Shareholders on the operation performance of the Bank and the earnings per share: The Bank did not disclose its financial projection for FY2018, and it is not applicable here. (8) Remuneration to the employees and Directors and Supervisors: 1. Ratio of Shareholding or scope of remuneration to the employees and Directors and Supervisors as stated in the Bank’s Articles of Incorporation: Refer to Note 30 to the consolidated financial statements, under the title of Shareholder’ Equity (III) Distribution of earnings and dividend policy. 2. Proposal of distribution passed by the Board: Please refer to Note 31- (8) Expense on employee benefits in the consolidated financial statement. (9) Repurchase of the Bank Shares: None.
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TAICHUNG BANK 2017 ANNUAL REPORT 59
2. Issuance of Financial Bonds
Type 1st term of 2012 Subordinated Financial Bonds 1st term of 2013 Subordinated Financial Bonds
Jin-Guan-Yin-Piao-Zi No. 10100305900 dated Jin-Guan-Yin-Piao-Zi No. 10200089330 dated Date & Approval No. September 24, 2012 April 8, 2013 Issue Date November 13, 2012 June 25, 2013 Face Value NTD 1,000,000 NTD 500,000 Place of Issue and Trading Taiwan R.O.C. Taiwan R.O.C. Currency NTD NTD Issuing price At Par Value At Par Value Total amount NTD 3.0 billion NTD 2.5 billion Interest rate Coupon rate at 2.10% fixed rate. Coupon rate at 2.10% fixed rate Maturity 7 years, matured on November 13, 2019 7 years, matured on June 25, 2020 Senior to the right of distribution of remaining Senior to the right of distribution of remaining property of the shareholders and junior to Seniority property of the shareholders and junior to depositors and other general creditors to the depositors and other general creditors to the Bank. Bank. Guarantee Institution None None Trustee None None Consignee None None Certified Lawyer None None Certified CPA None None Certified financial institution None None Repayment Methods Repayment in lump sum upon maturity Repayment in lump sum upon maturity Unredeemed balance NTD 3.0 billion NTD 2.5 billion Paid-in shares capital in last NTD 22,338,576 thousand NTD 23,187,442 thousand Fiscal Year After-tax Net Worth in last Fiscal NTD 25,461,054 thousand NTD 28,081,100 thousand Year Performance Normal Normal Redemption or earlier None None redemption Conversion and exchange None None conditions Limitation Article Subordinated bond Subordinated bond Strengthen financial structure, upgrade capital Strengthen financial structure, upgrade capital Fund utilization plan adequacy ratio and expand business scale adequacy ratio and expand business scale Balance of Bonds as a Ratio of Shareholding of After-tax net 53.41% 48.20% worth Whether it is accounted for Category II Capital Category II Capital equity capital and type Fitch Ratings Limited; September 20, 2017 Name of credit rating agency, Fitch Ratings Limited; September 20, 2017 BBB (twn) (Compliance with the Basel III), F2 date of rating and ratings (Note) BBB+ (twn), F2 (twn), with stable outlook (twn), with stable outlook
Note: The result of the last assessment.
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60 TAICHUNG BANK 2017 ANNUAL REPORT
1st term of 2015 Perpetual Non-cumulative Type 2nd term of 2013 Subordinated Financial Bonds Subordinated Unsecured Financial Debentures Jin-Guan-Yin-Piao-Zi No. 10400200460 dated Jin-Guan-Yin-Piao-Zi No. 10200089330 dated Date & Approval No. August 26, 2015 and Jin-Guan-Yin-Piao-Zi No. April 8, 2013 10400251970 dated October 28, 2015 Issue Date December 16, 2013 December 28, 2015 Face Value NTD 500,000 NTD 10,000,000 Place of Issue and Trading Taiwan R.O.C. Taiwan R.O.C. Currency NTD NTD Issuing price At Par Value At Par Value Total amount NTD 3.0 billion NTD 1.5 billion Annual interest rate is index interest rate plus 3.08%. Index interest rate is the displayed Interest rate Coupon rate at 2.10% fixed rate floating rates for one-year term deposits of Chunghwa Post Co., Ltd. Maturity 6 years, matured on December 16, 2019 No maturity date Senior to the right of distribution of remaining Senior to the right of distribution of remaining property of the shareholders and junior to those Seniority property of the shareholders and junior to of holders of Tier 2 capital instruments, depositors and other general creditors to the Bank. depositors and other general creditors to the Bank. Guarantee Institution None None Trustee None None Consignee None None Certified Lawyer None None Certified CPA None None Certified financial institution None None Repayment Methods Repayment in lump sum upon maturity No maturity date Unredeemed balance NTD 3.0 billion NTD 1.5 billion Paid-in shares capital in last NTD 23,187,442 thousand NTD 28,515,063 thousand Fiscal Year After-tax Net Worth in last Fiscal NTD 28,081,100 thousand NTD 35,756,457 thousand Year Performance Normal Normal Redemption or earlier None None redemption Conversion and exchange None None conditions Limitation Article Subordinated bond Subordinated bond Strengthen financial structure, upgrade capital Strengthen financial structure, upgrade capital Fund utilization plan adequacy ratio and expand business scale adequacy ratio and expand business scale Balance of Bonds as a Ratio of Shareholding of After-tax net 58.89% 44.47% worth Whether it is accounted for Category II Capital Category I Capital equity capital and type Fitch Ratings Limited; September 20, 2017 Name of credit rating agency, Fitch Ratings Limited; September 20, 2017 BBB (twn) (Compliance with the Base 1 III), F2 date of rating and ratings (Note) A-(twn); stable˰Rating on the issuer˱ (twn), with stable outlook Note: The result of the last assessment.
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TAICHUNG BANK 2017 ANNUAL REPORT 61
1st term of 2016 Perpetual Non-cumulative 1st term of 2017 Perpetual Non-cumulative Type Subordinated Unsecured Financial Debentures Subordinated Unsecured Financial Debentures Jin-Guan-Yin-Piao-Zi No. 10500210950 dated Jin-Guan-Yin-Piao-Zi No. 10500210950 dated Date & Approval No. September 2, 2016 September 2, 2016 Issue Date December 28, 2016 March 28, 2017 Face Value NTD 10,000,000 NTD 10,000,000 Place of Issue and Trading Taiwan R.O.C. Taiwan R.O.C. Currency NTD NTD Issuing price At Par Value At Par Value Total amount NTD 1.5 billion NTD 1 billion Annual interest rate is index interest rate plus Annual interest rate is index interest rate plus 3.08%. Index interest rate is the displayed 3.08%. Index interest rate is the displayed Interest rate floating rates for one-year term deposits of floating rates for one-year term deposits of Chunghwa Post Co., Ltd. Chunghwa Post Co., Ltd. Maturity No maturity date No maturity date Senior to the right of distribution of remaining Senior to the right of distribution of remaining property of the shareholders and junior to those property of the shareholders and junior to those Seniority of holders of Tier 2 capital instruments, of holders of Tier 2 capital instruments, depositors and other general creditors to the depositors and other general creditors to the Bank. Bank.. Guarantee Institution None None Trustee None None Consignee None None Certified Lawyer None None Certified CPA None None Certified financial institution None None Repayment Methods No maturity date No maturity date Unredeemed balance NTD 1.5 billion NTD 1 billion Paid-in shares capital in last NTD 31,840,027 thousand NTD 32,381,307 thousand Fiscal Year After-tax Net Worth in last Fiscal NTD 39,945,989 thousand NTD 39,601,063 thousand Year Performance Normal Normal Redemption or earlier None None redemption Conversion and exchange None None conditions Limitation Article Subordinated bond Subordinated bond Strengthen financial structure, upgrade capital Strengthen financial structure, upgrade capital Fund utilization plan adequacy ratio and expand business scale adequacy ratio and expand business scale Balance of Bonds as a Ratio of Shareholding of After-tax net 35.80% 33.83% worth Whether it is accounted for Category I Capital Category I Capital equity capital and type Name of credit rating agency, Fitch Ratings Limited; September 20, 2017 Fitch Ratings Limited; September 20, 2017 date of rating and ratings (Note) A-(twn); stable˰Rating on the issuer˱ A-(twn); stable˰Rating on the issuer˱
Note: The result of the last assessment.
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62 TAICHUNG BANK 2017 ANNUAL REPORT
2nd term of 2017 Perpetual Non-cumulative 3rd term of 2017 Perpetual Non-cumulative Type Subordinated Unsecured Financial Debentures Subordinated Unsecured Financial Debentures Jin-Guan-Yin-Piao-Zi No. 10500210950 dated Jin-Guan-Yin-Piao-Zi No. 10500210950 dated Date & Approval No. September 2, 2016 September 2, 2016 Issue Date May 18, 2017 August 28, 2017 Face Value NTD 10,000,000 NTD 10,000,000 Place of Issue and Trading Taiwan R.O.C. Taiwan R.O.C. Currency NTD NTD Issuing price At Par Value At Par Value Total amount NTD 0.5 billion NTD 0.5 billion Annual interest rate is index interest rate plus Annual interest rate is index interest rate plus 3.08%. Index interest rate is the displayed 3.08%. Index interest rate is the displayed Interest rate floating rates for one-year term deposits of floating rates for one-year term deposits of Chunghwa Post Co., Ltd. Chunghwa Post Co., Ltd. Maturity No maturity date No maturity date Senior to the right of distribution of remaining Senior to the right of distribution of remaining property of the shareholders and junior to those property of the shareholders and junior to those Seniority of holders of Tier 2 capital instruments, of holders of Tier 2 capital instruments, depositors and other general creditors to the depositors and other general creditors to the Bank. Bank.. Guarantee Institution None None Trustee None None Consignee None None Certified Lawyer None None Certified CPA None None Certified financial institution None None Repayment Methods No maturity date No maturity date Unredeemed balance NTD 0.5 billion NTD 0.5 billion Paid-in shares capital in last NTD 32,381,307 thousand NTD 32,381,307 thousand Fiscal Year After-tax Net Worth in last Fiscal NTD 39,601,063 thousand NTD 39,601,063 thousand Year Performance Normal Normal Redemption or earlier None None redemption Conversion and exchange None None conditions Limitation Article Subordinated bond Subordinated bond Strengthen financial structure, upgrade capital Strengthen financial structure, upgrade capital Fund utilization plan adequacy ratio and expand business scale adequacy ratio and expand business scale Balance of Bonds as a Ratio of Shareholding of After-tax net 35.10% 34.09% worth Whether it is accounted for Category I Capital Category I Capital equity capital and type Note: The result of the last assessment.
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TAICHUNG BANK 2017 ANNUAL REPORT 63
4th term of 2017 Perpetual Non-cumulative 5th term of 2017 Perpetual Non-cumulative Type Subordinated Unsecured Financial Debentures Subordinated Unsecured Financial Debentures Jin-Guan-Yin-Piao-Zi No. 10600229120 dated Jin-Guan-Yin-Piao-Zi No. 10600229120 dated Date & Approval No. September 22, 2017 September 22, 2017 Issue Date December 5, 2017 December 27, 2017 Face Value NTD 10,000,000 NTD 10,000,000 Place of Issue and Trading Taiwan R.O.C. Taiwan R.O.C. Currency NTD NTD Issuing price At Par Value At Par Value Total amount NTD 1.35 billion NTD 2.65 billion Annual interest rate is index interest rate plus Annual interest rate is index interest rate plus 3.08%. Index interest rate is the displayed 3.08%. Index interest rate is the displayed Interest rate floating rates for one-year term deposits of floating rates for one-year term deposits of Chunghwa Post Co., Ltd. Chunghwa Post Co., Ltd. Maturity No maturity date No maturity date Senior to the right of distribution of remaining Senior to the right of distribution of remaining property of the shareholders and junior to those property of the shareholders and junior to those Seniority of holders of Tier 2 capital instruments, of holders of Tier 2 capital instruments, depositors and other general creditors to the depositors and other general creditors to the Bank. Bank. Guarantee Institution None None Trustee None None Consignee None None Certified Lawyer None None Certified CPA None None Certified financial institution None None Repayment Methods No maturity date No maturity date Unredeemed balance NTD 1.35 billion NTD 2.65 billion Paid-in shares capital in last NTD 32,381,307 thousand NTD 32,381,307 thousand Fiscal Year After-tax Net Worth in last Fiscal NTD 39,601,063 thousand NTD 39,601,063 thousand Year Performance Normal Normal Redemption or earlier None None redemption Conversion and exchange None None conditions Limitation Article Subordinated bond Subordinated bond Strengthen financial structure, upgrade capital Strengthen financial structure, upgrade capital Fund utilization plan adequacy ratio and expand business scale adequacy ratio and expand business scale Balance of Bonds as a Ratio of Shareholding of After-tax net 37.50% 44.19% worth Whether it is accounted for Category I Capital Category I Capital equity capital and type Name of credit rating agency, Fitch Ratings Limited; September 20, 2017 Fitch Ratings Limited; September 20, 2017 date of rating and ratings (Note) A-(twn); stable˰Rating on the issuer˱ A-(twn); stable˰Rating on the issuer˱
Note: The result of the last assessment.
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64 TAICHUNG BANK 2017 ANNUAL REPORT
3. No preferred share, overseas depository receipt, employee stock options, and mergers and acquisitions or acceptance of the assigned instruments from other financial institutions: 4. Implementation of Fund utilization plan (1) Contents of the plan: 1. The Bank issued the 1st term of 2017 perpetual non-cumulative unsecured subordinated financial debentures amounting to NTD 1.0 billion on March 28, 2017 and applied to trading of securities on the Taipei Exchange. 2. The Bank issued the 2nd term of 2017 perpetual non-cumulative unsecured subordinated financial debentures amounting to NTD 0.5 billion on May 18, 2017 and applied to trading of securities on the Taipei Exchange. 3. The Bank issued the 3rd term of 2017 perpetual non-cumulative unsecured subordinated financial debentures amounting to NTD 0.5 billion on August 28, 2017 and applied to trading of securities on the Taipei Exchange. 4. The Bank issued the 4th term of 2017 perpetual non-cumulative unsecured subordinated financial debentures amounting to NTD 1.35 billion on December 5, 2017 and applied to trading of securities on the Taipei Exchange. 5. The Bank issued the 5th term of 2017 perpetual non-cumulative unsecured subordinated financial debentures amounting to NTD 2.65 billion on December 27, 2017 and applied to trading of securities on the Taipei Exchange. (2) Status of implementation: 1. The Bank offered no maturity non-accumulative subordinated bank debentures on March 28, 2017 amounting to NTD1 billion and successfully raised the capital. The capital will be wholly used in lending and expansion of the scale of operation. 2. The Bank offered no maturity non-accumulative subordinated bank debentures on May 18, 2017 amounting to NTD0.5 billion and successfully raised the capital. The capital will be wholly used in lending and expansion of the scale of operation. 3. The Bank offered no maturity non-accumulative subordinated bank debentures on August 28, 2017 amounting to NTD0.5 billion and successfully raised the capital. The capital will be wholly used in lending and expansion of the scale of operation. 4. The Bank offered no maturity non-accumulative subordinated bank debentures on December 5, 2017 amounting to NTD1.35 billion and successfully raised the capital. The capital will be wholly used in lending and expansion of the scale of operation. 5. The Bank offered no maturity non-accumulative subordinated bank debentures on December 27, 2017 amounting to NTD2.65 billion and successfully raised the capital. The capital will be wholly used in lending and expansion of the scale of operation. 6. The Bank offered perpetual non-accumulative subordinated bank debenture for raising working capital and fortification of the capital structure. The key financial ratios, capital adequacy rate, earnings after tax, and earnings per share are analyzed as follows: Year 2017 2016 The changes Financial ratio ROA (%) 0.57 0.59 (0.02) ROE (%) 8.57 8.64 (0.07) Capital adequacy ratio (%) 12.68 10.96 1.72 Net income (Thousand 3,632,542 3,514,815 117,727 NTD) Earnings per share (NTD) 1.10 1.07 0.03
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TAICHUNG BANK 2017 ANNUAL REPORT 65
V. Operation Profile 1. Business Contents (1) Principal business of the Bank by business type: 1. Deposit Operations: Passbooks, check deposits, certificates of deposit, negotiable certificates of deposit. 2. Corporate Finance: Launching of various form of corporate financing (regular loans, special loans, and policy loans), syndicated loans and factoring. 3. Consumer banking: Private banking, including mortgage loans, small loans, second mortgage loans, car loans, and credit cards. 4. Foreign Exchanges Operations: Import, export, foreign exchange settlements, deposits, and loans of foreign currency. 5. Wealth Management: Administer the planning and execution of the financial planning businesses throughout the nation, management of financial advisors, preparation and revision of the wealth management policy and operating procedure, and promotion, supervision and management of wealth management customers’ investment asset. 6. e-Banking Operations: TCB eBanking service, including private/corporate online banking, mobile banking, physical ATMs, online ATMs, online cash receivers, telephone banking, batch fund transfer/remittance and collection services (school tuitions, community management fees), digital technology and strategic development. 7. Trust Operations: Running the business of custodian agent in special money trust for investment in domestic and overseas securities, certification of securities, real estate trust, prepayment trust, particular purpose money trust, LOHAS retirement, and securities investment trust. 8. Investments Operations: Dispatch of funds in NTD and foreign currency, foreign exchange, marketable securities trading and long-term equity investment. 9. TMU business: Provide a diversity of financial instruments and financial consultation services for the needs of the customers in hedging and investment. (2) Assets under respective business units and/or their proportion to total assets and/or revenue, and the status of growth: 1. Deposit Operations: Unit: NTD thousand; % Comparison between 2017 2016 2017 and 2016 Year Increase Increase Item Amount Proportion Amount Proportion (decrease) in (decrease) in amount proportion Check deposits 9,696,673 1.71 9,132,347 1.69 564,326 6.18 Current deposits 128,360,615 22.66 126,251,969 23.36 2,108,646 1.67 Current Current saving deposits 121,997,110 21.53 118,154,950 21.86 3,842,160 3.25 deposits Subtotal 260,054,398 45.90 253,539,266 46.91 6,515,132 2.57 Time deposits 159,919,564 28.22 144,077,549 26.66 15,842,015 11.00 Time Time saving deposits 146,104,716 25.79 142,156,486 26.30 3,948,230 2.78 deposits Subtotal 306,024,280 54.01 286,234,035 52.96 19,790,245 6.91 Accounts transfer Others and deposits via post 511,474 0.09 697,810 0.13 (186,336) (26.70) office Total 566,590,152 100.00 540,471,111 100.00 26,119,041 4.83 Note 1: Current deposits and Current deposits include deposits in foreign currencies and treasury deposits. Note 2: Accounts transfer and deposits via post office include the national development fund tied in with accounts transfer and deposits. 66
66 TAICHUNG BANK 2017 ANNUAL REPORT
2. Corporate Finance: Unit: NTD thousand; % Comparison between 2017 2016 2017 and 2016 Year Increase Increase Item Proportio Proportio Amount Amount (decrease) in (decrease) in n n amount proportion Balance of loans to SMEs 167,835,118 73.62 168,919,069 73.08 (1,083,951) (0.64) (A) Balance of loans to large- 24,081,282 10.56 26,511,066 11.47 (2,429,784) (9.17) size enterprises (B) Balance of corporate Finance loans in NTD 191,916,400 84.18 195,430,135 84.55 (3,513,735) (1.80) (C)=(A)+(B) Balance of loans in foreign 36,075,758 15.82 35,715,166 15.45 360,592 1.01 currency (D) Total (C)+(D) 227,992,158 100.00 231,145,301 100.00 (3,153,143) (1.36) 3. Consumer banking: (1) Personal line of credit Unit: NTD thousand; % Comparison between 2017 2016 2017 and 2016 Year Increase Increase Item Proportio Proportio Amount Amount (decrease) in (decrease) in n n amount proportion Home mortgage loan 52,679,883 25.56 54,142,569 27.62 (1,462,686) (2.70) Home improvement loan 402,765 0.20 311,139 0.16 91,626 29.45 Other personal consumer loans (excluding revolving 12,029,581 5.84 4,771,660 2.43 7,257,921 152.10 credit for credit cards) Other personal no- 141,015,518 68.40 136,834,688 69.79 4,180,830 3.06 consumer loans Total 206,127,747 100.00 196,060,056 100.00 10,067,691 5.14 Note: overdue accounts for collection are excluded. (2) Credit card Unit: NTD thousand; card; % Comparison between 2017 and 2016 Year 2017 2016 Item Increase Increase (decrease) in (decrease) in amount proportion Amount of credit card charged 6,547,973 6,036,934 511,039 8.47 Revolving credit balance 281,965 272,738 9,227 3.38 Quantity of cards in circulation 148,156 203,995 (55,839) (27.37) Note: Idle cards will be suspended in December 2017
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4. Foreign Exchanges Operations: Unit: USD thousand; % Comparison between 2017 2016 2017 and 2016 Year Increase Increase Item Amount Proportion Amount Proportion (decrease) in (decrease) in amount proportion Import 2,069,248 11.43 1,725,839 11.38 343,409 19.90 Export 1,075,119 5.93 898,652 5.93 176,467 19.64 Outward remittance 8,279,508 45.72 6,982,786 46.05 1,296,722 18.57 Inward remittance 6,685,682 36.92 5,557,866 36.64 1,127,816 20.29 Total 18,109,557 100.00 15,165,143 100.00 2,944,414 19.42 Balance of deposits at the 1,727,096 1,363,514 363,582 26.67 end of the year Balance of loans at the end 1,234,413 1,150,766 83,647 7.27 of the year 5. Wealth Management: Unit: NTD thousand; % Comparison between 2017 2016 2017 and 2016 Year Increase Increase Item Amount Proportion Amount Proportion (decrease) in (decrease) in amount proportion Trust service fee 715,006 53.75 500,580 42.73 214,426 42.84 revenue Insurance service fee 614,034 46.17 668,491 57.05 (54,457) (8.15) revenue Gold passbook 1,039 0.08 1,444 0.12 (405) (28.05) commission income Structured products - - 1,171 0.10 (1,171) (100) Total 1,330,079 100.00 1,171,686 100.00 158,393 13.52 6. e-Banking Operations: (1) Number of new network accounts Unit: account; % Comparison between 2017 2016 2017 and 2016 Year Increase (decrease) in Increase Number of Number of new Number of Number of new Item number of (decrease) in active accounts accounts active accounts accounts active proportion accounts Number of new network 276,441 26,462 250,047 26,911 26,394 10.56 accounts (2) e-Banking trading ratio Unit: transaction; % Comparison between 2017 2016 2017 and 2016 Year Proportion to Proportion to Proportion to Increase increase Accumulative Accumulative Item Total Total (decrease) in (decrease) in transactions transactions Transactions% Transactions% transactions total transactions % e-Banking 27,716,629 62.95 25,650,036 61.44 2,066,593 8.06 transaction Note: The transactions exclude those for inquiries.
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7. Trust Operations: Unit: NTD thousand; % Comparison between 2017 2016 2017 and 2016 Year Item Increase Increase Amount Proportion Amount Proportion (decrease) in (decrease) in amount proportion Balance of investment in domestic and overseas marketable securities through 51,666,081 82.44 50,223,754 86.61 1,442,327 2.87 special monetary trustee accounts Balance of custody of 7,174,325 11.45 4,083,972 7.04 3.090.353 75.67 securities Balance of real estate trust 1,680,850 2.68 1,638,341 2.83 42.509 2.59 Balance of specific independent money 1,575,076 2.51 1,689,311 2.91 (114,235) (6.76) management and utilization trust Balance of employee 577,579 0.92 355,749 0.61 221,830 62.36 shareholding trust Balance of trust assets 62,673,911 100 57,991,127 100 4,682,784 8.08 Volume of certified auditors 2,238,028 - 9,299,036 - (7,061,008) (75.93) of marketable securities 8. Investments Operations: Unit: NTD thousand; % Comparison between 2017 2016 2017 and 2016 Year Item Increase Increase Amount Proportion Amount Proportion (decrease) in (decrease) in amount proportion Short-term investment revenue 152,488 6.99 37,337 1.80 115,151 308.41 Return on investment accounted 21,619 0.99 22,999 1.11 (1,380) (6.00) for under the cost method Return on investment accounted 260,712 11.95 246,614 11.89 14,098 5.72 for under the equity method Realized gain on available-for- 27,608 1.27 157,149 7.58 (129,541) (82.43) sale financial assets Interest income – NTD currency 958,832 43.95 930,059 44.85 28,773 3.09 Interest income – foreign 514,584 23.58 411,100 19.83 103,484 25.17 currency Exchange gains–gains from 139,427 6.39 150,320 7.25 (10,893) (7.25) operation TMU operating revenue 80,688 3.70 108,357 5.23 (27,669) (25.54) Exchange gain-TMU 25,682 1.18 9,544 0.46 16,138 169.09 Total income 2,181,640 100.00 2,073,479 100.00 108,161 5.22
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(3) Business plan for 2018: 1. Deposit (1) Increase deposits and remittances business and increase risk-free service fee income. (2) Make positive efforts to develop deposit accounts for improving the ratio of current account deposits and reducing the cost of capital, and also seeks to increase time deposit for keeping stable capital flow. (3) Continue improving SOP, simplifying routine operating, reducing operating cost and upgrading the service quality. (4) Actively develop the number of customers, promote development of the source of relevant derivatives, and develop the Bank’s potential income. 2. E-banking Operations (1) Proactive promotion of using online banking and mobile banking with optimization of related functions. (2) Installation of digital branches to reduce the work load of over-the-counter banking services. (3) Provide inter-bank deposit services as an extension of the physical banking counter. This also helps to upgrade the competitive power of TCB in digital banking services. (4) Continue the promotion of digital marketing through the Facebook Fans Groups. The diffusion power of the community media is adopted for enhancing the interactions and bonding of existing customers. Additional customers of young age will also be attracted and the visibility of the digital channels of TCB could be enhanced. (5) In supporting the policy of the government and the consumption habit of the new generation, TCB is developing mobile payment services as another means of payment with transaction security and convenience reinforced. (6) Support the digital banking policy of the government, and develop patents in digital banking in full effort. 3. Corporate Finance (1) Corporate loans aim at an equal balance between quality and quantity for adjustment of the industrial structure of financing of the Bank as the gravity. (2) Make available to enterprises total financial solution design and a diversity of financial products (foreign exchange, TMU, trust, wealth management) and intensify the training of professional in corporate finance for the development of corporate loans with the eventual outcome of development in banking. (3) Syndicated loans will be carefully selected with good quality customers as the orientation. Credit risk will be cautiously assessed and competes to emerge as the lead manager in syndicated loans. (4) Expand international trade financing with further efforts to develop the upstream firms and channel marketers. Speed up the business of “factoring” for the economy of scale. Expand the market of trade financing to push up the growth of revenue from commission income with resulting earnings. (5) The Bank will continue to bolster its core business, “financing of SME”, and will support the national economic development policy (e.g.: innovative and strategic industries). In addition, the Bank will spare no effort in supervising the SME of Taiwan in various forms of financing for proper return on pricing. Referral of SME to the SME Credit Guarantee Fund or other loan products with better profit (such as the Really good loans) so as to enhance interest spread and return. The Bank will continue to launch the “SME Financing Incentive Program” and “Credit Guarantee Fund Balance Reward Program” to augment corporate finance related business. (6) Intensify the development of the market of overseas Taiwanese business firms and assist the enterprises run by overseas Chinese, new business of overseas Chinese and firms from Taiwan in financing with the guaranty from Overseas Credit Guarantee Fund. 70
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(7) Provide financing for farmers and fishermen with inadequate guarantees through the Agricultural Credit Guarantee Fund so that they could have the kind of funding they needed. 4. Consumer banking (1) The Bank will continue the intensification of training to upgrade the quality of its personnel and their marketing capacity with the establishment of supervision mechanisms. The Bank will update the consumer banking experience sharing under the experience in business expansion zone from time to time so as to upgrade the overall expansion of consumer banking business. (2) Pursue the company-wide marketing strategy participated in by all staff for the development of existing customers in depth for the effective control of the information on the outlook and transactions of the customers. Adopt the policy of marketing segmentation for creating profit. Further cultivate customers by geographic location with positive efforts to develop the market of good quality customers. Exercise proper control over the quality of loans for optimizing the efficiency of the review process and upgrade the competitive power of core products. (3) Integrate the internal and external marketing channels, intensify sales among the branches in concerted efforts and in cross-industry cooperation to development product sale in scope and in depth and improve the reputation of products. (4) With the use of the customer database on hand (such as, credit card accounts, low cumulative point deposit accounts, normal home mortgage accounts) and target at specific group of customers to generate a marketing list for the banking units in business development so as to bolster the development of existing customers. (5) Development of new business through the orientation of the traditional mindset of customers by grouping (such as: civil servants and teachers, employees of TWSE/GTSM-listed companies, white collar workers, and business owners) towards the purpose of fund use and designated fund for special purposes (such as: financing of home using photovoltaic energy, capital for starting franchise store chain, financing of down payment for entering into property purchase contract) for the development of marketing channels. (6) The Bank completed the establishment of the “Taipei Consumer Banking Center”, “South Taiwan Consumer Banking Center” “Taoyuan and Hsinchu Consumer Banking Center” and “Central Taiwan Consumer Banking Center” for the development of consumer loans operation, advocacy of consumer banking for further stable growth. This arrangement also helps to make the distribution of consumer banking business even across different regions of Taiwan and increase the market share of the Bank in consumer banking. (7) Make positive efforts to disseminate the advertising on consumer loans of TCB, circulate leaflets on our consumer banking business through different media, support social charity to enhance the visibility of TCB in consumer loans so that the customers can be bonded with TCB firmly that eventually helps to upgrade the return from marketing of different business. (8) Activate “Digital Banking Innovation” services in response to the digitization of banking and financial services, and continue to make improvements in the content of the official website, mobile APP function, online trial balance and application for consumer banking service, online property appraisal, online approval of loans and guarantee of the Bank so as to attract the group of young customers as the potential clients of the Bank. The Bank also provides financing services in diversity with convenience. (9) Establish the Member Get Member word of mouth marketing and sharing system through combining the community sharing channels to attract more customers and develop more sales channels. 71
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5. Foreign Exchanges Operations (1) Fortify the notion of law abiding in foreign exchange. (2) Intensify the training of personnel with external tutors to upgrade the professional standing and operation efficiency in foreign exchange. (3) Trade financing is taken as the theme for bolstering the import and export business so as to bring in more revenue from foreign exchange. (4) Design for a special program of foreign currency deposit to attract more foreign currencies to augment the pool of capital in foreign exchange; make further efforts to attract current account deposits to reduce the cost of capital in foreign currencies. (5) Develop electronic banking in foreign exchange to upgrade the functions of Internet banking in foreign exchange. 6. Wealth Management (1)Develop new products to raise the competitiveness : A. Choose high quality funds, offshore bonds, ETF, preferred shares and offshore structured products to satisfy the needs of customers. B. Tailor-made wealth management products to serve professional customers. (2)Increase the numbers of AO and upgrade the professional skill : A. Adjust the remuneration system to attract good quality banking staff of the Bank. B. Continue to provide training to upgrade the professional capacity of the wealth management professional staff. (3)Fortify the management of channels and boost the momentum of the branches in business. A. Conduct customer satisfaction surveys properly for the effective upgrading of service quality. B. Continue to hold morning wealth management meetings via the audiovisual system every other week to upgrade the professional standing of the branch staff in wealth management. (4)Fortify the function of online transactions in wealth management. A. Develop a function for efficient investment (umbrella funds) through online transactions. B. Develop ETF and preferred shares online banking transaction functions. C. Develop the functions of smart phone APP for transactions of wealth management products (fund trade). 7. Trust Operations (1) General Trust Operations: A. LOHAS Retirement Trust: In supporting the “Long-term Care 2.0” policy advocated by the competent authority, the Bank assists the elderly and the social misfortunes in the LOHAS care system. At the same time, the Bank can also yield result in business promotion and perform its corporate social responsibility. B. Prepayment trust: development of the prepayment trust business (gift voucher trust), protect consumer rights, and broaden the basis for regular trust for bringing in more commission incomes. C. Certified auditors of marketable securities: provide incentive of tax saving and lending of securities to develop accounts of securities trust, and develop business of regular trust and bring in more incomes. D. Escrow: It is promoted in real estate transaction and tied in with the trust mechanism to assist the community to ensure the security of real estate transactions and fight for housing loans business in order to expand the trust business service scope. E. Pre-sale house performance trust: Work with the “pre-sale house performance bond mechanism” policy promoted by the competent authorities to actively promote the business of real estate development trust and pre-sale house price trust in order to protect the rights and interests of the homebuyers and enhance transaction security. 72
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(2) Financial Status: Telephone transaction section (non-voice service): telephone transaction service by service personnel. Customers may directly conduct their transactions in investment and wealth management over the phone. This mode of operation is secure and efficient, and can help to develop the wealth management business of the Bank. (3) Custodian agent: move further in the development of custodian service for higher business volume so as to create stable income. This would help to bolster the deposit business and commission income from trust service and management. 8. Investments Operations (1) Continue to keep fund appropriation all through the Bank smooth and stable. Further to the relation with other financial institutions, the Bank seeks to get more counterparties in call loans in foreign currencies and R/P bond trade in foreign currencies, and continues to broaden the source of funding in foreign currencies and reduce the cost of capital to achieve the budget objective. (2) Keep the sources of revenues stable as they are, and further develop the business by switching from low interest rate investment to high interest rate investment so as to bring in more interest incomes and achieve the annual budget objective as long as the legal reserve ratio is unaffected. (3) Pay close attention to the domestic and international political and economic situations and adjust the overall investment in the market in line with the upward adjustment of the interest rate by the FED of the USA, the industrial production index and macroeconomic data of Taiwan, and adjust the position of stocks, funds and equity fund for bringing a better return from short-term investment. Choose stocks with high potential or in stable growth for band trade to yield capital gains or long-term investment. If the stocks were assessed as prospective with stable returns, the Bank will take part in sharing the profit from these stocks. Even allocation of assets for funding investment in countries of economic recovery or countries with specific areas of high growth and inflow of capital, select funds with a low base period or that have been adjusted for longer than 1~2 years with incremental investment, avoid investment in a particular country that affects performance. (4) The position of long-term investment is bolstering the investment performance on existing foundation for better profit. Increase the stake in return on investment with additional investment in bonds denominated in NTD and foreign currencies. Upgrade the efficiency of the utilization of fund and interest income. 9. TMU business (1) Promote derivative trade and design customized planning for hedge and financial operation to the needs of the customers. (2) Cultivate customer relation, fortify the process for reviewing the limit of derivative trade, upgrade TMU products and the function of the risk control system, and continue to intensify the professional training of the sale staff to provide customers professional products and services. (4) Market Analysis 1. Territories of banking business At present, the Bank has 81 branch locations and 1 Offshore Banking Unit to provide diversified business services, including personal banking, corporate banking, wealth management. The bank through business area characteristics has developed refined financial instruments, expanded business fields, and provided customers with better quality and convenient financial services through a professional business operation. 2. Supply and Demand of the market and growth in the future According to the forecasting of major international institutions, global economic performance in 2018 will be better than last year. This will help to bring about momentum for the export of Taiwan. Likewise, the Directorate-General of Budget, Accounting, and 73
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Statistics, Executive Yuan, forecasted that economic growth in Taiwan will achieve 2.42% in 2018. Yet, the spillover of the tax reform in the USA and the speed of rising interest rates, the localization and structural adjustment of the supply chain in Mainland China, the Brexit negotiation of the UK, the risk of geopolitics, the fluctuation of international oil prices and wholesale goods, the volatility of the global financial market and stock market, trade protectionism and other uncertainties will affect economic development worldwide. 3. Competitive niche, favorable and unfavorable factors for development in the future, and countermeasures. (1) Favorable factors A.The Bank has, for a long time, cultivated its business relation with the small and medium enterprises in central Taiwan and hence has the distinctive advantage and a strong and stable clientele base. B. The experience of the Bank in servicing small and medium enterprises helps to focus its customer groups and develop differentiated mode of operation. C. Construct the diversity of the banking service system is beneficial for integrated marketing of the organization and will yield better result. D.Maintain the advantage of low cost of capital, as it will contribute to the profitability and competitiveness of the Bank. (2) Unfavorable factors A. The Bank still has not opened any overseas branch and loses its opportunity in business with the overseas Taiwan business firms and development. B. The globalization of banking and finance and the cross-industry competition of financial holding companies narrow the space for the existing market of small and medium banks in banking service. C. The high degree of homogeneity of products and the keen competition in the financial and banking sector make it difficult to broaden the interest spread. D. There are numerous factors for the sluggish global economy and the financial environment is under the pressure of adaptation in operation. (3) Countermeasures Despite the optimism of global economic recovery, the attention to potential risks cannot be neglected. The Bank will continue its stable pace in banking operation in 2018 with continued pursuit of risk management, compliance, and performance management. The Bank will continue its corporate policy of “Moving forward at stable paces in operation and create high return” and realize the 5 business strategies of “Careful about risk”, “Concern for quality”, “Widen interest spread”, “Increase revenues” , and “Yield synergy”.
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(5) Research and Development of financial products and status of business development 1. Primary financial products and new banking units, their sizes and income in the most recent two years Unit: NTD thousand 2017/end 2016/end Item Trade value/ Operating Trade value/ Operating volume revenue volume revenue Corporate Finance Volume of corporate loans 191,916,400 4,458,223 195,430,136 4,549,248 Personal banking Consumer loans 65,112,229 1,512,807 59,225,368 1,276,356 Non-Consumer loans 141,015,518 3,044,533 136,834,688 2,953,438 Credit card loans 6,547,973 129,866 6,036,934 137,105 Financial management Stock 1,313,447 41,115 1,838,912 (11,546) Fund 33,727,058 111,373 30,026,027 48,883 Issuance of the Central Bank certificates of 670,800,000 324,334 671,100,000 361,953 deposit Commercial paper bought 317,140,107 141,078 316,160,827 94,462 Bonds sold under 206,007,207 23,824 181,339,004 16,019 repurchase agreements Call loans to banks 333,263,031 63,144 235,551,578 87,248 CBAS 2,174,900 12,491 776,700 7,028 Bonds 10,480,086 139,298 9,538,723 77,037 Corporate bond 2,885,939 330,978 22,933,726 523,020 Bonds in foreign currency 7,917,208 465,878 9,478,903 331,541
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2. R&D expenditure and results in the most recent two years, and the future R&D plans (1) R&D expenditure and result in the last 2 years: R&D spending amounted to NTD 51,710 thousand. Name of R&D Research and Descriptions of R&D Results product Development Convergence of syndicated loan processing and Phase I was connected on February 16, Convergence of centralization of credit information management, 2016. Phase II was connected on August syndicated loans simplification of business process at the branches for 19, 2016. simplification. Align with the trend of digital banking development and make it convenient for the customers to upgrade related Opening of digital certification documents online without attending the counter May 2016-Configuration Completed. accounts online for opening accounts. This service is convenient for the public and helps to reduce the workload at the counters. ACH payment Increase the channels for credit card payment for better services for credit convenience of the card holders in making payments and August 2016-Configuration Completed. cards of the Bank saving expenditures. 1. The addition of the function for the calculation of the new weekend holiday system in the HR system. The Ministry of Labor made significant changes in the 2. The system for the arrangement of Development of the HR weekend holiday system that compels a new round of annual leave for the banking staff. system under the new calculation of annual leave in the HR system with overtime 3. The calculation of salaries on leave and weekend holiday system work payment and payment for working on holidays. overtime work payment, and salary for Different statistical calculation sheets are also developed. working on holidays. 4. The development of different formats of statements on annual leave. February 2017- on-line Completed. 1. Provides the services of inquiry of Provide the service of inquiry of electronic invoice, SMS to electronic invoices and SMS for Loader for credit card remind winning/no winning in lottery draws, and SMS as reminding of winning a price for the electronic invoice reminder for cancellation of loaders to customers. customers. 2. May 2017- on-line Completed. User friendly Internet Provide more user-friendly Internet banking service in June 2017-Configuration Completed. banking conformity to the Barrier Free 2.0 label. Online application for Online application for automatic credit card payment service automatic credit card June 2017-Configuration Completed.
is available. Self-developed payment service Online reservation of foreign currency Arrangement of inbound and outbound accounts in foreign September 2017-Configuration inbound and outbound currency transactions for the customers. Completed. accounts 1. Customers could use the smart banking Cash withdrawal in Use the Bank banking cards for withdrawal and payment for card of the Bank to make withdrawals Japan, Hong Kong, shopping at ATM with the logo of the company or shops that from ATM or pay for shopping items in and Macao and fund accept the banking cards of the Bank for payment in Japan, Japan, Hong Kong, and Macao. deduction function Hong Kong, and Macao. 2. November 2017- on-line Completed. 1. Data push function for real-time Develop the emergency notification system under natural broadcasting to all related units. disasters between the corporate headquarters and branches Financial System 2. Get hold of the reply and the situations of the Bank through intranet page or APP for data push and Natural Disaster at the branches in real-time. voluntary reply so that the administration unit of the Notification System 3. Reply with the external APP to corporate headquarters can get hold of the situation and enhance personnel safety. November provide related assistance. 2017- on-line Completed. the Bank interest and Provide more user-friendly Internet banking service in December 2017-Configuration exchange rate service conformity to the Barrier Free 2.0 label. Completed. network 1. Addition of the review functions to consumer banking centers. 2. To make the operation process more efficient. 3. Control of the limit of the factor in Addition of exclusive zones for the promotion of consumer factoring. banking, control the limit of the factor in the assignment of Optimization of the 4. Upgrade the quality of cases in credit account receivables, centralization of the drawdown credit information information checks and approvals. platform in combination with the credit information result system The aforementioned facilities were server for real-time drawing of funds to make drawdown accomplished in December 2017. more efficient. 5. The installation of the centralized drawdown platform in combination with the credit information result server is expected to complete in March 2018. With the assistance of the consultants and through the Design for the adoption of IFRS 9 in IFRS9 calculation of different parameters, the Bank gets the default January 2018 in compliance with rate and PD value in conformity to IFRS 9, which will be applicable laws. 76
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Name of R&D Research and Descriptions of R&D Results product Development effective in January 2018. Installation of the In supporting the launch of the ATM collection EMV chip function for The installation of the ATM EMV function (AID Code identification) of different international identification of EMV identification system was completed in organizations (VISA, MASTERCARD, JCB, and UnionPay chips in the acquirer February 2016 to reduce the risk of International), the Bank upgraded related software and bank business of phony credit cards. hardware. credit cards. In supporting the foreign exchange data processing system architecture update of the Central Bank, the Bank introduced the server to the server online declaration function. Users Reduce repeated data entry to ensure Update of the Central can make an inquiry of the accumulated foreign exchange data accuracy and transmission Bank Foreign Exchange settlement of the year, forwards and foreign exchange efficiency. The system was connected in data processing system. settlement in large denomination, statement of foreign April 2016 exchange transactions, and the media declaration for data transmission services with the Central Bank. 1. The Credit Card Section of Consumer Banking Department introduced the Credit Card and Visa Provide the holders of credit cards issued by TCB and Visa OTP verification system in November Cards 3D security Card users a safer online shopping environment. 2016. authentication service 2. The portion of Visa Cards was on-line in August 2016. Cash advance 1. Customers could get cash advance with Provide a wide array of products and services with our credit function for credit the Bank credit cards at ATM. cards. cards 2. September 2016- on-line Completed. 1. Provide the wealth management staff Establish a more efficient customer classification and of the Bank efficient classification of management system for augmenting the operation efficiency customers and wealth management New wealth of wealth management. Install the platform for the planning planning platform to meet the needs of management system and management of customer-oriented wealth management wealth management services of the to customer needs. customers even better. 2. October 2016- on-line Completed. 1. The local currency server and open-system program code inbound control has been activated by the last Outsourced development Reduce operation risk and enhance the version of the management system with the integration accuracy of the online system. Provide a of Git version database and Jenkins for continued Automation of version complete list of inbound approval integration of the platform. control records and related customs declaration 2. management system linked with the request details. October 21, 2016- on-line management system and the inbound data generated Completed. online will be approved online to replace manual registration. Upgrade and bolstering collection service for the customers Full-range collection (such as management fee for building and membership fee October 2016-Configuration service network for the professional associations) and the collection and Completed. management of tuition fee service. 1. Introduction of a system module for accounts receivable in local and foreign currencies: (1) Factoring of domestic accounts receivable. Accounts receivable (2) Factoring of export accounts system in local and Accounts receivable system in local and foreign currencies receivable foreign currencies update program (3) Factoring of OBU accounts update program receivable 2. Upgrade the service of financial products for customers for more interest income and commission income. 3. January 2017- on-line Completed. 1. The ATM of the Bank has better Introduced inter-bank deposit service at ATM to upgrade the ATM Inter-bank functions in inter-bank transaction ATM function of the Bank and provide convenient service deposit services. for the customers making deposits. 2. February 2017- on-line Completed. 1. Introduce a complete standardized software development process and establish program development standard and basic module so that the “Shared component CUF systems can be easily developed and and private cloud PAAS” “Shared component CUF and PAAS private cloud” maintained and the maintenance of system development System development architecture platform high efficiency cross-platform architecture platform application program structure. The introduction of the PASS private cloud service platform helps to upgrade the capacity of cloud management. 2. March 2017- on-line Completed. 77
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Name of R&D Research and Descriptions of R&D Results product Development 1. Tidy up and manage user-friendly API for the enterprises for design optimized corporate-class application. 2. Provide the development personnel portal with access to market so that potential customers can be attracted to and used the API. Through the controlled mode to support connection to the network and self-service function. API Management 3. Through the use of simplified coding of API, including March 2017-Configuration Completed. platform the mixed combination of different things to transcend the environment and technical supports of many suppliers. 4. Keep abreast of the API commonly used by the consumers through the API management and analysis platform to discover hidden business opportunities. 1. After gearing up with mobile payments, the Bank has another means Cooperation with Taiwan Mobile Payment Co., Ltd., for credit card payment. The HCE mobile payment provide the holders of MasterCard to install "Taiwan PAY" Customers can make payments more (credit card) APP via Android smartphone and download our bank's conveniently and safely. Master Credit Card for credit card payment. 2. The line was connected in March 2017, and opened for service in June of the
Outsourced development same year. Installation of the If the outbound mails contain personal information or photos, November 2017-Configuration outbound mail review all must be reviewed before release and encrypted for sending Completed. system out. Installation of ATM ATM installation was completed in The ATM application control system (black and white list) application program November 2017 with the activation of has been installed to ensure the program is approved and control (black and monitoring functions and incremental protect the program from malicious program intrusion. white list system) protection mechanisms.
1. In supporting the transfer of responsibility of transactions with The acquirer banking Support the international financial organizations in counterfeited cards by international EMV chips and launching the acquirer bank EMV chip service function organizations, the Bank upgraded the equipment update in through the update of the ATM software and hardware to overall EMV acquiring service of the credit card operation avoid the liability of phony credit cards. ATM . 2. December 2017- on-line Completed. 1. Introduction of the ATM cash Upgrade of ATM cash Introduction of the ATM cash dispensing application dispensing application program dispensing security program encryption module to prevent abnormal cash encryption security mechanism to control mechanisms dispensing beyond normal cash withdrawal service. upgrade ATM system security. 2. December 2017- on-line Completed. Introduction of the functions of court seizure centralization Court seizure and discharge for settlement to simplify the operation and September 2017- on-line Completed. centralization system save manpower of the branches. The Bank will provide information on deposit, loans, and Prosecution and fund trades as per the request of the prosecution and Investigation operation September 2017- on-line Completed. investigation authorities to simplify the operation of the system branches.
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(2)Development plan for the future: R&D spending amounted to NTD 201,770 thousand. Scheduled to Plan in the most recent year Status Key factors to success of future R&D complete in Provide the function of product solicitation and sales with distance System of combined 98% completed. March 2018 maturity with connection to the interface of the sellers of options of products UBS for automatic square up of positions. Installation of mobile interactive credit card statement function to Interactive mobile statements – 70% completed. March 2018 provide customers the service of credit card statement inquiry and credit card statement function payment of bills by installments with the use of a smart phone. Integration of the account Integration of the account opening system with NBT to enhance opening system with 90% completed. March 2018 operation efficiency and minimize data entry errors. connection to the server. Establishment of a more efficient centralized drawdown and limit joint Centralization of drawdown control management system with the integration of the credit 75% completed. March 2018 and limit joint control system information system to enhance drawdown rate. Centralization helps to save human resources and the work load of operation management. The “Inter-branch service” and Customers could use the FXML, OTP, smart banking cards to handle “withdrawal password” “Inter-branch service” and “withdrawal password” Internet banking functions were added to the 90% completed. March 2018 function at home without the necessity of visiting the branch. This also Internet counter of Internet helps to reduce the work load at the counters of the branches. banking. 1. Introduction of fund purchase orders through mobile banking to provide customers of TCB the ability to implement their investment plan with portable devices without the limitation of time and place. 2. Addition of mobile banking customer information management Upgrade of mobile banking center. This center should be able to perform the function of function and information 80% completed. March 2018 information subscription and management. push service 3. Installation of data push service integration back-end management system for integration of the function of the message delivery platform of TCB currently in service (including e-mail and SMS), so as to reduce the use of manpower in operation and the cost of system maintenance. To strengthen the education of the branch staff in compliance and enriching their legal and common knowledge in banking so that they Legal & compliance system 80% completed. March 2018 could duly observe applicable laws and protect the rights and interest of the customers. In responding to the regulations administered by the competent authority for prevention of forged websites and APPs in affecting Mechanism against forged Invitation to March 2018 related right and interest of the Bank indirectly, the Bank has to website and forged APP. tender develop the mechanisms to detect fraud and protect its reputation and the rights and interest of the customers. New bargaining system for Save the cost and time for bargaining over the telephone for real-time 80% completed. April 2018 foreign exchange control of foreign exchange market information. 1. The Bank intensified mobile APP security protection in supporting “Procedures for the Operation of Mobile APP provided by Financial Institutions” so as to protect the rights and interests of the customers. Mobile APP prote4ction and 5% completed. May 2018 2. In supporting the “Self-Examination System of Basic Information information security test Security of Mobile APP” of the Ministry of Economic Affairs, the Bank commissioned professional institutions to conduct Mobile APP security tests to protect the rights and interests of the customers. Adjustment of delivery day accounting to transaction day accounting, Local currency treasury and adopted IFRS 9 in conformity to legal requirements. These help 80% completed. June 2018 management system to reduce the workload of the Treasury Department staff in accounting adjustment. 1. Optimization of system function and provision of services Program for the upgrade of 35% completed. June 2018 supporting a wide array of browsers. the online ATM system 2. Barrier free online ATM for more user-friendly customer service upgrade of the DPS printing System under Improvement of the LOG trail and no grounded data for upgrade of June 2018 system planning personal information security. Real-time book entry of cash System under Provide real-time book entry of cash deposit for corporate account July 2018 deposit function at ATM planning customers Fortify the protection of the SWIFT system in conformity to the SWIFT upgrade installation Customer Security Programme or CSP launched by SWIFT for the System under and SWIFT information September 2018 effective prevention of online attacks and safeguard information planning security reinforcement security at financial institutions, upgrade the protection mechanism of the Internet and reduction of information security risk. Complying with the rules and regulations of the competent authority in monitoring of suspicious transactions for AML/CFT: AML/CFT: monitoring and 1. Banking. control of suspicious System under (1) Product/service – deposit, withdrawal, and remittances. September 2018 transactions in banking, credit planning (2) Product/service – Lending. card, and trust. (3) Product/service –OBU. (4) Financing of terrorism (5) Cross-border transactions 79
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Scheduled to Plan in the most recent year Status Key factors to success of future R&D complete in 2. Monitoring of suspicious transactions of credit card. 3. Monitoring of suspicious transactions of trust. Installation of the HCE banking card mobile payment system to HCE mobile payment System under October 2018 provide customers the convenience of near field payment or cloud (Banking Card) planning payment. 1. Provide overseas ETF trust transaction service for the customers. Upgrade the server of overseas System under October 2018 2. Upgrade the server for trust to fortify transaction security and ETF and trust. planning backup mechanism. 1. Minimize the opportunity of the exposure of password through manual operation to fortify information security. 2. Videotaping system for tracking the operation process of the Preferred account management maintenance staff and keep audit record. image audit trail record, life 10% completed. October 2018 3. Establish the system for the automatic user ID life cycle cycle management management. Related user ID will be created, suspended and deleted at the rotation of duty or resignation of personnel. 4. Establish automatic user ID clearing system to save the time for document circulation, preparation of forms and documents. 1. In managing customer information, different types of Data Mart are available for the sales personnel in analysis and use for the optimal use of digital marketing. Phase I upgrade will 2. Combine with BI real-time analysis and assessment. complete by March 3. Conversion of data into meaningful information to assist The program for upgrade of 2018. enterprises in making the best choice when decision-making. 10% completed. data warehouse hardware Phase II upgrade will 4. Mining of structural data to find out the preference of customers. complete by 5. BI Tool helps to the upgrade different types of data control, December 2018. preliminary analysis capacity, and statements for the corporate headquarters and provides additional training for the users of the corporate headquarters. 6. Compilation and supply of related data in the AML system The new generation of terminal transaction system to solve the Introduction of the smart System under December 2018 problem of obsolete components, difficulty in embedding and terminal system, NAVUTE. planning integration of other systems. Linking and development of Integration of all types of smart branch peripheral application system System under peripheral systems to smart December 2018 for flexible, multitasking human-machine front/back-end operation planning branches interface. 1. Introduction of the mode of big data utilization through the Introduction of big data in System under machine learning platform. December 2018 machine learning planning 2. The evaluation and use of customer service in writing and dialogue robots. 1. Automated service for the efficient processing of routine duties. 2. APP branch and individual performance inquiry with exhibition Continue the introduction and by related charts and graphs. use of the Visual Studio System under December 2018 3. airwatch AD verification. Cordova app and mobile office planning 4. The use of APP QR CODE planning. 5. The introduction and use of AirWatch SDK. 6. Integration of photographs for appraisal for upload and use. 1. Unify the mode of file transmission of the Bank. Upgrade the file transmission 2. Regulations in conformity to the transmission and protection of In procurement December 2018 platform. personal information files. 3. Fortify the retention of record on file transmission. Joint the national payment network to provide the customers more channels for payment of fees and taxes, and the bills for daily Introduction to national 80% completed. December 2018 necessities. Manage and alert or set the function for prearrangement payment network of e-Bill with customers through the analysis of the customer payment information, and provide them related daily expenses service. All documents shall be converted from hard copy to soft copy to save Electronic statement and 30% completed. December 2018 paper and also keep track on the process of the case timely, and avoid online approval system missing documents. 1. Credit card mobile statements. System under Mobile electronic statements December 2018 2. Comprehensive mobile statements (deposit slip, trust, VisaDebbit, planning Gold deposit passbook). In tackling the ceaseless development of hacking technology, and in Upgrade OTP security System under compliance with the “Standard for Financial Institutions in December 2018 mechanism planning Electronic Banking Security Control”, the Bank bolsters the protection mechanisms of its OTP. 1. Make use of information technology to allow for converting documents into electronic format for real-time and less paper operation, and for higher efficiency in document processing. Automated management 2. Upgrade the level of electronic processing of documents and system of electronic In procurement December 2018 integrate with the “financial market electronic document exchange documents platform” installed under the supervision of FSC so as to build a system structure for extension and expansion, and emerge as a complete system for production, management, approval, imaging, and electronic exchange. Internal cloud storage System under December 2018 1. The cloud storage space for expansion of information basic 80
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Scheduled to Plan in the most recent year Status Key factors to success of future R&D complete in equipment and upgrade planning architecture to meet the needs of growth and development of alternate site backup different types of business in the future. 2. Fortify the alternate site remote backup mechanism at Banqiao to ensure the security and integrity of data in the computer room and achievement of the goal of sustainable development. Review the information system and SWIFT system structure for Supervision for the System under December 2018 system upgrade and update, and fortify the security of the SWIFT introduction of SWIFT CSP planning related facilities and information on the transactions. Upgrade the function of information security and event management system, and select the system for upgrade on the basis of the type of Security information and event System under information asset and equipment, the list of backup equipment, system December 2018 management system upgrade planning architecture (segregation of the physical substances and services), expandability and recovery in disaster, supply of intelligence as a threat to information security, and user behavioral exhibitions. Installation of the Bank overseas branch information system to provide overseas staff system support for stable operation with full Installation of information System under December 2018 function and upgrade operation efficiency, better service quality for system for overseas branches planning the customers, and enhance the competitiveness of the Bank with an expansion in the scope of business performance. Provide a diversity of products for transactions and risk control mechanism. The TOM management system in Phase I and Phase II, and the exchange rate options system conversion (including the Financial information system 50% completed. December 2018 evaluation management system) was successfully launched and on derivatives connected in 2017. Phase III and Phase IV customer foreign exchange transaction system and NDF/IRS/CCS system are expected to complete and connected by December 2018. The plan is being launched at different stages and is expected to be complete with the following functions incrementally by December 2018: “Single transaction approval function”, “DB of files” and “Centralized Upgrade of the foreign 15% completed. February 2019 machine activation”. exchange system The following functions are expected to be complete by February 2019: “Optimization of the foreign exchange system”, “JAVA CLIENT”. The foreign exchange process could be simplified with the upgrade of real- time backup capacity. 1. IT service support process (incident, problem, change). 2. Integration of the service standard, customer relation management, supplier management and management system. 3. Introduction in 3 phases. Phase I is for the supervision (module) of the management process and the installation of CMDB (expected Introduction of the ISO20000 Under planning December 2020 to be complete by December 2018). Phase II is the supervision of system with accreditation the service support process (incident, problem, change, and online deployment, and recommendation of the functions for the tools) (expected to be complete by December 2019). Phase III is the validation and accreditation (expected to be complete by December 2020).
(6) Long-term and short-term business development plans 1. Short-term business development plan: Please refer to (3) business plan for 2018. 2. Long-term business development plan: Please refer to Section 3. Future Development Strategies of a Message to Shareholders.
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2. Employees (1) Employees’ information Until February 28, Year 2016 2017 2018
Employee No. More than 50 years old 303 356 380 More than 40 years old 856 796 783 More than 30 years old 551 511 509 More than 20 years old 572 553 571 Less than 20 years old 2 4 4 Total 2,284 2,220 2,247 Average age 38.1 39.0 39.0 Average seniority 10.9 11 10.9
Education Background Master 12.30% 12.30% 12.20%
Bachelor 64.00% 63.65% 63.64%
College 19.30% 18.74% 18.51%
Senior High School 4.40% 5.27% 5.61%
Junior High School 0.00% 0.04% 0.04% Securities sales traders 345 340 344 Investment Insurance Products 1,104 1,094 1,100 Securities investment trust/investment Professional designation and licensing, and number of such employees 166 162 162 advice sales traders Initial credit extension personnel’s 905 864 866 professional ability Advanced credit extension personnel’s 44 44 45 professional ability Futures sales traders 107 107 108 Life Insurance Agent 1,939 1,903 1,900 Bond sales qualified in professional 25 21 21 ability test Initial foreign exchange personnel’s 597 657 671 professional ability Wealth management and planning 488 460 464 personnel Trust Operations Personnel 1,717 1,667 1,678 Bank’s internal control basic test 902 851 851 Senior Securities sales traders 194 181 182 Property Insurance Agent 1,686 1,659 1,670 Notes and bills traders 32 37 37 Marketable securities, financing and 7 7 7 financial instruments sales traders Internal auditor 3 3 3 Stock affairs personnel qualified in 15 21 21 professional ability test Foreign exchange professional ability 13 13 13 Financial personnel’s professional ability in appraising collaterals for 10 10 10 credit extension
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(2) Employees’ advanced studies and training: 1. The Bank organizes different kinds of training programs for different banking functions (e.g.: deposit and remittance, lending, and wealth management), and appoint colleagues in professional standing in respective fields to act as the tutors in internal training for helping the employees in job design and career planning. In 2017, the Bank has organized 140 classes of trainings with 7,298 participants/participations. The spending on education and training amounted to NTD 5,483 thousand in the same period. 2. In attuning to the beats of the changeable market, the Bank requests all employees to get familiarized with the latest knowledge in banking and finance, product information, applicable laws and systems, and market trend in order to provide good qualify professional service to the customers. In practice, the Bank extensively dispatched its personnel to external training for new knowledge. In 2017, the Bank has sent 918 persons/time to participate in external training amounting to NTD 2,327 thousand. 3. Conceived with the corporate philosophy of “We do our best for you”, the Bank has upgraded its belief to “Whole-hearted concern for a bright future” and makes service attitude and common courtesy an integral part of routine training. Through the professional code of conduct and legal education, the Bank makes self-discipline and affection an integral part in customer reception so that each competent employee with integrity will be the foundation of the Bank in sustainable development. (3) Employees’ code of conduct or ethics: posted in the official website of the Bank for announcements for the inquiry and observance of the employees. 1. All employees shall be law abiding and perform their duties with utmost effort. 2. The principles of honesty, integrity, caution, diligence shall be duly observed by all and there shall be no arrogance, greed, luxury, unrestrained, loitering and gambling at the expense of the reputation of the Bank. Be humble and courteous in treating the customers and efficient at work. 3. All employees shall keep the information on the business of the Bank, the customers and their transactions, and any other secretive activities in strict confidence, and shall not disclose to any third party. This code shall be applicable to employees who resigned or discharged from the Bank. 4. Employees shall not have transaction with current customers of the Bank in lending and borrowing, or shall not act as guarantor or the subject of guarantee. 5. Employees shall not act as guarantor under their occupational title. 6. Employees shall not undertake any part-time work beyond the duties of the Bank unless otherwise approved by the Bank. 7. Employees shall not run business homogenous to the operation of the Bank, and shall not engage in any speculative works privately. 8. Except in weekend and recognized holidays, employees shall report to duties in designated span of time, and shall be punctual and shall not leave their duties before the end of the working day. In addition, no employee may be absent from their duties without the approval of the supervisor.
(4) Work environment and employees’ personal safety protection measures: Item Contents 1. Under the precision entrance guard control system all day. Entrance guard 2. Contract with the security company to maintain the safety of the office premises at nighttime and safety holidays. 3. Access to the police authority hotline for caution. 1. According to the Building Public Safety Inspection and Declaration Rules, the Bank will commission Maintenance the profession service provider to conduct the public safety inspection and report per two or four and inspection years. of equipment 2. According to Fire Act, the Bank will outsource the fire inspection per year. 3. Proceed to the maintenance and inspection of company cars, high and low voltage electrical
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appliances, elevators, air-conditioners, water fountain machine, fire safety equipment and related equipment in accordance with applicable laws governing occupational safety and health. The Bank has defined the instructions to rescue disasters and reporting procedure for occupational accidents, such as “Disaster Urgent Response Action Manual”, “Guidelines for Dealing with Important Disaster Contingencies”, “Instructions to Safety Protection and Organization of Relevant Business Units”, prevention “Labor Safety and Health Automatic Inspection Plan”, and “Instructions to Maintenance of Facility measures and Safety”, expressly defining the job responsibilities to be taken by the Bank’s staff before and after response actions important events, such as force majeure and robbery, and also requiring the various business units to perform the robbery-proof drills. 1. The Bank provides the in-service staff with the health inspection service per two years. Physical/mental 2. No smoking at the business locations pursuant to requirements; defining the complaining health requirements and relevant punishment rules against “Sexual Harassment Control”. 3. Set up the inter-bank forum as the opinion exchange platform. Be enrolled in the labor insurance and health insurance programs pursuant to laws. In the case of any casualty, it is necessary to designate the dedicated personnel to safeguard evidence, contact the insurance Insurance company, work with the accidental liability insurance investigation conducted by the employer, filing of the claims and report to the competent authority. 3. Enterprise Responsibilities and Ethical Behavior Refer to III-Corporate Governance Report → IV-The Status of Corporate Governance → (6) The Corporate Social Responsibility → VI-other information critical to the understanding of our bank’s corporate social responsibility and how it is put into practice. 4. Number of non-executive banking staff, average fringe benefit of employee in the year and the difference from the previous year. Amount of Year 2017 2016 difference Number of non-executive 1,549 1,638 (89) banking staff The average fringe benefit NTD 1,169 NTD 1,098 expense of non-executive 71 thousand thousand banking staff 5. IT Equipment (1) Main hardware equipment: Private cloud server group system, private cloud hard disk storage system, NTD main server system, server hard disk storage equipment, virtual tape reader of server, main server laser printer, FX account server, fund accounts server, hardware transaction security module (HSM), open system server group, open system disk storage equipment, Internet and information security equipment, general network equipment, and UPS. (2) Main information systems: NTD accounts, FX accounts, trust, customer service center, credit cards, collection of instruments, CRM application, Internet bank, mobile bank, Web-ATM, and gold passbook systems. (3) Plans for development and procurement in the future 1. Development plan: Interactive mobile statements (credit card statement function), HCE mobile payment (banking card), ATM real-time book entry function for cash deposits, upgrade of overseas ETF system and trust server, integrated account opening interactive server, centralized drawdown and joint limit control, upgrade of mobile banking function and data push service data warehouse hardware, planning of mobile office and introduction and utilization of Microsoft machine learning, product portfolio system, derivative information system, new bargaining system for foreign exchange, SWIFT upgrade, supervision of the introduction of SWIFT CSP, upgrade of mobile banking function and data push service, mechanism for protection against forged website and forged APP,
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protection of mobile APP and information security test, online ATM system upgrade, e- Bill national payment network interface, mobile eStatements, OTP security mechanism upgrade, and eDocument automation management system.
2. Procurement plan: (1) Security information and event management system upgrade: Upgrade the function of information security and event management system, and select the system for upgrade on the basis of the type of information asset and equipment, the list of backup equipment, system architecture (segregation of the physical substances and services), expandability and recovery in disaster, supply of intelligence as a threat to information security, and user behavioral exhibitions. (2) Reinforcement of the IT security: Network security has been effectively protected with several layers of security technologies and measures for reducing the risk of the threat from virus, computer worms, BotNet and other Internet attacks, including the use of firewall, attack prevention system, antivirus portal, and server antivirus. These help to prevent different types of network attacks with accuracy and can respond in real-time to reduce possible damage to the system for overall information security protection. (3) Preferred account management, imaging audit trail record and user ID life cycle management: For the prevention of the hacking and theft of preferred account ID and passwords, and the horizontal movement across the server of the Bank that causes huge financial loss (security event of the ATM, SWIFT of other financial institutions), the Bank installed the account password and audit trail recording management system as the mechanism for user ID control. All passwords of the preferred accounts are centralized for management with routine and from time to time change in the password to prevent the recording or theft from hackers or malicious personnel. In addition, the digital trail of preferred account operation was tracked on record to upgrade the security of the information system of the Bank. (4) Alternate site backup function reinforcement: Broaden the scope of alternate backup site function through the expansion of systems at a lower level of importance further to the critical system already installed. (5) File transmission platform: Installation of the centralized file transmission management platform to fortify the control of personal information files and prevent the leaking of sensitive information and keep the digital trail of file transmission on record. This arrangement is conforming to the requirement of ISO 27001 on ISMS and the requirement of the Personal Information Protection Act. (6) The program for upgrade of data warehouse hardware: After the upgrade of the data warehouse hardware storage capacity and speed, the time for data processing could be compressed for the effective integration of the use of data warehouse and HADOOP platform with an increase in the capacity for the storage of historical data. (7) Installation of the overseas branch information system: Installation of the Bank overseas branch information system to provide overseas staff system support for stable operation with full function and upgrade operation efficiency, better service quality for the customers, and enhance the competitiveness of the Bank with an expansion in the scope of business performance.
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(4) Emergency and safety protection assessments: 1. Various server backup at the Center: (1) “Cross-strait Three Centers” backup facility: The Bank has a main center, two cross- strait sub-centers, and remote backup center to provide synchronous storage services. In addition to have data stored in two sub-centers synchronously for backup service, the important systems are stored in the remote backup center to hedge against the impact of disasters. (2) Server room: There are three sets of UPS with three battery packs installed in the main center, in addition, two sets of generators will keep the server computer in the main center operated normally in case of power failure. (3) Alternate backup site: In the event of a disaster during regular banking hours, the alternate backup site can recover the critical system within 4 hours (such as: NTD, foreign exchange, fund, and network banking) to maintain essential business. (4) The remote backup service drill is performed twice a year to strengthen staff proficiency in operation and integrity of document verification. 2. Business unit backup: (1) Each business unit is with the backup network constructed. (2) The business unit with the linking system failed can operate the process at the nearby branches. (3) The Information Department is equipped with appropriate linking workstation equipment that is ready to support the business unit operation at any time. 3. Data protection and security: (1) The Information Security Section was established on August 1, 2017 to bolster information security. This body is designated for the security of information for the effective execution of the information security plan and protection of the Bank. (2) The Bank introduced the digital copyright and document collaborative management platform for the prevention of data leak and undue use or theft of data. On this platform, sensitive data will be encrypted with file collaborative and sharing function to reduce the risk of data leak. (3) Support the editing of different types of documents for work efficiency and real-time sharing of information and to help upgrade productivity. 4. The Bank’s computer and network equipment are protected against computer viruses and hackers: (1) System (including Server and PC) are equipped with anti-virus software, always updated with the latest virus code, and automatically updated all connected PC. (2) The Bank has multiple backup systems (including traditional backup and continuous snapshot protection) constructed to provide different levels of data protection. (3) Established the network operations monitoring and management system, and implement the network operations monitoring, reports analysis, trend forecasting, performance bottleneck analysis, network setup automatic backup, LOG records and storage, auditing, and tracking. (4) To strengthen the anti-virus and anti-hacking effort, equip the mail content filtering protection system is to screen and control personal information in order to effectively prevent leakage of personal information and enhance information security. With the filtering of junk mails and prohibition the use of external mail IP. Comply with the safety policies and laws and regulations to screen, test, change, produce logs, and archive messages in order to meet the requirement of data reservation. (5) Filtering of webpages and mails: Filter the contents of webpages to reduce the access 86
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of harmful contents (such as malicious software, malicious websites and spam) to the Bank’s intranet, and also prohibit users from accessing live messengers, pornographic websites, illegal software, P2P file sharing, chatroom, streaming media and malicious websites to reduce the computer’s risk of being hacked. (6) Prohibition of connection to external network, USB storage devices, and writing devices to reduce the risk of data leak. (7) An events gathering and analysis system is constructed to manage the copies and filing of the day log collectively and extend the log reservation period in compliance with regulatory requirements. Day log in different formats (layout) can be integrated to collect and index information events, provide fast query and auditing information events, and define the risk level and severity of the information events with the responsible person informed immediately. (8) AD directory service management, teller terminal, general PC and Server are added into AD directory service domain for centralized management and preventing unauthorized use. (9) The network connection of computer equipment is locked to prevent any unauthorized connection of external computer in order to enhance information security. (10) Construct network protection and detection systems, filter Web virus and prevent website tamper, and strengthen network information security. (11) Double firewall mechanisms: Construct firewall in the Internet terminal, internal server, and important area. Double firewalls are configured as thermo backup mode to enhance backup capability. (12) Construct IPS, monitor connection to the DMZ area (such as, network banking, portals, etc.), server area (such as, applied servers, database servers, etc.), and teller’s external website, and may set the sealing and filtering rules according to the actual need and practice in order to initiate an active defense mechanism. (13) The external applied software is programmed with initial code verification mechanism to prevent the occurrence of software vulnerabilities that give hackers chances to attack. (14) Database audit system is to record the user’s accessing to the databases for authorization control and post-even audit. (15) Commission private information security vendors regularly to test the Bank’s network service and information security vulnerability and penetration, and set internal vulnerability scanning system to scan the business systems automatically, and enhance system security mechanism. (16) Proceed with information safety propagation and education per year. (17) Installation of the mobile device management platform, the management of the policy of unified control of external circulation of e-mail via personal and official mobile devices to prevent unauthorized use. 6. Labor-Management Relations (1) Current important employees’ interest, Labor-Management Agreement and the status of execution: 1. Staff fringe benefits (1) Provide labor insurance, national health insurance, and group accident insurance. (2) Remuneration to employees. (3) Scholarships for the children of Staffs. (4) Gifts for three Festival, subsidies for marriage, funeral and other celebrities, funds for travels, and staff birthdays. 87
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(5) Periodic health inspection. (6) Employee shareholding trust 2. Retirement system: (1) Pension will be disbursed to employees under the Retirement Regulation of the Bank. (2) The Bank contributed to the employee pension fund under the Statute for Labor Retirement. (3) Traveling expenses, birthday celebration subsidy and gifts for employees about to retire. 3. Other important benefits: (1) In 2017, 69 banking staff in 2 tiers were dispatched to Jiangnan in China for training. (2) Incentives for employees to obtain relevant licenses and certificates with participation in the “ACAMS” program in 2017 and subsidy for membership fee for 3 years. (3) the Bank seeks to take care of the livelihood and offer better welfare for employees by providing: group injury insurance, accident and medical insurance, term life insurance, and benefit for hospitalization for surgery. 4. Labor-management agreement: None. 5. Employees’ interest and right protection assessments: (1) Personnel Review Committee’s functions: Review of in-service staff’s promotion and performance appraisal guidelines, review of in-service staff’s promotion and performance appraisal cases, and review of employees reward and punishment, review of applications, staff appraisal or reconsideration of the assessment, and other review related matters. (2) The scope of labor-management meeting agenda: Development of labors, business plan and overview of business, mediation of labor-management relations, promotion of labor-management cooperation, labor terms and conditions, labor benefits planning, and enhancement of working efficiency. (2) Labor-management dispute: None. (3) Labor inspection: In 2017, a few branches, including Neihsin Branch, were inspected by the competent authority in labor affairs and were found guilty of violation of Article 24 of the Labor Standard Act with related punishment. For rectification of the defects, TCB reminds the banking staff through computer screens of the off-duty hours. If overtime duty is necessary, employees may link to the overtime duty application system through this page based on which they may request overtime payment or exchange for a day off.
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7. Important Contracts Limitation Major Agreements Nature of Agreement Contracting Parties Term of Agreement Article Maintenance Mainframe alternate site backup NEC Taiwan Ltd. 2015.2.1-2018.12.31 None agreement system maintenance program Maintenance Foreign exchange mainframe NEC Taiwan Ltd. 2017.1.1-2019.12.31 None agreement system update maintenance Appointment of supervision and Labor service Towerway Architects & 2016.1.5- Construction technical design services for the procurement None Associates completed construction of the corporate contracts headquarters new building Security guards at corporate Service agreement Goyun Security Co., Ltd. 2017.7.1-2019.6.30 None headquarters Security guards at the banking Service agreement Goyun Security Co., Ltd. 2017.9.1-2019.8.31 None locations Service agreement Leebao Security Co., Ltd. 2014.6.1-2018.5.31 Outsourced fund delivery None
Leebao Security Co., Ltd. ATM cash loading and problem Service agreement 2016.3.4-2018.3.3 None Anfeng Enterprise Co., Ltd. elimination service Transnational Group of Outsourced financial instruments Service agreement 2016.6.21-2018.6.20 None Companies and documents courier service 8. Securitized products and related information: None.
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VI. Financial Status 1. Balance sheet and comprehensive income statement in the last five years Brief Consolidated Balance Sheet-IFRS Unit: NTD thousand Year Financial information for the most recent five years Item 2013 2014 2015 2016 2017 Cash and cash equivalent, Due from 81,087,462 91,867,062 96,325,425 100,322,582 45,122,695 Central Bank and lend to Banks Financial liabilities at fair value through 12,195,016 13,011,606 31,693,725 22,383,134 31,210,074 profit and loss Available-for-Sale Financial Assets 19,197,158 20,711,997 23,770,062 37,455,220 31,615,817 Bonds and securities sold under 4,550,801 1,545,361 6,994,022 3,627,189 11,283,082 repurchase agreements Receivable- net 6,485,651 8,118,751 6,653,345 9,802,310 13,658,151 Current income tax asset 57,372 1,021 5,895 6,313 5,701 Notes discounted and loans – net 362,916,674 384,382,280 391,083,582 425,166,259 430,857,960 Held-to-maturity financial assets 3,340,584 1,418,003 5,559,399 14,276,270 85,542,095 Investment by equity method - net 142,654 140,282 136,612 130,935 128,113 Restricted assets 164,290 341,093 535,475 285,234 249,003 Other financial assets – net 1,158,259 1,206,142 1,090,841 1,171,178 1,067,625 Property, plant, and equipment – net 3,416,335 5,103,786 9,271,750 9,436,524 9,387,663 Invest in investment property – net - - - 78,268 45,250 Intangible assets – net 97,380 143,759 183,995 166,769 160,054 Deferred tax assets – net 391,478 579,650 759,682 713,301 681,396 Other assets 1,011,621 1,479,607 1,566,905 2,081,215 2,009,404 Total assets 496,212,735 530,050,400 575,630,715 627,102,701 663,024,083 Due to Central Bank and banks 8,341,508 10,697,387 3,864,104 11,617,728 9,518,872 Funds borrowed from Central Bank and 4,968,239 3,499,960 3,132,454 4,199,858 5,120,940 other banks Financial liabilities at fair value through 74,800 133,360 179,557 162,792 207,225 profit and loss Bills and bonds sold under repurchase 358,769 273,573 273,312 4,222,258 4,307,810 agreements Payables 4,420,341 7,363,659 5,181,226 9,805,707 13,331,722 Current Tax Liability 292,018 218,945 386,746 60,890 255,559 Customer deposits and remittances 429,704,469 455,966,124 504,863,979 539,809,008 566,094,780 Financial bonds payable 16,042,869 14,400,000 15,900,000 13,000,000 17,500,000 Other financial liabilities 111,741 340,296 279,014 807,967 1,057,866 Liability reserve 348,829 777,562 1,095,522 1,307,838 1,389,979 Deferred tax liabilities 111,021 111,021 111,021 111,021 111,021 Other liabilities 400,541 512,056 417,791 615,599 726,369 Before 465,175,145 494,293,943 535,684,726 585,720,666 619,622,143 Distribution Total liabilities After 465,688,702 495,006,820 537,276,727 587,501,638 - Distribution Equity of the parent company Capital stock 25,345,339 28,515,063 31,840,027 32,381,307 32,931,789 Capital surplus 675,435 683,751 684,156 684,156 684,156 Before 5,050,993 6,402,783 7,073,521 8,302,938 9,601,018 Distribution Retained earnings After 2,958,195 3,864,942 4,940,239 5,971,484 - Distribution Other equity (34,177) 154,860 348,285 13,634 184,977 Before 31,037,590 35,756,457 39,945,989 41,382,035 43,401,940 Distribution Total equity After 30,524,033 35,043,580 38,353,988 39,601,063 - Distribution Note: The financial information for the most recent years has been audited by accountant.
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Brief Individual Balance Sheet-IFRS Unit: NTD thousand Year Financial information for the most recent five years Item 2013 2014 2015 2016 2017 Cash and cash equivalent, Due from 80,856,904 91,009,735 95,411,081 99,539,483 44,065,970 Central Bank and lend to Banks Financial liabilities at fair value through 12,057,223 12,989,306 31,527,246 22,215,900 30,965,512 profit and loss Available-for-Sale Financial Assets 19,008,479 20,595,620 23,665,097 37,330,850 31,192,871 Bonds and securities sold under repurchase 4,550,801 1,545,361 6,994,022 3,627,189 11,283,082 agreements Receivable- net 2,769,426 3,206,796 2,656,553 4,074,854 6,329,074 Current income tax asset 56,589 - - - - Notes discounted and loans – net 362,450,039 383,570,399 390,315,171 423,900,603 429,656,232 Held-to-maturity financial assets 3,340,584 1,418,003 5,559,399 14,276,270 85,542,095 Investment by equity method - net 2,694,057 4,106,028 4,324,242 4,498,154 4,735,107 Other financial assets – net 1,158,259 1,206,142 1,090,841 1,171,178 1,067,625 Property, plant, and equipment – net 3,371,423 5,050,610 9,208,471 9,371,517 9,296,259 Invest in investment property – net - - - 78,268 22,750 Intangible assets – net 90,231 98,797 141,887 124,544 115,605 Deferred tax assets – net 421,461 565,541 732,369 660,071 635,955 Other assets 770,353 1,185,689 1,240,375 1,679,982 1,581,823 Total assets 493,595,829 526,548,027 572,866,754 622,548,863 656,489,960 Due to Central Bank and banks 8,341,508 10,697,387 3,864,104 11,617,728 9,518,872 Funds borrowed from Central Bank and 2,086,000 - - - - other banks Financial liabilities at fair value through 74,800 133,360 179,557 162,792 207,225 profit and loss Bills and bonds sold under repurchase 358,769 273,573 273,312 4,222,258 4,307,810 agreements Payables 3,964,393 6,775,222 4,367,328 9,125,347 12,195,742 Current Tax Liability 266,823 162,662 342,773 13,662 223,235 Customer deposits and remittances 430,698,048 457,207,953 506,546,470 541,242,709 567,255,591 Financial bonds payable 16,042,869 14,400,000 15,900,000 13,000,000 17,500,000 Other financial liabilities 7,605 1,620 369 73,496 43,434 Liability reserve 537,040 777,562 1,095,522 1,307,838 1,389,979 Deferred tax liabilities 111,021 111,021 111,021 111,021 111,021 Other liabilities 225,578 251,210 240,309 289,977 335,111 Before 462,714,454 490,791,570 532,920,765 581,166,828 613,088,020 Distribution Total liabilities After 463,228,011 491,504,447 534,512,766 582,947,800 - Distribution Equity of the parent company Capital stock 25,345,339 28,515,063 31,840,027 32,381,307 32,931,789 Capital surplus 675,435 683,751 684,156 684,156 684,156 Before 4,894,778 6,402,783 7,073,521 8,302,938 9,601,018 Distribution Retained earnings After 2,801,980 3,864,942 4,940,239 5,971,484 - Distribution Other equity (34,177) 154,860 348,285 13,634 184,977 Before 30,881,375 35,756,457 39,945,989 41,382,035 43,401,940 Distribution Total equity After 30,367,818 35,043,580 38,353,988 39,601,063 - Distribution Note: The financial information for the most recent years has been audited by accountant.
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Brief Consolidated Income Statement-IFRS Unit: NTD thousands, Earnings Per Share: NTD Year Financial information for the most recent five years Item 2013 2014 2015 2016 2017 Interest revenue 9,917,145 11,116,277 11,591,190 11,473,495 12,078,007 Less: interest expense 3,606,878 3,954,300 4,116,426 3,686,021 3,892,000 Net interest income 6,310,267 7,161,977 7,474,764 7,787,474 8,186,007 Net income other than interest income 2,953,985 3,553,022 2,627,977 3,005,162 3,208,748 Net revenue 9,264,252 10,714,999 10,102,741 10,792,636 11,394,755 Bad debt expense and guaranty reserve (1,864,173) (1,982,816) (744,283) (801,040) (1,124,859) Operating expenses (3,863,100) (4,508,965) (5,221,901) (5,847,533) (5,914,684) Income before tax from continuing 3,536,979 4,223,218 4,136,557 4,144,063 4,355,212 operations Income tax (expense) gain (476,708) (484,893) (659,525) (629,248) (722,670) Current year profit of continuing business 3,060,271 3,738,325 3,477,032 3,514,815 3,632,542 units Income from discontinued operations - - - - - Current year net profit (net loss) 3,060,271 3,738,325 3,477,032 3,514,815 3,632,542 Current period other comprehensive income (175,831) 51,515 (75,028) (486,768) 168,335 (net, after tax) Current period other comprehensive income 2,884,440 3,789,840 3,402,004 3,028,047 3,800,877 (Gross) Net profit attributable to parent company 3,060,271 3,738,325 3,477,032 3,514,815 3,632,542 Net profit attributable to non-controlling - - - - - interest Comprehensive income, gross, and net 2,884,440 3,789,840 3,402,004 3,028,047 3,800,877 profit attributable to parent company Comprehensive income, gross, attributable - - - - - to non-controlling interest Earnings per share 1.07 1.22 1.12 1.07 1.10 Note 1: The financial information for the most recent years has been audited by accountant. Note 2: Due to the Bank’s capital increase by recapitalization of earnings in 2011 to 2016, the 2013 to 2016 weighted average number of shares outstanding and “earnings per share" is adjusted retrospectively. Brief Individual Income Statement-IFRS Unit: NTD thousands, Earnings Per Share: NTD Year Financial information for the most recent five years Item 2013 2014 2015 2016 2017 Interest revenue 9,748,834 10,790,389 11,250,261 11,104,933 11,591,419 Less: interest expense 3,577,160 3,890,334 4,044,283 3,605,776 3,768,078 Net interest income 6,171,674 6,900,055 7,205,978 7,499,157 7,823,341 Net income other than interest income 2,663,824 3,085,127 2,106,154 2,278,773 2,524,738 Net revenue 8,835,498 9,985,182 9,312,132 9,777,930 10,348,079 Bad debt expense and guaranty reserve (1,834,591) (1,889,937) (692,292) (690,250) (946,897) Operating expenses (3,498,586) (3,937,408) (4,552,008) (5,005,195) (5,131,544) Income before tax from continuing 3,502,321 4,157,837 4,067,832 4,082,485 4,269,638 operations Income tax (expense) gain (442,050) (419,512) (590,800) (567,670) (637,096) Current year profit of continuing business 3,060,271 3,738,325 3,477,032 3,514,815 3,632,542 units Income from discontinued operations - - - - - Current year net profit (net loss) 3,060,271 3,738,325 3,477,032 3,514,815 3,632,542 Current period other comprehensive (175,831) 51,515 (75,028) (486,768) 168,335 income (net, after tax) Current period other comprehensive 2,884,440 3,789,840 3,402,004 3,028,047 3,800,877 income (Gross) Net profit attributable to parent company - - - - - Net profit attributable to non-controlling - - - - - interest Net comprehensive income attributable to - - - - - the shareholders’ of parent company. Comprehensive income, gross, attributable - - - - - to non-controlling interest Earnings per share 1.07 1.22 1.12 1.07 1.10 Note 1: The financial information for the most recent years has been audited by accountant. Note 2: Due to the Bank’s capital increase by recapitalization of earnings in 2011 to 2016, the 2013 to 2016 weighted average number of shares outstanding and “earnings per share" is adjusted retrospectively. 92
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The names of CPA conducting financial audits in the most recent five years and their audit opinions Year 2013 2014 2015 2016 2017 Audit Min-Shen Yang Min-Shen Yang Wen-Ya Hsu Wen-Ya Hsu Wen-Ya Hsu Deloitte & Touche Tzu-Chun Wang Kuan-Chung Lai Kuan-Chung Lai Kuan-Chung Lai Kuan-Chung Lai Modified Standard Standard Standard Standard unqualified Audit opinions unqualified unqualified unqualified unqualified opinions opinion opinion opinion opinion (Notes) Note: The Bank started to apply the amended Criteria for the Compilation of Financial Statements by Public Banks, which came into effect in 2015. Due to the retroactive adjustment of the financial statements compiled before the application of the new criteria and the items under influence, modified unqualified opinion was given.
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2. Financial Analysis for the most recent five years Consolidated Financial Analysis - IFRS Year Financial Analysis for the most recent five years Analytical items 2013 2014 2015 2016 2017 Loans to deposits ratio (%) 85.47 85.49 78.69 79.91 77.22 NPL ratio (%) 0.58 0.34 0.33 0.58 0.42 Interest expenses to annual 0.88 0.89 0.86 0.71 0.70 average deposit ratio (%) Interest income to annual Operating 2.78 2.85 2.86 2.68 2.67 average loan ratio (%) ability Total assets turnover (times) 0.02 0.02 0.02 0.02 0.02 Average operation revenue 4,171 4,513 4,041 4,175 4,584 per employee (thousand) Employee average profit rate 1,378 1,575 1,391 1,360 1,461 (thousand) Return on Category I Capital 12.31 12.85 11.11 10.38 10.45 (%) ROA (%) 0.65 0.73 0.63 0.58 0.56 Profitability ROE (%) 10.38 11.22 9.19 8.64 8.57 Net profit rate (%) 33.03 34.89 34.42 32.57 31.88 Earnings per share (NTD) 1.05 1.20 1.10 1.07 1.10 Liabilities to total assets ratio 93.67 93.11 92.87 93.19 93.24 Financial (%) structure Ratio of real estate and 11.01 14.27 23.21 22.99 21.73 equipment to equity (%) Asset Growth Rate (%) 11.52 6.81 8.60 8.94 5.73 Growth rate Profit Growth Rate (%) 5.38 19.40 (2.05) 0.18 5.10 Cash flow ratio (%) - 39.76 151.10 93.46 42.69 Cash flow adequacy ratio (%) 1,021.91 693.72 460.70 585.81 541.28 Cash flows Cash flow for operating to cash flow from investing ratio - (1,341.35) (157.17) (118.41) (21.15) (%) Liquidity Reserve Ratio (%) 20.76 20.3 25.25 23.1 25.9 Related party secured loans (%) 1,596,200 1,662,958 1,711,302 1,736,138 1,757,611 Related party secured loans to total loan 0.42 0.41 0.42 0.39 0.38 ratio (%) Asset market share (%) 0.97 0.95 0.99 1.05 1.07 Operating Market share of net worth (%) 1.02 1.06 1.10 1.08 1.08 Scale Market share of deposits (%) 1.25 1.25 1.30 1.35 1.36 Market share of loans (%) 1.64 1.66 1.64 1.72 1.66 Explanation for the reason of 20% changes in financial ratios in the past two years: 1. Cash flow ratio decreased from 2016: mainly due to thedecrease of net cash flow from operation amounting to NTD13.966 billion from NTD27.877 billion in 2016 to NTD13.911 billion in 2017. 2. Cash flow adequacy ratio decreased from 2016: mainly due to the cash dividends in 2017 and in the period of the last 5 years showed an increase of NTD1.669 billion from 2016 and the period of the last 5 years. 3. Cash flow adequacy ratio is higher than 2016: mainly because the net cash flow from investment in 2017 was –NTD66.024 billion. As compared with –NTD23.543 billion in 2016, the cash flow from investment increased by NTD42.481 billion.
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Individual Financial Analysis - IFRS Year Financial Analysis for the most recent five years Analytical items 2013 2014 2015 2016 2017 Loans to deposits ratio (%) 85.17 85.08 78.27 79.46 76.85 NPL ratio (%) 0.58 0.34 0.33 0.58 0.42 Interest expenses to annual 0.88 0.88 0.84 0.69 0.68 average deposit ratio (%) Interest income to annual average Operating 2.74 2.77 2.78 2.60 2.57 loan ratio (%) ability Total assets turnover (times) 0.02 0.02 0.02 0.02 0.02 Average operation revenue per 4,355 4,814 4,239 4,281 4,661 employee (thousand) Employee average profit rate 1,508 1,802 1,583 1,539 1,636 (thousand) Return on Category I Capital (%) 12.60 13.30 11.38 10.50 10.52 ROA (%) 0.65 0.73 0.63 0.59 0.57 Profitability ROE (%) 10.38 11.22 9.19 8.64 8.57 Net profit rate (%) 34.64 37.44 37.34 35.95 35.10 Earnings per share (NTD) 1.05 1.20 1.10 1.07 1.10 Liabilities to total assets ratio 93.64 93.06 92.84 93.14 93.18 Financial (%) structure Ratio of real estate and 10.86 14.13 23.05 22.84 21.47 equipment to equity (%) Asset Growth Rate (%) 11.00 6.68 8.80 8.67 5.45 Growth rate Profit Growth Rate (%) 4.99 18.72 (2.16) 0.36 4.58 Cash flow ratio (%) - 58.28 229.85 122.31 56.94 Cash flow adequacy ratio (%) 1,404.64 877.02 528.45 660.22 603.28 Cash flows Cash flow for operating to cash - (575.47) (152.55) (125.01) (22.07) flow from investing ratio (%) Liquidity Reserve Ratio (%) 20.76 20.30 25.25 23.1 25.9 Related party secured loans (%) 1,596,200 1,662,958 1,711,302 1,736,138 1,757,611 Related party secured loans to total loan ratio 0.42 0.41 0.42 0.39 0.38 (%) Asset market share (%) 0.96 0.95 0.99 1.05 1.06 Operating Market share of net worth (%) 1.02 1.06 1.10 1.08 1.08 Scale Market share of deposits (%) 1.25 1.25 1.31 1.35 1.37 Market share of loans (%) 1.64 1.66 1.63 1.71 1.66 Explanation for the reason of 20% changes in financial ratios in the past two years: 1. Cash flow ratio decreased from 2016: mainly due to thedecrease of net cash flow from operation amounting to NTD14.487 billion from NTD29.617 billion in 2016 to NTD15.130 billion in 2016. 2. Cash flow adequacy ratio decreased from 2016: mainly due to the cash dividends in 2017 and in the period of the last 5 years showed an increase of NTD1.669 billion from 2016 and the period of the last 5 years. 3. Cash flow adequacy ratio is higher than 2016: mainly because the net cash flow from investment in 2017 was –NTD65.63 billion. As compared with –NTD23.691 billion in 2016, the cash flow from investment increased by NTD41.939 billion.
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Note 1: The financial information for the most recent five years and the consolidated financial information have been audited. Note 2: Equations for financial analysis: 1. Operating ability (1) Loans/deposits ratio = Total amount/total deposits (2) NPL rate = Total non-performing loans/Total amount (3) Interest expense to average annual deposit balance ratio = total interest expenses/average annual deposit balance (4) Interest income to average annual loan balance ratio = total interest incomes/average annual loan balance (5) Total assets turnover rate = Earnings/Average total assets (6) Employee average return (Note 6) = Earning/Total Employee No. (7) Employee average profit rate = Earnings/Total Employee No. 2. Profitability (1) Return on Category I Capital = EBT/Average total amount of Category I capital. (2) ROA = Income after taxation/Average total assets. (3) ROE = Income after taxation/Average net shareholders equity. (4) Profit rate = Income after taxation/income-net (5) Earnings Per Share = (earnings – dividends from preferred shares)/weighed average quantity of outstanding shares. (Note 4) 3. Financial structure (1) Liabilities to total assets =Total liabilities/total assets. (2) Fixed assets to net worth =net total assets/net shareholders’ equity. 4. Growth rate (1) Asset growth rate = (Total assets of current year – total assets of previous year)/total assets of previous year. (2) Profit growth rate = (EBT of current year – EBT of previous year)/EBT of previous year. 5. Cash flow (Note 7) (1) Cash flow ratio= net cash flow from operation /(Call loans and overdraft from banks + payable CP + financial liabilities which change in fair value is recognized as gain (loss) + R/P and bond liabilities + current portion of payables). (2) Net cash flow adequacy rate= net cash flow from operation in the last 5 years/ (capital spending + Cash Dividends) in the last 5 years. (3) Cash flow satisfied rate = Cash flow from operation/ cash flow from investments. 6. Liquidity Reserve Ratio = Central Bank Required Current Assets/Allowance for liquidity of liabilities. 7. Operating Scale (1) Asset market share rate = Total assets/Total assets of all financial institutions available for making deposits and loans) (Note 5) (2) Net worth market share rate = Net worth/total net worth of all financial institutions available for making deposits and loans (3) Deposit market share rate = Total deposits/Total deposits of all financial institutions available for making deposits and loans (4) Loan market share rate = Total amount/Total amount of all financial institutions available for making deposits and loans Note 3: The total liabilities amount is net of guarantees reserve and accidental losses reserve. Note 4: The following shall be considered in assessing the equation for EARNINGS PER SHARE as aforementioned: 1. Weighted average quantity of shares is on the basis of common stock, not the outstanding shares as of the end of the year. 2. The quantity of new shares for raising new capital or treasury stock trade shall be included in the weighted average quantity of shares during their effective term. 3. Where the shares may be issued through the capitalization of retained earnings or capital surplus, make adjustment in proportion to the quantity of shares issued in calculating the semi-annual or annual EARNINGS PER SHARE of the year. The period for the release of such new shares may be omitted. 4. If the preferred stock is non-convertible cumulative preferred stocks, dividend for the year (issued or not) shall be subtracted from earnings or added to earnings. 5. If the preferred stock is non-cumulative preferred stocks, dividend on the preferred stock shall be subtracted from earnings after income tax, if any. If there are no earnings after income tax, no adjustment shall be made. Note 5: Financial institutions that can undertake deposits and withdrawals included domestic banks, branches of foreign banks in Taiwan, Credit Unions, Credit Departments of Farmers and Fishermen Associations, and investment trust firms. Note 6: Return rate refers to the total of incomes from interests and other sources. Note 7: Consider the followings in conducting cash flow analysis: 1. Net cash flow from operation refers to net cash inflow from operation as stated in the Statement of Cash Flow. 2. Capital spending refers to the cash outflow to annual capital investments. 3. Cash Dividends includes the dividends in cash paid to holders of common shares and preferred shares. 4. Gross fixed assets refer to total fixed assets before subtracting by accumulated depreciation.
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Consolidated Capital Adequacy Unit: NTD thousands Year Consolidated Capital adequacy ratio in the last five years Analytical items 2013 2014 2015 2016 2017 Total Regulatory Common equity 30,473,315 35,259,138 39,168,173 40,657,462 42,684,265 Capital Capital Additional Tier I Capital - - 1,418,736 2,938,095 8,938,801
Tier II Capital 11,507,948 9,847,617 8,910,027 7,541,979 7,052,422
Total Regulatory Capital 41,981,263 45,106,755 49,496,936 51,137,536 58,675,488
Credit Risk Risk Credit Standardized 335,983,142 368,631,467 392,678,002 440,149,629 435,612,899 Approach Internal Ratings------Based Approach Asset Securitization - - - - -
Total assets risk-weighted Basic Indicator 11,659,675 13,340,988 15,742,475 17,584,625 19,674,450 Operational R Operational Approach Standardized Approach/Alternative - - - - - Standardized Approach isk isk Advanced Measurement - - - - - Approach Standardized Market 4,724,850 5,442,150 6,018,175 8,772,225 7,570,075 Risk Risk Approach Internal Model - - - - - Approach
Total risk-weighted assets 352,367,667 387,414,605 414,438,652 466,506,479 462,857,424
Capital adequacy ratio 11.91% 11.64% 11.94% 10.96% 12.68%
Proportion of Tier I capital to risk- 8.65% 9.10% 9.79% 9.35% 11.15% weighted assets
Proportion of Common equity to 8.65% 9.10% 9.45% 8.72% 9.22% risk-weighted assets
Leverage ratio - - 6.66% 6.50% 7.37% Explain the changes of capital adequacy ratio in the last 2 years. (Causal analysis is not necessary for the change below 20%.): Causal analysis is not necessary for the change below 20%. Note: 1. The aforementioned 5 fiscal years have been reviewed by certified public accountants with the issuance of review reports. 2. The regulatory capital, risk-weighted assets, and total exposure in this table are calculated according to the regulations in “Regulation on Bank Capital Adequacy and Capital Categories” and “Clarification on Bank Equity Capital and Risk Capital Calculation Methods and Forms.” 3. The capital adequacy calculation formula is as follows: (1) Total regulatory capital = Common equity + Additional Tier I capital +Tier II Capital. (2) Total amount of risk-weighted-assets = Credit risk-weighted assets + Capital charge of (operational risk + market risk) x 12.5. (3) Capital Adequacy ratio = Total regulatory capital / Total amount risk-weighted assets. (4) The ratio of Tier I capital to risk-weighted assets = (Common equity + Additional Tier I capital )/Total risk-weighted assets. (5) Ratio of common stock equity to risk assets = Common stock equity / Total risk weighted assets. (6) Leverage ratio = Net Tier I capital / Total exposure. 4. Disclosure of leverage ratio started since 2015.
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Individual Capital Adequacy Unit: NTD thousands Year Individual capital adequacy ratio in the last five years Analytical items 2013 2014 2015 2016 2017
Total Regulatory Common equity 29,204,762 33,321,226 38,163,374 39,607,883 41,576,965
Capital Capital Additional Tier I - - 371,829 1,846,291 7,787,052 Capital Tier II Capital 10,232,246 7,794,370 6,750,442 5,306,435 4,629,062 Total Regulatory 39,437,008 41,115,596 45,285,645 46,760,609 53,993,079 Capital
Credit Risk Risk Credit Standardized 331,126,416 361,365,256 385,991,245 431,561,571 425,267,057 Approach Internal Ratings------Based Approach Asset - - - - - Securitization
Total assets risk-weighted Basic Indicator 11,464,900 12,915,750 14,902,738 16,367,475 17,893,063 Approach Operational Risk Risk Operational Standardized Approach/ Alternative - - - - - Standardized Approach Advanced Measurement - - - - - Approach
Market Standardized Risk Risk 4,311,475 5,045,538 5,383,488 8,124,425 6,369,638 Approach Internal Model - - - - - Approach Total risk-weighted 346,902,791 379,326,544 406,277,471 456,053,471 449,529,758 assets Capital adequacy ratio 11.37% 10.84% 11.15% 10.25% 12.01% Proportion of Tier I capital to 8.42% 8.78% 9.49% 9.09% 10.98% risk-weighted assets Proportion of Common 8.42% 8.78% 9.39% 8.68% 9.25% equity to risk-weighted assets Leverage ratio - - 6.37% 6.25% 7.13% Explain the changes of capital adequacy ratio in the last 2 years. (Causal analysis is not necessary for the change below 20%.): Causal analysis is not necessary for the change below 20%. Note: 1. The aforementioned 5 fiscal years have been reviewed by certified public accountants with the issuance of review reports. 2. The regulatory capital, risk-weighted assets, and total exposure in this table are calculated according to the regulations in “Regulation on Bank Capital Adequacy and Capital Categories” and “Clarification on Bank Equity Capital and Risk Capital Calculation Methods and Forms.” 3. The capital adequacy calculation formula is as follows: (1) Total regulatory capital = Common equity + Additional Tier I capital + Tier II Capital. (2) Total amount of risk-weighted-assets = Credit risk-weighted assets + Capital charge of (operational risk + market risk) x 12.5. (3) Capital Adequacy ratio = Total regulatory capital / Total amount risk-weighted assets. (4) The ratio of Tier I capital to risk-weighted assets = (Common equity + Additional Tier I capital)/Total risk-weighted assets (5) Ratio of common stock equity to risk assets = Common stock equity / Total risk weighted assets. (6) Leverage ratio = Net Tier I capital / Total exposure. 4. Disclosure of leverage ratio started since 2015.
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3. Audit Committee’ Review Report on the Financial Statement of 2017 Taichung Commercial Bank Co., Ltd. Audit Committee’ Review Report
The financial statements of the parent company only and consolidated financial statements in FY2017 of the Bank have been audited by the certified public accountants of Deloitte Taiwan with the issuance of auditors’ reports, which were released together with the report on operation and proposal for distribution of earnings. The Auditing Committee has review the aforementioned reports and statements and determined that they are presented fairly. Pursuant to Article 14-4 of the Securities and Exchange Act and Article 219 of the Company Act, we hereby present the report for your reference.
To: 2018 Shareholders’ meeting, Taichung Commercial Bank Co. Ltd.
Chairman of Audit Committee
Hsin-Chang Tsai
March 13, 2018
4. Consolidated financial statements 2017: See Appendix One. 5. Financial statements 2017: See Appendix Two. 6. In the case of any insolvency of the Bank and its affiliates: None.
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VII. Review and analysis of financial condition and results, and Risk management matters 1. Financial Analysis Unit: NTD thousand Year Variation 2017 2016 Item Amount % Cash and cash equivalent, Due from Central 45,122,695 100,322,582 (55,199,887) (55) Bank and lend to Banks Financial assets at fair value through profit and 31,210,074 22,383,134 8,826,940 39 loss Bonds and securities sold under repurchase 11,283,082 3,627,189 7,655,893 211 agreements Receivable- net 13,658,151 9,802,310 3,855,841 39 Current income tax asset 5,701 6,313 (612) (10) Notes discounted and loans – net 430,857,960 425,166,259 5,691,701 1 Available-for-Sale Financial Assets 31,615,817 37,455,220 (5,839,403) (16) Financial assets held to maturity 85,542,095 14,276,270 71,265,825 499 Stocks- equity method-net 128,113 130,935 (2,822) (2) Restricted assets – net 249,003 285,234 (36,231) (13) Other financial assets – net 1,067,625 1,171,178 (103,553) (9) Property, plant, and equipment – net 9,387,663 9,436,524 (48,861) (1) Invest in investment property – net 45,250 78,268 (33,018) (42) Intangible assets – net 160,054 166,769 (6,715) (4) Deferred tax assets – net 681,396 713,301 (31,905) (4) Other assets 2,009,404 2,081,215 (71,811) (3) Total assets 663,024,083 627,102,701 35,921,382 6 Due to Central Bank and other banks 9,518,872 11,617,728 (2,098,856) (18) Funds borrowed from Central Bank and other 5,120,940 4,199,858 921,082 22 banks Financial liabilities at fair value through profit 207,225 162,792 44,433 27 and loss Bills and bonds sold under repurchase 4,307,810 4,222,258 85,552 2 agreements Payables 13,331,722 9,805,707 3,526,015 36 Current Tax Liability 255,559 60,890 194,669 320 Customer deposits and remittances 566,094,780 539,809,008 26,285,772 5 Financial bonds payable 17,500,000 13,000,000 4,500,000 35 Other financial liabilities 1,057,866 807,967 249,899 31 Liability reserve 1,389,979 1,307,838 82,141 6 Deferred tax liabilities 111,021 111,021 - - Other liabilities 726,369 615,599 110,770 18 Total liabilities 619,622,143 585,720,666 33,901,477 6 Capital stock 32,931,789 32,381,307 550,482 2 Capital surplus 684,156 684,156 - - Retained earnings 9,601,018 8,302,938 1,298,080 16 Other equity 184,977 13,634 171,343 1,257 Total equity 43,401,940 41,382,035 2,019,905 5
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Analysis of variance: (1) The decrease of call loans from the Central Bank and banks is because the CD at the Central Bank was converted into transferable CD stated as financial assets held to maturity. (2) The increase of financial assets at fair value through income statements is the result of the additional purchase of short-term bills. (3) The decrease of financial assets available for sale was caused by the decrease of government bonds and corporate bonds. (4) The increase of financial assets held-to-maturity was caused by the additional purchase of bonds denominated in CNY, USD, and AUD. 2. Financial Performance Analysis Unit: NTD thousands, Earnings Per Share: NTD Variation Ratio Item 2017 2016 Variation % Net interest income 8,186,007 7,787,474 398,533 5 Net income other than interest income 3,208,748 3,005,162 203,586 7 Bad debt expense and guaranty reserve (1,124,859) (801,040) 323,819 40 Operating expenses (5,914,684) (5,847,533) 67,151 1 Income before tax from continuing 4,355,212 4,144,063 211,149 5 operations Income after taxation of continued 3,632,542 3,514,815 117,727 3 operations Net income 3,632,542 3,514,815 117,727 3 Earnings per share 1.10 1.07 0.03 3 3. Cash flows (1) Cash flow analysis for the next year (Consolidated) Unit: NTD thousand Expected net cash Remediation measures against Expected net Beginning of year flow of investing Cash surplus expected cash flow deficit operating cash cash balance and financing (deficit) flow for the whole Wealth c activities for the c為d+e Investment yeard management whole yeare 15,001,051 15,028,170 (15,242,824) 14,786,397 - - Analysis of variance in cash flows: 1. Operating activities: Expecting that the Bank will work hard to develop its business and upgrade the fund utilization effect in 2018. It is expected that earnings will be generated in the year to contribute to the net cash inflow from operating activities. 2. Investment: mainly because of the increase of the estimated financial assets on the basis of cost after amortization that resulted in net cash outflow from investment. 3. Financing: it is estimated that there will be net cash outflow from financing due to the issuance of subordinated bank debentures and other debt instruments and the release of cash dividends in 2018, and net cash outflow for investment and financing throughout the whole year. (Individual) Unit: NTD thousand Expected net cash Remediation measures against Expected net flow of investing expected cash flow deficit Beginning of year operating cash Cash surplus and financing cash balancec flow for the whole (deficit)c+d+e Wealth activities for the Investment yeard management whole yeare 13,944,328 14,826,100 (15,314,200) 13,456,228 - - Analysis of variance in cash flows: 1. Operating activities: Expecting that the Bank will work hard to develop its business and upgrade the fund utilization effect in 2018. It is expected that earnings will be generated in the year to contribute to the net cash inflow from operating activities. 2. Investment: mainly because of the increase of the estimated financial assets on the basis of cost after amortization that resulted in net cash outflow from investment. 3. Financing: it is estimated that there will be net cash outflow from financing due to the issuance of subordinated bank debentures and other debt instruments and the release of cash dividends in 2018, and net cash outflow for investment and financing throughout the whole year. 101
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(2) Corrective action against insufficient liquidity: N/A. 4. The material effect on financial structure from substantial capital expenditure in the last few years (1) Major capital expenditure and funding sources Unit: NTD thousand Actual and Actual and expected Actual and expected capital utilization Plans expected funding source completion date 2016 2017 2018 2019 Commissioning for the design of the new building for the corporate Self-owned Capital 2022.10 headquarters The construction of the new building Self-owned Capital 2022.10 for the corporate headquarters Microsoft Enterprise Licensing Self-owned Capital 2016.3 preferential project Update of the network security Self-owned Capital 2016.8 protection system The update and expansion of cloud Self-owned Capital 2016.12 environment “Shared component CUF and private cloud PAAS” system development Self-owned Capital 2017.3 architecture platform API Management platform Self-owned Capital 2017.3 Installation of ATM system security Self-owned Capital 2017.12 control Upgrade of the API management Self-owned Capital 2018.12 mechanism Inter-data center virtual storage device Self-owned Capital 2018.12 The program for upgrade of data Self-owned Capital 2018.12 warehouse hardware Reinforcement of remote backup Self-owned Capital 2018.12 from alternate site Update of automation equipment Self-owned Capital 2018.12 Reinforcement of the IT security Self-owned Capital 2018.12 system 151,470 81,129 1,229,632 1,805,095 Preferred account management image audit trail record, life cycle Self-owned Capital 2018.12 management File transmission server Self-owned Capital 2018.12 management system Application system performance management monitoring and mobile Self-owned Capital 2018.12 office APP system Installation of the overseas branch Self-owned Capital 2018.12 information system New bargaining system for foreign Self-owned Capital 2018.12 exchange Financial derivatives Self-owned Capital 2018.12 Financial information systems Upgrade the security control of Internet banking and the tools for the detection of Self-owned Capital 2018.12 forged websites and application programs. Upgrade of the foreign exchange Self-owned Capital 2019.2 system Appointment of the ISO 20000 IT Self-owned Capital 2019.12 service management system New teller terminal system Self-owned Capital 2019.12 Update of the financial engraving Self-owned Capital 2019.12 machine Installation of an account management Self-owned Capital 2020.12 system server for local currency 102
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(2) Projected potential benefits 1. Construction of the new building of the corporate headquarters: this will be a symbolic, professional, benchmarking and image of a vision of sustainability and the creation of a new corporate brand heading for another century of operation. 2. The update and expansion of the virtual server: the introduction of different new systems for responding to the needs of the launch of different projects by the Bank, such as customer service system update, the mobile payment system, the module for interfacing with the cyber shopping malls, network operation and change management system, that dictate for the expansion of the virtual equipment resources. In consideration of the high performance and backup, testing and development needs in the formal environment that the expansion of fundamental resources will be necessary. 3. Additional storage devices: Currently there are two sets of storage devices to provide important storage service; however, there are many new systems (such as, network banking, customer service, collections, gold passbook, and other new systems), virtual environment expansion, information security enhancement requirements (Personal Information Protection Act), and internal i-cloud needs to be fulfilled but the existing storage space and speed is insufficient to meet demand; also, the outdated fiber optic switch is replaced. The said project expansion, in addition to provide adequate physical resources, will help strengthen the management, expansion, and reliability of i-cloud. 4. Microsoft Enterprise Licensing preferential project: The FSC has made the protection of information a top priority due to the implementation of the Personal Information Protection Act to strengthen information security and computer management as an important project to the Bank (including e-mail server upgrade, information security and file protection, Microsoft AD directory service management enhancement, etc.). The Bank’s computers are mostly Microsoft products; therefore, Microsoft products are the main solution to have information security enhanced and personal data protected. Therefore, it is necessary to purchase the right to use for each personal computer. The EA purchase will help reduce the cost of software upgrade (the Bank had purchased the products without buying the upgrade service; therefore, a new purchase is necessary for any product upgrade) and lower the overall cost. 5. Inter-data center virtual storage equipment: introducing cloud storage architecture with software/hardware equipment that allows for the integration of data stored in our private cloud, and dual-activity and dual-center architecture and the phase out of storage equipment after the service period to satisfy the needs of uninterrupted service and operation risk control so as to maximize the benefit of TCB. 6. Upgrade of Internet security and protection system: According to certain statistical figures, security control equipment for web page content can effectively block improper web page traffic, and e-mail content security equipment can effectively screen out malicious software and junk mails. The Bank has successfully launched broadband management and the prevention of malicious software with sound result. From the launch of web page and e-mail security control equipment, the equipment has been subject to adjustment in its default value from the feedback of the users of the Bank, and has maintained a proper balance between the compatibility of programs, service efficiency optimization, and the prevention of online attack. As such, the Bank planned to upgrade the equipment specification and renew the warranty contract for another 3 years. The detection and behavioral analysis of the network packing of the intrusion prevention system helps the Bank block the latest malicious software, zero-time attack, Botnet and DDoS attack. 7. The update and expansion of cloud environment: (1) Addition of the mainframe server that supports the virtualization functions for 103
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replacement or upgrade the obsolete servers. (2) Expand related software and hardware in supporting different business systems. 8. “Shared component CUF and private cloud PAAS” system development structure platform: Introduce a complete standardized software development process and establish program development standard and basic module so that the systems can be easily developed and maintained and the maintenance of high efficiency cross-platform application program structure. The introduction of the PASS private cloud service platform helps to upgrade the capacity of cloud management. 9. API application management platform: development of diversified banking service channels, broaden the clientèle base and increase business volume with enhancement of system transaction security, shorten the time for system development and reduce the cost of development. 10. Program for the upgrade of data storage hardware: after the upgrade of the data warehouse hardware storage capacity and speed, the time for data processing could be compressed for the effective integration of the use of data warehouse and HADOOP platform with an increase in the capacity for the storage of historical data. 11. Fortification of alternate site backup: Banqiao Center can provide alternate site remote support in Taiwan, foreign countries, funds, and online banking. Due to the limitation of bandwidth of the network, part of the system cannot be backed up at an alternate site. For the continuity of operation and to avoid the risk of interruption, an alternate site remote backup function will be reinforced. 12. Update of automation equipment (1) Enhance the efficiency of automation equipment to satisfy the needs of inter-bank deposits. (2) Upgrade service quality and condense the lead-time. (3) Upgrade information security requirement and reduction of the risk of intrusion. 13. Preferred account management, imaging audit trail record and user ID life cycle management: For the prevention of the hacking and theft of preferred account ID and passwords, and the horizontal movement across the server of the Bank that causes huge financial loss (security event of the ATM, SWIFT of other financial institutions), the Bank installed the account password and audit trail recording management system as the mechanism for user ID control. All passwords of the preferred accounts are centralized for management with routine and from time to time change in the password to prevent the recording or theft from hackers or malicious personnel. In addition, the digital trail of preferred account operation was tracked on record to upgrade the security of the information system of the Bank. 14. File transmission server management system: Installation of the centralized file transmission management platform to fortify the control of personal information files and prevent the leaking of sensitive information and keep the digital trail of file transmission on record. This arrangement is conforming to the requirement of ISO 27001 on ISMS and the requirement of the Personal Information Protection Act. 15. Fortification of information system security: in response to the demand for the fortification of information security of TCB from the Bankers’ Association in writing, and for the reinforcement of protection against different kinds of known malicious programs and threat to information security, TCB conducted analysis on the traits and behaviors of different information security equipment so as to respond to the threats to information security on due time and strengthen the capacity to prevent hacker intrusion of the system. 16. Introduction of the ISO 20000 IT service management system: the introduction of the 104
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ITIL (Information Technology Infrastructure Library) helps to upgrade the development of the Information Department in information management with significant results. The accreditation of ISO/IEC20000-1:2005 is solid proof of the good quality information services provided by the department. With the introduction of ITIL, the Bank hopes that functional transformation of the Information Department could be in place, thereby proceeding to customer-oriented and service management procedure improvement, improving the quality of information service and the satisfaction of the internal information service users. 17. Update the acquirer banking service EMV chip and equipment for credit card operation: in supporting the EMV chip of UnionPay acquirer service, the Bank updates its ATM software to avoid the liability of transactions with forged cards. 18. Derivative information system: provides a diversity of derivative trade and risk control mechanism, sharing of the TOM management system, exchange rate options conversion system (including the evaluation management system), customer foreign exchange transaction system, and NDF/IRS/CCS system. 19. Upgrade of the foreign exchange system: simplification of the foreign exchange system process and upgrade the capacity in real-time backup. The function includes single inward approval, file DB format, centralized server activation, optimization of the foreign exchange system, and JAVA CLIENT. 20. Installation of the overseas branch information system: in response to the needs of Taiwanese business, the Bank has made its best efforts to set up the system at overseas branches. Provide stable, secure and full function overseas branch information system to upgrade the operation efficiency and service quality of all overseas branch staff, augment the scale of the Bank in international banking and enhance operation performance. 21. Improvement of the account management server for local currency: solve the structural problem inherent to the processing function of the system, upgrade the efficiency of new services, and reduce the cost of system development and provide 24-hour service, 365 days of the year for the efficient use of system resources. 5. Direct investment policy, the main reasons for profit or loss, and corrective action plan in the most recent year, and investment plan in the next year (1) Direct investment policy in the most recent year: The Bank engaged in the internal to meet the business development demand for the purpose of establishing the complete financial product transaction platform and ensuring the Bank’s sustainable operation and business growth. The external direct investment made by the Bank complied with the Government’s financial and economic policies, and assessed the ideal investment objects to upgrade the service quality in the entire financial market. (2) Root cause of investment gains or loss in the most recent year: The Bank is used to adhering to the stable management philosophy. The performance of businesses invested by the Bank appears to be fair in risk control, business development and cooperative promotion of business. The entire performance appears to continue earning profit for the time being. (3) Corrective action plan: In addition to continuing enhancing the risk control and cooperative promotion of business in the invested companies, the Bank will carefully review the performance and business expansion. (4) Investment plan in the year ahead: The Bank has no new investment plan in FY2018 105
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6. Risk Management (1) Qualitative and quantitative information about the various risks 1. Credit risk management system and capital requirement: Credit risk management system 2017 Item Contents 1. Credit risk strategies, 1. Credit risk strategies and objectives: objectives, policies (1) Comply with The New Basel Capital Accord and upgrade the Bank’s risk management ability. and processes (2) Develop well-founded risk management mechanisms and execute them strictly. (3) Strengthen the loan asset portfolio quality, risk management information integration, analysis, control and precautionary effect, and play the role of risk management. 2. Credit risk policies: (1) Establish the business strategies and organizational culture valuing credit risk management and provide the qualitative and quantitative management method as the reference for enactment of business strategies. (2) Establish the entire credit risk management system to be executed by the Bank’s Board, the management and employees jointly, and control the various business risks to the tolerable extent through identification, assessment, control and report of risks in the qualitative and quantitative management manner, so as to achieve the Bank’s credit risk objectives. (3) Establish the effective method and control procedure to control the adequacy of the deposits/withdrawals to ensure the shareholders’ equity as the first priority. 3. Credit risk management process: Risk identification, assessment, control and report including: (1) Define the credit risk management related regulations. (2) Establish credit risk Corporate Application Scorecard rating model. (3) Establish monitoring mechanism and set limits for each type of credit facilities. (4) Upgrade the entire asset quality and establish the proper management mechanism. (5) Continue developing and executing stress tests for credit risks. (6) Review and report periodically. 2. Credit risk 1. Board of Directors: management The supreme decision-making entity in credit risk management of the bank, and takes the ultimate organization and responsibility for the Bank's credit risk management. structure 2. Risk Management Committee: Risk Management Committee takes charge of the Bank’s credit risk management mechanism, review of the credit risk regulations and the multi-departmental communication and coordination of credit risk management, and continuous supervision of the performance, according to the risk management policy authorized by the Board. 3. Loan Superviaion Committee and Credit Review Committee of the business department: Review the credit extension applications in accordance with the credit extension policies, credit extension authorization rules and the relevant requirements. 4. Non-Performing Loans Review Committee: The Committee processes the Non-Performing Loans, receivables on demand and bad debt in accordance with the Rules for Establishment of Non-Performing Loans Review Committee, Rules for Allowance for Loss of Asset Evaluation and Collection of Non-Performing Loans, Receivable on Demand and Bad Debt, and the relevant requirements. 5. Risk Management Dept.: (1) Credit Risk Management Department is the Bank’s unit dedicated to the risk management, responsible for planning, establishing and integrating the Bank’s credit risk management and executing the Bank’s entire credit risk management control. (2) Be responsible for the study, design, or recommendation for revising the credit risk management policy and related regulations of the Bank, and report to relevant level of management or the Board for final approval. (3) Summarize the Bank’s credit risk information periodically and report it to the Risk Management Committee and the Board. (4) Establish the Bank’s entire framework of assess, control and qualitative and quantitative management method. 6. Business management units of Head Office: Fully understand the credit risk of the underlying business according to the Bank’s risk management policies and norms in order to substantiate the risk management tasks and help the Risk Management Department complete risk monitoring of the Bank taking as a whole. 7. Banking units: (1) Comply with the Bank’s rules for credit investigation, credit extension and credit risk management, fulfill the routine jobs and risk management, and report the risk to the various business supervisory departments. (2) Routine work integrated with the risk control, and identify the accuracy and integrity of the operation information. 106
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Item Contents 8. Audit Office of the Board: Audit Office of the Board will periodically audit the execution of the Bank’s credit risk management system impartially and independently, and provide the suggestions about corrective actions. 3. Scope and 1. Scope and characteristics of credit risk report: characteristics of (1) The Board’s report (Comprehensive risk report). credit risk report and (2) Risk Management Committee report (Comprehensive risk report). measurement system (3) Asset quality report. (4) Report for the individual limit in the various countries. (5) Stress test report. 2. Credit risk assessment system includes: (1) Capital requirement calculation platform information system. (2) Credit investigation and extension system. (3) Debt collection management system. (4) Credit review and precaution management system. (5) Corporate Application Scorecard System. (6) Country Risk Management System 4. Credit risk hedging or 1. Establish the risk control mechanism to control the credit risk of individual credit extension and credit mitigation policies, extension portfolio; the control mechanism includes the limit management, past due loan and effective management, collateral management and asset quality management. strategies and process 2. Continue to enhance the credit account guarantee by demanding collaterals, guarantors, or transfer of for controlling risk SME credit guarantee fund in order to execute credit risk hedging or offset. hedging and 3. Cope with the domestic and foreign economic conditions and industrial development, control mitigation tools industrial risk and adjust the limit on the credit extension rate of the industry to disperse risk. 5. Approach for regulatory Capital Standardized Approach Charge
Exposure and capital requirement under the credit risk standardized approach after risk mitigation December 31, 2017 Unit: NTD thousands
Type of exposure Exposure after risk mitigation Capital requirement
Sovereigns 103,806,930 9,298 Non-central government public 0 0 sector entities (PSEs) Banks (including multilateral 33,294,730 1,216,109 development banks-MDBs) Corporates (including securities 210,405,858 16,166,487 and insurance companies) Retail 198,404,216 13,441,921
Residential mortgage 56,904,944 2,165,626
Equity securities investments 29,000 2,320
Other assets 68,050,846 1,017,713
Total 670,896,524 34,019,474
2. Risk management system, exposure amount, and capital requirement of securitization: The Bank does not handle securitization business.
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3. Operational risk management system and capital requirement: Operational risk management system 2017 Item Contents 1. Operational risk 1. Operational risk management strategies: By establishing and executing the sound operational risk management management mechanism, the Bank manages the operational risk actively, generally evaluates the strategies and frequency and effect of the various potential risks in routines and management and takes the processes appropriate counter-assessments to avoid, transfer or write off, control and bear the risk to reduce the substantial loss and frequencies. 2. Operational risk management process: (1) Risk identification The risk identification approaches include Loss Data Collection (LDC), Key Risk Indicators (KRIs), Risk and Control Self Assessment (RCSA), audit report and external loss event. (2) Risk evaluation and assessment Assess such factors as possibility and effect of the risks as identified. The loss events collected are classified in accordance with the 7 major types of loss and 8 major types of businesses defined by the competent authorities. Define the risk assessment matrix of different risk areas and risk values in accordance with the impact or severity of risk and the possibility of risk; classify risk as extremely high risk, high risk, moderate risk, and low risk for quantitative analysis. (3) Risk control Control the operational risk events, KRIs and risk control exposure, quality of risk write-off and control actions, and the effect of other cases. (4) Risk report Report the information about operational risk exposure to Risk Management Committee and the Board periodically. 2. Operational risk 1. The operational risk management organization includes the Board, Risk Management Committee, Risk management Management Dept., the business management units, units of the Bank, all staff and Audit Office of the organization and Board. The authorities and responsibilities of the organizations are specified below: structure (1) Board of directors The Bank’s highest decision-making unit of operational risk management is responsible for the review and approval of operational risk management significant events. (2) Risk Management Committee Administer operational risk management mechanism, as well as review the operational risk of the Banks’ products, activities, procedures, and system and the operational risk management of the business units within the head office, and continue to monitor the execution and performance. (3) Risk Management Dept. Responsible for researching and drafting the Bank’s operational risk management policies and procedures, establishing and centrally managing the Bank’s operational risk loss database, collecting, summarizing and analyzing the information about loss, and reporting it to Risk Management Committee and the Board periodically. (4) Business management units of Head Office Understand the risks confronting the business administered by the Bank to its entirety. Institution of regulations for the management of different business operations including risk management. Proper supervision of the execution of the regulations and assistance to the Risk Management Department to monitor and control various risks. (5) Units of the Bank Comply with and implement the operational risk management rules, and report the risk events pursuant to the requirements. (6) Whole staff The whole staff shall be responsible for dealing with the operational risk jointly, and shall implement the operational risk management tasks within their functions. (7) Audit Office of the Board Audit Office of the Board shall conduct the audit independently, assess and audit the effectiveness of the Bank’s operational risk management structure and processes, and provide the suggestions for corrective action in a timely manner. 2. The Bank has set up 3 lines of defense in internal control for making the internal control system perfect and vitalizing the organization. The detail is specified below: (1) The 1st line of defense ( business units and trading units under the head office, or units which duties related to the 1st line of defense). These functional units administer their respective duties and routine operation within the scope of assignment and authorization and assume related risks (transaction-based), and are responsible for the identifying and managing risk. They shall establish and implement related internal control procedures addressing to the characteristics of these risks and all aspects of related business. (2) The 2nd line of defense (Risk Management Department, Legal and Compliance Department, and other designated bodies of the Bank) These functions will assist and supervise the 1st line of defense by their professed duties to identify and manage related risks (risk-based), and are also responsible for the making of the overall risk 108
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Item Contents management policy of TCB for each major type of risk, supervision of the overall risk tolerance and current exposure to risks, and reporting to the Board or senior management the status of risk control. (3) The 3rd line of defense (The Auditing Office of the Board) This body is responsible for the conduct of internal audit in impartiality, and assists the Board and the top management in examining and assessing if the risk management and internal control system are effective (risk-based), including the assessment of the effectiveness of risk monitoring and control of the 1st line of defense, and provide timely recommendation to ensure reasonable pursuit of the internal control system perpetually and effectively. The findings of audit are also served as reference for the review and revision of the internal control system. 3. Scope and When measuring the Operational risk, each unit of the Bank shall analyze the cause, consequence, characteristics of frequency and effect thereof and conclude the degree of individual risk to verify the exposure of the Bank’s operational risk report Operational risk. The Bank also made record of various exposures. By introducing the Operational risk and measurement identification, assessment and measurement, control and report management mechanism, the Bank system establishes and centrally manages the database for the Bank’s Operational risk losses and summarizes the Operational risk information and implementation status, and submit the report and suggestions to Risk Management Committee and reporting them to the Board for approval. 4. Operational risk For intensifying the monitoring and control of operational risk, the Bank established Key Risk Indicators hedging or mitigation and Risk Control Self Assessments according to the four dimensions of operational risk, i.e. internal policies, and effective procedure, people, systems, and external events. In addition, the Bank will observe the changes in the said strategies and process indicators, and can transfer or write off the loss and impact of incidents caused by operational risk through for controlling risk insurance and outsourcing in part or in whole for the effective reduction of loss deriving from operation hedging and risk. mitigation tools 5. Approach for regulatory Capital Basic Indicator Approach Charge Capital requirement for operational risk December 31, 2017 Unit: NTD thousands
Year Gross profit Capital requirement
2015 9,061,814
2016 9,514,872
2017 10,052,221
Total 28,628,907 1,431,445 4. Market risk management system and capital requirement: Market risk management system 2017 Item Contents 1. Market risk 1. The Bank’s market risk management strategy is to develop the sound and effective market risk management management strategies mechanism. The mechanism shall correspond to the Bank’s business scale, nature and complexity to ensure and processes the proper management of the market risk to be borne by the Bank and seek the balance between the tolerable risk level and expect return level. 2. The Bank’s market risk management process covers the risk identification, evaluation, assessment, control and report. The contents thereof cover the market risk related to the Bank’s major traded products, trading activities, process and system. (1) Risk identification: The Bank’s relevant units identified the source of market risk by means of business analysis or product analysis to define the market risk factors of the various financial products (the market risk factors were categorized as interest rate risk, foreign, equity securities price risk and commodity price risk) and the relevant requirements. (2) Risk evaluation and assessment: Establish an effective valuation mechanism to evaluate the income of position precisely, and conduct the independent market price evaluation procedure with respect to the short-term investment position for which the reference market price is available. Establish the quantitative model step by step to assess the market risk in such manners as sensitivity analysis, VaR calculation, scenario drill and stress testing, and integrated with the routine risk management. (3) Risk control: Define the relevant rules governing excess of limit, stop-loss mechanism and operating procedure for excess of limit in order to control the market risk effectively. 109
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Item Contents (4) Risk report: Report to the Risk Management Committee and the Board on the status of overall market risk management of the Bank at regular intervals. In case of significant change in the market, related functional units shall report immediately to reduce market risk. Disclose the Bank’s market risk information to the public periodically pursuant to the competent authority’s requirements. 2. Market risk The Bank’s market risk management organization and structure includes the Board, Risk Management management Committee, Risk Management Dept., business supervisory units, business trading units and Audit Office of organization and the Board. The authorities and responsibilities of the organizations are specified below: structure 1. Board of Directors: The Board is the supreme decision-making unit in market risk management of the bank, and takes the ultimate responsibility for the Bank's market risk management. 2. Risk Management Committee: Control the risk management mechanism according to the market risk management policies approved by the Board. 3. Risk Management Dept.: Risk Management Dept. is the unit dedicated to the Bank’s market risk management, responsible for consolidating and executing the Bank’s entire market risk management. 4. Business supervisory departments of head office: Business supervisory departments of head office are responsible for managing and supervising the necessary risk management tasks to be executed by business trading units and working with Risk Management Department to complete the control of the Bank’s risks. Meanwhile, they are also responsible for defining the proper limit control, stop-loss mechanism and operating procedure for excess of limit with respect to the products and process of transaction. 5. Business trading units: Business trading units are responsible for executing the risk identification, assessment and measurement, and taking appropriate countermeasures in accordance with the Bank’s market risk management rules. Take positive action in monitoring the enforcement of different limits, and report to the supervisors or notify Risk Management Department as required. 6. Audit Office of the Board: Audit Office of the Board executes the market risk management auditing business independently and provides the suggestions for corrective action. 3. Scope and Each business trading unit shall submit trading information related to the market risk to the business characteristics of supervisory unit and Risk Management Dept. Risk Management Dept., shall consolidate and summarize the market risk report and information and present the report to Risk Management Committee and the Board. The contents of said report measurement system cover all market risk positions and ensure that the various transactions are conducted under authorization and the specific limitation. 4. Market risk hedging or The Bank’s transactions subject to market risk have defined the limits of the various investment objects in the mitigation policies, and relevant rules. The specific limit is also set against the trading counterpart based on its credit rating and effective strategies and financial status to prevent the operation of fund from being highly concentrated. Each business trading unit processes for shall adjust the operational position according to the change in the relevant market environments under the controlling risk authority granted to it, and adopt any available derivative product to hedge risk in a timely manner and execute hedging and mitigation the relevant stop-loss mechanism whenever necessary. Said relevant requirements shall be reviewed and tools revised subject to the operation plan, business development and changes in the entire financial environment. 5. Approach for Standardized Approach regulatory Capital Charge Capital requirements for market risk December 31, 2017 Unit: NTD thousands Type of risk Capital requirement Interest rate risk 269,250 Equity securities risk 186,212 Foreign Exchange risk 54,109 Commodity risk 0 Total 509,571
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5. Liquidity risk includes the analysis of maturity of assets and liabilities, and the management method for asset liquidity and capital gap liquidity. Liquidity risk refers to the risk arising from the maturity date or scale on the maturity date of assets and liabilities not compatible that causes the obtained fund insufficient to pay for the assets acquired or liabilities due for payment. The liquidity risk management model adopted by the Bank is divided into the daily risk management and strategic assessment; also, it is processed in accordance with the Bank’s “Asset-liability management policy,” “Liquidity Risk Management Policy,” and “Liquidity Risk Management Enforcement Rules.” For daily risk management, the Finance Department collects the operating conditions and related management reports daily for the review of the risk management personnel. The relevant measurement indictors include Loans to deposits ratio, Liquidity Reserve Ratio, excess liquidity reserve ratio, and matured capital gap ratio. For the strategic assessment, the “analysis of maturity structure of NTD and foreign currency” is prepared monthly to conduct liquidity scenario analysis. In addition, the Bank conducts the stress test on liquidity risk quarterly with the assumptions that the overall market environment is in crisis and the operation of particular bank is also in crisis that the Bank monitor the situations by the number of days covered by realizable value of assets, and report to the Assets and Liabilities Management Committee, the Risk Management Committee, and the Board.
Analysis of maturity structure of NTD December 31, 2017 Unit: NTD thousands Remaining balance to maturity Total 181 days to 1 More than 1 0 to 10 days 11 to 30 days 31 to 90 days 91 to 180 days year year Main capital inflow upon 598,141,237 109,914,586 30,498,374 29,468,061 51,262,425 88,329,183 288,668,608 maturity Main capital outflow upon 710,537,090 36,411,396 37,325,982 88,778,387 108,514,499 171,244,522 268,262,304 maturity
Gap (112,395,853) 73,503,190 (6,827,608) (59,310,326) (57,252,074) (82,915,339) 20,406,304
Analysis of maturity structure of USD December 31, 2017 Unit: US thousands Remaining balance to maturity Total 181 days to 1 More than 1 0 to 30 days 31 to 90 days 91 to 180 days year year Main capital inflow upon 2,057,206 472,931 288,565 317,306 100,961 877,443 maturity Main capital outflow upon 2,875,529 557,042 748,449 554,700 839,630 175,708 maturity Gap (818,323) (84,111) (459,884) (237,394) (738,669) 701,735
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(2) The influence and the responding measures of the amendment on the domestic and foreign major policies and the laws and the regulations exerting on the bank’s financial business: 1. To fortify the increasing importantance of the Anti-Money Laundering (“AML”)/Combating the Financing of Terrorism (“CFT”) mechanism, the Bank will continue to comply with applicable laws and reguations in the system planning and the establishment of hardware and software. In 2017, the competent authority has promulgated (amended) the “Regulations Governing AML of Financial Institutions”, “Directions Governing Internal Control System of Anti-Money Laundering and Countering Terrorism Financing of Banking Business, Electronic Payment Institutions and Electronic Stored Value Card Issuers, and “Template of Directions Governing Anti-Money Laundering and Countering the Financing of Terrorism of Banks. Likewire, the Bank has amended “the Policy of AML/CFT of Taichung Commercial Bank”, and “ the Operation Guidelines for the Risk Assessment on Anti- Money Laundering of Taichung Commercial Bank” and provided related education training to all its employees. In providing innovative service in finance and banking business, the Bank never hesitates to pay attention to the implementation on AML/CFT and Legal compliance. 2. The Bank positively operated in cooperation to relevant measures in response to the promulgation of the competent authority in related amendments to the applicable laws and regulations with no siginificant influence on the Bank’s financial position and business operation. (3) The effect of technological and industrial changes on the Financial Status and operation of the Bank and countermeasures: None. (4) The influence of the change in the image of the Bank on crisis management and the responses: None. (5) Expected result and possible risks of mergers and acquisitions and Counter assessments: None. (6) Expected result for establishing more business locations, possible risk and countermeasures: None. (7) The risk confronting the over concentration of business, and countermeasures: None. (8) The effect of change in the management produced to the Bank, possible risk and countermeasures: None. (9) The massive transfer of equity shares by directors, or dominant shareholders holding more than 1% of the outstanding shares of the Bank, the risk and countermeasure: None. (10) Contentious matters and non-contentious matters: None. (11) Other major risks and counter-assessments: None. 7. Crisis management mechanism For the rapid settlement of unusual withdrawal and deposits, massive draining of capital, severe damage to the good will of the Bank and other crisis in operation, or the handicap of solvency and ability to repay debts, due to unanticipated factors, has established the “Emergency Response Handbook” as guideline. For fortifying the security measures and functions of all banking units and for the upgrading of security protection, the Bank has established the “Regulation for Security Management”. In addition, the “Emergency Response Team” and the “Security Supervision Team” have also been set up to deal with emergency and take appropriate actions. For the preservation of the information system in an emergency, has established the “Guidelines for Business Continuity Management” so that the personnel of the Bank can maintain normal operation of the information system in case of emergency. 8. Other important notes: None. 112
112 TAICHUNG BANK 2017 ANNUAL REPORT
VIII.Special Notes 1. Information regarding the bank’s subsidiaries (1) Consolidated Report on business operations: 1. Chart showing the bank’s subsidiaries
Taichung Commercial Bank Co., Ltd.
100% 100% 100%
Taichung Commercial Bank Taichung Bank Insurance Taichung Bank Leasing Securities Co., Ltd. Brokers Co., Ltd. Co., Ltd.
100%
TCCBL Co.,Ltd.
100%
Taichung Commercial Bank Leasing (Suzhou) Ltd.
2. Profiles of the bank’s subsidiaries Unit: NTD thousand Date of Paid-in shares Name of enterprise establishm Address Major operations Capital ent
Controlling company: Taichung Commercial Bank 1953.08.26 No. 87, Min Chuan Road, West District, 32,931,789 Banking business as Co., Ltd. Taichung permitted under the Banking Act. Subsidiary companies: Taichung Bank Insurance Brokers 2007.09.26 No. 80-4, Ching Hua N. Rd., Peitun 1,056,000 Insurance Co., Ltd. Dist., Taichung brokerage.
Taichung Bank Leasing Co., Ltd. 2012.01.13 4F-5, No.50, Sec. 1, Xinsheng S. Rd., 1,850,000 Leasing Operation. Zhongzheng Dist., Taipei City TCCBLCo.,Ltd. 2012.06.13 P.O.Box957,Offshore Incorporations 893,373 Leasing and Centre,RoadTown,Tortola,BritishVirginIs investments. lands. Taichung Commercial 2012.12.11 Room 2, F4, Property Business Plaza, 893,373 Leasing. Bank Leasing (Suzhou) Ltd. No.158, Wangdun Road, Industrial Park of Suzhou, Jiangsu Taichung Commercial Bank 2013.05.02 1, 2F, No. 45, Min Zu Rd., Central Dist., 1,500,000 Securities and Securities Co., Ltd. Taichung futures business
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TAICHUNG BANK 2017 ANNUAL REPORT 113
3. Profiles of Directors, Supervisors and Presidents of the bank’s subsidiaries Unit: Thousand shares Status of shareholding Name of enterprise Title Company name or representative Ratio of Quantity Shareholding Controlling company: Taichung Chairman Representative to Hsu Tian Investment Co., Ltd.: 43,515 1.32% Commercial Bank Chin-Yuan Lai 690 0.02% Co., Ltd. Vice Chairman Representative to Hsu Tian Investment Co., Ltd.: 43,515 1.32% Kuei-Fong Wang 372 0.01% Managing Director Representative to Hsu Tian Investment Co., Ltd.: 43,515 1.32% Ming-Hsiung Huang - - Director Representative to Hsu Tian Investment Co., Ltd.: 43,515 1.32% Hsin-Ching Chang - - Ching-Tai Huang 134 - Wei-Liang Lin - - Te-Wei Chia 128 - Director Representative to Ho Yang Management Consultant 1,749 0.05% Co., Ltd.: - - Director Chien-Hui Huang 190,683 5.79% Representative of Pan Asia Chemical Corporation: - - Independent director Ming-Shan Chuang - - Independent director Jin-Yi Lee - - Independent director Li-Woon Lim - - President Hsin-Chang Tsai 128 - Te-Wei Chia Subsidiary companies: Taichung Bank Chairman Taichung Commercial Bank Co., Ltd. Representative: 105,600 100.00% Insurance Brokers Kuei-Fong Wang - - Co., Ltd. Director Taichung Commercial Bank Co., Ltd. Representative: 105,600 100.00% Kai-Yu Lin - - Li-Tzu Lai - - Supervisor Taichung Commercial Bank Co., Ltd. Representative: 105,600 100.00% Chung-Ping Yang - - Chairman Taichung Commercial Bank Co., Ltd. Representative: 185,000 100.00% Taichung Wei-Liang Lin - - Bank Leasing Director Taichung Commercial Bank Co., Ltd. Representative: 185,000 100.00% Co., Ltd. Ming-Hsiung Huang - - Kuo-Ming Lo - - Yi-Yuan Tung - - Kuo-Chun Liu - - Supervisor Taichung Commercial Bank Co., Ltd. Representative: 185,000 100.00% Hsin-Ching Chang - - Chairman Taichung Bank Leasing Co., Ltd. Representative: 30,000 100.00% Kuo-Ming Lo - - TCCBL Co., Ltd. Chairman Taichung Bank Leasing Co., Ltd. Representative: - 100.00% Hsueh-Hsuan Liao - - Taichung Director Taichung Bank Leasing Co., Ltd. Representative: - 100.00% Commercial Wei-Liang Lin - - Bank Leasing Jui-Yang Lin - - (Suzhou) Ltd. Supervisor Taichung Bank Leasing Co., Ltd. Representative: - 100.00% Hsin-Ching Chang - - Chairman Taichung Commercial Bank Co., Ltd. Representative: 150,000 100.00% Ching-Tai Huang - - Director Taichung Commercial Bank Co., Ltd. Representative: 150,000 100.00% Chin-Min Liao - - Taichung Chun-Sheng Lin - - Commercial Bank Yi-Yuan Tung - - Securities Co., Ltd. Supervisor Taichung Commercial Bank Co., Ltd. Representative: 150,000 100.00% Chen-Ying Wu - -
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114 TAICHUNG BANK 2017 ANNUAL REPORT
4. Operation overview of the bank’s subsidiaries Unit: in NTD thousand unless otherwise specified Earnings Per Net income Income (loss) Income (loss) Share (NTD) Name of enterprise Capital Total assets Total liabilities Equity (loss) before taxation after taxation (After taxation) Controlling company: Taichung Commercial 32,931,789 656,489,960 613,088,020 43,401,940 10,348,079 4,269,638 3,632,542 1.10 Bank Co., Ltd.
Subsidiary companies: Taichung Bank Insurance 1,056,000 1,704,438 272,202 1,432,236 734,211 327,004 256,409 2.43 Brokers Co., Ltd.
Taichung Bank Leasing 1,850,000 6,161,382 4,370,609 1,790,773 229,338 39,281 31,688 0.17 Co., Ltd.
TCCBL Co.,Ltd. 893,373 1,118,544 343,926 774,618 15,739 (3,842) (3,842) -
Taichung Commercial 893,373 2,287,710 1,553,203 734,507 111,585 6,103 1,044 - Bank Leasing (Suzhou) Ltd.
Taichung Commercial 1,500,000 2,563,629 1,179,644 1,383,985 238,835 (30,246) (32,682) (0.22) Bank Securities Co., Ltd. (2) Consolidated financial statement of subsidiaries The Bank is required to prepare consolidated financial statements with its subsidiaries under the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises”. Subsidiaries of the Bank under the aforementioned legal rule are identical with the subsidiaries defined under International Accounting Standards No. 10 on “Consolidated Financial Statements”. Information on Financial Status and operation performance of such subsidiaries has been included in the disclosure of the aforementioned consolidated financial statement between parent and subsidiaries and therefore will not be prepared separately. For further information, please refer to the consolidated financial statements. (3) Affiliation Report 1. Relations between parent and subsidiaries Status of shareholding and lien of stock by holding Directors, Supervisors or managers appointed Name of holding company by holding company Reason of holding company Ratio of Shares under Shares Title Name Shareholding lien Hsu Tian Investment Win a majority of 43,515,115 1.32% - Chairman Chin-Yuan Lai Co., Ltd. director seats of the Vice Chairman Kuei-Fong Wang Bank Managing Director Ming-Hsiung Huang Director Hsin-Ching Chang Director Ching-Tai Huang Director Wei-Liang Lin Director Te-Wei Chia China Man-Made Indirectly control 735,234,126 22.33% 294,000,000 - - Fiber Co., Ltd. over the HR, finance or operation of the Bank Chung Chien Indirectly control - - - - - Investment Co., Ltd. over the HR, finance or operation of the Bank Pan Asia Investment Indirectly control - - - - - Co., Ltd. over the HR, finance or operation of the Bank 2. Transactions between subsidiaries and Parent Name of enterprise: None. 3. Guarantees/endorsements between subsidiaries and Parent Name of enterprise: None.
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TAICHUNG BANK 2017 ANNUAL REPORT 115
Statement of Declaration
ġġThe Bank Affiliation Report 2017 (from January 1 to December 31, 2017) was prepared in accordance with the “Criteria Governing Preparation of Report on Affiliations, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises”, and the information disclosed herein is materially consistent with that disclosed in the notes to the financial statement for the previous period.
Company name: Taichung Commercial Bank Co., Ltd.
ġ Responsible Person: Chin-Yuan Lai
Date: March 14, 2018
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116 TAICHUNG BANK 2017 ANNUAL REPORT
CPA’s Review Comments
To: Taichung Commercial Bank Co., Ltd.
ġġWe conducted the audit on the financial statements of Taichung Commercial Bank Company Limited for 2017 in accordance with the “Standards on the Audit of Financial Statements” and the audit principle generally accepted in the Republic of China, and we have issued unqualified opinions dated March 14, 2018. The purpose of the audit is to give an opinion on the fair presentation of the said financial statements. The Affiliation Report for 2017 prepared by Taichung Commercial Bank was attached. The 2017 Affiliation Report prepared by the Taichung Commercial Bank is attached. Such report was prepared in accordance with the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports, and Consolidated Financial Statements of Affiliated Enterprises.” An audit review requires us to proceed with the necessary procedures, including the acquisition of customer’s declaration and the confirmation on related information. The review has been successfully accomplished. ġġIn our opinion, the Affiliation Report for 2017 prepared by Taichung Commercial Bank is in compliance with the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises” and the contents of financial information are identical with those presented in the financial statements. No material amendments to the information shall be required.
Deloitte & Touche Kuan-Chung Lai, CPA Wen-Ya Hsu, CPA
Securities and Futures Bureau Approval Securities and Futures Bureau Approval Document No. Document No. ġ Tai-Cai-Zheng (6) Zi No. 0920123784 ġ Tai-Cai-Zheng (6) Zi No. 0920123784
Date: March 14, 2018
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TAICHUNG BANK 2017 ANNUAL REPORT 117
2. In the most recent year to the date this report was printed, private placement of securities and Bank debentures: None. 3. In the most recent year to the date this report was printed, the holding or disposition of the shares of the Bank held by the subsidiaries: None. 4. Other Supplementary Disclosure: None. 5. The occurrence of events as stated in Article 36-3-(2) of the Securities and Exchange Act in the previous year to the date this report was printed and the influence on shareholders’ equity or stock price: None.
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118 TAICHUNG BANK 2017 ANNUAL REPORT
IX. Branches of Taichung Commercial Bank at a Glance Postal Name Tel. No. Fax No. Address code Head Office No. 87, Min Chuan Road, West District, Min Chuan Building 04-22236021 04-22240748 40341 Taichung Min Zu Building 04-22236023 04-22278584 40041 No. 45, Min Zu Rd., Central Dist., Taichung 8F, No. 87, Min Chuan Road, West District, Trust Dept. 04-22236021 04-22202327 40341 Taichung International Banking 3F, No. 87, Min Chuan Road, West District, 04-22212933 04-22202046 40341 Dept. Taichung Taipei City No. 85, Jhongsiao E. Rd., Sec. 1, Zhongzheng Taipei Branch 02-23211819 02-23212659 10049 Dist., Taipei No. 176, Keelung Rd., Sec. 1, Xin Yi Dist., Sung Shan Branch 02-27658666 02-27658368 11072 Taipei Neihu Branch 02-26579899 02-26578887 11492 No. 306, Ruei Guang Rd., Neihu Dist., Taipei No.59, Fuxing N. Rd., Songshan Dist., Taipei Fuxing Branch 02-27735556 02-27739828 10595 City No.28, Changchun Rd., Zhongshan Dist., Zhongshan Branch 02-25417700 02-25415050 10450 Taipei City No.196, 198, Sec. 3, Chongqing N. Rd., Taitung Branch 02-25958968 02-25954123 10374 Datong Dist., Taipei City 8F-4, No.85, Jhongsiao E. Rd., Sec. 1, Offshore Banking Unit 02-23219858 02-23216358 10049 Zhongzheng Dist., Taipei New Taipei City No. 28-2, Min Sheng Rd., Sec. 1, Banchiao Banchiao Branch 02-29563456 02-29581616 22067 Dist., New Taipei No. 2, Jhongzhen Rd., Sanzhong Dist., New San Chung Branch 02-29877878 02-29872411 24141 Taipei No. 651, Zhong Zheng Rd., Xinzhuang Dist., Sinjhuang Branch 02-29017888 02-29013040 24257 New Taipei Linkou Branch 02-26021888 02-26014522 24443 No. 8, Chu Lin Rd., Linkou Dist., New Taipei No. 56, Ming-De Rd., Tucheng Dist., New Tucheng Branch 02-82603158 02-82601658 23659 Taipei No.219-1, Jian Kuo Rd., Xindian Dist., New Xindian Branch 02-22185166 02-22185155 23142 Taipei City Taoyuan City No. 24, Zhong Xiao Rd., Jhongli Dist., Neili Branch 03-4610566 03-4620277 32067 Taoyuan City No. 389, Huan Bei Rd., Jhongli Dist., Taoyuan Jhongli Branch 03-4520156 03-4521106 32070 City 1&2F, No. 324, Zhong Shan Rd., Taoyuan Taoyuan Branch 03-3333389 03-3331599 33058 Dist., Taoyuan City No. 337-1, Xin Nong Street, Yangmei Dist., Yangmei Branch 03-4855288 03-4855859 32645 Taoyuan City No. 66, Nan Kang Rd., Sec. 2, Lu Zhu Dist., Nan Kang Branch 03-3216611 03-2223311 33855 Taoyuan City No. 47, Da Guan Rd., Tayuan Dist., Taoyuan Tayuan Branch 03-3857001 03-3859033 33753 City Hsinchu City Hsinchu Branch 03-5257288 03-5233566 30046 No. 128, Si Wei Rd., Hsinchu Hsinchu County 1 and 2F., No.310, Sec. 1, Wenxing Rd., Jhubei Branch 03-6675188 03-6675168 30264 Zhubei City, Hsinchu County No. 155-12, Chien Hsing Rd., Sec. 1, Sinfong Branch 03-5590929 03-5590788 30442 Hsinfeng, Hsinchu Miaoli County No. 66, Ho Ping Street, Zhu Nan Township, Chu Nan Branch 037-481148 037-480465 35041 Miaoli 119
TAICHUNG BANK 2017 ANNUAL REPORT 119
Postal Name Tel. No. Fax No. Address code No. 79, Xin Yi Rd., Yuan Li Township, Yuan Li Branch 037-866366 037-866316 35844 Miaoli Taichung City No.333, Sec. 1, Taiwan Blvd., Central Dist., Chungcheng Branch 04-22245181 04-22251969 40044 Taichung City North Taiping Branch 04-22121298 04-22120800 40147 No. 66, Wu Dong Rd., East Dist., Taichung South Taichung No. 355, Fu Xin Rd., Sec. 3, South Dist., 04-22244187 04-22253055 40247 Branch Taichung 1F, No. 87, Min-Chuan Rd., West Dist., Business Dept. 04-22274567 04-22232926 40341 Taichung West Taichung Branch 04-23212501 04-23211847 40356 No. 369, Gong Yi Rd., West Dist., Taichung North Taichung No.822, Sec. 1, Zhongqing Rd., North Dist., 04-22920832 04-22957526 40462 Branch Taichung City No. 80, Ching Hua N. Rd., Peitun Dist., Peitun Branch 04-22316266 04-22316168 40646 Taichung No. 222, Tung Shan Rd, Sec. 1, Pei Tun Dist., Chungkung Branch 04-24371151 04-24367374 40663 Taichung No. 199, Chong De Rd., Sec. 3, Pei Tun Dist., Szumin Branch 04-24226165 04-24226567 40673 Taichung No. 436, Sec. 2, Ho-Nan Rd., Xitun Dist., Hsitun Branch 04-27060696 04-27010309 40744 Taichung 1F & 2F No. 663, Wu Chuan W. Rd., Sec.2, Nantun Branch 04-23824358 04-23828070 40869 Nan Tun Dist., Taichung No. 115, Zhong Xing Rd, Tai Ping Dist., Taiping Branch 04-22700756 04-22708629 41142 Taichung No. 339, Zhong Xing Rd., Sec. 2, Da Li Dist., Neihsin Branch 04-24830345 04-24838958 41254 Taichung No. 829, Zhong-Zheng Rd., Wufong Dist., Wufeng Branch 04-23391165 04-23326083 41341 Taichung Wujih Branch 04-23373176 04-23373180 41442 No. 107, San Min St., Wuri Hsiang, Taichung No. 338, Yuan Wan E. Rd, Fong Yuan Dist., Nanyang Branch 04-25244426 04-25284638 42051 Taichung No. 302-1, Zhong-Zheng Rd., Fong Yuan Fengyuan Branch 04-25244171 04-25244178 42056 Dist., Taichung No. 203, Shan Min Rd., Fong Yuan Dist., East Fengyuan Branch 04-25260175 04-25279944 42060 Taichung No. 95, Min Sheng Rd., Hou Li District, Houli Branch 04-25571180 04-25573081 42151 Taichung City No. 61, Zhong Shan Rd., Dongshi Dist., Tungshih Branch 04-25872185 04-25875203 42343 Taichung No. 76, Tan Xing Rd., Sec. 3, Tan Zi Dist., Tantzu Branch 04-25323121 04-25338460 42751 Taichung 1&2F, No. 3, Zhongqing Rd., Daya Dist., Daya Branch 04-25668161 04-25671143 42878 Taichung No.325, Sec. 5, Changping Rd., Shengang Shengkang Branch 04-25621501 04-25627404 42944 Dist., Taichung City No. 778, Sha Tian Rd., Sec. 2, Dadu Dist., Tatu Branch 04-26991166 04-26991170 43242 Taichung 1&2F, No. 298, Zhong Shan Rd., Sha Lu Shalu Branch 04-266212012 04-26622467 43350 Dist., Taichung No. 77, You Yuan S. Rd., Lung Jing Dist., Longjing Branch 04-26326788 04-26323566 43448 Taichung Taichungkang Branch 04-26571191 04-26571517 43542 No. 36, Ba De Rd., Wu Qin Dist., Taichung No. 104, Zhong Shan Rd., Qingshui Dist., Chingshui Branch 04-26226106 04-26227587 43653 Taichung Tachia Branch 04-26862151 04-26875838 43746 No. 42, CKS Route, Dajia Dist., Taichung Changhua County Changhua Branch 04-7224641 04-7221431 50061 No. 126, Guang-Fu Rd., Changhua
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Postal Name Tel. No. Fax No. Address code Tachu Branch 04-7387648 04-7386907 50078 No. 364, Jang Nan Rd., Sec. 1, Changhua No. 446, Zhong Shan Rd., Sec. 1, Hua Tan Huatan Branch 04-7868775 04-7869067 50343 Hsiang, Changhua 1&2F, No. 597, Jang Shui Rd., Sec. 2, Xiu Hsiushui Branch 04-7693525 04-7698148 50448 Shui Hsiang, Changhua No. 266, Zhong Shan Rd., Lu Kang Township, Lukang Branch 04-7780545 04-7762275 50563 Changhua No. 393, Lu Ho Rd., Sec. 6, Ho Mei Homei Branch 04-7562171 04-7562175 50846 Township, Changhua No. 111, Zhong Shan E. Rd., Shen Kang Shankong Branch 04-7983171 04-7988403 50941 Hsiang, Changhua No.27, Zhongshan S. Rd., Yuanlin City, Yuanlin Branch 04-8326141 04-8332927 51046 Changhua County No.116, Sec. 2, Datong Rd., Yuanlin City, North Yuanlin Branch 04-8322141 04-8354844 51050 Changhua County No. 311, Yuan Jing Rd., Sec. 2, She Tou Shetou Branch 04-8731466 04-8720427 51141 Township, Changhua No. 71, Xi Men Rd., Yong Jing Hsiang, Yungchiung Branch 04-8232363 04-8232549 51247 Changhua No. 217, Zhong Zheng Rd., Sec. 1, Pu Xin Puhsin Branch 04-8281437 04-8281442 51347 Hsiang, Changhua No. 290, Jang Shui Rd., Sec. 3, Xi Hu Hsihu Branch 04-8853311 04-8814498 51452 Township, Changhua No. 197, Zhong Zhou Rd., Sec. 1, Tian Zhong Tienchung Branch 04-8742206 04-8741514 52042 Township, Changhua No.180, Sec. 1, Douyuan Rd., Beidou Pitou Branch 04-8884146 04-8885331 52146 Township, Changhua County No. 163, Tou Yuan W. Rd., Pei Tou Hsiang, Pitou Branch 04-8924606 04-8924335 52341 Changhua No. 496, Jen Ai Rd., Er Lin Township, Erhlin Branch 04-8962125 04-8962677 52662 Changhua Nantou County Nanto Branch 049-2222146 049-2222481 54058 No. 52, Min Sheng St., Nantou City, Nantou No. 141, Pi Shan Rd., Cao Tun Township, Tsaotun Branch 049-2334146 049-2303149 54263 Nantou Puli Branch 049-2984001 049-2901265 54555 No. 62, Xi Kang Rd., Pu Li Township, Nantou No. 148, Zhu Shan Rd., Zhu Shan Township, Chushan Branch 049-2643181 049-2653081 55747 Nantou Yunlin County No. 151-9, Zhong Shan S. Rd., Tou Nan Dounan Branch 05-5954879 05-5954891 63041 Township, Yunlin No. 57-2, Lin Sen Rd., Sec. 2, Hu Wei Huwei Branch 05-6313788 05-6310599 63246 Township, Yunlin Chiayi County No. 78, Jien Kuo Rd., Sec. 2, Ming Hsiung Minghsiung Branch 05-2208833 05-2205533 62159 Hsiang, Chiayi 1-2F., No.1-1, Zhong Zheng Rd., Xingang Xingang Branch 05-3740833ġ 05-3740633 61641 Township, Chiayi County Tainan City No. 760, Zhong Hua Rd., Yong Kang Dist., Yongkang Branch 06-3026678 06-3035659 71049 Tainan Tainan Branch 06-2606799 06-2608599 70156 No. 138, Chong Syue Rd. Tainan City Kaohsiung City 1&2F, No. 11, Min Chuan 1st Rd., Ling Ya Kaohsiung Branch 07-3355275 07-3346981 80251 Dist., Kaohsiung 1&2F, No. 172, Wu Qing 2nd Rd., Fong Shan Fongshan Branch 07-7216719 07-7211423 83081 Dist., Kaohsiung
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TAICHUNG BANK 2017 ANNUAL REPORT 121 Stock No: 2812
Taichung Commercial Bank Co., Ltd. and subsidiaries
Consolidated Financial Statements and Independent Auditor’s Report 2017 and 2016
Address: No. 87, Min Chuan Road, West District, Taichung Tel. No.: (04)22236021
122 TAICHUNG BANK 2017 ANNUAL REPORT - 1 - Statement of Affiliate’s Consolidated Financial Report
The companies to be included by the Company in the consolidated financial statements of affiliates in accordance with the “Rules Governing the Preparation of Affiliated Company’s Consolidated Business Report, Affiliated Company’s Consolidated Financial Statements and Relationship Report” in 2017 (from January 1 to December 31, 2017) are identical to those to be included in the consolidated financial statements of the Parent Company and subsidiaries in accordance with the International Financial Reporting Standards No. 10. Also, the information to be disclosed in the consolidated financial statements of the affiliated companies has been disclosed in said consolidated financial statements of the Parent Company and subsidiaries. Therefore, the Company will not separately prepare the consolidated financial statements of the affiliated companies.
Hereby declare
Company name: Taichung Commercial Bank Co., Ltd.
Responsible Person: Chin-Yuan Lai
Date: March 14, 2018
- 2 - TAICHUNG BANK 2017 ANNUAL REPORT 123 Auditor’s Report
To: Taichung Commercial Bank Co., Ltd.
Audit opinions We have audited the accompanying consolidated balance sheet of Taichung Commercial Bank Co., Ltd. and subsidiary as of December 31, 2017 and 2016, and the related consolidated statement of income, consolidated statement of changes in shareholders equity, consolidated statement of cash flows, and Note of the consolidated financial statements (including major accounting policy) for the years then ended. In my opinion, the financial statements as referred to present fairly, in all material aspects the financial position of Taichung Commercial Bank as of December 31, 2017 and 2016, and the results of its operations and cash flows for the years then ended in conformity with the Criteria for the Compilation of Financial Statements by Banks, Criteria for the Compilation of Financial Statements by Securities Firms, and applicable IFRS, IAS,SIC, and IFRIC as recognized by the Financial Supervisory Commission . The basis for opinions We conducted the audit in accordance with the Criteria for the Auditing and Certification of Financial Statements by Certified Public Accountants and the accounting principles generally accepted in the Republic of China. Our responsibilities under those standards are further described in the responsibilities of auditors for the audit of the consolidated financial statements. We are independent of Taichung Commercial Bank and its subsidiaries in accordance with the Code of Ethics for certified public accountants in the part of relevant to the audit of the consolidated financial statements of Taichung Commercial Bank, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believed that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
124 TAICHUNG BANK 2017 ANNUAL REPORT - 3 - Key audit matter Key audit matters are those matter that, in our professional judgment, were of most significant in our audit of the consolidated statements of Taichung Commercial Bank in 2017. These matters were addressed in the content of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on those matters. Key audit procedures of the consolidated financial statements of Taichung Commercial Bank and its subsidiaries in 2017 included: Evaluate the impairment of discounts and loans to customers Notes to key audit matters As stated in Note 11, Taichung Commercial Bank and its subsidiaries had impairment in discounts and loans to customers amounting to NTD430,857,960 thousand and NTD770,744 thousand in 2017, respectively. These accounted for 64.98% of the total assets and 6.76% of net income, which are of significance to the overall financial reporting. As stated in Note 5 (1), in consideration of the overall impairment of Taichung Bank and its subsidiaries, material estimation and judgment of the management are involved, included the estimation of cash flows, recovery rate and impairment rates in the future. For these reasons, impairment of discounts and loans to the customers are determined as key audit matters. The disclosures of the accounting policies, accounting estimates, and uncertainty of assumption related to the estimation of discount and loans to customers’ impairment are specified in Note 4 (12) and Note 5 (1) and Note 11. Audit response 1. Understand and examine the internal control of discount and loans to customer impairment of Taichung Commercial Bank and its subsidiaries. 2. We examined the impairment of discount and loans to customers of individual cases of Taichung Commercial Bank and its subsidiaries recognized for material impairment, on a selective basis, on the reasonability of future cash flows of collaterals. 3. We examined the impairment of discount and loans to customer in aggregate of Taichung Commercial Bank and its subsidiaries through an understanding of the significant parameters used in the model for testing impairment (recovery ratio and probability of impairment) for assessing the reasonability of future cash flows with relevance to the experience and economic conditions for the time being. Discount and loan interest income Notes to key audit matters As stated in Note 31, Taichung Commercial Bank and its subsidiaries had interest income from discounts and loans to customers amounted to NTD10,212,314 thousand or at 89.62% of net income in 2017. This remained the primary source of income for Taichung Commercial Bank and its subsidiaries. Taichung Commercial Bank processed loan applications through an approval procedure along the line of corporate hierarchy. Applications, upon approval, will be registered into the loan system with information on the conditions of lending and related matters entered into the system manually. Loans will be released upon the final approval of the supervisors and interest income will be calculated automatically by the systems relevant to the conditions of lending on individual cases at the end of each month. Taichung Commercial Bank and its subsidiaries highly rely on the computer system for the automatic calculation of interest income from discounts and loans to customers, which made the data input on the conditions of related lending cases and the computing logics for the accurate calculation of interest income from discounts and loans to
- 4 - TAICHUNG BANK 2017 ANNUAL REPORT 125 customers essential. We therefore considered the interest income from discounts and loans to customers as a key audit matter. The disclosures of the accounting policies, accounting estimates, and uncertainty of assumption related to the estimation of interest income from discount and loans to customers are specified in Note 4 (14) and Note 31 (1). Audit response 1. Understand and examine the internal control of interest income from discount and loans to customer, including the understanding and testing of the internal control of the general computer system and the application system. 2. We checked the monthly interest income in the system, on a selective basis, with reference to the approved agreement on loans to determine the conditions of lending are congruent with the information used in the system for calculation of interest income. We also compared the interest income and the computing results from the system through a new round of calculation to examine no significant difference of the computing system of Taichung Commercial Bank and its subsidiaries. Other information We have also audited the individual financial statements of the Company for 2017 and 2016, and have expressed modified unqualified opinions on such financial statements. Responsibilities of Management and Those in Charge with Governance of the Consolidated Financial Statements The Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Criteria for the Compilation of Financial Statements by Banks, Criteria for the Compilation of Financial Statements by Securities Firms, and applicable IFRS, IAS,SIC, and IFRIC as recognized by the Financial Supervisory Commission, and for such internal control as the management determines is necessary to enable the preparation of the consolidated financial statements to be free from material misstatement whether due to fraud or error. In preparing the consolidated financial statements, the management is responsible for assessing the ability of Taichung Bank and its subsidiaries as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the management either intends to liquidate Taichung Commercial Bank and its subsidiaries or to create operations, or has no realistic alternative but to do so.
126 TAICHUNG BANK 2017 ANNUAL REPORT - 5 - Those in charge of governance (including the Auditing Committee) are responsible for overseeing the reporting process of Taichung Commercial Bank and its subsidiaries. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue and auditor’s report. Reasonable assurance is a high level of assurance, but is not a guarantee that and audit conducted in accordance with the accounting principles generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. If fraud or errors are considered materials, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with the accounting principles generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also perform the following works: 1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design, and perform audit procedures responsive risks, and obtain evidence that is sufficient and appropriate to provide a basis of our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control effective in Taichung Commercial Bank and its subsidiaries. 3. Evaluate the appropriateness of accounting policies used and the reasonability of accounting estimates and related disclosures made by the management. 4. Conclude the appropriateness of the use of the going concern basis of accounting by the management, and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on Taichung Commercial Bank and its subsidiaries and its ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosure are inappropriate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of the auditor’s report. However, future events or conditions may cause Taichung Commercial Bank and its subsidiaries to cease to continue as a going concern.
- 6 - TAICHUNG BANK 2017 ANNUAL REPORT 127 5. Evaluate the overall presentation, structure, and content of the consolidated statements, including the disclosures, whether the consolidated statements represent the underlying transactions and events in a matter that achieves fair presentation. 6. Obtain sufficient appropriate audit evidence regarding the financial information or the entities or business activities with Taichung Commercial Bank and its subsidiaries to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision, and performance of the audit of Taichung Commercial Bank and its subsidiaries. We remain solely responsible for our audit opinion. We communicate with those in charge of governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings (including any significant deficiencies in internal control that we identify during our audit). We also provide those in charge of governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, (related safeguards). From the matters communicated with those in charge of governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of Taichung Commercial Bank and subsidiaries of 2017 and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communications.
Deloitte & Touche Kuan-Chung Lai, CPA Wen-Ya Hsu, CPA
Securities and Futures Bureau Approval Securities and Futures Bureau Approval Document No. Document No. Tai-Cai-Zheng (6) Zi No. 0920123784 Tai-Cai-Zheng (6) Zi No. 0920123784
Date: March 14, 2018
128 TAICHUNG BANK 2017 ANNUAL REPORT - 7 - Taichung Commercial Bank Co., Ltd. and subsidiaries Consolidated Balance Sheet December 31, 2017 and 2016 Unit: NTD thousand
December 31, 2017 December 31, 2016 Code Assets Amount % Amount % 11000 Cash and cash equivalents (Notes 4 & 6) $ 15,001,053 2 $ 14,105,611 2
11500 Due from the Central Bank and lend to banks (Note 7) 30,121,642 5 86,216,971 14
12000 Financial assets at fair value through profit and loss (Notes 4, 5 & 8) 31,210,074 5 22,383,134 4
12500 Bonds and securities sold under repurchase agreements (Notes 4 & 9) 11,283,082 2 3,627,189 1
13000 Receivables – net (Notes 4, 5,10, 11 & 35) 13,658,151 2 9,802,310 2
13200 Current income tax asset (Notes 4 & 32) 5,701 - 6,313 -
13500 Discounts and loans – net (Notes 4, 5, 11 & 34) 430,857,960 65 425,166,259 68
14000 Available-for-sale financial assets – net (Notes 4 & 12) 31,615,817 5 37,455,220 6
14500 Held-to-maturity financial assets – net (Notes 4, 13, 35) 85,542,095 13 14,276,270 2
15000 Investment by equity method – net (Notes 4 & 14) 128,113 - 130,935 -
15100 Restricted assets - net (Notes 15 & 35) 249,003 - 285,234 -
15500 Other financial assets, net (Notes 4 & 16) 1,067,625 - 1,171,178 -
18500 Property, plant, and equipment – net (Notes 4 & 17) 9,387,663 1 9,436,524 1
18700 Invest in investment property – net (Notes 4 & Note 18). 45,250 - 78,268 -
19000 Intangible assets – net (Notes 4 & 19) 160,054 - 166,769 -
19300 Deferred income tax asset (Notes 4 & 32) 681,396 - 713,301 -
19500 Other assets (Notes 4, 20 & 35) 2,009,404 - 2,081,215 -
10000 Total assets $ 663,024,083 100 $ 627,102,701 100
Code Liabilities and equity 21000 Due to Central Bank and other banks (Note 21) $ 9,518,872 1 $ 11,617,728 2
21500 Funds borrowed from Central Bank and other banks (Notes 22 & 35) 5,120,940 1 4,199,858 1
22000 Financial liabilities at fair value through profit and loss (Notes 4, 5 & 8) 207,225 - 162,792 -
22500 Bills and bonds sold under repurchase agreements (Notes 4 &23) 4,307,810 1 4,222,258 1
23000 Payables (Note 24) 13,331,722 2 9,805,707 1
23200 Current income tax liability (Notes 4 & 32) 255,559 - 60,890 -
23500 Deposits and remittances (Notes 25 & 34) 566,094,780 85 539,809,008 86
24000 Financial bonds payable (Note 26) 17,500,000 3 13,000,000 2
25500 Other financial liabilities (Note 27) 1,057,866 - 807,967 -
25600 Liability reserve (Notes 4 & 28) 1,389,979 - 1,307,838 -
29300 Deferred tax liabilities (Notes 4 & 32) 111,021 - 111,021 -
29500 Other liabilities (Note 29) 726,369 - 615,599 -
20000 Total liabilities 619,622,143 93 585,720,666 93
Equity of the parent company (Note 30) 31101 Common stock capital 32,931,789 5 32,381,307 5 31500 Capital surplus 684,156 - 684,156 - Retained earnings 32001 Legal reserve 5,896,530 1 4,881,792 1 32003 Special reserve 73,833 - 38,685 - 32011 Undistributed earnings 3,630,655 1 3,382,461 1 32500 Other equity 184,977 - 13,634 - 31000 Total shareholder’s equity in the parent company 43,401,940 7 41,382,035 7
30000 Total equity 43,401,940 7 41,382,035 7
Total Liabilities and Equity $ 663,024,083 100 $ 627,102,701 100
The notes attached shall constitute an integral part of this Consolidated financial statement.
Chairman: Chin-Yuan Lai Manager: Te-Wei Chia Chief accountant: Chin-Min Liao
TAICHUNG BANK 2017 ANNUAL REPORT 129 - 8 - Taichung Commercial Bank Co., Ltd. and subsidiaries Consolidated Income Statement January 1 to December 31, 2017 and 2016 Unit: NTD thousands, except Earnings Per Share (NTD)
Percentage of 2017 2016 Variation Code Amount % Amount % (%) 41000 Interest revenues (Notes 4, 31 and 34) $ 12,078,007 106 $ 11,473,495 106 5
51000 Interest expenses (Notes 31 & 34) ( 3,892,000 ) ( 34 ) ( 3,686,021 ) ( 34 ) 6
49010 Net interest income 8,186,007 72 7,787,474 72 5
Net income (loss) other than interest income 49100 Net income from service fees (Notes 4, 31 and 34) 2,448,579 22 2,271,998 21 8 49200 Net gain (loss) on financial assets and liabilities at fair value through profit and loss (Notes 4 and 31) 490,717 4 662,520 6 ( 26 ) 49300 Realized gain (loss) on available-for-sale financial assets (Notes 4 and 31) 34,743 - 158,432 1 ( 78 ) 49600 Exchange loss (Note 4) ( 88,738 ) ( 1 ) ( 241,784 ) ( 2 ) ( 63 ) 49700 Net gain (loss) on reversal of assets impairment (Notes 4, 16 & 31) ( 50,533 ) - 106,146 1 ( 148 ) 49750 Profit or loss of affiliated companies and joint ventures under the equity method (Notes 4 and 14) ( 2,875 ) - ( 5,540 ) - ( 48 ) 49863 Net gain from asset trade (Notes 4, 18 & 31) 347,810 3 177 - 196,403 58000 Net income other than interest income (Notes 28 & 31) 29,045 - 53,213 1 ( 45 )
4xxxx Net revenue 11,394,755 100 10,792,636 100 6
58200 Bad debt expense and guaranty reserve (Notes 4, 11 and 28) ( 1,124,859 ) ( 10 ) ( 801,040 ) ( 7 ) 40
Operating expenses 58500 Employee benefits expenses (Notes 4 & 31) ( 3,348,251 ) ( 29 ) ( 3,361,279 ) ( 31 ) - 59000 Depreciation and amortization expenses (Notes 4 & 31) ( 287,221 ) ( 3 ) ( 254,192 ) ( 2 ) 13 59500 Business and administrative expenses (Notes 31 & 34) ( 2,279,212 ) ( 20 ) ( 2,232,062 ) ( 21 ) 2 58400 Total operating expenses ( 5,914,684 ) ( 52 ) ( 5,847,533 ) ( 54 ) 1
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130 TAICHUNG BANK 2017 ANNUAL REPORT - 9 - (Continued from previous page) Percentage of 2017 2016 Variation Code Amount % Amount % (%) 61001 Income before tax from continuing operations $ 4,355,212 38 $ 4,144,063 39 5
61003 Income tax expenses (Notes 4 & 32) ( 722,670 ) ( 6 ) ( 629,248 ) ( 6 ) 15
64000 Current year net income after tax 3,632,542 32 3,514,815 33 3
Other comprehensive profit or loss Titles not reclassified as profit (loss) accounts: 65201 Determined Benefit Plan Reevaluation (Notes 4 & 28) ( 3,687 ) - ( 183,108 ) ( 2 ) ( 98 ) 65207 Other comprehensive profit (loss) of the subsidiary, affiliated company and joint venture under the equity method 53 - ( 137 ) - 139 65220 Income tax related to titles without reclassification (Notes 4 and 32) 626 - 31,128 - ( 98 ) 65200 The total of titles not reclassified as profit (loss) accounts (after taxation) ( 3,008 ) - ( 152,117 ) ( 2 ) ( 98 ) Titles that could be reclassified as profits (loss) accounts in the future 65301 Exchange differences from the translation of financial statements of foreign operations ( 15,324 ) - ( 74,336 ) ( 1 ) ( 79 ) 65302 Unrealized valuation gains (losses) of available-for- sale financial assets 194,081 1 ( 260,202 ) ( 2 ) 175 65320 Income tax related to titles that could be reclassified (Notes 4 and 32) ( 7,414 ) - ( 113 ) - 6,461 65300 The total of the titles that could be reclassified as profits (loss) accounts in the future (after taxation) 171,343 1 ( 334,651 ) ( 3 ) 151 65000 Other comprehensive net income (after tax) 168,335 1 ( 486,768 ) ( 5 ) 135
66000 Current period other comprehensive income (after tax) $ 3,800,877 33 $ 3,028,047 28 26
Consolidated EPS (Note 33) Business units in continuing operation 67501 Basic $ 1.10 $ 1.07 67701 Diluted $ 1.10 $ 1.07 The notes attached shall constitute an integral part of this Consolidated financial statement. Chairman: Chin-Yuan Lai Manager: Te-Wei Chia Chief accountant: Chin-Min Liao
- 10 - TAICHUNG BANK 2017 ANNUAL REPORT 131 132 TAICHUNG BANK2017 ANNUALREPORT
Taichung Commercial Bank Co., Ltd. and subsidiaries Consolidated Statements of Changes in Shareholders’ Equity January 1 to December 31, 2017 and 2016 Unit: NTD thousand Equity of the company Other equity Exchange differences Capital stock Retained earnings from the translation Unrealized gain of financial (loss) on available- Undistributed statements of foreign for-sale financial Code Common stock Capital surplus Legal reserve Special reserve earnings operations assets Total equity A1 Balance as of January 1, 2016 $ 31,840,027 $ 684,156 $ 3,959,058 $ 38,685 $ 3,075,778 $ 51,153 $ 297,132 $ 39,945,989
The 2015 appropriation and distribution of earnings B1 Legal reserve - - 922,734 - ( 922,734 ) - - - B5 Cash dividends - - - - ( 1,592,001 ) - - ( 1,592,001 ) B9 Stock dividends 541,280 - - - ( 541,280 ) - - -
D1 2016 net income - - - - 3,514,815 - - 3,514,815
D3 Other comprehensive net income in 2016 - - - - ( 152,117 ) ( 74,336 ) ( 260,315 ) ( 486,768 )
D5 Other comprehensive income in 2016 - - - - 3,362,698 ( 74,336 ) ( 260,315 ) 3,028,047
Z1 Balance as of December 31, 2016 32,381,307 684,156 4,881,792 38,685 3,382,461 ( 23,183 ) 36,817 41,382,035
The 2016 appropriation and distribution of earnings B1 Legal reserve - - 1,014,738 - ( 1,014,738 ) - - - B3 Appropriation of special reserve - - - 35,148 ( 35,148 ) - - - B5 Cash dividends - - - - ( 1,780,972 ) - - ( 1,780,972 ) B9 Stock dividends 550,482 - - - ( 550,482 ) - - -
D1 2017 net income - - - - 3,632,542 - - 3,632,542
D3 Other comprehensive net income in 2017 - - - - ( 3,008 ) ( 15,324 ) 186,667 168,335
D5 Other comprehensive income in 2017 - - - - 3,629,534 ( 15,324 ) 186,667 3,800,877
Z1 Balance as of December 31, 2017 $ 32,931,789 $ 684,156 $ 5,896,530 $ 73,833 $ 3,630,655 ( $ 38,507 ) $ 223,484 $ 43,401,940
The notes attached shall constitute an integral part of this Consolidated financial statement.
Chairman: Chin-Yuan Lai Manager: Te-Wei Chia Chief accountant: Chin-Min Liao
- 11 - Taichung Commercial Bank Co., Ltd. and subsidiaries Consolidated Statements of Cash Flow January 1 to December 31, 2017 and 2016 Unit: NTD thousand Code 2017 2016 Cash flow from operating activities A10000 Current year net profit before taxation $ 4,355,212 $ 4,144,063 Profits and loss A20100 Depreciation expenses 219,647 196,992 A20200 Amortization expenses 67,574 57,200 A20300 Bad debt expense and reserve for guarantee liability 1,124,859 801,040 A20400 Gain (loss) on financial assets and liabilities at fair value through profit and loss ( 490,717 ) ( 662,520 ) A22500 Disposal and obsolescence loss (gain) of property and equipment 862 ( 177 ) A22700 Capital gain from disposition of investment property ( 348,672 ) - A20900 Interest expenses 3,892,000 3,686,021 A21200 Interest revenue ( 12,078,007 ) ( 11,473,495 ) A21300 Dividend income ( 28,754 ) ( 24,282 ) A21800 Net change in other provisions for liabilities 26,000 300 A22300 Loss of the affiliated company under the equity method 2,875 5,540 A23100 Gain on disposal of investments ( 27,608 ) ( 157,149 ) A23600 Financial assets impairment loss (reversal gain) 50,533 ( 106,146 ) A24100 Unrealized foreign currency exchange loss 850,927 224,382 A24300 Gain on sale of NPL - ( 386 ) A20010 Total income, expense and loss ( 6,738,481 ) ( 7,452,680 ) Changes in operating activities related assets/liabilities A41110 Due from Central Bank and lend to Banks ( 609,388 ) 661,047 A41120 Financial assets at fair value through profit and loss ( 7,478,148 ) 10,671,305 A41150 Accounts receivable ( 3,977,913 ) ( 3,281,935 ) A41160 Discounts and loans ( 6,428,669 ) ( 34,727,382 ) A41190 Other financial assets ( 35,342 ) 16,611 A41990 Other assets 31,149 228,825 A42110 Due to Central Bank and other banks ( 2,098,856 ) 7,753,624 A42120 Financial liabilities at fair value through profit and loss ( 813,642 ) ( 714,959 )
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- 12 - TAICHUNG BANK 2017 ANNUAL REPORT 133 (Continued from previous page)
Code 2017 2016 A42140 Bills and bonds sold under repurchase agreements $ 85,552 $ 3,948,946 A42150 Payables 3,391,522 4,644,938 A42160 Customer deposits and remittances 26,285,772 34,945,029 A42170 Other financial liabilities ( 30,062 ) 73,127 A42180 Employee benefit liabilities reserve ( 24,423 ) ( 10,963 ) A42990 Other liabilities 110,770 197,808 A40000 Total changes in operating activities related assets/liabilities 8,408,322 24,406,021 A33000 Cash inflow from operating activities 6,025,053 21,097,404 A33100 Interest received 12,172,096 11,340,012 A33200 Dividends received 28,754 24,282 A33300 Interest payment ( 3,757,507 ) ( 3,706,478 ) A33500 Income tax payment ( 502,272 ) ( 878,126 ) AAAA Net cash inflow from operating activities 13,966,124 27,877,094
Cash flow from investing activities B00300 Acquisition of available-for-sale financial assets ( 1,351,137 ) ( 23,688,144 ) B00400 Disposition of available-for-sale financial assets 7,319,614 9,823,915 B00900 Acquisition of held-to-maturity financial assets ( 748,721,306 ) ( 10,960,910 ) B01000 Disposition of held-to-maturity financial assets 258,565 150,570 B01100 Return of capital from held-to-maturity financial assets 676,269,904 1,632,655 B02700 Acquisition of Property, plant, and equipment ( 196,583 ) ( 442,499 ) B02800 Disposal of Property, plant, and equipment 24,921 1,497 B03700 Decrease (increase) in refundable deposits 46,516 ( 294,913 ) B04500 Acquisition of Intangible assets ( 56,197 ) ( 37,684 ) B05400 Acquisition of investment property ( 22,500 ) - B05500 Disposition of investment property 403,950 - B06300 Receipt of payment from disposal of non- performing loans. - 272,897 BBBB Net cash outflow from investing activities ( 66,024,253 ) ( 23,542,616 )
Cash flow from financing activities C00300 Increase in funds borrowed from Central Bank and other banks 921,082 1,067,404 C00700 Increase in commercial papers payable 279,961 455,826 C01400 Issuance of financial bonds 6,000,000 1,500,000 C01500 Repayment of financial bonds ( 1,500,000 ) ( 4,400,000 ) C04500 Cash dividend released ( 1,780,972 ) ( 1,592,001 ) CCCC Net cash inflow (outflow) from financing activities 3,920,071 ( 2,968,771 )
DDDD Impact of changes in exchange rate on cash and cash equivalents ( 15,324 ) ( 74,336 ) (Continued on next page)
134 TAICHUNG BANK 2017 ANNUAL REPORT - 13 - (Continued from previous page)
Code 2017 2016 EEEE Current cash and cash equivalents increase (decrease) ( $ 48,153,382 ) $ 1,291,371
E00100 Balance of cash and cash equivalents, beginning of period 88,021,445 86,730,074
E00200 Balance of cash and cash equivalent, end of period $ 39,868,063 $ 88,021,445
Ending cash and cash equivalents adjustment December 31, December 31, Code 2017 2016 E00210 Cash and cash equivalents on the balance sheet $ 15,001,053 $ 14,105,611
E00220 The “Due from Central Bank and Banks” in compliance with the definition of cash and cash equivalents under IAS 7 13,583,928 70,288,645
E00230 The “bonds and securities sold under repurchase agreements” that meet the definitions of cash and cash equivalents under IAS 7 11,283,082 3,627,189
E00200 Balance of cash and cash equivalent, end of period $ 39,868,063 $ 88,021,445
The notes attached shall constitute an integral part of this Consolidated financial statement.
Chairman: Chin-Yuan Lai Manager: Te-Wei Chia Chief accountant: Chin-Min Liao
- 14 - TAICHUNG BANK 2017 ANNUAL REPORT 135 Taichung Commercial Bank Co., Ltd. and subsidiaries Consolidated Notes to financial statements January 1 to December 31, 2017 and 2016 (In Thousands of New Taiwan Dollars, unless otherwise specified)
1. Organization and operations Formerly a cooperative savings company in central Taiwan (known as Central Taiwan Cooperative Company” established on September 27 1952, Taichung Commercial Bank Co., Ltd. (hereinafter, the “Bank” or “Taichung Bank”) was approved to establish in April 1953 as a commercial bank and started its operation since August of the same year. The amended Banking Act was promulgated in July 1975 on which Central Taiwan Cooperative Company was approved to reorganize as “Taichung Small and Medium Business Bank Co., Ltd.” (hereinafter, Taichung business bank”) on January 1, 1978. On May 15 1984, the Company was approved to list its stocks in TWSE. In order to cope with national financial policy, provide the pubic with financial services and support economic construction and develop industrial and commercial business, the Taichung Small and Medium Business Bank Company Limited was renamed Taichung Commercial Bank Co., Ltd. in December. 1998. As of December 31, 2017, it had established a Business Department, Trust Department, International Banking Department and 80 local branches, and an International Banking Branch. It is engaged mainly in financial operations regulated by Banking Law, trust business, offshore banking business and others approved by the competent authority. The Taichung Bank’s capital was NTD 500 thousand when the Company was incorporated. In order to found its capital structure and comply with the Government Apparatus's order and decree, the Company has increased/reduced its capital over the past years. As of December 31, 2017, its paid-in capital was NTD 32,931,789 thousand. This consolidated financial statement is denominated in the functional currency of Taichung Bank, which is NTD. 2. Financial reporting date and procedures The consolidated financial statements were approved for publication by the board of directors on March 14, 2018.
136 TAICHUNG BANK 2017 ANNUAL REPORT - 15 - 3. Application of new and revised standards and interpretation (1) The first use of the Regulations Governing the Preparation of Financial Reports by Public Banks after amendment, Rules Governing the Preparation of Financial Statements of Securities Firms and the IFRS, IAS, IFRIC, and SIC (hereinafter collectively known as “IFRSs”) recognized by the Financial Supervisory Commission for coming into full force. The adoption of the amended Regulations Governing the Preparation of Financial Reports by Public Banks, Rules Governing the Preparation of Financial Statements of Securities Firms and the IFRS recognized by the Financial Supervisory Commission to come into full force will not cause significant change in the accounting policies of the consolidated company. (2) The Criteria for Compilation of Financial Statements by Public Banks effective from 2018, Criteria for the Compilation of Financial Statements by Securities Firms, and the IFRS, IAS, IFRIC and SIC (hereinafter referred to as “IFRSs”) recognized by Financial Supervisory Commission (FSC). The new / amended / revised standards or IASB publication effective interpretation date (Note 1) “The annual improvement plan for the periods of Note 2 2014-2016” The amendment to IFRS 2 on “share-based payment- January 1, 2018 classification and measurement”. IFRS 9 “Financial Instruments” January 1, 2018 Amendments to the IFRS 9 and IFRS 7 “Mandatory January 1, 2018 Effective Date and Transitional Disclosures” IFRS 15, “Revenue from Contracts with Customers” January 1, 2018 Amendment to IFRS 15, “The interpretation of IFRS January 1, 2018 15”. Amendments to the IAS 7 “Disclosure Initiative” January 1, 2017 Amendments to the IAS 12 “Recognition of January 1, 2017 unrealized loss as deferred income tax assets” Amendments to the IAS 40 “Investment Property” January 1, 2018 IFRIC 22 “Foreign Currency Transactions and January 1, 2018 Advance” Note 1: Unless otherwise stated, the aforementioned new / amended / revised standards or interpretation are effective in the years after the respective date. Note 2: The revision of IFRS 12 is applicable to the period from January 1, 2017 in retrospect. The revision of IAS 28 is applicable to the period from January 1, 2018 in retrospect.
- 16 - TAICHUNG BANK 2017 ANNUAL REPORT 137 Further to the notes specified below, the aforementioned new / amended / revised standards and interpretations shall not cause significant change in the accounting policy of the companies in the consolidated financial statements: IFRS 9 “Financial Instruments” and related amendment Classification, measurement and impairment of financial assets In terms of financial assets, the subsequent measurement of financial assets within the scope of the IAS 39 “Financial Instruments: Recognition and Measurement” is measured at cost after amortization or fair value. The requirement of IFRS 9 on the classification of financial assets is shown below. The debt instruments in invested by the companies in the consolidated financial statements are classified and measured as follows if the contract cash flows are fully for the settlement of principal and the interests of the outstanding amount of principal: 1. The holding of financial assets is for purpose of collecting the contract cash flow volume shall be measured amortized cost of the financial assets. This category of financial assets shall be recognized as profit or loss on the interest calculated under the effective interest rate with continued assessment of impairment. Any gains or loss from impairment shall also be recognized as profits or loss. 2. The holding of financial assets is for purpose of collecting the contract cash flow volume and for selling the financial assets shall be measured at fair value through consolidated income statements. This category of financial assets shall be recognized as profit or loss on the interest calculated under the effective interest rate with continued assessment of impairment. Any gains or loss from impairment or exchange shall also be recognized as profits or loss. The change in fair value shall be recognized through consolidated income statement. For removal of the financial assets from book listing or reclassification, the change in fair value previously accumulated in the consolidated financial statement shall be reclassified as profits or loss. For the investment of financial assets by the companies in the consolidated financial statements beyond the aforementioned terms and conditions, they shall be measured at fair value and the change in fair value shall be recognized through profit and loss. If the companies in the consolidated financial statements are discrete in initial recognition, the equity investment not available for sales shall be measured at fair value through consolidated financial statement. With the exception of dividend income, which shall be recognized as profit or loss, any other related benefits and profit or loss from this category of financial assets shall be recognized as other comprehensive income without being assessed for impairment, and accumulated as change in fair value of other comprehensive income and not classified as profit or loss.
138 TAICHUNG BANK 2017 ANNUAL REPORT - 17 - As of December 31, 2017, the consolidated company held the following financial assets and the change under the adoption of IFRS 9 in classification of financial assets and measurement thereof: 1. Classified as financial assets available for sale – stocks listed in TWSE/GTSM and Emerging Stock Market and stocks and depository receipts not listed in TWSE/GTSM. According to IFRS 9, these assets are chosen as financial assets at fair value through comprehensive income statement accumulated as other equity and will not be reclassified as income/loss at the time of disposition but directly presented as retained earnings. In addition, the investment in stocks listed in TWSE (GTSM) measured on the basis of cost shall be changed into measured at fair value under IFRS9. 2. Bonds previously classified as financial assets available for sale and the cash flow of the contracts are solely for payment of principal and the interest for outstanding amount of principal at initial recognition, and the business mode is holding financial assets for the collection of cash flow from the contracts, and the sale of financial assets shall be classified in financial assets at fair value through comprehensive income statement as other comprehensive income under IFRS 9. Debt instruments classified as financial assets available for sale with cash flows from contracts at initial recognition solely for payment of principal and interest of outstanding principal, and the mode of business is for the collection of cash flows from contract shall be classified as financial assets on the basis of cost after amortization under IFRS 9. 3. Bond investment classified as financial assets held to maturity and measured on the basis of cost after amortization with cash flows from contracts solely for the payment of principal and interest for outstanding amount of principal at recognition, and the mode of business is holding financial assets for cash flows from contracts shall be classified as financial assets on the basis of cost by IFRS 9 after amortization. If the cash flows from contracts initially recognized solely for the payment of principal and interest payment for the amount of outstanding principal, and the mode of business is holding financial assets for collection of cash flows from contracts and for the sale of financial assets, the financial assets shall be classified as financial assets at fair value through comprehensive income statement as other comprehensive income under IFRS 9. IFRS 9 adopts the “expected credit losses model” in the recognition of the impairment of financial assets. Financial assets based on cost after amortization, bond instruments investments at fair value through consolidated income state under compulsion, receivable rents, assets from contracts under IFRS 15, “Revenue from Contracts of Customers”, or commitment of financing and financial guarantee contracts shall be recognized as provision for loss. If there is no significant increase in the credit risk of financial assets since initial recognition, provision for loss will be measured on the basis of expected credit loss in 12 months ahead. If there is significant increase of the credit risk of financial assets since initial recognition and is not low credit risk, the provision for loss is measured on the basis of expected credit loss in the duration to maturity. However, this does not include account receivables that contain material financial components, which shall be subject to assessment for the provision of expected credit loss before the perpetuity of the account receivables. For financial assets already showed credit impairment at the initial recognition, the companies in the consolidated financial statements shall consider the expected credit loss
- 18 - TAICHUNG BANK 2017 ANNUAL REPORT 139 at the time of initial recognition and the effective interest rate after adjustment. Subsequent provision for loss shall be recognized based on accumulated changes of expected credit loss. The Consolidated Company measured the provision for loss on the basis of the credit loss in the duration to maturity at assessment under the simplified method on account receivables, contract assets, and receivable rents. In assessment for the significant increase of credit risk inherent to the investment in debt instruments and guarantee contracts since initial recognition, the Consolidated Company determined to measure the provision for loss in 12 months ahead or within the perpetuity of the instruments to maturity. The Consolidated Company anticipated that the model of expected credit loss under the IFRS 9 will cause an early recognition of credit loss from financial assets. The consolidated company did not recompile the statement in 2017 for comparison after the adoption of IFRS 9 in the classification of financial assets, measurement and recognition for impairment. The accumulated effect of the first-time adoption was recognized on the day of first adoption with disclosure of the changes in the classification under IFRS 9 and on the reconciliation. The adoption of IFRS 9 in the classification, measurement, and recognition of impairment of financial assets in retrospect to the assets, liabilities and shareholders’ equity on January 1, 2018 are expected to yield the following effects: Book value of Adjustment of December 31, Adjustment of book value as of 2017 first use January 1, 2018 The effect of assets, liabilities and equity Financial assets at fair value through profit and loss $ 31,210,074 $ 900,335 $ 32,110,409 Financial assets at fair value through other comprehensive profit or loss - 32,895,166 32,895,166 Financial assets based on cost after amortization-net - 85,820,456 85,820,456 Receivable- net 13,658,151 ( 586 ) 13,657,565 Available-for-Sale Financial Assets-net 31,615,817 ( 31,615,817 ) - Held to maturity investments, net 85,542,095 ( 85,542,095 ) - Stocks- equity method 128,113 32,430 160,543 Other financial assets - net 1,067,625 ( 1,046,019 ) 21,606 Other assets 2,009,404 ( 1,067,800 ) 941,604 Effect of assets $ 165,231,279 $ 376,070 $ 165,607,349
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140 TAICHUNG BANK 2017 ANNUAL REPORT - 19 - (Continued from previous page)
Book value of Adjustment of December 31, Adjustment of book value as of 2017 first use January 1, 2018 Liability reserve $ 1,389,979 $ 56,773 $ 1,446,752 Effect of liabilities $ 1,389,979 $ 56,773 $ 1,446,752
Retained earnings $ 9,601,018 ( $ 80,676 ) $ 9,520,342 Unrealized gain or loss on available-for-sale financial assets 223,484 ( 223,484 ) - Evaluation of the capital gain/loss from equity instrument at fair value through comprehensive income statement as other comprehensive income - 486,093 486,093 Capital gain/loss of debts instrument at fair value through comprehensive income statement as other comprehensive income - 137,364 137,364 Effect of equity $ 9,824,502 $ 319,297 $ 10,143,799
Further to the above effects, the assessment of combined company on other IFRSs as of the day this consolidated financial statement was approved for release did not cause significant influence on the consolidated financial position and consolidated financial performance. (3) IFRSs announced by IASB pending on the recognition of FSC The new / amended / revised standards or IASB publication effective interpretation date (Note 1) “The annual improvement plan for the periods of January 1, 2019 2015-2017” Amendments to IFRS 9 “Prepayment Features with January 1, 2019 (Note 2) Negative Compensation” Amendment to IFRS 10 and IAS 28, “Consolidated Undefined Financial Statements and Investment in Associates”. IFRS 16 “Leases” January 1, 2019 (Note 3) IFRS 17 “Insurance Contracts” January 1, 2021 Amendments to IAS 28 “Long-term Interest in January 1, 2019 Associates and Joint Ventures” IFRIC 23 “Uncertainty under Income Tax January 1, 2019 Treatments” Note 1: Unless otherwise stated, the aforementioned new / amended / revised standards or interpretation are effective in the years after the respective date. Note 2: FSC permitted the adoption of this amendment before January 1, 2018 Note 3: FSC announced on December 19, 2017 that Taiwan shall adopt IFRS 16 on January 1, 2019.
- 20 - TAICHUNG BANK 2017 ANNUAL REPORT 141 Further to the notes specified below, the aforementioned new / amended / revised standards and interpretations shall not cause significant change in the accounting policy of the companies in the consolidated financial statements: IFRS 16 “Leases” IFRS 16 governs the accounting of leasing and will replace IAS 17 “Leasing” and related interpretations. Under IFRS 16, where applicable, and if the consolidated company is the Lessee, only short-term and low price subject of lease could adopt IAS 17 Leases in accounting while all others leases shall be recognized as assets-right of use and liabilities-lease on the balance sheet. The comprehensive income statement shall present the interest expenses incurred from the depreciations of the utilization of equity assets and leasehold liability under effective interest method. The principal amount of rent payment liability shall be recognized as financing while the interest payment shall be recognized as operation in the statement of cash flows. No anticipated significant influence from the accounting where the company contained in the consolidated financial statement is the lessor. Company contained in the consolidated financial statements may, at the time IFRS 16 becomes effective, apply the standard to the period of comparison retroactively, or recognize the accumulated effect of first use as of the day of first use. Further to the aforementioned influence, the companies in the consolidated financial statements will continue to evaluate the effect of the amendment to other IFRSs on the consolidated financial positions and consolidated performance of the companies in the consolidated financial statements to the date this parent company only financial statement approved and released, and will make appropriate disclosure after the evaluation. 4. Summary of significant accounting policies (1) Compliance Statement This consolidated financial statement is compiled in accordance with the Criteria for the Compilation of Financial Statements by Public Banks, Criteria for the Compilation of Financial Statements by Securities Firms, and the IFRSs recognized and released by FSC. (2) Basis of preparation Further to financial instruments measured at fair value, the content contained in this consolidated financial statement is compiled based on historical data. The evaluation of fair value could be classified into Level 1 to Level 3 by the observable intensity and importance of related input value: 1. Level 1 input value: refers to the quotation of the same asset or liability in an active market as of the evaluation (before adjustment) 2. Level 2 input value: refers to the direct (the price) or indirect (inference of price) observable input value of asset or liability further to the quotation of Level 1.
142 TAICHUNG BANK 2017 ANNUAL REPORT - 21 - 3. Level 3 input value: the unobservable input value of asset or liability (3) Standards in differentiating current and non-current assets and liabilities. Because it was difficult to ascertain the business cycle due to the operational characteristics of a consolidated bank, it was not necessary for the Company to categorize assets and liabilities into current or non-current items. However, the assets and liabilities have been categorized by nature and in the order subject to the equivalent liquidity. The analysis on maturity is also disclosed in Note 38. (4) Basis of consolidation 1. Principle of consolidated financial statements preparation This consolidated financial statement contains the information of the financial statements of the Company and its controlled entities (subsidiaries). The subsidiaries’ financial statements have been properly adjusted to make the accounting policies consistent with the accounting policies of the consolidated company. In preparing these consolidated financial statements, the transactions, account balances, incomes and loss and expenses among the individual entities are written off in full amount. 2. Subsidiaries included in the consolidated financial statements The business entities of the consolidated financial statements are as follows: Percentage of shareholdings December December Investor Subsidiary name Nature of the operation 31, 2017 31, 2016 Taichung Commercial Taichung Bank Insurance Brokers Insurance brokerage 100 100 Bank Co. Co., Ltd. Taichung Commercial Taichung Commercial Bank Lease Leasing 100 100 Bank Co. Enterprise Taichung Commercial Taichung Commercial Bank Securities Brokerage 100 100 Bank Co. Securities Co., Ltd. Taichung Commercial TCCBL Co., Ltd. Financing, leasing and 100 100 Bank Lease investments. Enterprise TCCBL Co., Ltd. Taichung Commercial Bank Leasing Financing Leasing 100 100 (Suzhou) Ltd. 3. The subsidiaries not included in the consolidated financial statements: None (5) Foreign currency When preparing the financial statements of each business entity of the consolidated company, the transactions in currencies other than the functional currency (the currency of the primary economic environment in which the entity operates) of the respective business entity (foreign currency) should be translated into the functional currency in accordance with the exchange rate on the transaction day. Foreign currency monetary items are translated at the closing rate on each balance sheet date. The exchange differences arising from the settlement of monetary items or translating monetary items are recognized in the current profit or loss. The foreign non-currency items measured at fair value are translated in accordance with the exchange rate on the fair value determination date and the exchange difference is booked as current profit or loss. However, for the changes in fair value recognized in the other comprehensive profit or loss, the exchange difference is recognized in the other comprehensive profit or loss.
- 22 - TAICHUNG BANK 2017 ANNUAL REPORT 143 The foreign non-currency items measured at historical cost are translated in accordance with the exchange rate on the transaction date without the need for a translation again. When preparing the consolidated financial statements, the assets and liabilities of the consolidated company’s foreign operations should be translated into New Taiwan dollars in accordance with the exchange rate on the balance sheet date. Income and expense items are translated in accordance with the current average exchange rates and the exchange differences are booked in the other comprehensive profit or loss. (6) Bonds Purchased under Resell/Notes Issued under Repurchase Agreements For underwritten bonds and securities that are sold under RP and RS agreements, recognize interest expense and interest income on the accrual basis between the purchase and sale dates and agreed RP and RS date; also, recognize RP (Debt) and bonds and securities sold under resell agreements between the sale and purchase dates. (7) Investments in the affiliated company The consolidated company has a significant influence on an affiliated company that is not a subsidiary or joint venture. Consolidated company has the investment in an affiliated company handled in accordance with the equity method. Under the equity method, investments in the affiliated companies were originally recognized at cost; the book value after the acquisition date fluctuates along with the distribution of profit or loss from the affiliated company and other comprehensive profit or loss by the consolidated company. In addition, for changes in the affiliated company’s equity, the consolidated company may be entitled to have it recognized proportionally to the shareholding. When assessing impairment, the consolidated company has the overall book value (including goodwill) of the investment deemed as a single asset when comparing the recoverable amount and the book amount in order to conduct impairment testing. The recognized impairment loss is an integral part of the book amount of the investment. Any reversal of the impairment loss can be recognized within the range of the recoverable amount of the subsequently increased investment. The profit or loss resulting from the countercurrent, downstream and side-stream transactions between the consolidated company and the affiliated company is recognized in the consolidated financial statement within the range that is irrelevant to the consolidated company’s interest in the affiliated company. (8) Property, plant, and equipment Real properties and equipment shall be recognized based on cost. Subsequent costing shall be measured on the cost net of accumulated depreciations and accumulated impairments. Proprietary land is not depreciated.
144 TAICHUNG BANK 2017 ANNUAL REPORT - 23 - Real properties and equipment are depreciated under the straight-line method. Particular portion shall be individually singled out for depreciation. The companies in the consolidated financial statements review the methods for assessment of life span, residual value and depreciation method on the ending day of each fiscal year. The impact of changes in accounting estimates is processed in accordance with the put-off method. The de-recognized profit or loss arising from the property, plant and equipment is the difference between the net disposal proceeds and the book amount of the asset and it is recognized in profit or loss. (9) Investment property Investment property is the property held for rental income or appreciations or both (including the property in construction for the above purposes). Investment property includes lands held at present without determination of future use. Investment property is measured on the basis of initial cost (including transaction cost) and subsequent measurement shall be based on the subtraction of accumulated depreciations and accumulated impairment from cost. The consolidated company has depreciation appropriated in accordance with the straight-line method. In removing investment property, the difference between the net proceeds of disposition and the book value shall be recognized as income. (10) Intangible assets 1. Acquired separately The intangible asset with limited useful life acquired separately was originally measured at cost and subsequently measured at cost, net of accumulated amortization and accumulated impairment losses. The consolidated company has depreciation appropriated in accordance with the straight-line method and, at least at the end of each year, has the estimated useful lives, residual values and amortization method reviewed. Unless the consolidated company is expected to have the intangible assets disposed of before the end of their economic life, the residual value of the intangible asset with limited useful lives is estimated at zero. The impact of changes in accounting estimates is processed in accordance with the put-off method. Intangible asset with indefinite useful lives is measured at cost net of accumulated impairment losses. 2. De-recognition The de-recognized profit or loss arising from the intangible assets is the difference between the net disposal proceeds and the book amount of the asset and it is recognized in the profit or loss. (11) Impairment of tangible and intangible assets (except for goodwill). The consolidated company at each balance sheet date is to assess whether there is any indication of the impairment occurring to the tangible and intangible assets (except for goodwill). If there is any indication of impairment occurring, the recoverable amount of the asset should be estimated. If the recoverable amount of an individual asset cannot be estimated, the consolidated company is to estimate the recoverable amount of the respective cash-generating unit. If the community assets can be amortized to the cash- generating units on a reasonable and consistent basis, it is allocated to individual cash- generating unit or it is allocated to the smallest cash-generating cluster on a reasonable and consistent basis.
- 24 - TAICHUNG BANK 2017 ANNUAL REPORT 145 The intangible asset with indefinite useful lives and not yet available for use should be tested for impairment at least annually or should be tested when there is an indication of impairment. The recoverable amount is the fair value net of cost or the value in use whichever is higher. When the recoverable amount of an individual asset or cash-generating unit is less than its book amount, the book amount of the asset or cash-generating unit should be reduced to its recoverable amount. When the impairment loss was reversed subsequently, the book amount of the asset or cash-generating unit is increased to the adjusted recoverable amount, but the increased book amount may not exceed the book amount of the asset or cash-generating unit without recognizing the impairment loss in prior periods (net of amortization or depreciation). The reversed impairment loss is recognized in the profit or loss. (12) Financial instruments When the consolidated company has become a party to the instrument contract, the financial assets and financial liabilities are to be recognized in the consolidated balance sheet. For the initial recognition of the financial assets and financial liabilities, if the financial assets or financial liabilities are not measured at fair value through profit or loss, it is measured at fair value plus transaction cost that is directly attributable to the acquisition or issuance of financial assets or financial liabilities. The transaction cost directly attributable to the acquisition or issuance of financial assets or financial liabilities that are measured at fair value through profit or loss is immediately recognized in the profit or loss. 1. Financial assets The customary transaction of financial assets is recognized and de-recognized in accordance with the trade date accounting. A customary transaction refers to the purchase or sale of financial assets and the delivery period is within the period prescribed by the regulations or customary market practice: (1) Classification of measurement The financial assets held by the companies in the consolidated statements are financial assets at fair value through profit and loss, financial assets held to maturity, financial assets available for sale, and loans and receivables.
146 TAICHUNG BANK 2017 ANNUAL REPORT - 25 - A. Financial assets at fair value through profit and loss Financial assets measured at fair value through profit or loss includes held-for-sale and designated financial assets measured at fair value through profit or loss. Financial asset measured at fair value through profit or loss is measured at fair value and the profit or loss generated from the secondary measurement is recognized as profit or loss (not includes any dividend or interest arising from the financial asset). Please refer to Note 37 for the determination of fair value. If the financial asset measured at fair value through profit or loss is an equity investment no public market price available and the fair value cannot be reliably measured and the derivatives that are linked to the equity instrument without a market quote and the settlement must be completed with the equity instrument delivered, it is measured subsequently at cost, net of the impairment loss and it is individually booked as “Financial assets measured at cost.” If these financial assets can be measured subsequently at fair value reliably, it is measured again at fair value and the difference between the book amount and fair value is recognized in the profit or loss. B. Held-to-maturity investments The government bonds and domestic and international corporate bonds and foreign government bonds with specific credit ratings that are invested by the consolidated company and the consolidated company has the positive intention and ability to hold it to maturity are classified as held-to-maturity investments. The held-to-maturity financial assets after the initial recognition are measured at the amortized cost after deducting impairment losses in accordance with the effective interest method. C. Available-for-Sale Financial Assets Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial assets measured at fair value through profit or loss. Financial assets available for sale are measured at fair value. If the change in book value of financial assets available for sale is exchange gain/loss from foreign currencies, recognize as profit or loss based on the interest income calculated under the effective interest rate. The same principle is applicable to the dividend of equity investment available for sale. The changes in the book value of the other available-for-sale financial assets are recognized in the other comprehensive profit or loss and are reclassified to the profit or loss upon disposal of the investment or when the impairment is confirmed.
- 26 - TAICHUNG BANK 2017 ANNUAL REPORT 147 The dividend of available-for-sale equity investments is recognized when the right to collection of the consolidated company is established. If the available-for-sale financial asset is an equity investment without a market quote in an active market and the fair value cannot be reliably measured and the derivatives that are linked to the equity instrument without a market quote and the settlement must be completed with the equity instrument delivered, it is measured subsequently at cost, net of impairment loss, and it is individually booked as “Financial assets measured at cost.” If such financial assets could be subsequently measured at fair value, measure based on fair value and the difference between the book value and the fair value shall be recognized under other comprehensive income. In case of impairment, recognize as profit or loss. D. Loans and accounts receivable Loans and receivables (including accounts receivable, cash and cash equivalents, and bond investments without an active market) are measured at the amortized cost after deducting the impairment losses in accordance with the effective interest method, except for the interest of short-term accounts receivable that is insignificant. Cash equivalents are time deposits within 3 months from the date of acquisition, with high liquidity, can be converted into cash with marginal risk on the change in value, and are used for the fulfillment of short-term commitment in cash settlement. (2) Impairment of financial assets Except for the financial assets measured at fair value through profit or loss, the consolidated company examines whether there is an evidence of impairment occurring on the other financial assets at each balance sheet date. When there is objective evidence of one or more events occurring after the initial recognition of financial assets with a resulting loss to the future cash flow of the financial asset, the impairment of financial assets had already occurred. For financial assets measured at the amortized cost, such as loans, discounts, exchange purchased and accounts receivable, the assets that are individually assessed without any impairment identified are collectively reassessed for impairment. The collective objective evidence of the impairment of receivables may include the consolidated company’s experience of collection, the increase in collective deferred payment and the observable changes in national or local economic conditions related to receivables arrearages. Objective evidence for impairment may include:
148 TAICHUNG BANK 2017 ANNUAL REPORT - 27 - A. Significant financial difficulty of the issuer or debtors: B.Breach of contract, such as, interest or principal payment delays or defaults; C. The possibility of debtor’s entering bankruptcy or other financial reorganization is greatly increased; or D. Financial difficulties may cause the active market for financial asset to disappear. Furthermore, according to the Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non- accrual Loans, the Company evaluates the collectability of loaned assets according to the borrower’s financial condition and the repayment of principal and interest and also based on the evaluated value of the collateral provided for specific credit. According to the aforementioned requirement, non-performing loans shall be recognized as assets under the categories of loss, doubtful, substandard, special mention, and normal depending on the collaterals and overdue period. Accordingly, provision for loss at 100%, 50%, 10%, 2% and 1% shall be recognized as per the requirement of Financial Supervisory Commission Letter Jin-Guan-Yin-Fa-Zi No. 10010006830. If the provision for bad debts accounted for more than 1% of the total lending, the proportion for the provision for bad debts for real properties shall not fall below 1.5% pursuant to Letter Jin-Guang-Yin-Kuo-Zi No. 10300329440. The impairment amount of the financial assets measured at amortized cost is the difference between the book value of the assets and the present value of the future cash flows discounted at the financial asset’s original effective interest rate. If the financial assets being recognized after the amortization of the cost showed a decrease of the amount of impairment in subsequent periods, and the decreased amount of impairment is related to the events after the recognition for impairment, the impairment so recognized previously shall be directly reversed or via the adjustment of provision of accounts and recognized as profit or loss. However, the amount of such reversal shall not exceed the cost after amortization before the recognition of impairment on the day of recognition. When the fair value of the available-for-sale equity investments below cost and the decline is significant or persistent, it will be deemed as an objective evidence of impairment. When available-for-sale financial asset is impaired, the cumulative loss previously recognized in the other comprehensive profit or loss will be reclassified into profit or loss. The impairment loss of the available-for-sale equity instruments that is already recognized in the profit or loss may not be reversed through the profit or loss. The fair value reversed amount after recognizing the impairment losses is recognized in the other comprehensive profit or loss. If the fair value of the available-for-sale financial assets increased in the subsequent period and the increase is objectively linked to an event occurring after the impairment is recognized, the impairment loss is reversed and recognized in the profit or loss.
- 28 - TAICHUNG BANK 2017 ANNUAL REPORT 149 For the objective evidence of impairment of other financial assets, please refer to the note on financial assets booked at the amortized cost. The impairment amount of the financial assets measured at cost is the difference between the book value of the assets and the present value of the future cash flows discounted at the financial asset’s current market rate of return. The said impairment loss shall not be reversed in subsequent periods. The impairment loss of all financial assets is directly deducted from the book amount of the financial asset. However, the book value of the accounts receivable and loans is adjusted down by the allowance for bad debt. The accounts receivable and loans that are concluded to be uncollectible are written off against the allowance account. The amount previously written off and collected subsequently is credited to the allowance account. Changes in the book amount of the allowance account are recognized in the profit or loss. (3) The de-recognition of financial assets The consolidated company has financial assets de-recognized only when the contractual rights from the cash flows of a financial asset becomes invalid or when the financial assets are transferred and almost all the risks and rewards of the asset ownership have been transferred to other enterprises. When de-recognizing a financial asset, the difference between the book amount and the consideration received plus any cumulative profit or loss recognized in the other comprehensive profit or loss is recognized in the profit or loss. 2. Equity instruments The debt and equity instruments issued by the consolidated company are classified as financial liabilities or equity pursuant to the contractual agreements and the definition of financial liabilities and equity instruments. Equity instruments issued by the consolidated company are recognized for an amount after deducting the direct issuing cost from the proceeds collected. The Company’s equity retrieved is debited or credited to the equity. The Company’s equity purchased, sold, issued, or cancelled is not recognized in the profit or loss.
150 TAICHUNG BANK 2017 ANNUAL REPORT - 29 - 3. Financial liabilities (1) Subsequent measurement All financial assets shall be measured under the effective interest rate method on the cost after amortization except under the following circumstances: A. Financial liabilities at fair value through profit and loss Financial liabilities measured at fair value through profit or loss includes held-for-sale and designated financial liabilities measured at fair value through profit or loss. Financial liability measured at fair value through the profit or loss is measured at fair value and the profit or loss generated from the secondary measurement is recognized as a profit or loss. The gain or loss recognized in the profit or loss does not include any dividends or interest paid for the financial liability. Please refer to Note 37 for the determination of fair value. If the financial liability measured at fair value through the profit or loss is: (a) the sale of an equity whose fair value cannot be reliably measured and has no market quote, and the settlement of the equity must be completed with the equity delivered; or (b) a derivative liability that is linked to an equity that cannot be reliably measured and has no market quote, and the settlement of the equity must be completed with the equity delivered, it is measured at cost on the balance sheet date and it is individually booked as “Financial assets measured at cost.” If these financial liabilities can subsequently be reliably measured at fair value, it is measured again at fair value and the difference between the book amount and the fair value is recognized in the profit or loss. B. Financial guarantee contract The financial guarantee contracts that are not measured at fair value through the profit or loss issued by the consolidated Company, after the initial recognition, are measured at cost after amortization. If specific amount shall be payable under contractual obligation under assessment, the optimal estimated amount and the amount after amortization under contractual obligation shall be measured, whichever is higher. (2) De-recognition of financial liabilities When de-recognizing financial liabilities, the difference between the book amount and the consideration paid (including any transferred non-cash assets or assumed liabilities) is recognized as profit or loss.
- 30 - TAICHUNG BANK 2017 ANNUAL REPORT 151 4. Derivatives The derivative instruments signed by the consolidated company include forward foreign exchange contracts, currency swap contracts, and convertible bond asset swap contracts that are used to manage the interest rate and exchange rate risk of the consolidated company. Upon signing the contracts, derivatives are recognized at fair value initially and then subsequently measured at fair value on the balance sheet date. The profit or loss resulting from the subsequent measurement is directly booked under the profit or loss. Then, the timing of recognizing the designated and effective hedging derivatives depends on the nature of the hedging relationship. When the fair value of the derivatives is positive, it is classified as a financial asset; when the fair value is negative, it is classified as a financial liability. The risk and features of an embedded derivative instrument and the main contract are not closely related and if the main contract is a financial asset or a financial liability measured at fair value through profit or loss, the derivatives are deemed as a separate derivative. (13) Liability reserve The recognized liability reserve amount is with the risk and uncertainty of the obligation considered, and it is the optimum estimate of the expenditure required to settle the obligations on the balance sheet date. Provision for liabilities shall be measured based on the discount value of the estimated cash flow for the settlement of obligation. If part or all of the expenditure needed for liquidating liability reserve is expected to be reimbursed by the other party, when the reimbursement is almost certain to be received and the amount can be reliably measured, the reimbursement is recognized as an asset. (14) Recognition of revenue Income refers to the total economic effect inflows due to the increase of equity resulting from normal operating activities, but does not include the increase of equity resulting from the input of equity participants. The main income of the consolidated company: 1. Interest revenue For the interest income from financial assets, when the economic benefits are likely to flow into the consolidated company and the amount of revenues can be measured reliably, all interest income generated from interest-bearing financial instruments should be recognized on an accrual basis in accordance with the effective interest rate.
152 TAICHUNG BANK 2017 ANNUAL REPORT - 31 - For a single or a group of similar financial asset that is reduced due to impairment losses, the subsequently recognized interest income is calculated in accordance with the interest rate that is used for the discounting of future cash flow when measuring the impairment loss. 2. Service fees and commission income Service fee income and expense are recognized in a lump sum when the loan or other service is provided. If the service fees are earned for completing major projects, they are recognized on the completion of the major projects, such as, the syndicated loan service fee charged collected by the organizing bank. If the service fees income and expenses are earned or paid for the subsequent loan service, they are to be amortized over the service period depending on the materiality, or included for the calculation of loans and receivables’ effective interest rate. 3. Dividend income Dividend income from investments is recognized when the shareholders’ right to receive payment is established; however, it is under the preconditions that the economic benefits associated with the transaction system are likely to flow into the consolidated company and the amount of revenues can be measured reliably. (15) Lease When the lease term is to have all risks and returns attached to the ownership of assets transferred to the lessee, it is classified as a financing lease. All other leases are classified as operating leases. 1. The consolidated company is the lessor. Under a financial lease, the amount to be collected from the lessee is recognized as lease receivables in accordance with the net lease investment of the consolidated company. Financial revenue is amortized into each accounting period to reflect the consolidated company’s fixed rate of return available for each respective period from the outstanding net lease investment. An operating lease rent is recognized as income on a straight-line basis over the lease period, unless another systematic basis is more representative of the leased asset’s efficiency in use and time consumption pattern. The original direct cost arising from negotiating and arranging an operating lease is included in the book value of the leased asset and it is recognized as an expense on a straight-line basis over the lease period. Under an operating lease, the contingent rent is recognized as income in the current period. Lease incentives given when signing an operating lease are recognized as assets. The total incentive cost is credited to the rent income on a straight-line basis, unless another systematic basis is more representative of the leased asset’s efficiency in use and time consumption pattern.
- 32 - TAICHUNG BANK 2017 ANNUAL REPORT 153 2. The consolidated company is the lessee. An operating lease payment is recognized as an expense on a straight-line basis over the lease period, unless another systematic basis is more representative of the user’s efficiency in use and time consumption pattern. Under an operating lease, a contingent rent is recognized as an expense in the current period. Lease incentives acquired from an operating lease are recognized as liability. The total incentive earning is credited to the rent expenses on a straight line basis, unless another systematic basis is more representative of the user’s efficiency in use and time consumption pattern. (16) Employee benefits 1. Retirement benefits Under the defined contribution pension plan, the pension amount appropriated during the service years of the employees is recognized as a current expense. The determined cost of benefit for determined benefit retirement plan (including the cost of service, net interest, and reevaluation) is based on the actuary of projected unit method. Cost of service and net determined benefit liability interest shall be recognized as employee benefit expense at the time of realization. Reevaluation (including actuarial profit and loss, change in the influence of upper limit of assets, and projected ROA net of applicable interest) shall be recognized as other comprehensive income and stated as retained earnings at the time of realization, and will not be reclassified as income in subsequent periods. Net determined benefit liability is the amount short in appropriation of determined benefit retirement plan. Net determined benefit asset shall not exceed the refund of the appropriated fund or decrease the present value of appropriation of fund in the future. 2. Employees preferential deposit benefit The companies of the consolidated financial statements provide preferred deposit for the employees, including the offering of fixed amount preferred deposit at special rate for the employees currently in employment and for the payment to the retired employees and current employees at their retirement. The difference between the interest rate for the aforementioned preferred deposits and market rate shall fall within the scope of employee welfare. According to the “Criteria for the Compilation of Financial Statements by Public Banks”, the interest from the preferred deposit for employees prearranged after retirement in excess of the interest under regular market rate shall be subject to actuarial calculation at the time of the retirement of the employees pursuant to IAS 19, “Employee Benefits” as recognized by FSC. However, the parameters for the assumptions in the actuarial calculation may be regulated by the competent authority, comply accordingly, if applicable.
154 TAICHUNG BANK 2017 ANNUAL REPORT - 33 - 3. Other long-term employee benefits The accounting process of the other long-term employee benefits is same as the accounting process of retirement interests. However, the relevant actuarial gains and losses and prior period service cost are recognized immediately in the profit or loss. (17) Income tax Income tax expense is the sum of the current income tax and deferred income tax. 1. Income tax expenses in the current period The 10% additional income tax levied on Accumulated earnings calculated according to the Income Tax Law is stated as income tax expenses in the year of the resolution made by the shareholders’ meeting. The adjustment to prior period income tax payable is booked as current income tax. 2. Deferred tax Deferred income tax is recognized in accordance with the temporary differences arising from the book amount of the assets and liabilities in the consolidated financial statements and the tax base for the computation of taxable income. Deferred income tax liabilities are generally recognized for all taxable temporary differences. Deferred income tax assets are recognized when there is a likelihood to have taxable income available for income tax credit resulting from the expenses of deductible temporary differences and tax loss carryforwards. If the temporary differences are the results of goodwill or the initial recognition of other assets and liabilities (excluding a business merger), and they do not affect the taxable income and accounting profit at the time of transaction, they are not recognized as deferred income tax assets or liabilities. Deferred income tax liabilities are recognized for all taxable temporary differences related to the subsidiary, unless the consolidated company can control the timing of reversal of the temporary differences and that the temporary differences are unlikely to be reversed in the foreseeable future. The deferred income tax asset arising from deductible temporary differences associated with such investment and equity is recognized within the range of earnings that are with sufficient taxable income to realize temporary differences and are expected to be reversed in the foreseeable future. The book amount of deferred income tax asset must be reviewed at each balance sheet date. The book amount of those that no longer have any sufficient taxable income to recover all or part of the asset, should be adjusted down. Those that are not originally recognized as deferred income tax assets should also be reexamined at each balance sheet date. The book amount of those that are likely to generate taxable income in the future for the recovery of all or part of its assets should be adjusted up.
- 34 - TAICHUNG BANK 2017 ANNUAL REPORT 155 Deferred income tax assets and liabilities are measured in accordance with the expected liability liquidation or the tax rate in the period when the asset is realized. The tax rate is based on the tax rate and tax laws that are legislated or substantively legislated at the balance sheet date. The measurement of deferred income tax liabilities and assets reflects the tax effect resulting from the book amount of the assets and liabilities expected to be recovered or liquidated at the balance sheet date. 3. Current and deferred income tax for the year Current and deferred income taxes are recognized in the profit or loss, except for the current and deferred income taxes related to the items recognized in other comprehensive profit or loss or directly included in the equity are recognized in the other comprehensive profit or loss or directly included in the equity. 5. Main source of significant accounting judgment, estimates and assumptions uncertainty When the accounting policies stated in Note IV adopted by the consolidated company, for the information that is hard to collect from other sources, the management should have the relevant judgments, estimates, and assumptions made in accordance with the historical experience and other relevant factors. Actual results may differ from the estimates. The management will continue to review the estimates and basic assumptions. If the amendment affects only the current estimates, it is recognized in the current period. If the amendment of accounting estimates affects both current and future periods, it is recognized in the respective current and future periods. Significant accounting judgments, estimates, and assumptions made by the consolidated company are described as follows: (1) Estimated impairment of loans and receivables Consolidated company shall include impairment of loans and receivable on a separate basis or in aggregate and estimate the future cash flows in accordance with the following methods: 1. Separate impairment: If specific account amounted to NTD10 million or more after settlement showed signs of impairment with objective evidence, the consolidated company will consider whether collateral has been collected, the nature of the collaterals, the character of the case and experience in the past for assessing the perpetuity and estimate the cash flow in the future. 2. Overall impairment assessment: If there is no objective evidence showing signs of impairment on loans and receivable of specific account after settlement, the consolidated company shall assess the impairment in aggregate by categorization. Consolidated company based on the book value of individual accounts in the groups to estimate the probability of default and the recovery rate for the evaluation of cash flow in the future.
156 TAICHUNG BANK 2017 ANNUAL REPORT - 35 - The amount of impairment is based on the difference between the book value of the asset and the cash flow in the future of the assets at the initial effective interest under discount in measurement. If the actual future cash flows are less than expected, a material impairment loss may have resulted. The book value of loans and account receivables and the amount recognized for provision for bad debts are explained in Note 10 and Note 11. (2) The fair value of derivatives and other derivative financial instruments As described in Note 37, the management of the consolidated company applies judgment to select appropriate evaluation techniques in order to assess the financial instrument that is without a market price quoted in an active market. Consolidated company adopted the commonly used evaluation techniques of market participants. The assumptions made on the derivatives are adjusted in accordance with the market prices or interest rates and the features of the instruments. Debt instrument is estimated using the discounted cash flow approach and the assumption is made in accordance with the observable market prices or interest rates (if available). The fair value of the emerging and not listed (OTC) equity instruments is estimated in accordance with the investee’s financial position and results of operations analysis, the recent trading prices, the quotations of similar equity instruments in an inactive market, quotation of similar instruments in an active market and the comparable companies’ valuation multipliers, including the assumptions not supported by the observable market prices or interest rates. The management of the consolidated company believes that the selected evaluation techniques and assumptions used are appropriate to determine the fair value of financial instruments. 6. Cash and cash equivalents December 31, 2017 December 31, 2016 Cash on hand $ 3,783,650 $ 3,925,239 Notes and checks for clearing 6,021,021 5,136,729 Due to Central Bank and other banks 5,196,382 5,043,643 $ 15,001,053 $ 14,105,611
The cash and cash equivalent balance on the consolidated Statement of Cash Flow as of December 31, 2017 and 2016, respectively, and the related adjustments of the consolidated balance sheet are as follows: December 31, 2017 December 31, 2016 Cash and cash equivalents on the consolidated balance sheet $ 15,001,053 $ 14,105,611
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- 36 - TAICHUNG BANK 2017 ANNUAL REPORT 157 (Continued from previous page)
December 31, 2017 December 31, 2016 The “Due from Central Bank and other banks” that meet the definitions of IAS 7 “Definition of Cash and cash equivalents” approved by the FSC. $ 13,583,928 $ 70,288,645 The “Bonds and securities sold under re-purchase agreements” comply with the IAS 7 “Definition of Cash and cash equivalents” approved by the FSC. 11,283,082 3,627,189 Cash and cash equivalents on the Consolidated Statement of Cash Flow $ 39,868,063 $ 88,021,445
As of December 31, 2017 and 2016, the time deposit of the consolidated company at other banks as performance bond of TCB Securities amounting to NTD200,000 thousand and NTD210,000 thousand respectively, and converted to refundable security deposit. Please refer to Note 20. 7. Due from Central Bank and lend to Banks December 31, 2017 December 31, 2016 Reserve for deposits Reserve for deposits –checking account $ 12,171,562 $ 14,600,055 Reserve for deposits –demand account 16,396,414 15,590,016 Financial Information Service Co., Ltd. – liquidated account 1,020,959 1,010,848 Reserve for deposits in foreign currency 53,586 48,383 Certificate of deposit of the Central Bank - 54,500,000 Call loans to banks 429,121 417,669 Reserve for trust funds compensation 50,000 50,000 $ 30,121,642 $ 86,216,971
(1) The deposit reserves in the Central Bank are calculated by multiplying the average monthly balances of all deposit accounts by the legally required ratio. The demand account reserve can be used only for the monthly adjustment of the deposit reserve. (2) The Reserve for trust funds compensation by Government bonds held to maturity on December 31, 2017 and 2016 is stated at the par value of NTD 50,000 thousand. Please refer to Note 35 for details.
158 TAICHUNG BANK 2017 ANNUAL REPORT - 37 - 8. Financial instruments measured at fair value through profit or loss December 31, 2017 December 31, 2016 Held-for-sale financial assets Commercial papers $ 27,935,360 $ 19,831,335 Listed stocks – domestic and emerging stock 869,876 696,980 Beneficiary certificate 361,332 614,880 Corporate bond 172,229 67,493 Open-end funds and money market instruments 4,940 - Assets swap agreement 1,648,955 756,942 Foreign exchange contracts 77,442 206,620 Forward contracts 57,188 186,806 FX options contracts 82,462 20,770 Interest rate derivatives 290 1,308 $ 31,210,074 $ 22,383,134
Held-for-sale financial liabilities Foreign exchange contracts $ 98,478 $ 78,515 Forward contracts 25,612 60,084 FX options contracts 82,845 22,885 Interest rate derivatives 290 1,308 $ 207,225 $ 162,792
(1) The consolidated company financial derivative contract related to a foreign exchange rate is a non-trading operation performed for the purpose of providing customers with a hedging tool for the foreign exchange position generated from import/export and foreign exchange and hedging the risk from business and meeting the need for foreign exchange funds. (2) The foreign exchange contracts which have not yet matured before December 31, 2017 and 2016 are specified as follows: December 31, 2017 December 31, 2016 Contract amount (NTD Contract amount (NTD 1,000) Date of maturity 1,000) Date of maturity Sold CNY 462,369 2018/01/26-2018/12/04 Sold CNY 577,098 2017/02/09-2017/12/01 HKD 209,761 2018/01/11-2018/02/26 HKD 221,017 2017/01/06-2017/02/09 EUR 16,500 2018/01/05-2018/01/17 JPY 499,470 2017/09/29-2017/10/04 GBP 8,500 2018/01/03-2018/01/09 USD 232,279 2017/01/03-2017/03/06 USD 22,996 2018/01/04-2018/04/12 Bought AUD 28,000 2017/01/05-2017/01/12 Bought CNY 11,586 2018/03/27-2018/04/12 CAD 8,661 2017/01/18 NZD 8,000 2018/01/11 EUR 10,000 2017/03/06 ZAR 28,107 2018/01/04 GBP 3,000 2017/02/03 AUD 8,000 2018/01/04 JPY 3,514,964 2017/03/03 CAD 9,508 2018/01/04 NZD 6,000 2017/01/24 JPY 940,850 2018/01/05 USD 117,100 2017/01/06-2017/12/01 USD 118,149 2018/01/03-2018/12/04 ZAR 170,429 2017/01/06
- 38 - TAICHUNG BANK 2017 ANNUAL REPORT 159 (3) The forward contracts which have not yet matured before December 31, 2017 and 2016 are specified as follows: Currency Date of maturity Contract amount (NTD 1,000) December 31, 2017 Forward exchange sold USD translated into NTD 2018/01/02-2018/12/27 USD115,951/NTD3,468,476 Forward exchange sold EUR translated into NTD 2018/01/05-2018/03/16 EUR1,394/NTD49,404 Forward exchange sold RMB translated into NTD 2018/01/24-2018/03/12 CNY3,170/NTD14,114 Forward exchange sold JPY translated into NTD 2018/02/13-2018/07/11 JPY160,575/NTD43,614 Forward exchange sold CAD translated into NTD 2018/01/18-2018/03/09 CAD389/NTD9,382 Forward exchange NTD translated into USD 2018/01/04-2018/01/19 NTD29,822/USD1,000 bought Forward exchange EUR translated into USD 2018/01/02-2018/06/07 EUR18,700/USD22,224 bought Forward exchange RMB translated into USD 2018/03/27-2018/05/07 CNY29,785/USD4,277 bought Forward exchange GBP translated into USD 2018/01/18-2018/03/29 GBP5,500/USD7,377 bought Forward exchange JPY translated into USD 2018/01/22-2018/06/26 JPY1,935,589/USD17,300 bought Forward exchange HKD translated into USD 2018/01/11 HKD1,798/USD230 bought Forward exchange NZD translated into USD 2018/02/08 NZD1,000/USD736 bought Forward exchange AUD translated into USD 2018/02/06 AUD600/USD460 bought Forward exchange USD translated into GBP 2018/01/18-2018/04/10 USD19,104/GBP14,250 bought Forward exchange USD translated into RMB 2018/01/08-2018/03/29 CNY42,000/USD6,353 bought Forward exchange USD translated into EUR 2018/01/08-2018/06/12 EUR25,050/USD29,717 bought Forward exchange USD translated into JPY 2018/02/22-2018/05/17 JPY718,241/USD6,400 bought Forward exchange USD translated into AUD 2018/03/15 AUD2,000/USD1,533 bought Forward exchange USD translated into CAD 2018/03/29 CAD629/USD500 bought Forward exchange JPY translated into EUR 2018/03/22-2018/03/23 JPY268,900/EUR2,000 bought
December 31, 2016 Forward exchange sold USD translated into NTD 2017/01/03-2017/12/11 USD58,395/NTD1,847,270 Forward exchange sold RMB translated into NTD 2017/06/12 CNY800/NTD3,597 Forward exchange sold EUR translated into NTD 2017/01/12-2017/06/30 EUR1,741/NTD59,883 Forward exchange sold JPY translated into NTD 2017/01/26-2017/02/21 JPY174,996/NTD51,793 Forward exchange NTD translated into USD 2017/01/10-2017/03/21 NTD313,038/USD10,000 bought Forward exchange EUR translated into USD 2017/01/11-2017/12/15 EUR23,950/USD26,089 bought Forward exchange GBP translated into USD 2017/01/04-2017/03/27 GBP5,250/USD6,771 bought Forward exchange JPY translated into USD 2017/01/10-2017/09/29 JPY5,420,607/USD50,700 bought Forward exchange USD translated into RMB 2017/01/18-2017/03/14 USD2,712/CNY19,000 bought Forward exchange USD translated into EUR 2017/02/02-2017/07/03 USD8,875/EUR8,300 bought Forward exchange USD translated into GBP 2017/03/03-2017/05/22 USD7,452/GBP6,000 bought Forward exchange USD translated into JPY 2017/03/30-2017/09/29 USD14,500/JPY1,662,751 bought (4) As of December 31, 2017 and 2016, the consolidated Company undertook assets swap contracts amounting to NTD 1,648,300 thousand and NTD 756,200 thousand respectively, with interest rate ranging from 0.90%~1.40%.
160 TAICHUNG BANK 2017 ANNUAL REPORT - 39 - (5) The foreign currency option contracts underwritten by the consolidated Company amounted to NTD 283,400 thousand (US$ 9,520 thousand) and NTD 330,100 thousand (US$ 10,234 thousand) as of December 31, 2017 and 2016, respectively. (6) As of December 31, 2017 and 2016, the Consolidated Company undertook structured products totaled NTD 43,434 thousand and NTD 73,377 thousand respectively, with interest rate ranging from 6.50%~6.60%. 9. Bonds and securities sold under repurchase agreements As of December 31, 2017 and 2016, the consolidated Company’s bonds securing RP were NTD 11,283,082 thousand and NTD 3,627,189 thousand, respectively. The redemption price as agreed were NTD 11,284,292 thousand and NTD 3,627,654 thousand, respectively. 10. Receivables- net December 31, 2017 December 31, 2016 Notes receivable $ 3,798,669 $ 3,326,719 repurchase agreements 791,111 768,144 Receivable factoring 1,656,114 - Acceptances receivable 871,032 771,318 Interests receivable 1,135,207 991,212 Receivable spot exchange settlement payment 1,805,037 1,494,328 Rent receivables 3,128,384 2,385,327 Receivable out-of-pocket expenses for attorney fees and cost of action 33,190 41,631 Receivable proceeds for delivery of securities 627,127 318,687 Other receivables 500,254 216,390 14,346,125 10,313,756 Less: Unrealized interest income ( 343,390 ) ( 311,829 ) Less: allowance for bad debt (Note 11) ( 344,584 ) ( 199,617 ) $ 13,658,151 $ 9,802,310
(1) The consolidated company classifies receivables based on credit risk features of products as follows: Allowance for bad Allowance for bad Total receivables Total receivables Item debt debt December 31, 2017 December 31, 2017 December 31, 2016 December 31, 2016 Corporate Individual $ 65,962 $ 18,835 $ 27,839 $ 3,394 banking evaluation With Consumer of 8,672 223 8,660 259 individual banking impairment objective Others 258,909 141,899 361,112 103,367 evidence of Portfolio Corporate 9,051 1,901 9,514 2,035 impairment evaluation banking of Consumer 30,483 14,482 40,125 19,213 impairment banking Without Corporate Portfolio 2,809,370 36,763 1,034,686 13,824 individual banking evaluation objective Consumer of 980,249 7,403 928,789 5,882 evidence of banking impairment impairment Others 56,483,168 73,018 102,897,494 46,281 Total 60,645,864 294,524 105,308,219 194,255
- 40 - TAICHUNG BANK 2017 ANNUAL REPORT 161 The aforementioned receivables of the Company as of December 31, 2017 and 2016 covered due from banks, due from the Central Bank and call loans to banks, bonds and securities sold under repurchase agreements, note receivables, credit card proceeds receivables, interest receivables, acceptance receivables, non-loan recognized as accounts for collection, and refundable security deposits. The aforementioned provision for bad debts is disclosed is calculated by the specific feature of the risk pursuant to IAS 39. The Company has recognized provision for bad debts for Category 1 loan assets of more than 1% in accordance with the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non- performing/Non-accrual Loans” and Letter Jin-Guan-Yin-Fa-Zi No. 10010006830 as of December 31, 2017 and 2016, with the additional amount of recognition by NTD 71,882 thousand and NTD 17,754 thousand, respectively. (2) Please refer to Note 35 for the notes receivable used as collateral of interbank financing. 11. Discounts and loans, net December 31, 2017 December 31, 2016 Bills negotiated and discounts $ 648,036 $ 616,797 Overdraft 1,555 1,182 Secured overdraft 23,154 29,812 Accounts receivable financing 28,060 84,669 Securities receivable financing 1,201,728 1,265,656 Short-term loan 46,156,527 46,495,818 Short-term secured loans 93,034,520 86,823,379 Mid-term loans 42,237,777 39,579,761 Mid-term secured loans 108,897,802 112,660,384 Long-term loans 4,405,504 4,290,507 Long-term secured loans 139,335,006 137,239,847 Delinquent loans 1,185,395 2,250,091 437,155,064 431,337,903 Add: Adjustment of premium/discount 47,706 55,043 Less: allowance for bad debt ( 6,344,810 ) ( 6,226,687 ) $ 430,857,960 $ 425,166,259
(1) The balances of loans and other loans on which no interest has accrued by the Company on December 31, 2017 and 2016 were NTD 1,168,006 thousand and NTD 2,226,189 thousand, respectively. The interest receivable on which no interest has accrued internally were NTD 30,298 thousand and NTD 50,717 thousand, respectively. (2) There was no credit loan written off without pursuit in 2017 and 2016.
162 TAICHUNG BANK 2017 ANNUAL REPORT - 41 - (3) The consolidated company classifies discounts and loans based on credit risk features of products as follows: Discounts and loans Allowance for bad Allowance for bad Total amount Total amount Item debt debt December 31, 2017 December 31, 2017 December 31, 2016 December 31, 2016 Individual Corporate $ 7,071,371 $ 1,855,412 $ 7,197,008 $ 1,294,757 evaluation banking With of Consumer individual 2,273,811 255,556 1,798,103 157,085 impairment banking objective Portfolio Corporate evidence of 911,688 283,721 935,133 274,044 evaluation banking impairment of Consumer 2,177,833 278,992 1,848,381 199,529 impairment banking Without Corporate Portfolio 221,343,141 1,632,665 225,277,425 1,582,056 individual banking evaluation objective of Consumer evidence of 203,377,220 214,635 194,281,853 170,626 impairment banking impairment Total 437,155,064 4,520,981 431,337,903 3,678,097 The aforementioned provision for bad debts is disclosed is calculated by the specific feature of the risk pursuant to IAS 39. The Company has recognized provision for bad debts for Category 1 loan assets of more than 1% in accordance with the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non- performing/Non-accrual Loans” and Letter Jin-Guan-Yin-Fa-Zi No. 10010006830 and the proportion for the provision for bad debts for real properties shall not fall below 1.5% pursuant to Letter Jin-Guang-Kuo-Zi No. 10300329440. Accordingly, the additional provision for bad debts for December 31, 2017 and 2016 were recognized at NTD1,823,829 thousand and NTD2,548,590 thousand, respectively. (4) Details and changes of allowance for bad debts for receivables and discounts and loans for 2017 and 2016 are summarized as follows: 2017 Accounts Discounts and receivable loans Total Balance, beginning $ 212,009 $ 6,226,687 $ 6,438,696 Provided in the current period 276,681 770,744 1,047,425 Write-off of non-performing loans ( 140,940 ) ( 1,010,672 ) ( 1,151,612 ) Collection of written off bad debt 19,840 391,827 411,667 Exchange effects ( 1,184 ) ( 33,776 ) ( 34,960 ) Balance, ending $ 366,406 $ 6,344,810 $ 6,711,216
2016 Accounts Discounts and receivable loans Total Balance, beginning $ 246,104 $ 6,265,316 $ 6,511,420 Provided in the current period 103,604 672,436 776,040 Write-off of non-performing loans ( 154,130 ) ( 1,221,228 ) ( 1,375,358 ) Collection of written off bad debt 16,764 537,894 554,658 Exchange effects ( 1,333 ) ( 11,731 ) ( 13,064 ) Reclassification 1,000 ( 16,000 ) ( 15,000 ) Balance, ending $ 212,009 $ 6,226,687 $ 6,438,696
- 42 - TAICHUNG BANK 2017 ANNUAL REPORT 163 Allowance for bad debts for above-mentioned receivables includes allowance for bad debts for delinquent loans other than loans transferred from loans. Please refer to Note 16 for details. 12. Available-for-Sale Financial Assets December 31, 2017 December 31, 2016 Corporate bond $ 24,536,414 $ 28,373,933 Government bonds 6,497,632 8,839,124 Listed stocks - overseas 158,825 117,793 Listed stocks - domestic 422,946 124,370 Bonds and depository receipts - - $ 31,615,817 $ 37,455,220
(1) Foreign listed stocks and depository receipts are valued in foreign currencies as follows: December 31, 2017 December 31, 2016 USD $ 5,335 $ 3,652
(2) As of December 31, 2017 and 2016, the amount of government bonds available for sale of the consolidated company availed as the condition for R/P amounted to NTD0 and NTD2,740,000 thousand, respectively. (3) As of December 31, 2017 and 2016, bonds and depository receipts of the companies in the consolidated financial statements available for sale are recognized as impairment loss in full amount after evaluation. 13. Held-to-maturity financial assets, net December 31, 2017 December 31, 2016 Overseas bond $ 19,529,633 $ 13,243,533 Government bonds 8,512,462 532,737 Negotiable certificate of deposits issued by Central Bank 57,500,000 500,000 $ 85,542,095 $ 14,276,270
(1) Foreign bonds are valued in foreign currencies as follows: December 31, 2017 December 31, 2016 USD $ 483,962 $ 263,962 RMB 750,000 815,000 AUD 61,000 34,000 ZAR 70,000 -
164 TAICHUNG BANK 2017 ANNUAL REPORT - 43 - (2) As of December 31, 2017 and 2016, the book values of the held-to-maturity government bonds securing RP were NTD 2,200,000 thousand and NTD 319,000 thousand, respectively. The book values of the held-to-maturity overseas bonds securing RP were NTD 2,232,750 thousand (US$75,000 thousand), and NTD 1,193,435 thousand (US$37,000 thousand), respectively. 14. Investment under the equity method December 31, 2017 December 31, 2016 Amount Shareholding Amount Shareholding Individual non-dominant associates Reliance Securities Investment Trust Co., Ltd. $ 128,113 38.46 $ 130,935 38.46
The 2017 and 2016 investment loss of the consolidated company in the affiliated company recognized under the equity method is as follows: Investee 2017 2016 Reliance Securities Investment Trust Co., Ltd. ( $ 2,875 ) ( $ 5,540 )
The consolidated financial information of the affiliated company of the consolidated company is as follows: December 31, 2017 December 31, 2016 Total assets $ 340,708 $ 351,645 Total Liabilities $ 7,615 $ 11,213
2017 2016 Operating income - current $ 32,986 $ 35,328 Net loss of current period ( $ 7,475 ) ( $ 14,402 ) Other comprehensive income (loss) in current period $ 137 ( $ 356 )
The 2017 and 2016 profit or loss and other comprehensive profit or loss of the affiliated company under the equity method was recognized in accordance with the audited financial statements during the same period of the affiliated company. 15. Restricted assets December 31, 2017 December 31, 2016 Restricted assets – bank deposits $ 237,075 $ 284,118 Underwriting money collected 11,630 1,046 Pending settlement payments 298 70 $ 249,003 $ 285,234
- 44 - TAICHUNG BANK 2017 ANNUAL REPORT 165 The consolidated company’s restricted bank deposit as the collateral for the interbank financing of the consolidated company. Please refer to Note 35. 16. Other financial assets - net December 31, 2017 December 31, 2016 Financial assets at cost $ 145,684 $ 145,684 Other financial assets - others 900,335 1,022,835 Other Delinquent loans – net 21,606 2,659 $ 1,067,625 $ 1,171,178
(1) Details of the financial assets carried at cost are summarized as follows: December 31, 2017 December 31, 2016 Common stock other than publicly offering of domestic common stock $ 145,684 $ 145,684
The unlisted/OTC equity investment referred to above of the consolidated company is measured at cost less impairment losses on the balance sheet date, because a reasonable estimate of the fair value range is significant and the probability of a variety of estimates cannot be reasonably assessed, causing the consolidated company’s management to believe that the fair value cannot be reliably measured. (2) Other financial assets - others December 31, 2017 December 31, 2016 Repurchase products issued by PEM Group. $ 2,000,308 $ 2,160,014 Less: accumulated impairment ( 1,099,973 ) ( 1,137,179 ) $ 900,335 $ 1,022,835 The consolidated company according to the resolution reached in the board meeting on May 6, 2009 has the “Private Equity Management Group (PEM Group) Structured Note Customer Interests Protection Program” defined for repurchasing PEM Group structured notes entirely from the investors with the insurance assets accepted in February, 2011. After evaluating the value of insurance policy assets issued by PEM Group, the consolidated company recognized a gain on reversal of impairment loss of NTD (50,533) thousand and NTD 106,146 thousand respectively for the year ended December 31, 2017 and 2016. (3) Details of other delinquent accounts, net are summarized as follows: December 31, 2017 December 31, 2016 Non-delinquent loans restated from loans $ 43,428 $ 15,051 Less: Allowance for bad debt (Note 10 and 11) ( 21,822 ) ( 12,392 ) $ 21,606 $ 2,659
166 TAICHUNG BANK 2017 ANNUAL REPORT - 45 - 17. Property, plant, and equipment December 31, 2017 December 31, 2016 The book amount of each category Land $ 7,766,120 $ 7,766,120 Buildings and structures 981,121 1,020,914 Transportation and communication equipment 14,376 16,683 Miscellaneous equipment 479,605 521,017 Leasehold improvement 3,061 4,824 Construction in process and prepayment for machinery purchase 143,380 106,966 $ 9,387,663 $ 9,436,524
2017 Construction in Transportation process and and prepayment for Buildings and communication Miscellaneous Leasehold Prepayments for machinery Land structures equipment equipment improvement real properties purchase Total Cost Balance, beginning $ 7,843,120 $ 2,086,402 $ 38,422 $ 1,571,174 $ 7,508 $ - $ 106,966 $ 11,653,592 Increase - - 3,159 151,009 - - 42,415 196,583 Decrease - - ( 1,063 ) ( 50,205 ) ( 765 ) - - ( 52,033 ) Reclassified in the - - - 6,001 - - ( 6,001 ) - current period Net exchange - - - ( 311 ) - - - ( 311 ) differences Balance, ending 7,843,120 2,086,402 40,518 1,677,668 6,743 - 143,380 11,797,831 Accumulated depreciation Balance, beginning - 1,065,488 21,739 1,050,157 2,684 - - 2,140,068 Increase - 39,793 4,601 173,635 1,378 - - 219,407 Decrease - - ( 198 ) ( 25,672 ) ( 380 ) - - ( 26,250 ) Reclassified in the ------current period Net exchange - - - ( 57 ) - - - ( 57 ) differences Balance, ending - 1,105,281 26,142 1,198,063 3,682 - - 2,333,168 Accumulated impairment Balance, beginning 77,000 ------77,000 Provided in the ------current period Decrease ------Reclassified in the ------current period Balance, ending 77,000 ------77,000 Net, ending $ 7,766,120 $ 981,121 $ 14,376 $ 479,605 $ 3,061 $ - $ 143,380 $ 9,387,663
2016 Construction in Transportation process and and prepayment for Buildings and communication Miscellaneous Leasehold Prepayments for machinery Land structures equipment equipment improvement real properties purchase Total Cost Balance, beginning $ 7,914,300 $ 1,991,855 $ 36,477 $ 1,412,103 $ 7,317 $ 34,853 $ 1,475 $ 11,398,380 Increase - - 8,556 233,449 191 89,147 111,156 442,499 Decrease - - ( 6,611 ) ( 78,162 ) - - - ( 84,773 ) Reclassified in the ( 71,180 ) 94,547 - 5,665 - ( 124,000 ) ( 5,665 ) ( 100,633 ) current period Net exchange - - - ( 1,881 ) - - - ( 1,881 ) differences Balance, ending 7,843,120 2,086,402 38,422 1,571,174 7,508 - 106,966 11,653,592 Accumulated depreciation Balance, beginning - 1,054,466 23,611 970,355 1,198 - - 2,049,630 Increase - 33,387 3,893 158,226 1,486 - - 196,992 Decrease - - ( 5,765 ) ( 77,688 ) - - - ( 83,453 ) Reclassified in the - ( 22,365 ) - - - - - ( 22,365 ) current period Net exchange - - - ( 736 ) - - - ( 736 ) differences Balance, ending - 1,065,488 21,739 1,050,157 2,684 - - 2,140,068 Accumulated impairment Balance, beginning 77,000 ------77,000 Provided in the ------current period Decrease ------Reclassified in the ------current period Balance, ending 77,000 ------77,000 Net, ending $ 7,766,120 $ 1,020,914 $ 16,683 $ 521,017 $ 4,824 $ - $ 106,966 $ 9,436,524
- 46 - TAICHUNG BANK 2017 ANNUAL REPORT 167 (1) Property and equipment of the consolidated company are appreciated in accordance with the straight line method over the useful years as follows: Buildings and structures Buildings 30 to 60 years Renovation engineering 10 to 29 years Transportation and communication equipment 3 to 5 years Miscellaneous equipment 2 to 15 years Leasehold improvement 5 years
(2) As of December 31 2016, the consolidated company reclassified lands, premises, and buildings in part to investment property. Refer to Note 18 for detail. 18. Investment property 2017 Investment property in Land Buildings construction Total Cost Balance, beginning $ 71,180 $ 29,453 $ - $ 100,633 Increase - - 22,500 22,500 Decrease ( 50,911 ) ( 16,878 ) - ( 67,789 ) Reclassification - - - - Balance, ending 20,269 12,575 22,500 55,344 Accumulated depreciation Balance, beginning - 22,365 - 22,365 Increase - 240 - 240 Decrease - ( 12,511 ) - ( 12,511 ) Reclassification - - - - Balance, ending - 10,094 - 10,094 Net, ending $ 20,269 $ 2,481 $ 22,500 $ 45,250
2016 Land Buildings Total Cost Balance, beginning $ - $ - $ - Increase - - - Decrease - - - Reclassification 71,180 29,453 100,633 Balance, ending 71,180 29,453 100,633
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168 TAICHUNG BANK 2017 ANNUAL REPORT - 47 - (Continued from previous page)
2016 Land Buildings Total Accumulated depreciation Balance, beginning $ - $ - $ - Increase - - - Decrease - - - Reclassification - 22,365 22,365 Balance, ending - 22,365 22,365 Net, ending $ 71,180 $ 7,088 $ 78,268
(1) Investment property of the consolidated company are appreciated in accordance with the straight line method over the useful years as follows: Buildings and structures Buildings 60 years Renovation engineering 10 to 25 years
(2) The Board of the consolidated company resolved to sell part of the investment property in 2017 and the proceeds of the sale amounted to NTD403,950 thousand, which resulted in capital gain of NTD348,672 thousand and land value increment tax amounting to NTD57,840 thousand. (3) The consolidated company had investment property at fair value of NTD84,152 thousand and NTD518,350 thousand as of December 31, 2017 and 2016. The aforementioned fair value has not been appraised by independent appraisers and was appraised by consolidated company with reference to the transaction price of similar property in market. 19. Intangible assets December 31, 2017 December 31, 2016 Business right $ 28,000 $ 28,000 Computer software 132,054 138,769 $ 160,054 $ 166,769
(1) The intangible assets of the consolidated company is the assigned right of operation from Feng Sing Securities. The right of operation is intangible assets that the life span cannot be determined and no amortization is made. As of December 31, 2017, no impairment of such right of operation has been declared in the evaluation.
- 48 - TAICHUNG BANK 2017 ANNUAL REPORT 169 (2) Change of Intangible assets are as follows: 2017 2016 Balance, beginning $ 166,769 $ 183,995 Increase 56,197 37,684 Amortization in the current ( 67,574 ) ( 57,200 ) period Reclassified in the current 4,677 2,319 period Net exchange differences ( 15 ) ( 29 ) Balance, ending $ 160,054 $ 166,769
20. Other assets December 31, 2017 December 31, 2016 Refundable deposits $ 1,910,942 $ 1,983,158 Prepayments 82,655 97,752 Others 15,807 305 $ 2,009,404 $ 2,081,215
The time deposits and government bonds held to maturity deposited by the consolidated company as the security bond for provisional seizure at court and for business guarantee on December 31, 2017 and 2016 were NTD 1,217,800 thousand and NTD 1,253,500 thousand, which are stated as refundable deposits. Please refer to Note 35 for details. 21. Due to Central Bank and other banks December 31, 2017 December 31, 2016 Call loans to banks $ 9,007,150 $ 10,919,125 Due to Chunghwa Post Co., Ltd. 511,474 697,810 Deposits of other banks 248 793 $ 9,518,872 $ 11,617,728
22. Funds borrowed from Central Bank and other banks December 31, 2017 December 31, 2016 Funds borrowed from banks $ 5,120,940 $ 4,199,858 Interbank financing rate (%) 1.00~6.27 0.85~5.00
Please refer to Note 35 for the collateral of the interbank loans:
170 TAICHUNG BANK 2017 ANNUAL REPORT - 49 - 23. Bills and bonds sold under repurchase agreements December 31, 2017 December 31, 2016 Government bonds $ 2,202,581 $ 3,060,139 Overseas bond 2,105,229 1,162,119 $ 4,307,810 $ 4,222,258
Post-period re-purchase amount and interest rate are as follows: December 31, 2017 December 31, 2016 Government bonds $ 2,203,231 $ 3,062,028 Overseas bond 2,114,799 1,165,535 $ 4,318,030 $ 4,227,563
Government bonds 0.37%-0.43% 0.39%-0.55% Overseas bond 1.68%-1.90% 1.15%
Foreign bonds are valued in foreign currencies as follows: December 31, 2017 December 31, 2016 USD $ 70,716 $ 36,029
24. Payables December 31, 2017 December 31, 2016 Notes and checks in clearing $ 6,021,021 $ 5,136,729 Payable spot exchange settlement payment 1,804,654 1,492,044 Account payable for underwriting 1,581,918 - Accrued expenses 1,298,224 1,265,935 Acceptances payable 872,015 774,900 Receivable accounts for settlement 662,746 287,381 Interest payable 441,183 306,690 Collection payable 42,167 25,503 Payable structured note indemnity (Note 36) 4,392 4,392 Other payables 603,402 512,133 $ 13,331,722 $ 9,805,707
- 50 - TAICHUNG BANK 2017 ANNUAL REPORT 171 25. Customer deposits and remittances December 31, 2017 December 31, 2016 Check deposits $ 9,696,673 $ 9,132,347 Current deposits 128,360,615 126,251,969 Current saving deposits 121,997,110 118,154,950 Time deposits 159,919,564 144,077,549 Time saving deposits 146,104,716 142,156,486 Remittances 16,102 35,707 $ 566,094,780 $ 539,809,008
26. Financial bonds payable December 31, 2017 December 31, 2016 Subordinate financial bonds $ 17,500,000 $ 13,000,000
(1) As approved by FSC’s Letter under Jin-Guan-Yin (4) Zi No. 09800104050 dated March 20, 2009, the Taichung Bank issued 1st term to 4th term subordinate financial bonds for 2009 on June 26, December 10, December 18, and December 30, 2009 and 1st term to 2nd term subordinate financial bonds for 2010 on January 28 and February 9, 2010 upon the following terms and conditions: 1. Approved: NTD 5,000,000 thousand. 2. Issued: (1) 1st term 2009: 1,800,000 thousand. (2) 2nd term 2009: 100,000 thousand. (3) 3rd term 2009: 1,200,000 thousand. (4) 4th term 2009: 1,100,000 thousand. (5) 1st term 2010: 600,000 thousand. (6) 2nd term 2010: 200,000 thousand. 3. Book value: (1) 1st term 2009: NTD 100 thousand, issued at par value. (2) 2nd term 2009: NTD 500 thousand, issued at par value. (3) 3rd term 2009: NTD 500 thousand, issued at par value. (4) 4th term 2009: NTD 500 thousand, issued at par value. (5) 1st term 2010: NTD 500 thousand, issued at par value. (6) 2nd term 2010: NTD 10,000 thousand, issued at par value.
172 TAICHUNG BANK 2017 ANNUAL REPORT - 51 - 4. Duration: (1) 1st term 2009: 7 years, matured on June 26, 2016. (2) 2nd term 2009: 7 years, matured on December 10, 2016. (3) 3rd term 2009: 7 years, matured on December 18, 2016. (4) 4th term 2009: 6.5 years, matured on June 30, 2016. (5) 1st term 2010: 7 years, matured on January 28, 2017. (6) 2nd term 2010: 6 years, matured on February 9, 2016. 5. (Bond interest rate: (1) 1st term 2009: the displayed floating rates for one-year term deposits of Chunghua Post Co., Ltd. plus 1.40%.
(2) 2nd term 2009: the fixed annual rate of 2.75%. (3) 3rd term 2009: the displayed floating rates for one-year term deposits of Chunghua Post Co., Ltd. plus 1.50%. (4) 4th term 2009: the displayed floating rates for one-year term deposits of Chunghua Post Co., Ltd. plus 1.48%. (5) 1st term 2010: the displayed floating rates for one-year term deposits of Chunghua Post Co., Ltd. plus 1.50%. (6) 2nd term 2010: the displayed floating rates for one-year term deposits of Chunghua Post Co., Ltd. plus 1.50%. 6. Repayment Methods: repayment in lump sum upon maturity. 7. Payment of interest: interest paid per six months as of the date of issuance. (2) As approved by FSC’s Letter under Jin-Guan-Yin-Piao-Zi No. 09900204230 dated June 4, 2010, the Taichung Bank issued 3rd term subordinate financial bonds on June 25, 2010 upon the following terms and conditions: 1. Approved: NTD 900,000 thousand. 2. Issued: NTD 900,000 thousand. 3. Denomination: NTD 10,000 thousand, issued at par value. 4. Duration: 7 years, matured on June 25, 2017.
- 52 - TAICHUNG BANK 2017 ANNUAL REPORT 173 5. Bond interest rate is the displayed floating rates for one-year term deposits of Chunghua Post Co., Ltd. plus 1.75%. 6. Repayment Methods: repayment in lump sum upon maturity. 7. Payment of interest: interest paid per six months as of the date of issuance. (3) As approved by FSC’s Letter under Jin-Guan-Yin-Piao-Zi No. 10100305900 dated September 24, 2012, the Taichung Bank issued 1st term subordinate financial bonds November 13, 2012 upon the following terms and conditions: 1. Approved: NTD 3,000,000 thousand. 2. Issued: NTD 3,000,000 thousand. 3. Denomination: NTD 1,000 thousand, issued at par value. 4. Duration: 7 years, matured on November 13, 2019. 5. Coupon rate: Fixed annual interest rate 2.1%. 6. Repayment Methods: repayment in lump sum upon maturity. 7. Payment of interest: interest paid per six months as of the date of issuance. (4) As approved by FSC’s Letter under Jin-Guan-Yin-Piao-Zi No. 10200089330 dated April 8, 2013, the Taichung Bank issued 1st term and 2nd term subordinate financial bonds June 25 and December 16, 2013 upon the following terms and conditions: 1. Approved: NTD6,000,000 thousand. 2. Issued: (1) 1st term 2013: 2,500,000 thousand. (2) 2nd term 2013: 3,000,000 thousand. 3. Book value: (1) 1st term 2013: NTD 500 thousand, issued at par value. (2) 2nd term 2013: NTD 500 thousand, issued at par value. 4. Duration: (1) 1st term 2013: 7 years, matured on June 26, 2020. (2) 2nd term 2013: 6 years, matured on December 16, 2019. 5. Bond interest rate: (1) 1st term 2013: the fixed annual rate of 2.1%. (2) 2nd term 2013: the fixed annual rate of 2.1%.
174 TAICHUNG BANK 2017 ANNUAL REPORT - 53 - 6. Repayment Methods: repayment in lump sum upon maturity. 7. Payment of interest: interest paid per six months as of the date of issuance. (5) The Company has been approved by Financial Supervisory Commission under Letter Jin- Guan-Yin-Piao-Zi No. 10400200460 dated August 26, 2015 for the issuance of no maturity non-cumulative subordinated financial debentures 1st term for 2015 on December 28, 2015. The terms and conditions for issuance are shown below: 1. Approved: NTD 1,500,000 thousand. 2. Issued: NTD 1,500,000 thousand. 3. Denomination: NTD 10,000 thousand, issued at par value. 4. Maturity: no maturity date. 5. Bond interest rate is the displayed floating rates for one-year term deposits of Chunghua Post Co., Ltd. plus 3.08%. 6. Principal retirement: executed in accordance with the regulations of issuance. 7. Interest payment: once annually from the issuing date. (6) The Taichung Bank has been approved by Financial Supervisory Commission under Letter Jin-Kuan-Yin-Piao-Zi No. 10500210950 dated September 2, 2016 for the issuance of no maturity non-cumulative subordinated financial debentures 1st term for 2017 and 2nd term and 3rd term for 2016 on March 28, May 18, August 28, 2017. The terms and conditions for issuance are shown below: 1. Approved: NTD 3,500,000 thousand. 2. Issued: (1) 1st term 2016: 1,500,000 thousand. (2) 1st term 2017: 1,000,000 thousand. (3) 2nd term 2017: 500,000 thousand. (4) 3rd term 2017: 500,000 thousand. 3. Book value: (1) 1st term 2016: NTD 10,000 thousand, issued at par value. (2) 1st term 2017: NTD 10,000 thousand, issued at par value. (3) 2nd term 2017: NTD 10,000 thousand, issued at par value. (4) 3rd term 2017: NTD 10,000 thousand, issued at par value. 4. Maturity: no maturity date.
- 54 - TAICHUNG BANK 2017 ANNUAL REPORT 175 5. Bond interest rate is the displayed floating rates for one-year term deposits of Chunghua Post Co., Ltd. plus 3.08%. 6. Principal retirement: executed in accordance with the regulations of issuance. 7. Interest payment: once annually from the issuing date. (7) The Company has been approved by Financial Supervisory Commission under Letter Jin- Guan-Yin-Piao-Zi No. 10600229120 dated September 22, 2017 for the issuance of no maturity non-cumulative subordinated financial debentures 4th term and 5th term for 2017 on December 5, 2017 and December 27, 2017. The terms and conditions for issuance are shown below: 1. Approved: NTD 5,000,000 thousand. 2. Issued: (1) 4th term 2017: 1,350,000 thousand. (2) 5th term 2017: 2,650,000 thousand. 3. Book value: (1) 4th term 2017: NTD 10,000 thousand, issued at par value. (2) 5th term 2017: NTD 10,000 thousand, issued at par value. 4. Maturity: no maturity date. 5. Bond interest rate is the displayed floating rates for one-year term deposits of Chunghua Post Co., Ltd. plus 3.08%. 6. Principal retirement: executed in accordance with the regulations of issuance. 7. Interest payment: once annually from the issuing date. 27. Other financial liabilities December 31, 2017 December 31, 2016 Principal of structured commercial products $ 43,434 $ 73,377 Commercial papers payable 1,014,432 734,471 Allocated to lending fund - 119 $ 1,057,866 $ 807,967
28. Liability reserve December 31, 2017 December 31, 2016 Employee benefit liabilities reserve $ 1,120,042 $ 1,140,778 Reserve for guarantee liability 243,637 166,760 Allowance for contingency 26,300 300 $ 1,389,979 $ 1,307,838
176 TAICHUNG BANK 2017 ANNUAL REPORT - 55 - (1) Employee benefit liabilities reserve is detailed as follows: December 31, 2017 December 31, 2016 Defined benefit liabilities $ 992,816 $ 1,032,017 Employees preferential deposit plan 108,779 93,544 Other long-term employee benefit liabilities 18,447 15,217 $ 1,120,042 $ 1,140,778 1. Defined contribution pension plan The pension system of the “Labor Pension Act” that is applicable to the Company and its subsidiaries of the consolidated company is a defined contribution pension plan subject to government management with an amount equivalent to 6% of the monthly salary appropriated and contributed to the personal account with the Bureau of Labor Insurance. The amount to be appropriated in accordance with the defined contribution plan by the consolidated company on the comprehensive income statement in 2017 and 2016 were NTD 88,428 thousand and NTD 76,980 thousand, respectively. 2. Defined benefit plan The consolidated company’s pension system under the “Labor Standards Act” of the R.O.C. is a defined benefit pension plan. Pension payment is calculated in accordance with the years of service and the average salary six months prior to the authorized retirement date. The consolidated company has contributed to the employee pension fund monthly based on the total salaries to Labor Pension Reserve Supervisory Committee for deposit at the special account in the Company of Taiwan bearing the title of the committee. If the balance of the special account before the end of the fiscal year is insufficient to settle the payment for employees qualified for retirement in the next fiscal year, the company shall make up the difference in lump sum by the end of March of the next fiscal year. The special account has been commissioned to the Bureau of Labor Fund of the Ministry of Labor Affairs for management. The Company contained in the consolidated financial statements exercises no influence on the right of the bureau in its investment management strategy. The amount of determined benefit plan recognized in the consolidated balance sheet is shown below: December 31, 2017 December 31, 2016 Present value of the defined benefit obligations $ 1,693,578 $ 1,810,954 The fair value of plan assets ( 700,762 ) ( 778,937 ) Appropriation shortage 992,816 1,032,017 Net determined benefit liability $ 992,816 $ 1,032,017
- 56 - TAICHUNG BANK 2017 ANNUAL REPORT 177 Change in net determined benefit liability is shown below Present value of the defined benefit The fair value Net determined obligations of plan assets benefit liability January 1, 2016 $ 1,676,661 ( $ 799,152 ) $ 877,509 Service costs Current service cost 23,114 - 23,114 Service costs from previous period 21,781 - 21,781 Interest expenses (revenues) 24,953 ( 11,803 ) 13,150 Recognized in the profit or loss 69,848 ( 11,803 ) 58,045 Reevaluation Planned ROE (except the amount of net interest) - 6,187 6,187 Actuarial loss – change in the assumption of the census 2,032 - 2,032 Actuarial loss – change in financial assumptions 135,915 - 135,915 Actuarial loss – adjustment through experience 16,194 - 16,194 Recognized in the other comprehensive profit of loss 154,141 6,187 160,328 Employer appropriation - ( 50,805 ) ( 50,805 ) Planned asset payment ( 76,636 ) 76,636 - Company account payment ( 13,060 ) - ( 13,060 ) December 31, 2016 1,810,954 ( 778,937 ) 1,032,017 Service costs Current service cost 22,119 - 22,119 Interest expenses (revenues) 18,110 ( 7,942 ) 10,168 Recognized in the profit or loss 40,229 ( 7,942 ) 32,287 Reevaluation Planned ROE (except the amount of net interest) - 574 574 Actuarial loss – change in the assumption of the census 1,422 - 1,422 Actuarial gain – change in financial assumptions ( 51,176 ) - ( 51,176 ) Actuarial loss – adjustment through experience 31,330 - 31,330 Recognized in the other comprehensive profit of loss ( 18,424 ) 574 ( 17,850 ) Employer appropriation - ( 27,100 ) ( 27,100 ) Planned asset payment ( 112,643 ) 112,643 - Company account payment ( 26,538 ) - ( 26,538 ) December 31, 2017 $ 1,693,578 ( $ 700,762 ) $ 992,816
178 TAICHUNG BANK 2017 ANNUAL REPORT - 57 - The recognized loss of determined benefit plans by function is summarized below: 2017 2016 Operating expenses $ 32,287 $ 58,045
The pension fund system of the company contained in the consolidated financial statements is exposed to the following risks due to the “Labor Standards Act”: (1) Investment risk: The Bureau of Labor Fund of the Ministry of Labor Affairs uses the labor pension fund for investment in domestic and foreign equity securities and debt securities, and as bank deposits through proprietary trade or commissioned third parties. However, the amount attributable to the planned asset of the consolidated company shall not fall below the interest rate offered by the banks in the regions or countries of investment for 2-year time deposit as return. (2) Interest risk: the decline of the interest rate for government/corporate bonds will cause an increase in the present value of determined benefit obligation. However, the ROI of the debt of the planned assets will also increase accordingly. The effect of the two on net determined benefit liability is mutually offsetting. (3) Salary risk: the calculation of the present value of determined benefit obligation is based on the salaries of the members in the plan of the future. As such, an increase of the salaries of the members of the plan is bound to increase the present value of determined benefit obligation. The determined benefit obligation of the company contained in the consolidated financial statements is based on the actuarial calculation of the actuary and the major assumption as of the evaluation day is shown below: December 31, 2017 December 31, 2016 Discounted rate 1.250% 1.000% The expected rate of 1.500% 1.500% increase in salaries
In case of reasonable and possible change in the major actuarial assumptions, and other assumptions remained unchanged, the amount of increase (decrease) in the present value of determined benefit obligation will be: December 31, 2017 December 31, 2016 Discounted rate Increase by 0.25% ( $ 49,203 ) ( $ 54,952 ) Decrease by 0.25% $ 51,178 $ 57,265 The expected rate of increase in salaries Increase by 0.25% $ 50,105 $ 55,934 Decrease by 0.25% ( $ 48,413 ) ( $ 53,949 )
- 58 - TAICHUNG BANK 2017 ANNUAL REPORT 179 Actuarial assumptions may be inter-related. The possibility of change in specific assumption is not high. The aforementioned sensitivity analysis may not be able to reflect the actual change in the present value of determined benefit obligation. December 31, 2017 December 31, 2016 Amount projected for appropriation in 1 year $ 31,277 $ 32,287 Average maturity of determined benefit obligation 11.8 years 12.4 years 3. Employees preferential deposit plan With effect on December 21, 2014, the companies in the financial statements adjusted the interest rate for the deposit of the banking staff. According to Order Jin-Guan-Yin-Fa-Zi No. 10110000850 and the Criteria for the Compilation of Financial Statements by Public Banks, the employee preferred deposit plan liabilities shall be subject to the actuarial calculation of a qualified actuary professional. The provision for liabilities due to the recognition of employee preferred deposit plan of the company contained in the consolidated financial statements in the balance sheet of individual entities is shown below: December 31, 2017 December 31, 2016 Present value of preferred deposit plan $ 108,779 $ 93,544 The fair value of plan assets - - Appropriation shortage 108,779 93,544 Provision for liability – preferred deposit plan $ 108,779 $ 93,544 Change in employee preferred deposit plan liability is shown below: Present value Net of the defined determined benefit The fair value benefit obligations of plan assets liability January 1, 2016 $ 75,801 $ - $ 75,801 Service costs Service costs from previous period 15,240 - 15,240 Interest expenses 2,598 - 2,598 Recognized in the profit or loss 17,838 - 17,838 Reevaluation Actuarial loss – change in the assumption of the census 4,512 - 4,512 Actuarial loss – adjustment through experience 18,268 - 18,268 Recognized in the other comprehensive profit of loss 22,780 - 22,780 Company account payment ( 22,875 ) - ( 22,875 ) December 31, 2016 93,544 - 93,544 (Continued on next page)
180 TAICHUNG BANK 2017 ANNUAL REPORT - 59 - (Continued from previous page)
Present value Net of the defined The fair determined benefit value of plan benefit obligations assets liability Service costs Service costs from previous period $ 15,231 $ - $ 15,231 Interest expenses 3,284 - 3,284 Recognized in the profit or loss 18,515 - 18,515 Reevaluation Actuarial loss – change in the assumption of the census 2,727 - 2,727 Actuarial loss – adjustment through experience 18,810 - 18,810 Recognized in the other comprehensive profit of loss 21,537 - 21,537 Company account payment ( 24,817 ) - ( 24,817 ) December 31, 2017 $ 108,779 $ - $ 108,779 The amount of employee preferred deposit plan recognized as profit and loss by function is summarized below: 2017 2016 Operating expenses $ 18,515 $ 17,838 The employee preferred deposit obligation of the consolidated company is based on the actuarial calculation of professional actuary and the major assumption as of the evaluation day is shown below: December 31, 2017 December 31, 2016 Discounted rate 4.00% 4.00% Return on deposited fund 2.00% 2.00% Excessive interest rate 2.00% 2.00% The withdrawal rate of 4.50% 4.75% preferred deposits In case of reasonable and possible change in the major actuarial assumptions, and other assumptions remained unchanged, the amount of increase (decrease) in the present value of employee preferred deposit obligation will be: December 31, 2017 December 31, 2016 Discounted rate Increase by 0.25% ( $ 2,502 ) ( $ 2,105 ) Decrease by 0.25% $ 2,608 $ 2,192 The withdrawal rate of preferred deposits Increase by 0.25% $ 2,727 $ 2,300 Decrease by 0.25% ( $ 2,838 ) ( $ 2,391 )
- 60 - TAICHUNG BANK 2017 ANNUAL REPORT 181 Actuarial assumptions may be inter-related. The possibility of change in specific assumption is not high. The aforementioned sensitivity analysis may not be able to reflect the actual change in the present value of employee preferred deposit obligation. December 31, 2017 December 31, 2016 Amount projected for appropriation in 1 year $ 24,817 $ 22,875 The average maturity of employee preferred deposit obligation 9.8 years 9.6 years
4. Other long-term employee benefits The other long-term employee benefits of the consolidated company meant for the long-term disability benefits. The Company will issue pensions to the employees who die of sickness or accidents at work for reasons other than occupational hazards. The consolidated company recognized long-term employee benefits in the consolidated comprehensive income statement for an amount of NTD 3,230 thousand and NTD (106) thousand in 2017 and 2016, respectively. The other long- term employee benefit liabilities reserve amounted to NTD 18,447 thousand and NTD 15,217 thousand as of December 31, 2017 and 2016, respectively. (2) The breakdown and change of the secured collateral: 2017 2016 Balance, beginning $ 166,760 $ 126,889 Deposit in the current period 77,434 25,000 Reclassified in the current period - 15,000 Exchange differences ( 557 ) ( 129 ) Balance, ending $ 243,637 $ 166,760
Current appropriation recorded as bad debt expenses. (3) The breakdown and change of the allowance for contingency: 2017 2016 Balance, beginning $ 300 $ - Deposit in the current period 26,000 300 Balance, ending $ 26,300 $ 300
Recognized as other net loss of other interest in book in current period
182 TAICHUNG BANK 2017 ANNUAL REPORT - 61 - 29. Other liabilities December 31, 2017 December 31, 2016 Deposits received $ 401,887 $ 370,300 Advances 213,412 165,974 Others 111,070 79,325 $ 726,369 $ 615,599
30. Equity (1) Capital stock Common stock December 31, 2017 December 31, 2016 Authorized number of shares (thousand shares) 4,320,000 4,320,000 Authorized capital $ 43,200,000 $ 43,200,000 Number of shares issued with fully paid-in capital (thousand shares) 3,293,179 3,238,131 Outstanding capital $ 32,931,789 $ 32,381,307
Common stock shares issued at NTD 10 Par and each share is entitled to one voting right and dividends. As of January 1, 2016, Taichung Bank had paid-in capital amounting to NTD 31,840,027 thousand in 3,184,003 thousand shares. In capitalization of retained earnings in September 2016 amounting to NTD 541,280 thousand and Taichung Bank had paid-in capital amounting to NTD 32,381,307 thousand in 3,238,131 thousand shares as of December 31, 2016 and offered as common stock in whole. Taichung Bank has capitalized retained earnings in September 2017 amounting to NTD550,482 thousand. As of December 31, 2017, Taichung Bank had paid-in capital amounting to NTD32,931,789 thousand in 3,293,179 thousand shares and offered as common stock in whole. (2) Capital surplus The 2017 and 2016 additional paid-in capitals are adjusted as follows: Recognized the changes in additional paid-in capital of the affiliated Premium on company and Equity issuance of joint venture component of Other capital shares and under the convertible surplus of employee equity financial shares stock option Invalid ESO method. bonds Total Balance as of January 1, 2016 $ 633,633 $ 19,334 $ 6,647 $ 16,813 $ 7,729 $ 684,156 Balance as of December 31, 2016 $ 633,633 $ 19,334 $ 6,647 $ 16,813 $ 7,729 $ 684,156 Balance as of January 1, 2017 $ 633,633 $ 19,334 $ 6,647 $ 16,813 $ 7,729 $ 684,156 Balance as of December 31, 2017 $ 633,633 $ 19,334 $ 6,647 $ 16,813 $ 7,729 $ 684,156
- 62 - TAICHUNG BANK 2017 ANNUAL REPORT 183 Stock premium (including common stock premium and financial bond conversion premium) of the additional paid-in capital and donations can be used to offset losses; also, when there are no losses, the Company may apply it to distribute cash or for capitalization, but capitalization is limited to a certain percentage of the paid-in capital every year. The investment under the equity method, employee stock options and stock options additional paid-in capital may not be used for any other purpose. (3) Earnings allocation and dividend policy According to the amendment to the Company Act in May 2015, dividend and bonus shall be attributable to the shareholders only. Employees are not entitled to the distribution. In a resolution of the regular session of General Meeting of Shareholders held on June 21, 2016, the Articles of Incorporation was amended in the aspect of the policy for distribution of earnings thereby the policy of remuneration to employees has been established in the Articles of Incorporation. According to the Articles of Incorporation after amendment, the policy for the distribution of earnings stated that if there is a surplus after account settlement of the fiscal year, the Company shall pay applicable taxes and cover loss carried forward, followed by the allocation of 30% of the remainder as legal reserve, and appropriate for special reserve or reverse special reserve. If there is still a balance, it will be pooled up with the undistributed earnings carried forward from previous years for distribution as shareholder dividend under a proposal prepared by the Board subject to the final approval of the General Meeting of Shareholders. For information on the policy of remuneration to employees, Directors, and Shareholders before and after the amendment to the Articles of Incorporation, refer to Note 31(8)-employee benefit expense. For the earnings distribution proposed to the Board of Directors in the shareholders’ meeting for resolution in the preceding paragraph, a working capital should be reserved first according to the changes in the operating environment, business operation, and investment, the ratio of cash and stock dividends should be proposed, of which, cash dividends should not be less than 10% of the total dividend amount. Free-Gratis Dividends for the approval of the shareholders’ meeting. Before the legal reserve amounts to the total Paid-in capital, the maximum allocation of earnings in cash shall be no more than 15% of total capital. Where the rates of Shares and dividends and risk-based assets fail to meet the standard required by the business competent authority, allocation of earnings in cash or with other property shall be restricted or prohibited by the relevant requirements provided by the business competent authority. When allocating earnings, the Taichung Bank shall provide equivalent special reserve for the difference between loss on sale of NPL and amortized loss, and also provide special reserve from Earnings or Accumulated earnings for the previous period with respect to the amount under the “less” item of shareholders’ equity for the current year and previous years. Where the amount under the “less” item of shareholders’ equity is collected afterwards, earnings may be allocated from the reversal.
184 TAICHUNG BANK 2017 ANNUAL REPORT - 63 - The Company shall recognize and reverse special reserve in accordance with FSC Letter Jin-Guan-Cheng-Zi No. 1010012865, Letter Jin-Guan-Cheng-Fa-Zi No. 1010047490, and the “FAQ on the applicability of the recognition of special reserve after the adoption of IFRSs” by the Bank. If the amount debited to the other shareholders’ equity is reversed subsequently, the reversed amount can be distributed. Taichung Commercial Bank acted in compliance with executive order Jin-Guan-Yin-Fa-Zi No. 10510001510 of FSC thereby appropriated special reserve at 0.5% to 1% of corporate earnings in the appropriation of income from 2016 to 2018 in line with the development of financial and banking technology and protection of the rights of the personnel in banking industry of Taiwan. From 2017 onward, Taichung Commercial Bank shall appropriate an amount equivalent to the expense incurred from employee turnover or reassignment derived from the development of financial and banking technology as reversal within the scope of special reserve already appropriated. Legal reserve shall be allocated up to the amount equivalent to the paid-in capital of the company. Legal reserve could be allocated for covering loss carried forward. If there is no loss, the amount of legal reserve in excess of the paid-in capital by 25% could be allocated as capital stock and paid out as cash dividend. With the exception of shareholders residing in the Republic of China, all other shareholders are entitled to a deductible amount in proportion to the tax payable as of the dividend day when undistributed earnings is distributable. Taichung Commercial Bank had the earnings distribution of 2016 and 2015 resolved in the shareholders’ meeting held on June 7, 2017 and June 21, 2016, respectively, as follows: Dividend Per Share Distribution of retained earnings (NTD) 2016 2015 2016 2015 Legal reserve $ 1,014,738 $ 922,734 $ - $ - Special reserve 35,148 - - - Cash dividends 1,780,972 1,592,001 0.55 0.50 Stock dividends 550,482 541,280 0.17 0.17
Taichung Commercial Bank had resolved in the board meeting the earnings distribution of 2017 on March 14, 2018 as follows: Distribution of Dividend Per Share retained earnings (NTD) Legal reserve $ 1,089,196 $ - Special reserve 36,326 - Cash dividends 1,481,931 0.45 Stock dividends 823,295 0.25
- 64 - TAICHUNG BANK 2017 ANNUAL REPORT 185 The proposal for the distribution of earnings in 2017 is pending on the resolution of the General Meeting of shareholders scheduled to be held in June 5, 2018. (4) Other equity Exchange differences from the translation of financial Unrealized gain on statements of available-for-sale foreign financial assets operations Total January 1, 2017 $ 36,817 ( $ 23,183 ) $ 13,634 Available-for-Sale Financial Assets-net - Current valuation adjustment 221,689 - 221,689 The accumulated income from the disposition of financial assets available for sale is reclassified under the title of income. ( 27,608 ) - ( 27,608 ) Foreign currency translation differences - Current exchange differences - ( 15,324 ) ( 15,324 ) Income tax related to the other comprehensive profit or loss ( 7,414 ) - ( 7,414 ) December 31, 2017 $ 223,484 ( $ 38,507 ) $ 184,977
January 1, 2016 $ 297,132 $ 51,153 $ 348,285 Available-for-Sale Financial Assets-net - Current valuation adjustment ( 103,053 ) - ( 103,053 ) Disposition of available-for-sale financial assets Reclassification of accumulated income as profit and loss ( 157,149 ) - ( 157,149 ) Foreign currency translation differences - Current exchange differences - ( 74,336 ) ( 74,336 ) Income tax related to the other comprehensive profit or loss ( 113 ) - ( 113 ) December 31, 2016 $ 36,817 ( $ 23,183 ) $ 13,634 31. Business units in continuing operation income Income from continuing operations department includes the following items (1) Net interest income 2017 2016 Interest revenue Discount and loan interest income $ 10,212,314 $ 9,801,641 Due from bank and interbank offered interest income 167,928 545,818 Security investment interest income 1,222,691 774,609 Interest income on installment 276,960 217,458 (Continued on next page)
186 TAICHUNG BANK 2017 ANNUAL REPORT - 65 - (Continued from previous page)
2017 2016 Lease interest income $ 127,744 $ 76,097 Credit card revolving interest income 43,487 39,362 Bonds and securities sold under re- purchase agreements interest income 23,824 16,019 Receivable factoring interest income 2,453 2,078 Other interest incomes 606 413 12,078,007 11,473,495 Interest expenses Deposits Interest expenses ( 3,287,238 ) ( 3,164,646 ) Bond issuance interest expense ( 373,299 ) ( 357,039 ) Central Bank and interbank interest expense ( 186,754 ) ( 140,931 ) Central Bank and banks deposit interest expense ( 7,460 ) ( 9,152 ) RP (Debt) interest expense ( 30,993 ) ( 12,212 ) Interest expense for structured products ( 3,102 ) - Other Interest expenses ( 3,154 ) ( 2,041 ) ( 3,892,000 ) ( 3,686,021 ) $ 8,186,007 $ 7,787,474 (2) Service Fee, Net 2017 2016 Service fee income Brokerage fee revenue $ 1,437,263 $ 1,586,114 Trust business income 769,961 556,526 Loan service fee income 312,790 273,522 Commission income for bank 121,771 99,946 guarantee Other service fee revenue 344,259 317,747 2,986,044 2,833,855 Service fee expenses Commission expense ( 375,504 ) ( 421,528 ) Inter-bank service fee ( 33,016 ) ( 31,142 ) Other service fee expenses ( 128,945 ) ( 109,187 ) ( 537,465 ) ( 561,857 ) $ 2,448,579 $ 2,271,998 The consolidated company provides custody, trust, investment management and advisory services to third parties; therefore, the consolidated company engages in the planning, management and trading decision of financial instruments. For a trust fund or investment portfolio that is commissioned for management and utilization, a separate bookkeeping is arranged and financial statements are prepared for internal management purposes, excluding the financial statements of the consolidated company.
- 66 - TAICHUNG BANK 2017 ANNUAL REPORT 187 (3) Gain (loss) on financial assets and liabilities at fair value through profit and loss 2017 2016 The realized gain (loss) of financial assets and liabilities measured at fair value through profit or loss Commercial papers $ 141,078 $ 94,462 Stock 22,307 ( 5,720 ) Beneficiary certificate 106,781 40,735 Derivatives 410,785 236,277 680,951 365,754 The valuation gain (loss) of financial assets and liabilities measured at fair value through profit or loss Commercial papers 3,256 1,110 Stock 42,022 13,164 Beneficiary certificate 4,516 8,148 Open-end funds and money market instruments 16 - Derivatives ( 240,044 ) 274,344 ( 190,234 ) 296,766 $ 490,717 $ 662,520
1. The consolidated company’s realized gains and losses of its financial assets and liabilities measured at fair value through profit or loss in 2017 and 2016 included disposal gain NTD 500,917 thousand and NTD 236,516 thousand, dividend income NTD 26,466 thousand and NTD 27,748 thousand, and interest income NTD 153,568 thousand and NTD 101,490 thousand, respectively. 2. Net income of the exchange rate instrument includes realized and unrealized gains and losses of forward exchange contracts, exchange rate options, currency swaps and futures exchange. For the foreign currency financial assets and liabilities that are not designated as a hedging relationship and are measured at fair value through profit or loss, the translation gains and losses are included in the net income of the exchange rate instrument. (4) Realized net gain on available-for-sale financial assets Realized gains of financial assets available for sale in 2017 and 2016 were the capital gains from disposition of corporate bonds and government bonds amounting to NTD27,608 thousand and NTD157,149 thousand, respectively with dividend income amounting to NTD7,135 thousand and NTD1,283 thousand.
188 TAICHUNG BANK 2017 ANNUAL REPORT - 67 - (5) Asset impairment reversal gain (loss) 2017 2016 Other financial assets impairment loss reversal gain (loss) ( $ 50,533 ) $ 106,146
(6) Net gain (loss) from asset trade 2017 2016 Net capital gain from disposition of investment property $ 348,672 $ - Net capital gains (loss) from disposition of investment property ( 862 ) 177 $ 347,810 $ 177
(7) Net income other than interest income (loss) 2017 2016 Net gain from financial assets carried at cost $ 21,619 $ 22,999 Net gain or loss from the sale of delinquent loans - 386 Other provision ( 26,000 ) ( 300 ) Other net income 33,426 30,128 $ 29,045 $ 53,213
(8) Employee benefits expenses 2017 2016 Salaries and wages $ 2,842,347 $ 2,796,256 Labor insurance and national 190,308 182,009 health insurance Pension expenses 120,715 135,025 Other employee benefits 194,881 247,989 expenses $ 3,348,251 $ 3,361,279 Taichung Bank appropriated 0.5%~3% and no more than 1.5% of the earnings before taxation before the deduction of remuneration to the employees and the directors of the same year. The Board approved the remuneration to employees and Directors and Supervisors in 2017 and 2016 on March 14, 2018 and March 16, 2017, and were specified as follows: Estimate on ratio 2017 2016 Remuneration to employees 0.60% 0.60% Remuneration to directors 1.40% 1.40%
- 68 - TAICHUNG BANK 2017 ANNUAL REPORT 189 Amount 2017 2016 Remuneration to employees $ 26,141 $ 24,996 Remuneration to directors $ 60,995 $ 58,323
If there are still changes in the amount specified in the financial statement after announcement, proceed to the accounting of change and adjusted for booking in the next fiscal year. The actual amount for remuneration to employees and Directors and Supervisors in 2016 and 2015 did not vary from the amount recognized in the consolidated financial statements of 2016 and 2015. For further information on the appropriation of remuneration to the employees and Directors and Supervisors by the Board of Taichung Commercial Bank in 2018 and 2017, visit the “MOPS” website of Taiwan Stock Exchange Corporation. (9) Depreciation and amortization expenses 2017 2016 Property, plant, and equipment expenses $ 219,407 $ 196,992 Depreciations of Investment Property 240 - Intangible assets amortization expenses 67,574 57,200 $ 287,221 $ 254,192
(10) Business and administrative expenses 2017 2016 Taxation $ 677,544 $ 649,296 Professional labor service fee 183,425 173,984 Advertising expenses 93,279 157,856 Insurance expenses 180,944 170,100 Rental expense 256,396 239,021 Entertainment expense 234,467 204,673 Donations 104,887 109,892 Postal and telephone expenses 61,462 63,619 Others 486,808 463,621 $ 2,279,212 $ 2,232,062
190 TAICHUNG BANK 2017 ANNUAL REPORT - 69 - 32. Continuing department income tax (1) Income tax recognized in profit or loss The major components of income tax expense are as follows: 2017 2016 Income tax expenses in the current period Accrued in current year $ 639,934 $ 547,584 Additional levy on undistributed - 1,976 earnings Prior year adjustment ( 221 ) 2,292 Land revaluation increment tax 57,840 - Deferred tax Accrued in current year 25,117 77,396 Income tax expense recognized in $ 722,670 $ 629,248 the profit or loss Adjustment of accounting income and income tax expense are as follows: 2017 2016 Income before tax from continuing operations $ 4,355,212 $ 4,144,063 Income tax expense of net income before tax at the statutory tax rate $ 740,386 $ 704,491 Non-deductible expenses and losses for tax purposes 24,800 19,297 Non-taxable income ( 110,434 ) ( 74,284 ) Land revaluation increment tax 57,840 - Additional levy on undistributed earnings - 1,976 Income tax expense of prior years adjusted in the current year ( 221 ) 2,292 Unrecognized deductible temporary differences 9,811 ( 14,017 ) Effect of variation in taxation rates on the consolidation of the group and individual entities. 488 ( 10,507 ) Income tax expense recognized in the profit or loss $ 722,670 $ 629,248 The combined company is entitled to the 17% tax rate of the R.O.C. Income Tax Act applicable to business entities. The subsidiaries in China are entitled to the 25% tax rate. The tax amount arising in other jurisdictions is calculated at the rate applicable to each relevant jurisdiction. The President of the ROC announced the amendment to the Income Tax Act in February 2018, whereby corporate income tax was moved upward from 17% to 20% and became effective in 2018. In addition, the applicable tax rate to undistributed earnings in 2018 was reduced from 10% to 5%. The deferred income tax assets previously recognized on December 31, 2017 will be adjusted upward by NTD120,246 thousand due to the change in tax rate in 2018.
- 70 - TAICHUNG BANK 2017 ANNUAL REPORT 191 As the earnings distribution to be resolved in the 2018 shareholders’ meeting remains uncertain, the potential income tax consequence of levying an additional 10% income tax on the 2017 undistributed earnings cannot be reliably determined. (2) Income tax recognized in the other comprehensive profit or loss 2017 2016 Deferred tax Accrued in current year - Unrealized gain or loss on available-for-sale financial assets $ 7,414 $ 113 - Actuarial gains and losses of the defined benefits ( 626 ) ( 31,128 ) (Income) expenses tax benefits recognized in the other comprehensive profit or loss $ 6,788 ( $ 31,015 )
(3) Current income tax asset and liability December 31, 2017 December 31, 2016 Current income tax asset Tax refund receivable $ 5,701 $ 6,313 Current Tax Liability Payable income tax $ 255,559 $ 60,890
(4) Deferred income tax assets and liabilities Changes in the deferred income tax assets and liabilities are as follows: 2017 Recognized in Balance, Recognized in the other beginning of the profit or comprehensive Balance, end year loss profit of loss of year Deferred income tax assets Temporary difference Property, plant, and equipment $ 3,097 $ - $ - $ 3,097 Unrealized loss from structured note indemnity 184,028 8,627 - 192,655 Defined benefit pension plans 183,595 ( 3,630 ) 626 180,591 Allowance for bad debt 338,449 ( 42,494 ) - 295,955 Others 4,132 12,380 ( 7,414 ) 9,098 $ 713,301 ( $ 25,117 ) ( $ 6,788 ) $ 681,396
Deferred tax liabilities Temporary difference Reserve for land revaluation increment tax (“LRIT”) $ 111,021 $ - $ - $ 111,021
192 TAICHUNG BANK 2017 ANNUAL REPORT - 71 - 2016 Recognized in Balance, Recognized in the other beginning of the profit or comprehensive Balance, end year loss profit of loss of year Deferred income tax assets Temporary difference Property, plant, and equipment $ 3,097 $ - $ - $ 3,097 Unrealized loss from structured note indemnity 202,073 ( 18,045 ) - 184,028 Defined benefit pension plans 153,456 ( 989 ) 31,128 183,595 Allowance for bad debt 385,331 ( 46,882 ) - 338,449 Others 15,725 ( 11,480 ) ( 113 ) 4,132 $ 759,682 ( $ 77,396 ) $ 31,015 $ 713,301
Deferred tax liabilities Temporary difference Reserve for land revaluation increment tax (“LRIT”) $ 111,021 $ - $ - $ 111,021 (5) Two-in-one tax information December 31, 2017 December 31, 2016 Undistributed earnings Unappropriated earnings before 1997 $ - $ - Unappropriated earnings after 1998 3,630,655 3,382,461 $ 3,630,655 $ 3,382,461
Shareholders’ deductible tax account-Balance $ 469,253 $ 760,469
2017 (projected) 2016 The deductible rate of applicable tax rate on the distribution of earnings Note 20.56% Note: The President of the ROC announced the amendment to the Income Tax Act with the abolition of the previous new taxation system in February 2018, therefore the aforementioned tax deduction rate will no longer be applicable in the distribution of earnings in 2018 and 2017. (6) Income tax audit 1. Taichung Commercial Bank was audited up to the year 2015. 2. Taichung Bank Insurance Brokers Co., Ltd. was audited up to the year of 2015. 3. Taichung Bank Leasing Co., Ltd. was audited up to the year of 2015. 4. Taichung Commercial Bank Securities Co., Ltd. was approved until 2015.
- 72 - TAICHUNG BANK 2017 ANNUAL REPORT 193 33. Earnings per share Unit: NTD per share 2017 2016 Basic earnings per share $ 1.10 $ 1.07 Diluted earnings per share $ 1.10 $ 1.07
When calculating earnings per share, the impact of the stock dividend had been retroactively adjusted and the stock dividend record date was August 7, 2017. The adjustment of the duration in retrospect caused the change in the basic and diluted earnings per share for FY2016 as follows: Unit: NTD per share Cum-dividend Ex-dividend Basic earnings per share $ 1.09 $ 1.07 Diluted earnings per share $ 1.08 $ 1.07
The earnings and weighted average common stock shares used in calculating the earnings per share are as follows: Net income 2017 2016 Net profit attributable to the company $ 3,632,542 $ 3,514,815
Quantity Unit: Thousand shares 2017 2016 Weighted average common stock shares used to calculate basic earnings per share 3,293,179 3,293,179 Effect of dilutive potential common stock: Remuneration to employees 3,179 3,171 Weighted average common stock shares used to calculate diluted earnings per share 3,296,358 3,296,350
If the consolidated company may choose to have the employee compensation distributed via a stock or cash dividend, calculate the diluted earnings per share, assuming that the bonus to employees is with a stock dividend distributed, with the weighted average number of shares outstanding included when the potential common stock has a diluted effect. When diluted EPS is calculated in the next year resolves the number of share distribution for employee compensation, the dilution effect is also considered for such potential common shares.
194 TAICHUNG BANK 2017 ANNUAL REPORT - 73 - 34. Important transactions with stakeholders Name Affiliation Chin-Yuan Lai (Representative to Hsu Tian The management Investment Co., Ltd.) (Note 1) Kuei-Fong Wang (Representative to Hsu Tian The management Investment Co., Ltd.) Hsu Tian Investment Co., Ltd., Pan Asia Institutional Director of the Bank Chemical Corporation, and He Yang Management Consultant Co., Ltd Jin-Yi Lee, Hsin-Chang Tsai, Li-Wen Lin (Note Independent Director of the Company (New 2) Independent Director) Hsi-Rong Huang, Jin-Yi Lee, and Chen-Le Liu Independent Director of the Company (Note 2) (Original Independent Director) Ming-Shan Chuang, Hsin-Ching Chang, Kuei- The representative of the Institutional Fong Wang, Wei-Liang Lin,Chin-Yuan Lai, Director of the Company (the newly Chien-Hui Huang, Ming-Hsiung Huang, Te- appointed representative of the Wei Chia and Ching-Tai Huang (Note 2) Institutional Director) Ming-Shan Chuang, Hsin-Ching Chang, Kuei- The representative of the Institutional Fong Wang, Wei-Liang Lin, Chin-Yuan Lai, Director of the Company (Original Legal Chien-Hui Huang, Jer-Shyong Tsai, Meng- representative to Director) Liang Chang, Ching-Hsin Chang, Chun-Sheng Lee, Shu-Yuan Lin, and Yu-Chun Chen (Note 2) 106 persons including Cheng-Yuan Chen The management 151 persons including the Chairman’s spouse Spouses and kin at the second tier under the Civil Code of directors, Chairman of the Board and President of the Taichung Commercial Bank Reliance Securities Investment Trust Co., Ltd. Affiliated company under the equity method China Man-Made Fiber Co., Ltd. Ultimate parent company Chung Chien Investment Co., Ltd. Substantial related party Pan Asia Investment Co., Ltd. Substantial related party Taichung Commercial Bank Cultural and Substantial related party Educational Foundation, Taichung Commercial Bank Workers’ Welfare Commission Deh Hsing Investment Co., Ltd. Substantial related party IOLITE COMPANY LIMITED Substantial related party Hammock (Hong Kong) Company Limited Substantial related party Hebei Hanoshi Contact Lens Co., Ltd. Substantial related party Chou Chin Industrial Co., Ltd. Substantial related party Chou Chang Co., Ltd. Substantial related party Pan Feng Enterprise Co., Ltd. Substantial related party Ge Ling Co., Ltd. Substantial related party Nan Chung Petrochemical Corp. Substantial related party Je Mi Fang Corporation Substantial related party Rai Chia Investment Co., Ltd. Substantial related party Hsiang Feng Development Co., Ltd. Substantial related party Reliance Securities Co., Ltd. Substantial related party Sheng Jen Knitted Textiles Co., Ltd. Substantial related party Ta Fa Investment Co., Ltd. Substantial related party
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- 74 - TAICHUNG BANK 2017 ANNUAL REPORT 195 (Continued from previous page)
Name Affiliation Tai Yi Investment Co., Ltd. Substantial related party Formosa Imperial Wineseller Corp. Substantial related party Tou-Min Industrial Co., Ltd. Substantial related party Jin Bang Ge Industrial Company Limited. Substantial related party Wei Kang International Co., Ltd. Substantial related party Ta Yi Development Co., Ltd. Substantial related party Yu Hui Limited Substantial related party Bang Yu Investment Co., Ltd. Substantial related party Formosawine Vintners Corporation Substantial related party Bomi International Co., Ltd. Substantial related party Shanghai Bomi Food Co., Ltd. Substantial related party Note 1: Institutional Director Hsu Tian Investment Co., Ltd. appointed Chun-Sheng Lee as the representative to replace Chin-Yuan Lai on June 7, 2017. Note 2: An election of the Directors has been held in a regular session of the General Meeting of Shareholders dated June 7, 2017. Summarization of important transactions between the consolidated company and stakeholders: (1) Loans 2017 Unit: NTD thousand
Number of Maximum Performance Difference in accounts or balance – No- trading conditions name of current Balance, Normal performing Interest Collateral and terms with Type stakeholder period ending loans loans revenue Contents non-stakeholders Customer loans to 10 accounts $ 4,110 $ 2,817 $ 2,817 $ - $ 42 Credit None employees loans Residential 21 accounts 59,882 52,562 52,562 - 647 Real ˥ mortgage loans estate Other loans Chen OO 5,000 5,000 5,000 - 75 ˥ ˥ Ni OO 3,500 1,500 1,500 - 27 ˥ ˥ Ni OO 1,440 1,440 1,440 - 15 ˥ ˥ You OO 4,300 4,300 4,300 - 63 ˥ ˥ Chu OO 3,500 3,500 3,500 - 24 ˥ ˥ Meng OO 9,209 - - - 150 ˥ ˥ Lee OO 10,947 2,817 2,817 - 48 ˥ ˥ Huang OO 2,500 2,500 2,500 - 2 ˥ ˥ Chiu OO 1,600 1,600 1,600 - - ˥ ˥ Liu OO 2,305 2,176 2,176 - 33 ˥ ˥ Yang OO 1,743 1,298 1,298 - 22 ˥ ˥ Chen OO 7,100 3,000 3,000 - 50 ˥ ˥ Chang OO 1,773 - - - 12 ˥ ˥ Chen OO 4,000 4,000 4,000 - 20 ˥ ˥ Liang OO 4,970 3,053 3,053 - 45 ˥ ˥ Chen OO 3,000 3,000 3,000 - - ˥ ˥ Zhuang OO 1,917 1,769 1,769 - 24 ˥ ˥ Tsai OO 3,831 3,642 3,642 - 76 ˥ ˥ Tseng OO 500 - - - 6 ˥ ˥ Chiu OO 4,114 3,826 3,826 - 58 ˥ ˥ Chung OO 15,211 14,387 14,387 - 234 ˥ ˥ Lin OO 2,600 1,600 1,600 - 30 ˥ ˥ Lee OO 1,500 1,500 1,500 - 17 ˥ ˥
196 TAICHUNG BANK 2017 ANNUAL REPORT - 75 - 2016 Unit: NTD thousand
Number of Maximum Performance Difference in accounts or balance – No- trading conditions name of current Balance, Normal performing Interest Collateral and terms with Type stakeholder period ending loans loans revenue Contents non-stakeholders Customer loans to Credit 9 accounts $ 3,579 $ 2,514 $ 2,514 $ - $ 49 None employees loans Residential Real ˥ 21 accounts 60,094 52,740 52,740 - 783 mortgage loans estate Other loans Ni OO 3,500 3,500 3,500 - 55 ˥ ˥ Ni OO 1,000 1,000 1,000 - - ˥ ˥ You OO 4,300 4,300 4,300 - 67 ˥ ˥ Chu OO 2,300 2,300 2,300 - 9 ˥ ˥ Meng OO 9,643 9,209 9,209 - 166 ˥ ˥ Lee OO 3,000 2,947 2,947 - 20 ˥ ˥ Liu OO 2,431 2,305 2,305 - 37 ˥ ˥ Yang OO 2,181 1,743 1,743 - 31 ˥ ˥ Yang OO 93 - - - - ˥ ˥ Chen OO 5,100 5,100 5,100 - 73 ˥ ˥ Chang OO 2,000 1,773 1,773 - 24 ˥ ˥ Lo OO 8,000 - - - 30 ˥ ˥ Liang OO 3,184 3,070 3,070 - 49 ˥ ˥ Wu OO 1,906 - - - 19 ˥ ˥ Zhuang OO 2,062 1,917 1,917 - 27 ˥ ˥ Tsai OO 4,000 3,831 3,831 - 84 ˥ ˥ Tseng OO 500 500 500 - 8 ˥ ˥ Chiu OO 4,395 4,114 4,114 - 66 ˥ ˥ Chung OO 16,816 15,211 15,211 - 142 ˥ ˥ Lin OO 2,100 2,100 2,100 - 33 ˥ ˥ Lee OO 500 500 500 - 2 ˥ ˥ According to Articles 32 and 33 of the Banking Act of the Republic of China, no non-secured credit loans shall be granted to any party interested with the Bank’s staff, unless they are consumer loans and loans extended to the Government Apparatus; secured credit loans shall be granted under sufficient collateral and the terms of such credit extension shall not be more favorable than those offered to other customers in the same category. (2) Deposits 2017 Interest rate Balance, ending collars % Interest expenses Reliance Securities Investment Trust Co., Ltd. $ 178,625 0.00~1.05 $ 1,093 Taichung Commercial Bank Workers’ Welfare Commission 141,943 0.01~5.09 7,232 China Man-Made Fiber Co., Ltd. 61,454 0.01~0.18 24 Reliance Securities Co., Ltd. 14,323 0.08~0.80 106 Taichung Commercial Bank Cultural and Educational Foundation 8,220 0.01~1.09 88 Formosa Imperial Wineseller Corp. 270 0.08 - Ge Ling Co., Ltd. 554 0.08 1 Pan Asia Chemical Corporation 8,148 0.01~0.08 9 (Continued on next page)
- 76 - TAICHUNG BANK 2017 ANNUAL REPORT 197 (Continued from previous page)
2017 Interest rate Balance, ending collars % Interest expenses Chou Chin Industrial Co., Ltd. $ 3,944 0.01~0.08 $ 1 Chou Chang Co., Ltd. 3,034 0.01 - Je Mi Fang Corporation 9,843 0.08 8 Wei Kang International Co., Ltd. 72 0.08 - Hsu Tian Investment Co., Ltd. 37,263 0.01~0.08 33 Others 234,093 0.00~5.09 3,839 $ 701,786 $ 12,434
2016 Interest rate Balance, ending collars % Interest expenses Reliance Securities Investment Trust Co., Ltd. $ 164,388 0.01~3.20 $ 1,348 Taichung Commercial Bank Workers’ Welfare Commission 137,293 0.01~5.09 7,212 China Man-Made Fiber Co., Ltd. 17,075 0.01~0.08 18 Reliance Securities Co., Ltd. 18,902 0.08~0.80 125 Taichung Commercial Bank Cultural and Educational Foundation 8,194 0.01~1.09 92 Formosa Imperial Wineseller Corp. 14 0.08 1 Ge Ling Co., Ltd. 3,071 0.01~0.08 1 Pan Asia Chemical Corporation 12,315 0.01~0.08 11 Pan Feng Enterprise Co., Ltd. 1,124 0.08 - Chou Chin Industrial Co., Ltd. 1,190 0.01~0.08 1 Chou Chang Co., Ltd. 2,170 0.01 - Je Mi Fang Corporation 7,880 0.08 7 Others 230,776 0.01~5.09 4,113 $ 604,392 $ 12,929
With the exception of the interest rate for bank clerks’ deposits on December 31, 2017 and 2016 were 5.09% respectively, the other interest rates are not materially different from those offered to general customers. (3) Financial bonds payable Taichung Bank has entrusted KGI Securities acting as the financial consultant in bond offering for its issuance of the 1st term in 2015, 1st term in 2016, 1st, 2nd, 3rd 4th and 5th term in 2017 of perpetual non-accumulative subordinated bank debentures.
198 TAICHUNG BANK 2017 ANNUAL REPORT - 77 - As of December 31, 2017, the financial bonds of Taichung Bank Company subscribed by the related parties through the underwriters are as follows: Subscription Counterparties amount Session Hsu Tian Investment Co., $ 2,950,000 1st term in 2015, 1st term in 2016, Ltd. 1st term, and 5th term in 2017 of perpetual non-accumulative subordinated debentures Other related parties 1,490,000 1st term in 2015, 1st term in 2016, 1st term, 2nd term, 3rd, 4th and 5th term in 2017 of perpetual non- accumulative subordinated debentures
As of December 31, 2017 and 2016, Taichung Bank should pay bond interest from bank debentures to the aforementioned related parties amounting to NTD35,785 thousand, and NTD 903 thousand, respectively. The interest expenses for 2017 and 2016 years amounted to NTD 116,147 thousand and NTD 40,804 thousand, respectively. (4) Service fee income 2017 2016 Reliance Securities Investment Trust Co., Ltd. $ 1,291 $ 1,877
Said amount refers to the revenue from promotion, sale and channels. The trading price between the consolidated company and stakeholders is similar to that between the Company and non-stakeholders (5) Other business expenses Amount 2017 2016 Ge Ling Co., Ltd. $ 595 $ 418 Je Mi Fang Corporation 2,612 2,864 Pan Feng Enterprise Co., Ltd. 628 306 $ 3,835 $ 3,588
The aforementioned amount is recognized as other business expenses. The transaction prices between the consolidated company and its related parties are the same as with unrelated parties.
- 78 - TAICHUNG BANK 2017 ANNUAL REPORT 199 (6) Rewards to management The 2017 and 2016 total remuneration to directors and the other management are as follows: 2017 2016 Short-term employee benefits $ 255,954 $ 232,552 Retirement benefits 1,049 571 Other long-term employee benefits 60 13 $ 227,063 $ 233,136
35. Pledged assets The pledged assets are stated as follows: December 31, 2017 December 31, 2016 Due from bank- time deposits $ 200,000 $ 210,000 Restricted assets – bank deposits 237,075 284,118 Notes receivable 2,299,020 1,700,509 Held-to-maturity financial assets- government bond 1,067,800 1,093,500 $ 3,803,895 $ 3,288,127
Restricted assets – bank deposits are pledged as collaterals for financing. Government bonds are pledges to the court for provisional seizure, security for the overdraft account for clearing, and as bond for securities dealers and trust. The detail is shown below: December 31, 2017 December 31, 2016 Security bond for provisional seizure at court $ 517,800 $ 543,500 Reserve for trust funds compensation 50,000 50,000 Security for the overdraft limit of the clearing account 500,000 500,000 $ 1,067,800 $ 1,093,500
36. Significant undertaking or contingent liabilities Except for the commitments of underwriting financial instruments stated in Note 8, 9, and 23, the consolidated company had the commitments and contingent liabilities as of December 31, 2017 and 2016, respectively, as follows: (1) Undertaking: December 31, 2017 December 31, 2016 Undisbursed credit committee (exclusive of credit cards) $ 158,951,848 $ 177,315,211 Credit card committee 12,810,379 17,374,423 Guarantee payments 18,693,022 14,642,844 Trust liabilities 62,673,911 57,991,127 Balance of application for L/C 3,900,545 4,433,348 Lease contract commitments 1,161,518 1,325,875
200 TAICHUNG BANK 2017 ANNUAL REPORT - 79 - (2) The Taichung Bank engaged in investing in the structured notes issued and secured by Lehman Brothers Holdings Inc. through the special monetary trustee accounts upon investors’ request. However, Lehman Brothers Holdings Inc. petitioned for bankruptcy with U.S. courts on September 15, 2008. The quotation and redemption of the structured notes issued and secured by it were suspended. Afterwards, it petitioned for an extension and submitted a reorganization plan with a U.S. courts for approval in December 2008, and further petitioned for an extension and submitted two motions in the duration of debt clearance. The U.S. court approved its petition later. The Taichung Bank defined the “Regulations for Settlement of Dispute over Lehman Brothers Structured Notes” and policy for settlement according to the resolution made by the temporary directors’ meeting on May 6, 2009, and indemnified investors at the ratio assessed by the “Banking Dispute Review Board” of the Bankers Association of the Republic of China. After assessment, the Company recognized loss amounting to NTD224,396 thousand from FY2009 to FY2016. As of December 31, 2017, the Company has made compensation amounted to NTD220,004 thousand with unsettled portion amounted to NTD4,392 thousand, which was booked as payables. (3) The balance sheet and trust property catalogue of the trust account is disclosed pursuant to Article 17 of the “Enforcement Rules of Trust Enterprise Act” as follows: Balance Sheet of Trust Accounts December 31, 2017
Trust assets Amount Trust liabilities Amount Bank deposits $ 1,575,084 Payable securities in custody $ 7,174,325 Short-term investment 50,348,720 Trust capital Structured product 1,894,932 Money trust 53,818,736 investment Real estate Real estate trust 1,680,850 Land 1,564,319 Net income 1,795,915 Buildings and 116,531 Deferred carry-over ( 1,795,915 ) structures Securities in custody 7,174,325
Total trust assets $ 62,673,911 Total trust liabilities $ 62,673,911
- 80 - TAICHUNG BANK 2017 ANNUAL REPORT 201 Property Catalogue of Trust Accounts December 31, 2017
Investment Amount Bank deposits $ 1,575,084 Short-term investment 50,348,720 Structured product 1,894,932 investment Real estate Land 1,564,319 Buildings and 116,531 structures Securities in custody 7,174,325 $ 62,673,911
Income Statement of Trust Accounts 2017
Amount Amount Interest revenue $ 2,541,642 Dividend income 27,644 Trust expenses Administration expenses ( 769,410 ) Taxation ( 3,961 ) Income before taxation 1,795,915 Income tax expenses - Income after taxation $ 1,795,915
Balance Sheet of Trust Accounts December 31, 2016
Trust assets Amount Trust liabilities Amount Bank deposits $ 1,689,323 Payable securities in custody $ 4,083,972 Short-term investment 48,852,284 Trust capital Structured product 1,727,207 Money trust 52,268,814 investment Real estate Real estate trust 1,638,341 Land 1,542,159 Net income 1,543,009 Buildings and 96,182 Deferred carry-over ( 1,543,009 ) structures Securities in custody 4,083,972
Total trust assets $ 57,991,127 Total trust liabilities $ 57,991,127
202 TAICHUNG BANK 2017 ANNUAL REPORT - 81 - Property Catalogue of Trust Accounts December 31, 2016
Investment Amount Bank deposits $ 1,689,323 Short-term investment 48,852,284 Structured product investment 1,727,207 Real estate Land 1,542,159 Buildings and structures 96,182 Securities in custody 4,083,972 $ 57,991,127
Income Statement of Trust Accounts 2016
Amount Amount Interest revenue $ 2,082,165 Dividend income 18,076 Trust expenses Administration expenses ( 555,006 ) Taxation ( 2,226 ) Income before taxation 1,543,009 Income tax expenses - Income after taxation $ 1,543,009
(4) Leasing contracts and capital expenditure commitments maturity analysis The consolidated company’s leasing contract commitments include operating leases and financing leases: The operating lease commitment meant for the minimum lease payment of the consolidated company as a lessee or lessor under the irrevocable operating lease. The financing lease commitment meant for the future total lease payment and its present value of the consolidated company as a lessee under the financing lease conditions or the total lease investment amount or the present value of the minimum lease receivable of the lessor under the financing lease condition. Capital expenditure commitment refers to the contract signed for the capital expenditures paid to receive architecture and equipment.
- 82 - TAICHUNG BANK 2017 ANNUAL REPORT 203 The maturity of the commitments of the lease agreements and capital expenditure of the companies in the consolidated financial statements are analyzed below: December 31, 2017 Less than 1 More than 5 year 1 ~5 years year Total Lease contract commitments Operating lease expense (lessee) $ 237,549 $ 220,056 $ 1,620 $ 459,225 Operating lease income (lessor) 864 1,512 2,376 Gross financial lease income (lessor) 1,172,616 503,097 1,675,713 Present value of financial lease income (lessor) 1,071,907 478,437 1,550,344 Capital expenditure commitments 196,012 108,657 304,669 Total $ 2,678,948 $ 1,311,759 $ 1,620 $ 3,992,327
December 31, 2016 Less than 1 More than 5 year 1 ~5 years year Total Lease contract commitments Operating lease expense (lessee) $ 216,940 $ 228,645 $ - $ 445,585 Operating lease income (lessor) 1,242 2,376 - 3,618 Gross financial lease income (lessor) 701,273 247,420 - 948,693 Present value of financial lease income (lessor) 648,854 235,984 - 884,838 Capital expenditure commitments 184,481 100,965 - 285,446 Total $ 1,752,790 $ 815,390 $ - $ 2,568,180
37. Disclosure of information about financial instruments (1) Information on fair value – financial instruments not in fair value. The fair value of the financial instruments not accounted for in fair value of the consolidated company is not disclosed, as the instruments, with the exception as stated in the table below, which book value approximated the fair value at reasonable range, including cash and cash equivalents, call due from Central Bank and call loans to banks, investment in R/P and bonds, receivables, discount and loans, restricted assets, other financial assets, due to Central Bank and other banks, call loans from Central Bank and other banks, R/P and bond liabilities, payables, deposits and remittance, and other financial liabilities.
204 TAICHUNG BANK 2017 ANNUAL REPORT - 83 - 1. Financial assets and financial liabilities which book value and fair value significantly different. December 31, 2017 December 31, 2016 Book value Fair value Book value Fair value Financial assets Held-to-maturity investments $ 85,542,095 $ 85,493,467 $ 14,276,270 $ 13,566,266
Financial liabilities Financial liabilities on the basis of cost after amortization: - Financial bonds payable 17,500,000 17,662,353 13,000,000 13,182,957 2. Fair value bracket December 31, 2017 Level 1 Level 2 Level 3 Total Financial assets Held-to-maturity investments $ 85,493,467 $ - $ - $ 85,493,467
Financial liabilities Financial liabilities on the basis of cost after amortization: - Financial bonds payable 17,662,353 - - 17,662,353 December 31, 2016 Level 1 Level 2 Level 3 Total Financial assets Held-to-maturity investments $ 13,566,266 $ - $ - $ 13,566,266
Financial liabilities Financial liabilities on the basis of cost after amortization: - Financial bonds payable 13,182,957 - - 13,182,957 (2) Information on fair value – financial instruments at fair value on repetition. 1. Fair value bracket Financial instruments at fair December 31, 2017 value through profit or loss Total Level 1 Level 2 Level 3 Non-derivative financial instruments Assets Financial assets at fair value through profit and loss Stock investment $ 869,876 $ 869,876 $ - $ - Bond investment 172,229 172,229 - - Others 28,301,632 28,301,632 - - Available-for-Sale Financial Assets Stock investment 581,771 581,771 - - Bond investment 31,034,046 31,034,046 - -
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- 84 - TAICHUNG BANK 2017 ANNUAL REPORT 205 (Continued from previous page)
Financial instruments at fair December 31, 2017 value through profit or loss Total Level 1 Level 2 Level 3 Derivatives Assets Financial assets at fair value through profit and loss $ 1,866,337 $ - $ 1,866,337 $ - Liabilities Financial liabilities at fair value through profit and loss ( 207,225 ) - ( 207,225 ) - Total $ 62,618,666 $ 60,959,554 $ 1,659,112 $ -
Financial instruments at fair December 31, 2016 value through profit or loss Total Level 1 Level 2 Level 3 Non-derivative financial instruments Assets Financial assets at fair value through profit and loss Stock investment $ 696,980 $ 696,980 $ - $ - Bond investment 67,493 67,493 - - Others 20,446,215 20,446,215 - - Available-for-Sale Financial Assets Stock investment 242,163 242,163 - - Bond investment 37,213,057 37,213,057 - -
Derivatives Assets Financial assets at fair value through profit and loss 1,172,446 - 1,172,446 - Liabilities Financial liabilities at fair value through profit and loss ( 162,792 ) - ( 162,792 ) - Total $ 59,675,562 $ 58,665,908 $ 1,009,654 $ - 2. Techniques for fair value assessment The fair value of the financial assets and financial liabilities associated with the standard terms and conditions and traded in an active market is determined by referring to market prices, including domestic and foreign corporate bonds, government bonds, stocks, commercial papers, beneficiary certificates, financial bond payables, convertible financial bonds ... etc. When market prices are not available, it is assessed using the valuation method. The estimates and assumptions used in the evaluation methods by the consolidated company are consistent with the estimates and assumptions that are used by market participants to price financial instruments. When derivative instruments, such as, forward exchange contracts, currency swap contracts, foreign exchange options transactions and futures exchange are with a quote in an active market, the market price is the fair value. If the market price is not available for reference, the fair value of a non-option derivative is calculated using the applicable yield curve in the derivatives duration with cash flow discount analysis; also, the fair value of the option derivative is calculated
206 TAICHUNG BANK 2017 ANNUAL REPORT - 85 - using an option pricing model. The estimates and assumptions used in the evaluation methods by the consolidated company are consistent with the estimates and assumptions that are used by market participants to price financial instruments. 38. Financial risk management objectives and strategy Overview The consolidated company’s financial risk management objective is to achieve business objectives, the overall risk tolerance and legal restrictions in order to reach the balance of risks and returns. The main operating risks faced by the consolidated company include the credit risk on and off the financial statements, market risks (including interest rates, foreign exchange rates, equity securities and instrument price risks) and liquidity risks. The consolidated company have the related risk management policies defined and approved by the Board of Directors in order to effectively identify, measure, monitor, and control credit risk, market risk and liquidity risk. Risk management organizational structure The Board of Directors is the highest decision-making unit of the consolidated company and assumes the ultimate responsibility for risk management. The consolidated company has established a Risk Management Commission and Risk Management Dept. responsible for granting risk authority and the relevant authorities to the relevant departments to ensure the successful operation of risk management. The Committee’s functions are specified as follows: (1) Review of risk management projects. (2) The review and discussion on risk limit. (3) Review of motions for institutionalization of risk management. (4) Periodical report to the Board of Directors The commissioners of the Risk Management Committee shall set the various risk management indicators by nature of business and functions of departments and Risk Management Dept. report them to the Risk Management Committee for high-ranking supervisors’ reference in decision making. 1. Market Risk (1) Source and definition of market risk Market risk refers to the unfavorable changes in market price causing possible losses on and off the Bank’s balance sheet. The so-called market price refers to interest rates, exchange rates, equity security prices and instrument prices.
- 86 - TAICHUNG BANK 2017 ANNUAL REPORT 207 (2) Market risk management policy The consolidated company’s market risk management objective is to develop a sound and effective market risk management mechanism that is compatible with the Company’s business scale, nature and complexity in order to ensure that the Company’s risks can be properly managed and effectively identify, measure, monitor, control market risks; also, establish a balance between the tolerable risk level and the expected rate of return. (3) Market risk management process A. Identification and Measurement Before the promotion and operation of new products, business activities, processes and systems, the relevant market risk should be assessed through appropriate procedures and determine whether the risk exposure is within the range of risk tolerance included for consideration. The consolidated company’s responsible business units shall use business analysis or product analysis to verify the source of market risk and define market risk factors for each financial instrument as appropriate specifications. Market risk measurement can be processed with a variety of effective measurement methods in order to properly measure risk, including but not limited to the following methods: statistical basis measurement method, sensitivity analysis, and scenario analysis. The Risk Management Department should measure the risk position daily and regularly; also, conduct stress tests regularly to measure the possible extraordinary loss amount of current positions under the simulated extreme situations or historically extreme situations. B. Monitoring and reporting The Risk Management Department should regularly report and make suggestions to the Risk Management Committee and the Board of Directors on the Bank’s overall market risk management, including the Bank’s market risk positions, risk level, profit and loss, using excess of limit and market risk management related compliance. The Business Department has defined the relevant rules governing excess of limit, stop- loss mechanism and operating procedure for excess of limit in order to effectively control the market risk. The excess of limit or exception occurring shall be reported immediately in order to exercise responsive measures.
208 TAICHUNG BANK 2017 ANNUAL REPORT - 87 - (4) Interest rate risk A. Definition of interest rate risk Interest rate risk refers to the changes in interest rates that cause changes in the fair value of the consolidated company’s interest rate or losses. The main sources of risk include deposit and loan and interest-rate related marketable securities. B. Measurement methods and management procedures The consolidated company adopts a gap management mechanism for interest rate risk with the target range set for monitoring and with the monitoring results periodically presented to the Asset and Liability Management Committee, Risk Management Committee and the Board of Directors; also, makes timely adjustments in accordance with the consolidated company’s overall operating conditions. In addition, the consolidated company assumes the degree of impact when applying DV01 to measure interest rate risk and the interest rate curve shifted 100BP in parallel on earnings and equity in order to control interest rate risks. (5) Exchange rate risk A. Definition of exchange rate risk Exchange rate risk refers to the gains and losses resulting from the conversion of two different currencies at different times. The consolidated company’s exchange rate risk mainly arises from the spot and forward foreign exchange business. Since the consolidated company’s engages in foreign exchange trading mostly to meet the need for customer’s position daily; therefore, the exchange rate risk is relatively low. B. Measurement methods and management procedures The consolidated company manages its exchange risk by limit control whereby the limits of respective currencies during daytime trade and nighttime trade were set with the upper limit of the maximum exposure in foreign exchange authorized to personnel of different ranks for control. The upper limit for particular counterparty has also been set. The result of the monitoring and control was reported to the Risk Management Committee and the Board for discussion. In addition, the Company assumes the degree of impact when the USD/NTD, CNY/NTD, and AUD/NTD exchange rates are relatively valued/devalued by 3% on earnings and equity in order to control the exchange rate risks. (6) Equity securities price risk A. Definition of equity securities price risk The market risk of the consolidated company’s equity securities includes individual risks arising from changes in equity securities market prices and general market risks arising from changes in the overall market prices. The main sources of risk includes listed/OTC stocks and beneficiary certificates. B. Measurement methods and management procedures
- 88 - TAICHUNG BANK 2017 ANNUAL REPORT 209 The consolidated company have the equity security price risk controlled with the specific limitation mechanism to ensure that the transactions are carried out at all levels within the authorized limits, set the stop-loss control mechanisms and report the monitoring results regularly to the Risk Management Committee and the Board of Directors for discussion. In addition, the consolidated company assumes the degree of impact when equity securities prices go up/down by 15% on earnings and equity in order to control the equity securities price risks. (7) Market risk sensitivity analysis Interest rate risk Assuming that the other variables remain constant, if the yield curve goes up/down by 100 points, the consolidated company’s net income before tax as of December 31, 2017 and 2016 increased/decreased by NTD 813,216 thousand and NTD 821,458 thousand; the equity decreased/increased by NTD 1,934,612 thousand and NTD 1,563,017 thousand, respectively. Exchange rate risk Assuming that the other variables remain constant, if the USD/NTD, CNY/NTD, and AUD/NTD exchange rate was relatively valued/devalued by 3%, the consolidated company’s net income before tax as of December 31, 2017 and 2016 decreased/increased by NTD 69,017 thousand and NTD 168,131 thousand; the equity increased/decreased by NTD 42,139 thousand and NTD 34,410 thousand, respectively. Equity securities price risk Assuming that the other variables remain constant, if the equity securities price up/down by 15%, the consolidated company’s net income before tax as of December 31, 2017 and 2016 increased/decreased by NTD 195,085 thousand and NTD 196,697 thousand; the equity decreased/increased by NTD 87,266 thousand and NTD 36,324 thousand, respectively.
210 TAICHUNG BANK 2017 ANNUAL REPORT - 89 - Sensitivity analysis is compiled as follows: December 31, 2017 Affected amount The main risk Magnitude changes Equity Profit and loss Interest rate risk Interest rate curve rises ( $ 1,934,612 ) $ 813,216 100BPS Interest rate curve drops 1,934,612 ( 813,216 ) 100BPS Foreign Exchange USD/NTD, CNY/NTD, and risk AUD/NTD valued by 3%, 42,139 ( 69,017 ) respectively. USD/NTD, CNY/NTD, and AUD/NTD decreased by 3%, ( 42,139 ) 69,017 respectively. Equity securities Equity securities price 87,266 195,085 price risk increased by 15%. Equity securities price ( 87,266 ) ( 195,085 ) decreased by 15%.
December 31, 2016 Affected amount The main risk Magnitude changes Equity Profit and loss Interest rate risk Interest rate curve rises ( $ 1,563,017 ) $ 821,458 100BPS Interest rate curve drops 1,563,017 ( 821,458 ) 100BPS Foreign Exchange USD/NTD, CNY/NTD, and risk AUD/NTD valued by 3%, 34,410 ( 168,131 ) respectively. USD/NTD, CNY/NTD, and AUD/NTD decreased by 3%, ( 34,410 ) 168,131 respectively. Equity securities Equity securities price 36,324 196,697 price risk increased by 15%. Equity securities price ( 36,324 ) ( 196,697 ) decreased by 15%.
2. Credit Risk (1) Source and definition of credit risk Credit risk refers to the financial loss inflicted on the consolidated company due to the nonperformance of contractual obligations by the customers or the counterparties. The sources of credit risk covered on and off balance sheet items. On the sheet risk, exposure to the consolidated company mainly comes from discount, loans, credit cards, call loans to banks, acceptance, debt instruments, and derivatives. Off the sheet items are financial guarantee, L/C and undertaking of loans that also exposed the consolidated company to credit risk. (2) Credit risk management policies: The consolidated company will evaluate credit carefully to grant loans and guarantees. The loans secured by collateral accounted for about 79% of the total loans on December 31, 2017. The proportion of financing guarantee
- 90 - TAICHUNG BANK 2017 ANNUAL REPORT 211 and collateral held by commercial L/C was approximately 31%, because the collateral required by loans, loaning commitments or guarantees usually referred to cash, inventory, marketable securities or other property. In the event of the trading counterpart’s or the other party’s default, the consolidated company was entitled to perform compulsory execution against the collateral or other guarantees to effectively reduce the credit risk, provided that the fair value of collateral would not be taken into consideration when the maximum credit exposure was disclosed. (3) Credit risk hedge or mitigation policy A. Collateral Among the policies and procedures taken by the consolidated company addressing to loan operation for the reduction of credit risk, the request for collaterals from the borrowers is most common mean. The consolidated company has established the procedures for the scope of collaterals, the appraisal of the collaterals, the management and disposition of the collaterals for the protection of right of debts. The preservation of the right of debts and collaterals clause is explicitly stated in the loan agreement thereby the credit limit and term of loan could be condensed, or the loans shall be deemed immediately due in the event of credit risk. This will help to reduce credit risk. B. Credit risk limit and the control of concentration of credit risk For avoiding the over-concentration of risk, the consolidated company has set the credit limit of transactions with particular counterparty and particular group in its policy and procedure for lending. In the policies and procedures for investment and equity investment risk control, limit has also been set for particular party (enterprise) or particular affiliate (group) enterprises in investment. For the control of the concentration of risk of all assets, the consolidated company has set the credit limit by industry, group enterprise, country, pledge of stocks as collaterals to monitor the concentration of risk of the assets. In addition, monitoring and control of particular counterparty, group enterprise, affiliate, industry, nationality, and the country of final risk through system integration for the control of concentration of relevant risks. C. The reinforcement of other credit The set-off clause has been explicitly stated in the loan agreements whereby all deposits of the borrowers at the consolidated company shall be set off for covering the liabilities in the event of credit problem to reduce credit risk. (4) Maximum exposure of credit risk for the consolidated company The maximum credit risk exposure of the assets stated in the consolidated balance sheet without the consideration of collaterals or other reinforced credit instruments approximate their book value. The amount of maximum credit risk exposure related to the items off the consolidated balance sheet (without the consideration of collaterals or other reinforced credit instruments and the maximum risk amount is irrevocable) is shown below:
212 TAICHUNG BANK 2017 ANNUAL REPORT - 91 - December 31, 2017 December 31, 2016 Irrevocable undertaking of loan $ 5,930,487 $ 13,285,333 The available credit limit after the activation of revolving credit of credit card 400,251 407,741 Guarantee payments 18,693,022 14,642,844 Customer’s outstanding letters of credit amount 3,900,545 4,433,348
The management of the consolidated company holds that the credit risk exposure of off balance sheet items could be controlled and minimized in continuation under evaluation because the consolidated company has adopted a strict evaluation process with routine evaluation after approval. (5) Credit risk concentration of the consolidated company Where financial instrument transactions are apparently concentrated on one person, or most of the multiple trading counterparts of financial instruments are engaged in similar business activities and possess similar economic characteristics and thereby the effects of economic or other conditions to their ability to perform the contracts are similar, the concentration of credit risk arises accordingly. The characteristics of credit risk concentration include the nature of business activities conducted by debtors. The consolidated company did not concentrate any transactions on one single customer or trading counterpart, other than similar counterparts, industrial type, and regions. The amount of contract based on concentrated credit risk: Counterpart December 31, 2017 December 31, 2016 Private enterprise $ 253,892,806 $ 250,957,240 Natural person 208,625,896 198,706,071 Others 3,481,286 3,396,427 $ 465,999,988 $ 453,059,738
Industrial type December 31, 2017 December 31, 2016 Natural person $ 208,625,896 $ 198,706,071 Manufacturer 92,452,926 88,363,896 Commerce 61,284,519 66,441,735 Real estate 48,803,678 47,329,541 Construction industry 18,458,346 15,628,182
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- 92 - TAICHUNG BANK 2017 ANNUAL REPORT 213 (Continued from previous page)
Industrial type December 31, 2017 December 31, 2016 Commercial and industrial service $ 11,897,472 business $ 12,748,347 Financial and insurance 10,542,246 business 9,812,287 Warehousing and 6,832,246 information 8,260,154 Others 7,102,659 5,769,525 $ 465,999,988 $ 453,059,738
Region December 31, 2017 December 31, 2016 Domestic $ 436,182,646 $ 424,119,033 Territory of Asia 12,316,303 13,674,776 Territory of America 11,639,378 9,661,667 Others 5,861,661 5,604,262 $ 465,999,988 $ 453,059,738
By collateral December 31, 2017 December 31, 2016 Non-secured $ 82,327,447 $ 84,974,749 Secured Secured by property 342,096,578 331,147,998 Secured by Letter of 17,531,354 Guarantee 17,463,381 Secured by Chattel 5,478,037 4,854,731 Secured by bonds 8,587,494 5,394,370 Notes receivable 2,473,386 2,563,820 Secured by stocks 4,064,966 2,215,363 Others 3,440,726 4,445,326 $ 465,999,988 $ 453,059,738
The consolidated company concludes that certain financial assets held by the consolidated company, such as cash and cash equivalents, due from the Central Bank and other banks, financial assets measured at fair value through profit or loss, bonds and securities sold under repurchase agreements, refundable deposits, operating bond, and settlement and clearing funds, because the counterparties are with good credit rating, are with low credit risks. In addition to the above, the credit quality analysis of financial assets is as follows:
214 TAICHUNG BANK 2017 ANNUAL REPORT - 93 - A. Discounts and loans and receivables credit quality analysis
Not-overdue impaired-free position amount Appropriated loss amount (D) Overdue Without With individual unimpaired Impaired position Total individual Net (A)+(B)+(C)- December 31, 2017 objective Level 1 Level 2 Level 3 Level 4 Subtotal (A) position amount amount (C) (A)+(B)+(C) objective (D) evidence of (B) evidence of impairment impairment Items on the statement Receivable Credit card $ 189,771 $ 160,008 $ 142,874 $ 229,601 $ 722,254 $ 55,562 $ 21,842 $ 799,658 $ 13,108 $ 7,129 $ 779,421 Others 49,221,490 527,280 190,056 9,371,752 59,310,578 184,393 351,235 59,846,206 164,232 110,055 59,571,919 Discounts and loans 190,047,376 129,319,121 59,509,230 17,108,270 395,983,997 28,736,364 12,434,703 437,155,064 2,673,681 1,847,300 432,634,083
Not-overdue impaired-free position amount Appropriated loss amount (D) Overdue Without With individual unimpaired Impaired position Total individual Net (A)+(B)+(C)- December 31, 2016 objective Level 1 Level 2 Level 3 Level 4 Subtotal (A) position amount amount (C) (A)+(B)+(C) objective (D) evidence of (B) evidence of impairment impairment Items on the statement Receivable Credit card $ 182,412 $ 164,457 $ 159,076 $ 190,927 $ 696,872 $ 49,877 $ 33,088 $ 779,837 $ 18,390 $ 5,684 $ 755,763 Others 97,360,630 474,987 114,016 6,048,633 103,998,266 115,954 414,162 104,528,382 109,878 60,303 104,358,201 Discounts and loans 193,004,125 134,500,015 58,225,031 16,485,101 402,214,272 17,345,006 11,778,625 431,337,903 1,925,415 1,752,682 427,659,806 B. The credit quality analysis on the consolidated company’s not-overdue impairment-free discounts and loans depends on the credit quality of customers. Not-overdue impaired-free position amount December 31, 2017 Level 1 Level 2 Level 3 Level 4 Total TAICHUNG BANK2017 ANNUALREPORT Consumer banking Residential mortgage loans $ 17,452,411 $ 18,015,723 $ 11,394,153 $ 3,638,300 $ 50,500,587 Cash card - - 9 53 62 Small credit loans 95,952 195,876 240,162 148,764 680,754 Others (secured) 72,032,518 36,863,301 13,928,751 4,281,135 127,105,705 Others (non-secured) 4,551,581 3,328,866 1,155,305 219,866 9,255,618 94,132,462 58,403,766 26,718,380 8,288,118 187,542,726 Corporate Finance Secured 63,256,970 44,524,672 19,962,146 4,883,537 132,627,325 Non-secured 32,657,944 26,390,683 12,828,704 3,936,615 75,813,946 95,914,914 70,915,355 32,790,850 8,820,152 208,441,271 Total $ 190,047,376 $ 129,319,121 $ 59,509,230 $ 17,108,270 $ 395,983,997 215 - 94 - 216 TAICHUNG BANK2017 ANNUALREPORT Not-overdue impaired-free position amount December 31, 2016 Level 1 Level 2 Level 3 Level 4 Total Consumer banking Residential mortgage loans $ 17,351,751 $ 18,131,709 $ 11,711,859 $ 4,054,515 $ 51,249,834 Cash card - - - 139 139 Small credit loans 85,721 184,994 234,028 144,781 649,524 Others (secured) 72,555,431 35,632,281 13,386,429 4,205,510 125,779,651 Others (non-secured) 4,197,212 2,757,214 741,866 323,247 8,019,539 94,190,115 56,706,198 26,074,182 8,728,192 185,698,687 Corporate Finance Secured 65,422,325 47,481,567 20,682,495 4,342,921 137,929,308 Non-secured 33,391,685 30,312,250 11,468,354 3,413,988 78,586,277 98,814,010 77,793,817 32,150,849 7,756,909 216,515,585 Total $ 193,004,125 $ 134,500,015 $ 58,225,031 $ 16,485,101 $ 402,214,272
C. Marketable securities investment credit quality analysis Not-overdue impaired-free position amount Overdue Impaired Appropriated Net unimpaired position Total December 31, 2017 loss amount (A)+(B)+ Level 1 Level 2 Level 3 Subtotal (A) position amount (A)+(B)+(C) (D) (C)-(D) amount (B) (C) Available-for-Sale Financial Assets Bond investment $ 31,034,046 $ - $ - $ 31,034,046 $ - $ 62,945 $ 31,096,991 $ 62,945 $ 31,034,046 Equity investment 294,339 - 287,432 581,771 - - 581,771 - 581,771 Others - - - - - 14,416 14,416 14,416 - Held-to-maturity financial assets Bond investment 27,813,845 228,250 - 28,042,095 - - 28,042,095 - 28,042,095 Others 57,500,000 - - 57,500,000 - - 57,500,000 - 57,500,000 Other financial assets Equity investment - - 145,684 145,684 - - 145,684 - 145,684 Others - - - - - 2,000,308 2,000,308 1,099,973 900,335
- 95 - Not-overdue impaired-free position amount Overdue Impaired Appropriated Net unimpaired position Total December 31, 2016 loss amount (A)+(B)+ Level 1 Level 2 Level 3 Subtotal (A) position amount (A)+(B)+(C) (D) (C)-(D) amount (B) (C) Available-for-Sale Financial Assets Bond investment $ 37,213,057 $ - $ - $ 37,213,057 $ - $ 68,200 $ 37,281,257 $ 68,200 $ 37,213,057 Equity investment 227,603 - 14,560 242,163 - - 242,163 - 242,163 Others - - - - - 15,619 15,619 15,619 - Held-to-maturity financial assets Bond investment 13,452,869 323,401 - 13,776,270 - - 13,776,270 - 13,776,270 Others 500,000 - - 500,000 - - 500,000 - 500,000 Other financial assets Equity investment - - 145,684 145,684 - - 145,684 - 145,684 Others - - - - - 2,160,014 2,160,014 1,137,179 1,022,835 TAICHUNG BANK2017 ANNUALREPORT 217 - 96 - D. Overdue impairment-free financial assets but aging analysis Borrower’s processing delays and other administrative reasons may cause financial assets to become overdue but not impaired. According to the consolidated company’s internal risk management rules, financial assets that are overdue for less than 90 days are usually not considered impaired, unless it is evidenced. The aging analysis on the consolidated company’s overdue impairment-free financial assets: December 31, 2017 Less than one 1~3 months Item month overdue overdue Total Receivable Credit card $ 41,207 $ 14,355 $ 55,562 Others 132,766 51,627 184,393 $ 173,973 $ 65,982 $ 239,955
Discounts and loans Consumer banking Residential mortgage $ 3,810,453 $ 3,065 $ 3,813,518 loans Cash card 16 - 16 Small credit loans 69,369 - 69,369 Others (secured) 10,864,150 46,508 10,910,658 Others (non-secured) 1,037,303 3,630 1,040,933 15,781,291 53,203 15,834,494 Corporate Finance Secured 8,932,285 360 8,932,645 Non-secured 3,969,105 120 3,969,225 12,901,390 480 12,901,870 $ 28,682,681 $ 53,683 $ 28,736,364
December 31, 2016 Less than one 1~3 months Item month overdue overdue Total Receivable Credit card $ 36,485 $ 13,392 $ 49,877 Others 34,062 81,892 115,954 $ 70,547 $ 95,284 $ 165,831
Discounts and loans Consumer banking Residential mortgage $ 2,021,058 $ 54,233 $ 2,075,291 loans Cash card 20 - 20 Small credit loans 29,297 - 29,297 Others (secured) 5,952,776 90,657 6,043,433 Others (non-secured) 428,645 6,480 435,125 8,431,796 151,370 8,583,166 Corporate Finance Secured 6,893,741 167,445 7,061,186 Non-secured 1,700,291 363 1,700,654 8,594,032 167,808 8,761,840 $ 17,025,828 $ 319,178 $ 17,345,006
218 TAICHUNG BANK 2017 ANNUAL REPORT - 97 - 3. Liquidity Risk The Taichung Commercial Bank’s Liquidity Ratios on December 31, 2017 and 2016 were both 26% and 23%. The Bank’s capital and working funds are sufficient to perform all contractual obligations. Therefore, there is no liquidity risk arising from the failure to raise funds to perform contractual obligations. The Taichung Bank’s basic management policy is to coordinate the maturity date of assets and liabilities and interest rates and to control gaps. The Taichung Commercial Bank’s basic operating management policy is to match up assets and liabilities maturity and interest rate and control the unmatched gap. Due to the uncertainty and classification of trade conditions, the maturity date of assets and liabilities and interest rate are usually not fully matched up; this gap may cause a potential gain or loss. Non-derivative financial liabilities maturity analysis The analysis on the cash outflow of the consolidated company’s non- derivative liabilities is based on the remaining period from the consolidated balance sheet date to the contract maturity date as follows: The amount in the statements is based on the contractual cash flows; therefore, the amount of some items disclosed is not consistent with the respective items on the consolidated balance sheet.
December 31, 2017 0 to 30 days 31 to 90 days 91 to 180 days 181 days to 1 year More than 1 year Total Due to Central Bank and $ 6,833,937 $ 2,332,875 $ 730 $ 351,330 $ - $ 9,518,872 other banks Funds borrowed from Central Bank and other 1,319,619 1,850,560 667,057 1,263,818 19,886 5,120,940 banks Bills and bonds sold under 3,269,968 1,048,062 - - - 4,318,030 repurchase agreements Payables 11,164,383 1,214,757 229,437 445,469 277,676 13,331,722 Customer deposits and 56,008,764 78,911,344 82,901,024 136,222,247 212,051,401 566,094,780 remittances Financial bonds payable - - - - 17,500,000 17,500,000 Other matured capital 947,570 194,245 43,764 88,620 185,554 1,459,753 outflow items
December 31, 2016 0 to 30 days 31 to 90 days 91 to 180 days 181 days to 1 year More than 1 year Total Due to Central Bank and other banks $ 10,011,556 $ 1,068,587 $ 730 $ 536,855 $ - $ 11,617,728 Funds borrowed from Central Bank and other banks 1,008,390 1,141,765 682,822 1,193,245 173,636 4,199,858 Bills and bonds sold under repurchase agreements 2,666,908 1,560,655 - - - 4,227,563 Payables 8,545,540 454,664 277,530 313,006 214,967 9,805,707 Customer deposits and remittances 41,444,932 93,201,069 52,625,421 138,673,458 213,864,128 539,809,008 Financial bonds payable 600,000 - 900,000 - 11,500,000 13,000,000 Other matured capital outflow items 717,875 145,382 18,679 57,619 238,712 1,178,267
Derivative financial liabilities maturity analysis (1) Derivative instruments cleared and settled at net value The consolidated company’s derivatives that are settled and cleared at net value include: Foreign exchange derivatives: Exchange rate options. It is concluded that the contractual maturity is the essential element to understand all derivative financial instruments listed on the consolidated balance sheet. The amount in the statements is based on the contractual
- 98 - TAICHUNG BANK 2017 ANNUAL REPORT 219 cash flows; therefore, the amount of some items disclosed is not consistent with the respective items on the consolidated balance sheet. Financial liabilities cleared and settled at net amount maturity analysis:
December 31, 2017 0 to 30 days 31 to 90 days 91 to 180 days 181 days to 1 year More than 1 year Total Financial liabilities measured at fair value through profit or loss case - Foreign exchange $ 7,329 $ 15,383 $ 11,840 $ 10,541 $ - $ 45,093 derivatives Total $ 7,329 $ 15,383 $ 11,840 $ 10,541 $ - $ 45,093
December 31, 2016 0 to 30 days 31 to 90 days 91 to 180 days 181 days to 1 year More than 1 year Total Financial liabilities measured at fair value through profit or loss case - Foreign exchange $ 8,133 $ 7,735 $ 5,737 $ 13,260 $ - $ 34,865 derivatives Total $ 8,133 $ 7,735 $ 5,737 $ 13,260 $ - $ 34,865
(2) Derivatives cleared and settled at total value The consolidated company’s derivatives that are settled at total value include: Foreign exchange derivatives: Forward foreign exchange and foreign exchange swaps. Illustrate the consolidated company’s derivatives that are settled at total value in accordance with the remaining period from the consolidated balance sheet date to the contract maturity date. It is concluded that the contractual maturity is the essential element to understand all derivative financial instruments listed on the consolidated balance sheet. The amount in the statements is based on the contractual cash flows; therefore, the amount of some items disclosed is not consistent with the respective items on the consolidated balance sheet. Financial liabilities cleared and settled at total value maturity analysis:
December 31, 2017 0 to 30 days 31 to 90 days 91 to 180 days 181 days to 1 year More than 1 year Total Financial liabilities measured at fair value through profit or loss case Foreign exchange derivatives - Cash outflow $ 2,128,439 $ 1,688,533 $ 821,104 $ 1,610,312 $ - $ 6,248,388 - Cash inflow 2,114,153 1,673,724 792,260 1,544,154 - 6,124,291 Subtotal of cash outflow 2,128,439 1,688,533 821,104 1,610,312 - 6,248,388 Subtotal of cash inflow 2,114,153 1,673,724 792,260 1,544,154 - 6,124,291 Net cash flow ( $ 14,286 ) ( $ 14,809 ) ( $ 28,844 ) ( $ 66,158 ) $ - ( $ 124,097 )
December 31, 2016 0 to 30 days 31 to 90 days 91 to 180 days 181 days to 1 year More than 1 year Total Financial liabilities measured at fair value through profit or loss case Foreign exchange derivatives - Cash outflow $ 3,280,939 $ 5,905,733 $ 959,796 $ 2,460,749 $ - $ 12,607,217 - Cash inflow 3,235,265 5,865,917 947,716 2,426,526 - 12,475,424 Subtotal of cash outflow 3,280,939 5,905,733 959,796 2,460,749 - 12,607,217 Subtotal of cash inflow 3,235,265 5,865,917 947,716 2,426,526 - 12,475,424 Net cash flow ( $ 45,674 ) ( $ 39,816 ) ( $ 12,080 ) ( $ 34,223 ) $ - ( $ 131,793 )
4. The maturity analysis of items not on the statement The analysis on the maturity date of the items not on the consolidated company’s balance sheet in accordance with the remaining period from the
220 TAICHUNG BANK 2017 ANNUAL REPORT - 99 - consolidated balance sheet date to the contract maturity date. For financial guarantee contracts issued, the earliest time period that maximum amounts of the guarantee may be requested for guarantee performance. The amount in the statements is based on the contractual cash flows; therefore, the amount of some items disclosed is not consistent with the respective items on the consolidated balance sheet.
December 31, 2017 0 to 30 days 31 to 90 days 91 to 180 days 181 days to 1 year More than 1 year Total Customer’s undisbursed $ 10,994,336 $ 23,345,729 $ 31,641,185 $ 70,313,608 $ 35,467,369 $ 171,762,227 credit committee Customer’s outstanding 1,130,285 2,565,045 187,700 17,515 - 3,900,545 letters of credit amount Guarantee payments 7,714,616 3,948,429 677,445 1,778,351 4,574,181 18,693,022 Lease contract 1,161,518 - - - - 1,161,518 commitments Total $ 21,000,755 $ 29,859,203 $ 32,506,330 $ 72,109,474 $ 40,041,550 $ 195,517,312
December 31, 2016 0 to 30 days 31 to 90 days 91 to 180 days 181 days to 1 year More than 1 year Total Customer’s undisbursed $ 10,421,540 $ 20,408,338 $ 35,116,792 $ 84,159,607 $ 44,583,357 $194,689,634 credit committee Customer’s outstanding 1,090,421 2,745,827 535,366 61,734 - 4,433,348 letters of credit amount Guarantee payments 4,340,060 3,851,130 2,609,745 1,501,653 2,340,256 14,642,844 Lease contract 1,325,875 - - - - 1,325,875 commitments Total $ 17,177,896 $ 27,005,295 $ 38,261,903 $ 85,722,994 $ 46,923,613 $ 215,091,701
5. Cash flow risk estimated under interest rate changes The future cash flow of assets or liabilities estimated based on floating interest rates held or borne by the Taichung Bank might fluctuate and even generate risk due to market interest rate changes. However, upon evaluation, the Taichung Bank, in practice, tends to control the net liquidity gap to reduce cash flow risk resulting from interest rate changes. 39. Information on transfer of financial assets Transferred financial assets not being removed in all In the routine transaction of the consolidated company, financial assets did not qualified under all the conditions have been transferred. Most are debt securities with R/P agreement or equity securities lent under the securities lending agreement. The cash flows from the contract of the aforementioned transactions received by the consolidated company have been transferred to a third party and reflected related liabilities of the consolidated company in the responsibility of repurchasing the financial assets already transferred at fixed price in the future. For this type of transactions, the consolidated company cannot use, sell or pledge the financial assets already transferred within the effective period of the trade, but the consolidated company shall still assume interest risk and credit risk and is not being removed in whole. The table below shows the financial assets not qualified under all conditions and related financial liabilities: December 31, 2017 Book value of Fair value of Book value of Fair value of related related Net fair value Category of financial assets transferred transferred financial financial position financial assets financial assets liabilities liabilities Held-to-maturity financial assets R/P agreement $ 4,658,926 $ 4,307,810 $ 4,674,084 $ 4,307,810 $ 366,274
- 100 - TAICHUNG BANK 2017 ANNUAL REPORT 221 December 31, 2016 Book value of Fair value of Book value of Fair value of related related Net fair value Category of financial assets transferred transferred financial financial position financial assets financial assets liabilities liabilities Available-for-Sale Financial Assets R/P agreement $ 2,988,944 $ 2,741,139 $ 2,988,944 $ 2,741,139 $ 247,805 Held-to-maturity financial assets R/P agreement 1,571,083 1,481,119 1,544,144 1,481,119 63,025
222 TAICHUNG BANK 2017 ANNUAL REPORT - 101 - 40. Information to be disclosed pursuant to Article 16 of the “Regulations Governing the Preparation of Financial Reports by Public Banks” (1) Asset quality
Item December 31, 2017 December 31, 2016 Allowance for Allowance for NPL amount NPL rate Allowance for bad debt NPL amount NPL rate Allowance for bad debt Total amount Total amount (Note 1) (Note 2) bad debt coverage rate (Note 1) (Note 2) bad debt coverage rate Type (Note 3) (Note 3)
Corporate Secured 910,179 147,076,012 0.62% 1,533,082 168.44% 697,413 150,811,221 0.46% 1,617,867 231.98% banking Non-secured 307,442 82,250,188 0.37% 2,642,552 859.53% 1,150,346 82,598,346 1.39% 2,242,861 194.97% Residential mortgage 267,038 56,022,201 0.48% 969,098 362.91% 261,078 54,674,417 0.48% 876,965 335.90% loans (Note 4) Cash card 32 3,157 1.01% 2,120 6,625.00% 50 4,384 1.14% 2,865 5,730.00% Consumer Small credit loans banking 8,312 782,564 1.06% 39,158 471.10% 2,964 707,569 0.42% 34,209 1,154.15% (Note 5) Others Secured 301,228 139,104,500 0.22% 965,759 320.61% 356,541 132,402,238 0.27% 1,326,607 372.08% (Note 6) Non-secured 50,887 10,714,714 0.47% 193,041 379.35% 32,848 8,874,072 0.37% 125,313 381.49% Total amount 1,845,118 435,953,336 0.42% 6,344,810 343.87% 2,501,240 430,072,247 0.58% 6,226,687 248.94%
December 31, 2017 December 31, 2016 Item Balance of Allowance for Balance of Allowance for Allowance for Allowance for NPL amount receivable NPL rate bad debt NPL amount receivable NPL rate bad debt Type bad debt bad debt accounts coverage rate accounts coverage rate
TAICHUNG BANK2017 ANNUALREPORT Credit card 8,507 797,032 1.07% 32,560 382.74% 12,341 777,735 1.59% 25,045 202.94% Factoring without recourse (Note 7) - 1,656,114 - 28,350 ------
NPL or non-performing receivable accounts exempted from report
December 31, 2017 December 31, 2016 Total non-performing receivable Total non-performing receivable Total NPL exempted from report Total NPL exempted from report accounts exempted from report accounts exempted from report Amount exempted from report upon debt negotiation and 6,940 1,780 9,907 2,306 performance (Note 8) Performance of debt clearance program and rehabilitation program 7,481 16,613 10,641 15,398 (Note 9) Total 14,421 18,393 20,548 17,704 223 - 102 - Note 1: The NPL amount is recognized according to "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non- performing Non-accrual Loans". The credit card NPL is recognized based on that provided under the Letter Jin-Guan-Yin (4) Zi No. 0944000378 dated July 6, 2005. Note 2: NPL rate=NPL/Total amount; Credit card NPL rate=NPL/balance of receivable accounts. Note 3: Allowance for bad debt coverage rate=allowance for bad debt provided for loans/NPL amount; allowance for bad debt coverage rate for receivable accounts of credit cards=allowance for bad debt provided for receivable accounts of credit cards/NPL amount. Note 4: Borrowers apply for residential mortgage loans for the purpose of purchasing or building residences or decorating houses. The loans shall be secured by the residence purchased (owned) by the borrower himself/herself, or his/her spouse or minor children in full, and the mortgage shall be pledged to the financial institution. Note 5: Small credit loans mean those provided in the Letter under Jin-Guan-Yin (4) Zi No. 09440010950 dated December 19, 2005 and those other than small loans by credit cards/cash cards. Note 6: “Others” for Consumer banking refer to the secured or non-secured consumer loans other than “residential mortgage loans”, “cash card loans” and “small credit loans”, exclusive of credit cards loans. Note 7: According to the Letter under Jin-Guan-Yin (5) Zi No. 094000494 dated July 19, 2005, factoring without recourse shall be recognized as NPL within three months after the factoring Consignee or insurance company confirms that no compensation should be granted. Note 8: Total NPL exempted from report upon debt negotiation and performance and the balance of total non-performing receivable accounts exempted from report upon debt negotiation and performance were disclosed pursuant to the Letter under Jin-Guan-Yin (1) Zi No. 09510001270 dated April 25, 2006. Note 9: The balance of total NPL exempted from report upon performance of debt clearance program and rehabilitation program and balance of total non- performing receivable accounts exempted from report upon performance of debt clearance program and rehabilitation program were disclosed pursuant to the Letter under Jin-Guan-Yin (1) Zi No. 09700318940 dated September 15, 2008.
224 TAICHUNG BANK 2017 ANNUAL REPORT - 103 - (2) Status of credit risk concentration December 31, 2017 Unit: NTD thousand Percentage of Total balance of Rank Business type of company or group net value as of loan (Note 1) (Note 2) December 31, (Note 3) 2017 Group A 1 016700 Real estate development $ 3,148,737 7.25% industry Group B 2 2,625,197 6.05% 010892 Noodle products manufacturing Group C 3 1,796,162 4.14% 012411 Iron and steel manufacturing Group D 012699 other electronic parts and 4 1,776,807 4.09% components manufacturing without classification Group E 5 1,704,281 3.93% 015500 Accommodation service Group F 6 1,577,529 3.63% 016700 Real estate development Group G 7 016700 Real estate development 1,428,583 3.29% industry Group H 8 014612 Wholesale of brick and tiles, 1,327,851 3.06% gravels, cement, and their products. Group I 9 016700 Real estate development 1,171,800 2.70% industry Group J 10 016700 Real estate development 1,141,157 2.63% industry
- 104 - TAICHUNG BANK 2017 ANNUAL REPORT 225 December 31, 2016 Unit: NTD thousand Percentage of Total balance of Rank Business type of company or group net value as of loan (Note 1) (Note 2) December 31, (Note 3) 2016 Group A 1 016700 Real estate development $ 3,734,726 9.02% industry Group E 2 3,636,292 8.79% 015510 Accommodation service Group B 3 010892 Noodle products 2,836,553 6.85% manufacturing Group C 4 2,429,150 5.87% 012411 Iron and steel manufacturing Group K 5 016700 Real estate development 2,072,000 5.01% industry Group L 6 1,866,550 4.51% 015590 Accommodation service Group F 7 016700 Real estate development 1,788,137 4.32% industry Group G 8 016700 Real estate development 1,560,693 3.77% industry Group M 9 1,545,750 3.74% 012611 IC manufacturing Group I 10 016700 Real estate development 1,527,941 3.69% industry Note 1: The top ten enterprises other than public or state enterprises were identified according to rank of the total balance of loans to these enterprises. If the account refers to a group, the loan to the group should be identified and summed up, and disclosed in the form of “code” and “business type”. In the case of group, the business type of the group with the maximum exposure should be disclosed. The business type shall be specified in “detailed item” according to the business classification defined by Directorate General of Budget, Accounting and Statistics (e.g. Company (Group) A, real estate development). Note 2: The enterprises mean those defined in Article 6 of “Supplementary Rules of TSEC’s Criteria for Reviewing Listing of Marketable Securities”. Note 3: The balance of total credit extension means the total balance of the various loans (including import negotiation, export negotiation, discount, overdraft, short-term loans, short-term secured loans, receivable securities financing, mid-term loans, mid-term secured loans, long-term loans, long-term secured
226 TAICHUNG BANK 2017 ANNUAL REPORT - 105 - loans, Delinquent loans), inward remittances, factoring without recourse, Acceptances receivable and guarantee payments. (3) Interest rate sensitivity information
Interest rate sensitivity assets and liabilities analysis data (NTD) December 31, 2017 Unit: NTD thousand, % 181 days to 1 1 to 90 days 91 to 180 days Item year Over 1 year Total (inclusive) (inclusive) (inclusive) Interest rate 462,435,741 6,503,542 8,109,517 77,217,728 554,266,528 sensitivity assets Interest rate 151,989,766 276,148,497 90,493,177 13,711,029 532,342,469 sensitivity liabilities Interest rate 310,445,975 ( 269,644,955 ) ( 82,383,660 ) 63,506,699 21,924,059 sensitivity gap Net value 43,401,940 Interest rate sensitivity assets and liabilities rate 104.12% Interest rate sensitivity gap and net worth rate 50.51%
December 31, 2016 Unit: NTD thousand, % 181 days to 1 1 to 90 days 91 to 180 days Item year Over 1 year Total (inclusive) (inclusive) (inclusive) Interest rate 438,478,445 7,946,375 11,469,176 68,578,409 526,472,405 sensitivity assets Interest rate 140,209,959 264,706,299 93,980,865 14,456,126 513,353,249 sensitivity liabilities Interest rate 298,268,486 ( 256,759,924 ) ( 82,511,689 ) 54,122,283 13,119,156 sensitivity gap Net value 41,382,035 Interest rate sensitivity assets and liabilities rate 102.56% Interest rate sensitivity gap and net worth rate 31.70% Note: 1. The table specifies the amount in NTD (exclusive of foreign currencies) of Taichung Bank Head Office and local branches. 2. Interest rate sensitivity assets and liabilities mean the assets and liabilities with interest of which the income or cost varies depending on the interest rate. 3. Interest rate sensitivity gap=Interest rate sensitivity assets - Interest rate sensitivity liabilities. 4. Interest rate sensitivity assets and liabilities rate=Interest rate sensitivity assets ÷ interest rate sensitivity liabilities (i.e. interest rate sensitivity assets and interest rate sensitivity liabilities in NTD)
- 106 - TAICHUNG BANK 2017 ANNUAL REPORT 227 Interest rate sensitivity assets and liabilities analysis data (USD) December 31, 2017 Unit: USD thousand; % 181 days to 1 1 to 90 days 91 to 180 days Item year Over 1 year Total (inclusive) (inclusive) (inclusive) Interest rate 902,199 339,282 39,210 404,801 1,685,492 sensitivity assets Interest rate 525,683 954,563 142,981 - 1,623,227 sensitivity liabilities Interest rate 376,516 ( 615,281 ) ( 103,771 ) 404,801 62,265 sensitivity gap Equity 1,457,909 Interest rate sensitivity assets and liabilities rate 103.84% Interest rate sensitivity gap and net worth rate 4.27%
December 31, 2016 Unit: USD thousand; % 181 days to 1 1 to 90 days 91 to 180 days Item year Over 1 year Total (inclusive) (inclusive) (inclusive) Interest rate 815,788 274,524 13,133 240,266 1,343,711 sensitivity assets Interest rate 508,055 620,660 131,459 - 1,260,174 sensitivity liabilities Interest rate 307,733 ( 346,136 ) ( 118,326 ) 240,266 83,537 sensitivity gap Equity 1,282,965 Interest rate sensitivity assets and liabilities rate 106.63% Interest rate sensitivity gap and net worth rate 6.51% Note: 1. The table specifies the total amount in USD of Taichung Bank Head Office and local branches, International Banking Branch and offshore branches, exclusive of contingent assets or liabilities. 2. Interest rate sensitivity assets and liabilities mean the assets and liabilities with interest of which the income or cost varies depending on the interest rate. 3. Interest rate sensitivity gap=Interest rate sensitivity assets - Interest rate sensitivity liabilities. 4. Interest rate sensitivity assets and liabilities rate=Interest rate sensitivity assets ÷ interest rate sensitivity liabilities (i.e. interest rate sensitivity assets and interest rate sensitivity liabilities in USD)
228 TAICHUNG BANK 2017 ANNUAL REPORT - 107 - (4) Profitability Unit: % Item December 31, 2017 December 31, 2016 Before 0.67 0.68 taxation ROA After 0.57 0.59 taxation Before 10.07 10.04 taxation ROE After 8.57 8.64 taxation Net profit rate 35.10 35.95 Note: 1. ROA = Income before (after) taxation/Average total assets 2. ROE=Income before (after) taxation / Average net worth 3. Profit (loss) rate = Income after taxation/income-net 4. Income before (after) taxation means the income accumulated from January of the current year until the current quarter (5) Analysis on maturity of assets and liabilities Table of analysis of maturity structure of NTD December 31, 2017 Unit: NTD thousand
Remaining balance to maturity Total 181 days to 1 More than 1 0 to 10 days 11 to 30 days 31 to 90 days 91 to 180 days year year Main capital inflow 598,141,237 109,914,586 30,498,374 29,468,061 51,262,425 88,329,183 288,668,608 upon maturity Main capital outflow 710,537,090 36,411,396 37,325,982 88,778,387 108,514,499 171,244,522 268,262,304 upon maturity Gap ( 112,395,853 ) 73,503,190 ( 6,827,608 ) ( 59,310,326 ) ( 57,252,074 ) ( 82,915,339 ) 20,406,304
December 31, 2016 Unit: NTD thousand
Remaining balance to maturity Total 181 days to 1 More than 1 0 to 10 days 11 to 30 days 31 to 90 days 91 to 180 days year year Main capital inflow 574,884,638 87,511,207 38,435,363 37,726,350 54,496,680 97,626,131 259,088,907 upon maturity Main capital outflow 690,321,694 26,600,978 35,458,685 105,372,093 85,306,244 176,228,588 261,355,106 upon maturity Gap ( 115,437,056 ) 60,910,229 2,976,678 ( 67,645,743 ) ( 30,809,564 ) ( 78,602,457 ) ( 2,266,199 ) Note: The table only specifies the amount in NTD (exclusive of foreign currencies) of Taichung Bank Head Office and local branches.
- 108 - TAICHUNG BANK 2017 ANNUAL REPORT 229 Analysis of maturity structure of USD December 31, 2017 Unit: USD thousand Remaining balance to maturity Total 0 to 30 days 31 to 90 days 91 to 180 181 days to 1 More than 1 days year year Main capital inflow $ 2,057,206 $ 472,931 $ 288,565 $ 317,306 $ 100,961 $ 877,443 upon maturity Main capital outflow 2,875,529 557,042 748,449 554,700 839,630 175,708 upon maturity Gap ( 818,323 ) ( 84,111 ) ( 459,884 ) ( 237,394 ) ( 738,669 ) 701,735
December 31, 2016 Unit: USD thousand Remaining balance to maturity Total 0 to 30 days 31 to 90 days 91 to 180 181 days to 1 More than 1 days year year Main capital inflow $ 1,723,366 $ 288,434 $ 306,077 $ 279,023 $ 154,290 $ 695,542 upon maturity Main capital outflow 2,634,995 544,485 762,815 378,728 813,685 135,282 upon maturity Gap ( 911,629 ) ( 256,051 ) ( 456,738 ) ( 99,705 ) ( 659,395 ) 560,260 Note: 1. The table specifies the total amount in USD of Taichung Bank Head Office, local branches and International Banking Branch. Unless otherwise provided, it shall be stated at the Book Value, and it is not necessary to include any accounts that are not stated in the table (e.g. negotiable certificates of deposit, bonds or stocks scheduled to be issued). 2. Where offshore assets account for more than 10% of the Bank’s total assets, it is necessary to provide supplementary disclosure. 41. Capital management (1) The consolidated company’s eligible preparatory capital should be sufficient to meet the legal capital requirements, and achieve the minimum statutory capital adequacy ratio that is the basic objective of the Company’s capital management. The appropriation and calculation of the relevant eligible proprietary capital and statutory capital shall be handled in accordance with the requirements of the concerned authorities. The consolidated company’s capital management structure is properly planned depending on the capital market conditions, capital instrument features, capital implementation efficiency and operating performance in order to maintain a ratio of preparatory capital to risk assets above the target level.
230 TAICHUNG BANK 2017 ANNUAL REPORT - 109 - (2) The consolidated company has the information of capital adequacy disclosed periodically in accordance with the relevant specifications of the competent authorities and the Company’s internal operating procedures; also, has reported it to the competent authorities quarterly Proprietary capital is classified as Category I capital and Category II capital in accordance with the “Regulations Governing Capital Adequacy and Capital Category of Banks”. 1. Category I Capital: It includes the other Category I capital, including common stock equity and non-common stock equity. (1) The scope of common stock equity includes common stock and stock premium, advanced capital, additional paid-in capital, legal reserves, special reserves, the cumulative gain or loss, non-controlling equity and other equity items. (2) The other Category I capital other than common stock equity includes perpetual non-cumulative preferred stock and its stock premium, non- cumulative subordinated bonds without maturity date, perpetual non- cumulative preferred stocks issued by the Bank’s subsidiary that are not directly or indirectly held by the Company and its stock premium, and non- cumulative subordinated bonds without maturity date. 2. Category II Capital: The project scope includes perpetual cumulative preferred shares and its stock premium, cumulative subordinated bonds without maturity date, convertible subordinated bond, long-term subordinated bond, non-perpetual preferred stock and its stock premium, the retained earnings increased arising from the property measured at fair value or reappraisal price as cost for the first- time adoption of the IFRS, subsequent measurements of the real properties for investment purpose of the appreciations and 45% of subsequent measurements of the real properties for investment purpose and the available-for-sale financial assets unrealized gain, the operating reserve and allowance for bad debts, as well as the perpetual cumulative preferred stock issued by the Bank’s subsidiary that are not directly or indirectly held by the Company and its stock premium, cumulative subordinated debts without a maturity date, convertible subordinated bonds, long-term subordinated bonds, and non-perpetual preferred stocks and its stock premium.
- 110 - TAICHUNG BANK 2017 ANNUAL REPORT 231 (3) Capital Adequacy Unit: NTD thousand; % Year December 31, 2017 December 31, 2016 Analytical items Common stock equity capital 42,684,265 40,657,462 Total Self- Other Category I Capital 8,938,801 2,938,095 owned Category II Capital 7,052,422 7,541,979 Capital Total Self-owned Capital 58,675,488 51,137,536 Standardized 435,612,899 440,149,629 Approach Credit Internal Ratings- Risk - - Based Approach Asset Securitization - - Basic Indicator 19,674,450 17,584,625 Approach Standard method/ Total risk- Operation optional standard - - weighted Risk method assets Advanced Measurement - - Approach Standardized 7,570,075 8,772,225 Market Approach Risk Internal Models - - Approach Total risk-weighted assets 462,857,424 466,506,479 Capital adequacy ratio 12.68% 10.96% Common stock equity as a percentage of risk 9.22% 8.72% assets Proportion of Category I capital to risk assets 11.15% 9.35% Leverage ratio 7.37% 6.50% Note 1: The self-owned capital, risk assets, and total exposure in this table should be calculated according to the regulations in “Regulation on Bank Capital Adequacy and Capital Tiers” and “Clarification on Bank Equity Capital and Risk Capital Calculation Methods and Forms.” Note 2: The annual financial statement shall specify the Capital adequacy ratios for the current period and the previous period. The semiannual financial statement shall also disclose the Capital adequacy ratio at the end of the previous year, in addition to those for the current period and previous period. Note 3: Equations for financial analysis: 1. Total self-owned capital = Common stock equity + Other Category I Capital + Category II Capital 2. Total amount of risk-weighed-assets = Credit risk-weighed assets + Capital charge of (operational risk + market risk) x 12.5. 3. Capital Adequacy ratio = Total self-owned capital / Total amount risk- weighed assets. 4. Ratio of common stock equity to risk assets = Common stock equity / Total risk weighted assets.
232 TAICHUNG BANK 2017 ANNUAL REPORT - 111 - 5. Proportion of Category I capital to risk assets = (Common stock equity + Category I Capital) / Total risk-weighted asset 6. Leverage ratio = Net Category I capital / Total exposure. Note 4: This table may not be disclosed in the financial statements for Q1 and Q3. 42. Information on exchange rates of financial assets and liabilities denominated in foreign currencies The information regarding assets and liabilities dominated by foreign currency in the consolidated company which might arouse material effect:
Other foreign December 31, 2017 USD RMB JPY AUD EUR currencies Total Foreign currency financial assets Cash and cash equivalents $ 2,132,817 $ 942,038 $ 631,027 $ 110,926 $ 186,417 $ 340,995 $ 4,344,220 Due from Central Bank and lend to Banks 53,586 91,300 - - - 337,821 482,707 Financial assets at fair value through profit and loss 119,251 - - - - 290 119,541 Available-for-Sale Financial Assets 158,825 - - - - - 158,825 Discounts and loans 32,528,042 1,260,225 295,904 406,267 491,123 867,454 35,849,015 Accounts receivable 3,852,445 1,853,624 117,420 19,623 511,021 76,434 6,430,567 Held-to-maturity financial assets 14,520,384 3,424,197 - 1,416,042 - 169,010 19,529,633 Other financial assets 900,335 - - - - - 900,335 Other assets 163,288 - - - - - 163,288
Foreign currency financial liabilities - Due to Central Bank and banks 2,828,150 - - - 178,000 - 3,006,150 Funds borrowed from Central Bank and other banks 312,585 1,398,923 - - - - 1,711,508 Customer deposits and remittances 43,392,506 3,263,127 788,466 2,159,266 472,269 1,354,753 51,430,387 Financial liabilities at fair value through profit and loss 71,728 - - - - 290 72,018 Payables 2,707,177 160,002 70,684 7,683 448,365 302,000 3,695,911 Bills and bonds sold under repurchase agreements 2,105,229 - - - - - 2,105,229 Liability reserve 6,674 - - - - - 6,674 Other liabilities 96,007 29,467 113 - 4,112 44,528 174,227
Taiwan Dollar exchange rates 29.77 4.57 0.26 23.20 35.60
Other foreign December 31, 2016 USD RMB JPY AUD EUR currencies Total Foreign currency financial assets Cash and cash equivalents $ 1,662,211 $ 795,423 $ 750,174 $ 127,719 $ 426,261 $ 367,017 $ 4,128,805 Due from Central Bank and lend to Banks 48,383 417,669 - - - - 466,052 Financial assets at fair value through profit and loss 294,586 - - - - 1,307 295,893 Available-for-Sale Financial Assets 117,793 - - - - - 117,793 Discounts and loans 32,706,060 936,433 401,353 174,600 594,599 995,763 35,808,808 Accounts receivable 2,040,859 1,149,604 243,466 62,962 168,712 16,470 3,682,073 Held-to-maturity financial assets 8,686,042 3,765,878 - 791,613 - - 13,243,533 Other financial assets 1,022,835 - - - - - 1,022,835 Other assets 274,080 - - - - - 274,080
Foreign currency financial liabilities Due to Central Bank and banks 2,419,125 - - - - - 2,419,125 Funds borrowed from Central Bank and other banks 428,121 819,010 - - - - 1,247,131 Customer deposits and remittances 37,100,189 2,681,235 602,997 1,800,856 599,553 1,229,861 44,014,691 Financial liabilities at fair value through profit and loss 69,767 - - - - 1,308 71,075 Payables 1,143,919 23,654 508,679 2,147 362,722 64,504 2,105,625 Bills and bonds sold under repurchase agreements 1,162,119 - - - - - 1,162,119 Liability reserve 7,231 - - - - - 7,231 Other liabilities 108,412 24,855 468 - 4,372 73,664 211,771
Taiwan Dollar exchange rates 32.26 4.62 0.28 23.28 33.90
- 112 - TAICHUNG BANK 2017 ANNUAL REPORT 233 43. Financial information for operating segments Financial information for operating segments is provided for main decision makers to allocate resources and evaluate the performance of each segment. Such information focuses on each delivered or offered product or service. According to the International Financial Reporting Standards No. 8, “Operating Segments,” the consolidated company’s reportable segments are as follows: North District Central Taiwan Southern Taiwan OBU Head Office and other (1) Revenues and operating results of segments Revenues and operating results of the consolidated company’s continuing units are analyzed in accordance with segments to be reported, which are summarized as follows:
Southern Head Office Adjustment and North District Central Taiwan Taiwan OBU and other Write off Total 2017 Interest revenue $ 3,628,663 $ 4,683,584 $ 2,996,533 $ 1,329,927 $ 2,124,349 ( $ 2,685,049 ) $ 12,078,007 Interest expenses ( 1,717,885 ) ( 1,403,788 ) ( 994,538 ) ( 718,173 ) ( 1,742,665 ) 2,685,049 ( 3,892,000 ) Net interest income 1,910,778 3,279,796 2,001,995 611,754 381,684 - 8,186,007 Net income (loss) other than interest income Service Fee, Net 416,384 804,922 492,793 77,489 656,991 - 2,448,579 The net gain or loss of financial instruments 55,767 27,571 15,879 24,027 370,427 - 493,671 Other net profit (loss) 12,034 26,750 25,588 67,615 214,049 ( 79,538 ) 266,498 Bad debt expenses ( 141,906 ) ( 109,077 ) ( 628,134 ) ( 623,195 ) 377,453 - ( 1,124,859 ) Operating expenses ( 888,489 ) ( 1,433,228 ) ( 949,667 ) ( 29,435 ) ( 2,693,403 ) 79,538 ( 5,914,684 ) Income (loss) before taxation $ 1,364,568 $ 2,596,734 $ 958,454 ( $ 128,255 ) ( $ 692,799 ) $ - $ 4,355,212
2016 Interest revenue $ 3,425,734 $ 4,289,436 $ 2,856,783 $ 1,093,579 $ 2,033,920 ( $ 2,225,957 ) $11,473,495 Interest expenses ( 1,319,051 ) ( 1,418,595 ) ( 1,015,485 ) ( 463,030 ) ( 1,695,817 ) 2,225,957 ( 3,686,021 ) Net interest income 2,106,683 2,870,841 1,841,298 630,549 338,103 - 7,787,474 Net income (loss) other than interest income Service Fee, Net 349,908 695,458 450,523 62,567 713,542 - 2,271,998 The net gain or loss of financial instruments 88,459 18,474 39,225 114,504 683,895 - 944,557 Other net profit (loss) 10,972 24,161 21,749 ( 26,914 ) ( 162,474 ) ( 78,887 ) ( 211,393 ) Bad debt expenses ( 535,666 ) ( 632,273 ) ( 183,505 ) ( 391,207 ) 941,611 - ( 801,040 ) Operating expenses ( 811,836 ) ( 1,274,644 ) ( 868,959 ) ( 29,107 ) ( 2,941,874 ) 78,887 ( 5,847,533 ) Income (loss) before taxation $ 1,208,520 $ 1,702,017 $ 1,300,331 $ 360,392 ( $ 427,197 ) $ - $ 4,144,063
The measured figures are provided for main decision makers to allocate resources to segments and evaluate the performance of each segment.
234 TAICHUNG BANK 2017 ANNUAL REPORT - 113 - (2) Segment assets Segment assets December 31, 2017 December 31, 2016 North District $ 145,881,896 $ 144,595,052 Central Taiwan 191,203,869 170,273,142 Southern Taiwan 106,176,996 101,567,595 OBU 49,337,845 42,545,851 Head Office and other 170,423,477 168,121,061 Total segment assets $ 663,024,083 $ 627,102,701
(3) Main revenues from products and service The consolidated company’s main business is interest revenue. There is no information by products and by service. (4) Information by areas The consolidated company’s net income is as follows: Region 2017 2016 Taiwan $ 11,268,475 $ 10,746,669 Asia 111,585 34,389 America 14,695 11,578 $ 11,394,755 $ 10,792,636
(5) Information on key customers Interest revenue from a single customer of the consolidated company does not exceed 10% of total interest revenues. Therefore, there is no information on key customers. 44. Notes of disclosure (1) Information about important transactions: Information to be disclosed pursuant to Article 18 of the “Regulations Governing the Preparation of Financial Reports by Public Banks”: No. Item Remark Cumulative amount of the stock of the same investee purchased 1 or sold reaching NTD 300 million or more than 10% of the None Paid-in shares capital. Acquisition amount of real estate reaching NTD 300 million or 2 None more than 10% of the Paid-in shares capital. Amount on disposal of real estate reaching NTD 300 million or Attached 3 more than 10% of the Paid-in shares capital. table 1 Discount of service charges in transaction with related party 4 None reaching more than NTD 5 million. Accounts receivable-related party reaching NTD 300 million or 5 None more than 10% of the Paid-in shares capital. 6 Information regarding sale of NPL. None 7 Securitization of financial assets or real estate. None Other important transactions sufficient to affect the policy to use 8 None financial statements.
- 114 - TAICHUNG BANK 2017 ANNUAL REPORT 235 (2) Information regarding investees: No. Item Remark Attached 1 Information regarding investees and total shareholdings. table 2 Attached 2 Loans to others. table 3 Attached 3 Endorsements/guarantees to others. table 4 Attached 4 Marketable securities – end. table 5 Cumulative amount of the same marketable securities purchased 5 or sold reaching NTD 300 million or more than 10% of the None Paid-in shares capital. Acquisition amount of real estate reaching NTD 300 million or 6 None more than 10% of the Paid-in shares capital. Amount on disposal of real estate reaching NTD 300 million or 7 None more than 10% of the Paid-in shares capital. Discount of service charges in transaction with related party 8 None reaching more than NTD 5 million. Accounts receivable-related party reaching NTD 300 million or 9 None more than 10% of the Paid-in shares capital. 10 Information regarding sale of NPL. None 11 Securitization of financial assets or real estate. None 12 Engaged in derivative transactions None Other important transactions sufficient to affect the policy to use 13 None financial statements.
Note: No disclosure of such information is required, if the investee is a financial business, insurance business, and securities business. (3) Information regarding investment in the territory of mainland china: Attached table 6. (4) Inter-company relationships and significant intercompany transactions between the parent company and subsidiaries: Attached table 7.
236 TAICHUNG BANK 2017 ANNUAL REPORT - 115 - Attached table 1. Amount on disposal of real estate reaching NTD 300 million or more than 10% of the Paid-in shares capital: Unit: NTD thousand Capital The Company Original gain/loss Other collectio Purpose of Reference for price disposing Asset title Date of event acquisition Book value Trade value from Counterparties Relation stipulations of n of disposition determination property date disposition the transaction proceeds (Note) Taichung Building located at No. 2017.11.20 1986.07.09 $ 55,278 $ 403,950 All $ 348,672 Quan Zhou None Activation Appraisal report of None Commercial 291, MeiCun Road collected Co., Ltd. of assets property issued by Bank Co., Section I, West appraisers Ltd. District, Taichung City, and land located at TuKu Section, West District, Taichung,
Note: The Board of the Company resolved to sell the lands at MeiCun Road and TuKu Section, West District, Taichung City, in a session dated September 7, 2017 TAICHUNG BANK2017 ANNUALREPORT 237 - 116 - 238 TAICHUNG BANK2017 ANNUALREPORT Attached table 2: Information regarding investees:
Unit: NTD thousand; thousand shares; %
Investment Consolidated shareholding of the Company and affiliated Proportion of profit (loss) enterprises (note 1) Investee’s name Book value of Investor Location Principal business shareholding recognized in Scheduled Total Remarks (Note 1) investment Quantity - % - end the current quantity Ratio of current Quantity period (Note 2) Shareholding Taichung Taichung Bank Taichung City Insurance brokerage. 100.00 $ 1,432,236 $ 256,409 105,600 - 105,600 100.00 Commercial Bank Insurance Brokers Co., Ltd. Co., Ltd. Taichung Reliance Securities Taipei City Securities Investment 38.46 128,113 ( 2,875 ) 18,643 - 18,643 59.75 Commercial Bank Investment Trust Trust Co., Ltd. Co., Ltd. Taichung Taichung Commercial Taichung City Securities industry 100.00 1,383,985 ( 32,682 ) 150,000 - 150,000 100.00 Commercial Bank Bank Securities Co., Co., Ltd. Ltd. Taichung Taichung Commercial Taipei City Financing Leasing 100.00 1,790,773 31,688 185,000 - 185,000 100.00 Commercial Bank Bank Lease Co., Ltd. Enterprise Taichung TCCBL Co., Ltd. BVI Suzhou͓ Financing, leasing and 100.00 774,618 ( 3,842 ) 30,000 - 30,000 100.00 Commercial Bank (B.V.I.) investments. Lease Enterprise TCCBL Co., Ltd. Taichung Commercial Suzhou Financing Leasing 100.00 734,507 1,044 - - - 100.00 (B.V.I.) Bank Leasing (Suzhou) Ltd. Note 1: Any current shares or scheduled shares held by the Bank, directors, President, Executive Vice President, and investees that are defined as affiliated enterprises under Company Law shall be included. Note 2: (1) Scheduled shares mean swapped shares under the assumption that the equity securities purchased or derivative product contract as concluded (not yet converted into equity) are converted according to the agreed trading conditions and the bank’s intent to link with the equity of investee for the purpose of the reinvestment referred to in Article 74 of the Banking Act. (2) Said “equity securities” mean the marketable securities, convertible corporate bonds, and stock warrants provided in Paragraph 1 of Article 11 of the Enforcement Rules of Securities and Exchange Act. (3) The “Derivatives Contract” referred to above meant for those that meet the definitions of derivatives in IAS No. 39, such as, stock options. Note 3: This table may not be disclosed in the financial statements for Q1 and Q3.
- 117 - Attached table 3. Loans to others:
Unit: in NTD thousand unless otherwise specified
Are Amount of The reasons Collateral Limit of financing Transaction Maximum The actual Nature of Amount of Total limit of No. they Balance, ending Interest business for short-term particular The lender of fund The borrower of fund title balance – current amounts financing provision for bad financing Remarks (Note 1) related (Note 8) rate collars transactions financing Name Value beneficiary (Note 2) period (Note 3) disbursed (Note 4) debts (Note 7) parties (Note 5) (Note 6) (Note 7) 1 Taichung Bank Mi Qi Ji, Ltd. Other No $ 170,000 $ 170,000 $ 170,000 6.50% The necessity of $ - Working $ 1,751 Real estate $ 171,396 $ 179,077 $ 716,309 Note 9 Leasing Co., receivables short-term capital Ltd. financing 2 Taichung Bank Chang Hong ˥ ˥ 50,000 50,000 40,267 4%-10% ˥ - ˥ 415 Real estate 29,079 179,077 716,309 ˥ Leasing Co., International Ltd. Development Co., Ltd. 3 Taichung Bank Song Yang ˥ ˥ 20,000 - - 4%-10% ˥ - ˥ - Real estate 19,598 179,077 716,309 ˥ Leasing Co., Construction Co., Ltd. Ltd. 4 Taichung Bank Yuan Mao ˥ ˥ 100,000 100,000 - 4%-10% ˥ - ˥ - Stock 63,180 179,077 716,309 ˥ Leasing Co., Construction Co., Ltd. Ltd. 5 Taichung Bank Yan Xin Construction ˥ ˥ 95,654 95,654 26,024 4%-10% ˥ - ˥ 268 Real estate 76,746 179,077 716,309 ˥ Leasing Co., Co., Ltd. Ltd. 6 Taichung Bank General Energy ˥ ˥ 50,000 50,000 48,005 4%-10% ˥ - ˥ 443 Refundable 5,000 179,077 716,309 ˥ Leasing Co., Solutions deposits Ltd. 7 Taichung Bank Yi Lei Construction ˥ ˥ 65,000 65,000 - 4%-10% ˥ - ˥ - Real estate 65,161 179,077 716,309 ˥ Leasing Co., Co., Ltd. Ltd. 8 Taichung Bank Huang Chao Golden ˥ ˥ 30,000 30,000 - 4%-10% ˥ - ˥ - Refundable 6,000 179,077 716,309 ˥ Leasing Co., Hall Inc. deposits Ltd. 9 TCCBL Co., Ltd. EVER MERIT ˥ ˥ 71,448 71,448 53,586 5.25% ˥ - ˥ 536 Stock 60,016 77,462 309,847 Note 10 (B.V.I.) TRADING LIMITED 10 TCCBL Co., Ltd. LEAGUE ˥ ˥ 29,770 29,770 22,328 4%-10% ˥ - ˥ 194 Refundable 2,977 77,462 309,847 ˥ (B.V.I.) INTERNATIONAL deposits LIMITED 11 TCCBL Co., Ltd. TCT CAPITAL CO., ˥ ˥ 47,632 47,632 47,632 4%-10% ˥ - ˥ 429 Refundable 4,763 77,462 309,847 ˥ (B.V.I.) LTD deposits 12 Taichung Sanyuan Construction Loan by ˥ 264,770 260,735 169,435 10% ˥ - Capital 2,542 Real estate 1,969,140 293,803 293,803 Note 11
TAICHUNG BANK2017 ANNUALREPORT Commercial (Qingdao) mandate Expenditures Bank Leasing Development Co., (Suzhou) Ltd. Ltd. 13 Taichung Gotek Opto- ˥ ˥ - - - 8% ˥ - Working - Real estate 101,685 293,803 293,803 ˥ Commercial Electronics Co., capital Bank Leasing Ltd. (Suzhou) Ltd.
Note 1: The column for numbering is elaborated below: (1) Fill in 0 for the issuer. (2) The investees are sequentially numbered from 1 and so forth. Note 2: The receivables-affiliates, receivables-related parties, shareholders accounts, prepayments, temporary payments and others as stated in book shall be filled in here if they are classified as financing. Note 3: Maximum balance of financing a third party in current period. Note 4: Specify if the nature of financing is for business transactions or short-term financing is necessary. Note 5: If the nature of financing is for business transactions, specify the amount of business transactions. The amount of business transactions shall be the amount of business conducted between the lender and the beneficiary of financing. Note 6: If it is necessary for short-term financing, specify the reasons and the beneficiary of financing and the use of the fund, such as: retirement of loans, procurement of equipment, and working capital. Note 7: Specify the Procedure for Financing Third Parties and the upper limit of financing in favor of particular beneficiary and the total limit of financing, and also the method for the calculation of the upper limit of financing in favor of particular beneficiary and the total limit of financing in the space provided in this field. Note 8: For public companies proposed the lending of funds before the Board for resolution case by case pursuant to Article 14-1 of the “Regulations Governing Loaning of Funds and Making of Endorsements/Guarantees by Public Companies”, the amount approved by the Board but not yet being drawn shall still be included in the amount for announcement for the disclosure of risk being assumed. If the loans are being retired in the future, disclose the outstanding balance to reflect the adjustment of risk. For public companies proposed the lending of funds before the Board for resolution case by case pursuant to Article 14-2 of the “Regulations Governing Loaning of Funds and Making of Endorsements/Guarantees by Public Companies” whereby the Board resolved to authorize the Chairman to effect the 239 - 118 - 240 TAICHUNG BANK2017 ANNUALREPORT drawdown or in revolving credit in tranches within specific limit and in the year, the amount and the limit approved by the Board shall still be announced as the outstanding balance. In subsequent retirement of loans, repeated drawdown shall still be considered and the amount and the limit approved by the Board shall still be announced as the outstanding balance. Note 9: Taichung Bank Leasing Co., Ltd.. to a particular enterprise shall be up to 10% of the net worth of the Company. The total amount of loaning of funds shall not exceed 40% of the net worth of Taichung Bank Leasing Co., Ltd. Note 10: The loaning of TCCBL Co., Ltd. (B.V.I.) to a particular enterprise shall not exceed 10% of the net worth of TCCBL Co., Ltd. (B.V.I.) The total amount of loaning of funds shall not exceed 40% of the net worth of TCCBL Co., Ltd. (B.V.I.). Note 11: The amount of loan to particular enterprise and the total amount of financing of TCB Leasing (Suzhou) Co., Ltd. shall not exceed 40% of the net worth of TCB Leasing (Suzhou) Co., Ltd.
- 119 - Attached table 4: Endorsements/guarantees to others:
Unit: NTD thousand The party receiving the endorsement Total and/or guarantee The highest endorsements Guarantee The limit of Guarantee balance of The and The upper limit and Guarantee endorsements The ending and The company endorsements endorsements guarantees as of an endorsement and and/or balance of The actual endorsement providing the and/or and/or a percentage endorsement by endorsement No. guarantees to a endorsements amounts of parent endorsement guarantees in guarantees of equity in and/or subsidiary in Mainland Company name Relation single business and/or disbursed company to and/or guarantee the current secured with the most guarantee to parent China entity guarantees subsidiary period property recent (Note 1) company (Note 3) (Note 1) (Note 3) (Note 2) financial (Note 3) statement 1 Taichung Bank TCCBL Co., Ltd. 100% and $ 10,744,639 $ 2,510,000 $ 1,651,512 $ 312,585 $ - 92.22 $ 17,907,732 炼 炼 炼 Leasing Co., (B.V.I.) directly Ltd. owned subsidiary 2 Taichung Bank Taichung 100% and 10,744,639 1,244,079 989,116 947,303 - 55.23 17,907,732 炼 炼 Y Leasing Co., Commercial Bank indirectly Ltd. Leasing (Suzhou) owned Ltd. subsidiary Note 1: According to the “Regulations Governing Making of Endorsement and Guarantees” of Taichung Commercial Bank Lease Enterprise, the endorsement/guarantee amount made for one single enterprise shall not exceed six times the net worth of the Taichung Bank Leasing Co., Ltd. The total endorsement/guarantee amount should not exceed ten times the net worth of the Taichung Bank Leasing Co., Ltd. Note 2: The highest balance of endorsements and/or guarantees in the current year. Note 3: For guarantee and endorsement from parent company to subsidiaries, from subsidiaries to parent company, and to Mainland China, as in the case of TWSE/GTSW-listed companies, fill in Y. TAICHUNG BANK2017 ANNUALREPORT 241 - 120 - 242 TAICHUNG BANK2017 ANNUALREPORT Attached table 5: Marketable securities – end:
Unit: NTD thousand / thousand shares At ending Types and names of Relationship with the Account titles in Holding company Ratio of Remarks securities securities issuer book Quantity Book value Market price Shareholding Taichung Commercial Domestic non-listed (OTC) Bank Co., Ltd. stocks Taichung Bank Leasing Subsidiaries Investment under the 185,000 $ 1,790,773 100 $ 1,790,773 Co., Ltd. equity method Taichung Bank Insurance ˥ ˥ 105,600 1,432,236 100 1,432,236 Brokers Co., Ltd. Taichung Commercial ˥ ˥ 150,000 1,383,985 100 1,383,985 Bank Securities Co., Ltd. Reliance Securities Affiliate business ˥ 12,000 128,113 38 128,113 Investment Trust Co., Ltd.
Taichung Commercial Foreign non-listed (OTC) Bank Lease Enterprise stocks TCCBL Co., Ltd. (B.V.I.) Sub-subsidiary Investment under the 30,000 774,618 100 774,618 equity method
TCCBL Co., Ltd. (B.V.I.) Foreign non-listed (OTC) stocks Taichung Commercial Sub-subsidiary Investment under the - 734,507 100 734,507 Bank Leasing (Suzhou) equity method Ltd.
Note: No disclosure of such information is required, if is a financial business, insurance business, and securities business.
- 121 - Attached table 6: Information on investments in Mainland China:
Unit: NTD thousand Amount of investment remitted or Ratio of Accumulated Accumulated recovered in current period shareholding Investment amount of amount of of investment profit Book value of ROI remitted to Names of investees in Paid-in shares Mode of investment investment Principal business directly or recognized in investment at Taiwan at China Capital investments remitted from Outward remitted from Recover indirectly current period ending ending Taiwan at remittance Taiwan at made by the (Note 1) beginning ending Company Taichung Commercial Financing Leasing and $ 893,373 Investment in $ 893,373 $ - $ - $ 893,373 100% $ 1,044 $ 734,507 $ - Bank Leasing investments ( CNY 186,329 Mainland China ( CNY 186,329 ( CNY 186,329 ( CNY 232 ( CNY 160,900 (Suzhou) Ltd. thousand) via a company in thousand) thousand) thousand) thousand) existence in a third country/territory
Compliance with the limit of investment in Mainland China set forth by Accumulated investment from Taiwan to Mainland China at ending Amount of investment approved by Investment Commission of MOEA Investment Commission of MOEA (Note 2) $ 893,373 $ 893,373 $ 1,074,464 Note 1: Investment return/loss has been recognized by parent company on the basis of the audited financial statements. Note 2: It is the limit calculated by the applicant – Taichung Commercial Bank Lease Enterprise in accordance with requirements set forth in “Principle of Review of Investment or Technology Joint Venture in Mainland China” of Investment Commission of MOEA. Note 3: All foreign currencies involved were converted into NTD on the basis of the exchange rate applicable at the end of the period and the average exchange rate applicable in the period as of the financial reporting date (CNY1=NTD 4.57, CNY1=NTD 4.51). TAICHUNG BANK2017 ANNUALREPORT 243 - 122 - 244 TAICHUNG BANK2017 ANNUALREPORT Attached table 7. Business relationship and significant transactions between the parent company and subsidiaries: Unit: NTD thousand Transactions Percentage of Relationship No. consolidated net Trader’s name Counterparty with trader Amount (Note 1) Title Terms and conditions income or total (Note 2) (Note 3) assets (Note 4) 2017 0 Taichung Commercial Taichung Bank Insurance 1 Customer deposits $ 1,059,701 No significant difference - Bank Co. Brokers Co., Ltd. and remittances from the general customer 0 Taichung Commercial Taichung Bank Insurance 1 Service fee income 200,000 No significant difference 2% Bank Co. Brokers Co., Ltd. from the general customer 0 Taichung Commercial Taichung Bank Insurance 1 Accounts receivable 16,663 No significant difference - Bank Co. Brokers Co., Ltd. from the general customer 0 Taichung Commercial Taichung Commercial Bank 1 Customer deposits 24,389 No significant difference - Bank Co. Securities Co., Ltd. and remittances from the general customer 0 Taichung Commercial Taichung Commercial Bank 1 Other business 25,520 No significant difference - Bank Co. Securities Co., Ltd. expenses Amount from the general customer 0 Taichung Commercial Taichung Bank Leasing Co., 1 Customer deposits 75,888 No significant difference - Bank Co. Ltd. and remittances from the general customer Note 1: The information of business operation between the parent company and its subsidiaries should be documented in the respectively numbered column as follows: 1. Fill in “0” for parent company. 2. The subsidiaries are sequentially numbered from 1 and so forth. Note 2: The relationship with the traders is classified into three categories as follows: 1. The Company to the Subsidiary. 2. The Subsidiary to the Bank. 3. The Subsidiary to the Subsidiary. Note 3: Written-off upon consolidation. Note 4: Calculate the ratio of the transaction amount to consolidate the total income or total assets. For the assets and liabilities account, calculate the ratio of the ending balance to the consolidated total assets. For the profits and losses account, calculate the ratio of the interim cumulated amount to the consolidated total income. Note 5: Major transactions refer to transactions with amount of NTD10,000 thousand and shall be subject to disclosure.
- 123 - Stock No: 2812
Taichung Commercial Bank Co., Ltd.
Individual Financial Statements and Independent Auditor’s Report 2017 and 2016
Address: No. 87, Min Chuan Road, West District, Taichung Tel. No.:(04)22236021
- 1 - TAICHUNG BANK 2017 ANNUAL REPORT 245 Auditor’s Report
To: Taichung Commercial Bank Co., Ltd.
Audit opinions
We have audited the accompanying individual balance sheet of Taichung Commercial Bank Co., Ltd. and subsidiary as of December 31, 2017 and 2016, and the related individual statement of income, individual statement of changes in shareholders equity, individual statement of cash flows, and Note of the individual financial statements (including major accounting policy) for the years then ended.
In our opinion, said the individual financial statements in all material respects, the Financial Status of the Company as of December 31, 2017 and 2016, and its individual financial performance and individual cash flows of January 1 to December 31, 2017 and 2016 in conformity with the generally accepted accounting principles in the Republic of China.
The basis for opinions
We conducted the audit in accordance with the Criteria for the Auditing and Certification of Financial Statements by Certified Public Accountants and the accounting principles generally accepted in the Republic of China. Our responsibilities under those standards are further described in the responsibilities of auditors for the audit of the separate financial statements. We are independent of Taichung Commercial Bank and its subsidiaries in accordance with the Code of Ethics for certified public accountants in the part relevant to the audit of the consolidated financial statements of Taichung Commercial Bank, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believed that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matter
Key audit matters are those matter that, in our professional judgment, were of most significant in our audit of the individual financial statements of Taichung Commercial Bank in 2017. These matters were addressed in the content of our audit of the individual financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on those matters.
246 TAICHUNG BANK 2017 ANNUAL REPORT - 2 - Key audit procedures of the consolidated financial statements of Taichung Commercial Bank and its subsidiaries in 2017 included:
Evaluate the impairment of discounts and loans to customers
Notes to key audit matters
As stated in Note 11, Taichung Commercial Bank had impairment in discounts and loans to customers amounting to NTD429,656,232 thousand and NTD770,744 thousand in 2017, respectively. These accounted for 65.45% of the total assets and 7.45% of net income, which are of significance to the overall financial reporting. As stated in Note 5 (1), in consideration of the overall impairment of Taichung Bank, material estimation and judgment of the management are involved, included the estimation of cash flows, recovery rate and impairment rates in the future. For these reasons, impairment of discounts and loans to the customers are determined as key audit matters.
The disclosures of the accounting policies, accounting estimates, and uncertainty of assumption related to the estimation of discount and loans to customers’ impairment are specified in Note 4 (12) and Note 5 (1) and Note 11.
Audit response
1. We understand and examine the internal control related to the assessment of impairment of discount and loans to customers of Taichung Commercial Bank.
2. We examined the impairment of discount and loans to customers of individual cases of Taichung Commercial Bank and its subsidiaries recognized for material impairment, on a selective basis, on the reasonability of future cash flows of collaterals.
3. We examined the impairment of discount and loans to customer in aggregate of Taichung Commercial Bank and its subsidiaries through an understanding of the significant parameters used in the model for testing impairment (recovery ratio and probability of impairment) for assessing the reasonability of future cash flows with relevance to the experience and economic conditions for the time being.
Discount and loan interest income
Notes to key audit matters
As stated in Note 28, Taichung Commercial Bank had interest income from discounts and loans to customers amounted to NTD10,148,998 thousand or at 98.08% of net income in 2017. This remained the primary source of income for Taichung Commercial Bank. Taichung Commercial Bank processed loan applications through an approval procedure along the line of corporate hierarchy. Applications, upon approval, will be registered into the loan system with information on the conditions of lending and related matters entered into the system manually. Loans will be released upon the final approval of the supervisors and interest income will be calculated automatically by the systems relevant to the conditions of lending on individual cases at the end of each month. Taichung Commercial Bank relies highly on the computer system for the automatic calculation of interest income from discounts and loans to customers, which made the data input on the conditions of related lending cases and the computing logics for the accurate calculation of interest income from discounts and loans to customers essential. We therefore considered the interest income from discounts and loans to customers as a key audit matter.
- 3 - TAICHUNG BANK 2017 ANNUAL REPORT 247 The disclosures of the accounting policies and disclosures related to the estimation of interest income from discount and loans to customers are specified in Note 4 (14) and Note 28 (1).
Audit response
1. Understand and examine the internal control of interest income from discount and loans to customer, including the understanding and testing of the internal control of the general computer system and the application system.
2. We checked the monthly interest income in the system, on a selective basis, with reference to the approved agreement on loans to determine the conditions of lending are congruent with the information used in the system for calculation of interest income. We also compared the interest income and the computing results from the system through a new round of calculation to examine no significant difference of the computing system of Taichung Commercial Bank and its subsidiaries.
Responsibilities of Management and Those in Charge with Governance of the Individual Financial Statements
The Management is responsible for the preparation and fair presentation of the separate financial statements in accordance with the Criteria for the Compilation of Financial Statements by Banks, and for such internal control as the management determines is necessary to enable the preparation of the separate financial statements to be free from material misstatement whether due to fraud or error.
In preparing the consolidated financial statements, the management is responsible for assessing the ability of Taichung Bank as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the management either intends to liquidate Taichung Commercial Bank or to create operations, or has no realistic alternative but to do so.
Those in charge of governance (including the Auditing Committee) are responsible for overseeing the reporting process of Taichung Commercial Bank.
Auditor’s Responsibilities for the Audit of the Individual Financial Statements
Our objectives are to obtain reasonable assurance about whether the individual financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue and auditor’s report. Reasonable assurance is a high level of assurance, but is not a guarantee that and audit conducted in accordance with the accounting principles generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. If fraud or errors are considered materials, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these individual financial statements.
248 TAICHUNG BANK 2017 ANNUAL REPORT - 4 - As part of an audit in accordance with the accounting principles generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also perform the following works:
1. Identify and assess the risks of material misstatement of the individual financial statements, whether due to fraud or error, design, and perform audit procedures responsive risks, and obtain evidence that is sufficient and appropriate to provide a basis of our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control.
2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control effective in Taichung Commercial Bank.
3. Evaluate the appropriateness of accounting policies used and the reasonability of accounting estimates and related disclosures made by the management.
4. Conclude the appropriateness of the use of the going concern basis of accounting by the management, and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on Taichung Commercial Bank and its ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the individual financial statements or, if such disclosure are inappropriate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of the auditor’s report. However, future events or conditions may cause Taichung Commercial Bank to cease to continue as a going concern.
5. Evaluate the overall presentation, structure, and content of the individual statements, including the disclosures, whether the consolidated statements represent the underlying transactions and events in a matter that achieves fair presentation.
6. Obtain sufficient appropriate audit evidence regarding the financial information or the entities or business activities with Taichung Commercial Bank to express an opinion on the individual financial statements. We are responsible for the direction, supervision, and performance of the audit of Taichung Commercial Bank. We remain solely responsible for our audit opinion.
- 5 - TAICHUNG BANK 2017 ANNUAL REPORT 249 We communicate with those in charge of governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings (including any significant deficiencies in internal control that we identify during our audit).
We also provide those in charge of governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, (related safeguards).
From the matters communicated with those in charge of governance, we determine those matters that were of most significance in the audit of the individual financial statements of Taichung Commercial Bank of 2017 and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communications.
Deloitte & Touche Kuan-Chung Lai, CPA Wen-Ya Hsu, CPA
Securities and Futures Bureau Approval Securities and Futures Bureau Approval Document No. Document No. ġ Tai-Cai-Zheng (6) Zi No. 0920123784 ġ Tai-Cai-Zheng (6) Zi No. 0920123784
Date: March 14, 2018
250 TAICHUNG BANK 2017 ANNUAL REPORT - 6 - Taichung Commercial Bank Co., Ltd. Individual Balance Sheet December 31, 2017 and 2016 Unit: NTD thousand
December 31, 2017 December 31, 2016 Code Assets Amount % Amount % 11000 Cash and cash equivalents (Notes 4 & 6) $ 13,944,328 2 $ 13,322,512 2
11500 Due from the Central Bank and lend to banks (Note 7) 30,121,642 5 86,216,971 14
12000 Financial assets at fair value through profit and loss (Notes 4, 5 & 8) 30,965,512 5 22,215,900 4
12500 Bonds and securities sold under repurchase agreements (Notes 4 & 9) 11,283,082 2 3,627,189 1
13000 Receivables – net (Notes 4, 5, 10, 11 & 31) 6,329,074 1 4,074,854 1
13500 Discounts and loans – net (Notes 4, 5, 11 & 31) 429,656,232 65 423,900,603 68
14000 Available-for-sale financial assets – net (Notes 4 & 12) 31,192,871 5 37,330,850 6
14500 Held-to-maturity financial assets – net (Notes 4, 13, 32) 85,542,095 13 14,276,270 2
15000 Investment by equity method – net (Notes 4 & 14) 4,735,107 1 4,498,154 1
15500 Other financial assets, net (Notes 4 & 15) 1,067,625 - 1,171,178 -
18500 Property, plant, and equipment – net (Notes 4 & 16) 9,296,259 1 9,371,517 1
18700 Invest in investment property – net (Notes 4 & 17) 22,750 - 78,268 -
19000 Intangible assets – net (Notes 4 & 18) 115,605 - 124,544 -
19300 Deferred income tax assets (Notes 4 & 29) 635,955 - 660,071 -
19500 Other assets (Notes 4, 19 & 32) 1,581,823 - 1,679,982 -
10000 Total assets $ 656,489,960 100 $ 622,548,863 100
Code Liabilities and equity 21000 Due to Central Bank and other banks (Note 20) $ 9,518,872 1 $ 11,617,728 2
22000 Financial liabilities at fair value through profit and loss (Notes 4, 5 & 8) 207,225 - 162,792 -
22500 Bills and bonds sold under repurchase agreements (Notes 4 &21) 4,307,810 1 4,222,258 1
23000 Payables (Note 22) 12,195,742 2 9,125,347 1
23200 Current income tax liability (Notes 4 & 29) 223,235 - 13,662 -
23500 Deposits and remittances (Notes 23 & 31) 567,255,591 86 541,242,709 87
24000 Financial bonds payable (Note 24) 17,500,000 3 13,000,000 2
25500 Other financial liabilities 43,434 - 73,496 -
25600 Liability reserve (Notes 4 & 25) 1,389,979 - 1,307,838 -
29300 Deferred tax liabilities (Notes 4 & 29) 111,021 - 111,021 -
29500 Other liabilities (Note 26) 335,111 - 289,977 -
20000 Total liabilities 613,088,020 93 581,166,828 93
Equity (Note 27) Capital stock 31101 Common stock capital 32,931,789 5 32,381,307 5 31500 Capital surplus 684,156 - 684,156 - Retained earnings 32001 Legal reserve 5,896,530 1 4,881,792 1 32003 Special reserve 73,833 - 38,685 - 32011 Undistributed earnings 3,630,655 1 3,382,461 1 32500 Other equity 184,977 - 13,634 -
30000 Total equity 43,401,940 7 41,382,035 7
Total Liabilities and Equity $ 656,489,960 100 $ 622,548,863 100
Chairman: Chin-Yuan Lai Manager: Te-Wei Chia Chief accountant: Chin-Min Liao
TAICHUNG BANK 2017 ANNUAL REPORT 251 - 7 - Taichung Commercial Bank Co., Ltd. Individual Income Statement January 1 to December 31, 2017 and 2016 Unit: NTD thousands, except Earnings Per Share (NTD)
Percentage of 2017 2016 Variation Code Amount % Amount % (%) 41000 Interest revenues (Notes 4, 28 & 31) $ 11,591,419 112 $ 11,104,933 114 4
51000 Interest expenses (Notes 28 & 31) ( 3,768,078 ) ( 36 ) ( 3,605,776 ) ( 37 ) 5
49010 Net interest income 7,823,341 76 7,499,157 77 4
Net income (loss) other than interest income 49100 Net income from service fees (Notes 4, 28 & 31) 1,553,501 15 1,293,689 13 20 49200 Gain (loss) on financial assets and liabilities at fair value through profit and loss (Notes 4 & 28) 472,898 5 643,530 7 ( 27) 49300 Realized net gain on available-for-sale financial assets (Notes 4 & 28) 27,608 - 157,149 2 ( 82) 49600 Exchange loss (Note 4) ( 91,229 ) ( 1 ) ( 197,395 ) ( 2 ) ( 54) 49700 Net gain (loss) on reversal of asset impairment (Notes 4, 15 & 28) ( 50,533 ) - 106,146 1 ( 148) 49750 Profit or loss of the subsidiary, affiliated company and joint ventures under the equity method (Notes 4 & 14) 252,540 2 233,705 2 8 49863 Net gain from asset trade (Notes 4, 17 & 28) 348,277 3 287 - 121,251 58000 Net income other than interest income (Notes 25, 28 & 31) 11,676 - 41,662 - ( 72)
4xxxx Net revenue 10,348,079 100 9,777,930 100 6
58200 Bad debt expense and guaranty reserve (Notes 4, 11 & 25) ( 946,897 ) ( 9) ( 690,250 ) ( 7) 37
Operating expenses 58500 Employee benefits expenses (Notes 4 & 28) ( 3,001,210 ) ( 29 ) ( 2,998,217 ) ( 31 ) - 59000 Depreciation and amortization expenses (Notes 4 & 28) ( 258,431 ) ( 3 ) ( 225,242 ) ( 2 ) 15 59500 Business and administrative expenses (Notes 28 & 31) ( 1,871,903 ) ( 18 ) ( 1,781,736 ) ( 18 ) 5 58400 Total operating expenses ( 5,131,544 ) ( 50 ) ( 5,005,195 ) ( 51 ) 3
(Continued on next page)
252 TAICHUNG BANK 2017 ANNUAL REPORT - 8 - (Continued from previous page) Percentage of 2017 2016 Variation Code Amount % Amount % (%) 61001 Income before tax from continuing operations $ 4,269,638 41 $ 4,082,485 42 5
61003 Income tax expenses (Notes 4 & 29) ( 637,096 ) ( 6) ( 567,670 ) ( 6) 12
64000 Current year net income after tax 3,632,542 35 3,514,815 36 3
Other comprehensive profit or loss 65200 Titles not reclassified as profit (loss) accounts: 65201 Determined Benefit Plan Reevaluation (Notes 4 & 25) ( 3,687 ) - ( 183,108 ) ( 2 ) ( 98) 65207 Other comprehensive profit (loss) of the subsidiary, affiliated company and joint venture under the equity method 53 - ( 137 ) - 139 65220 Income tax related to titles without reclassification (Notes 4 & 29) 626 - 31,128 - ( 98) The total of titles not reclassified as profit (loss) accounts (after taxation) ( 3,008 ) - ( 152,117 ) ( 2) ( 98) 65300 Titles that could be reclassified as profits (loss) accounts in the future 65301 Exchange differences from the translation of financial statements of foreign operations ( 2,856 ) - ( 10,738 ) - ( 73) 65302 Unrealized valuation gains (losses) of available-for-sale financial assets 196,642 2 ( 264,891 ) ( 3 ) 174 65306 Other comprehensive profit (loss) of the subsidiary, affiliated company and joint venture under the equity method ( 15,029 ) - ( 58,909 ) - ( 74) 65320 Income tax related to titles that could be reclassified (Notes 4 & 29) ( 7,414 ) - ( 113 ) - 6,461 The total of the titles that could be reclassified as profits (loss) accounts in the future (after taxation) 171,343 2 ( 334,651 ) ( 3) 151 65000 Other comprehensive net income (after tax) 168,335 2 ( 486,768 ) ( 5) 135
66000 Current period other comprehensive income (after tax) $ 3,800,877 37 $ 3,028,047 31 26 (Continued on next page)
- 9 - TAICHUNG BANK 2017 ANNUAL REPORT 253 (Continued from previous page)
Percentage of 2017 2016 Variation Code Amount % Amount % (%) EPS (Note 30) Business units in continuing operation 67501 Basic $ 1.10 $ 1.07 67701 Diluted $ 1.10 $ 1.07
Chairman: Chin-Yuan Lai Manager: Te-Wei Chia Chief accountant: Chin-Min Liao
254 TAICHUNG BANK 2017 ANNUAL REPORT - 10 - Taichung Commercial Bank Co., Ltd. Individual Statements of Changes in Shareholders’ Equity January 1 to December 31, 2017 and 2016 Unit: NTD thousand
Other equity Exchange Capital stock Retained earnings differences from the Unrealized gain translation of (loss) on Undistributed financial statements available-for-sale Code Common stock Capital surplus Legal reserve Special reserve earnings of foreign operations financial assets Total equity A1 Balance as of January 1, 2016 $ 31,840,027 $ 684,156 $ 3,959,058 $ 38,685 $ 3,075,778 $ 51,153 $ 297,132 $ 39,945,989
The 2015 appropriation and distribution of earnings B1 Legal reserve - - 922,734 - ( 922,734 ) - - - B5 Cash dividends - - - - ( 1,592,001 ) - - ( 1,592,001 ) B9 Stock dividends 541,280 - - - ( 541,280 ) - - -
D1 2016 net income - - - - 3,514,815 - - 3,514,815
D3 Other comprehensive net income in 2016 (after tax) - - - - ( 152,117 ) ( 74,336 ) ( 260,315 ) ( 486,768 )
D5 Other comprehensive income in 2016 - - - - 3,362,698 ( 74,336 ) ( 260,315 ) 3,028,047
Z1 Balance as of December 31, 2016 32,381,307 684,156 4,881,792 38,685 3,382,461 ( 23,183 ) 36,817 41,382,035
The 2016 appropriation and distribution of earnings
TAICHUNG BANK2017 ANNUALREPORT B1 Legal reserve - - 1,014,738 - ( 1,014,738 ) - - - B3 Appropriation of special reserve - - - 35,148 ( 35,148 ) - - - B5 Cash dividends - - - - ( 1,780,972 ) - - ( 1,780,972 ) B9 Stock dividends 550,482 - - - ( 550,482 ) - - -
D1 2017 net income - - - - 3,632,542 - - 3,632,542
D3 Other comprehensive net income in 2017 (after tax) - - - - ( 3,008 ) ( 15,324 ) 186,667 168,335
D5 Other comprehensive income in 2017 - - - - 3,629,534 ( 15,324 ) 186,667 3,800,877
Z1 Balance as of December 31, 2017 $ 32,931,789 $ 684,156 $ 5,896,530 $ 73,833 $ 3,630,655 ( $ 38,507 ) $ 223,484 $ 43,401,940
Chairman: Chin-Yuan Lai Manager: Te-Wei Chia Chief accountant: Chin-Min Liao 255 - 11 - Taichung Commercial Bank Co., Ltd. Individual Statements of Cash Flow January 1 to December 31, 2017 and 2016 Unit: NTD thousand
Code 2017 2016 Cash flow from operating activities A10000 Current year net profit before taxation $ 4,269,638 $ 4,082,485 Profits and loss A20100 Depreciation expenses 197,125 173,455 A20200 Amortization expenses 61,306 51,787 A20300 Appropriation of bad debt expense 946,897 690,250 A20400 Gain (loss) on financial assets and liabilities at fair value through profit and loss ( 472,898 ) ( 643,530 ) A22500 Disposal and obsolescence loss (gain) of property and equipment 395 ( 287 ) A22700 Capital gain from disposition of investment property ( 348,672 ) - A20900 Interest expenses 3,768,078 3,605,776 A21200 Interest revenue ( 11,591,419 ) ( 11,104,933 ) A21300 Dividend income ( 21,619 ) ( 22,999 ) A21800 Net change in other provisions for liabilities 26,000 300 A22400 The profit or loss in the subsidiary, affiliated company and joint ventures recognized under the equity method ( 252,540 ) ( 233,705 ) A23100 Gain on disposal of investments ( 27,608 ) ( 157,149 ) A23500 Financial assets impairment loss (reversal gain) 50,533 ( 106,146 ) A24100 Unrealized foreign currency exchange loss 850,912 224,387 A20010 Total income, expense and loss ( 6,813,510 ) ( 7,522,794 ) Changes in operating activities related assets/liabilities A41110 Due from Central Bank and lend to Banks ( 609,388 ) 661,047 A41120 Financial assets at fair value through profit and loss ( 7,418,639 ) 10,653,070 A41150 Accounts receivable ( 2,189,611 ) ( 1,181,929 ) A41160 Discounts and loans ( 6,492,597 ) ( 34,230,137 ) A41190 Other financial assets ( 35,342 ) 16,611 A41990 Other assets 8,780 ( 24,177 ) A42110 Due to Central Bank and other banks ( 2,098,856 ) 7,753,624 A42120 Financial liabilities at fair value through profit and loss ( 813,642 ) ( 714,959 ) A42140 Bills and bonds sold under repurchase agreements 85,552 3,948,946 A42150 Payables 2,939,543 4,783,329
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256 TAICHUNG BANK 2017 ANNUAL REPORT - 12 - (Continued from previous page)
Code 2017 2016 A42160 Customer deposits and remittances $ 26,012,882 $ 34,696,239 A42170 Other financial liabilities ( 30,062 ) 73,127 A42180 Employee benefit liabilities reserve ( 24,423 ) ( 10,964 ) A42990 Other liabilities 45,134 49,668 A40000 Total changes in operating activities related assets/liabilities 9,379,331 26,473,495 A33000 Cash inflow from operating activities 6,835,459 23,033,186 A33100 Interest received 11,676,535 10,984,230 A33200 Dividends received 22,230 23,746 A33300 Interest payment ( 3,637,226 ) ( 3,631,086 ) A33500 Income tax payment ( 410,195 ) ( 793,467 ) AAAA Net cash inflow from operating activities 14,486,803 29,616,609
Cash flow from investing activities B00300 Acquisition of available-for-sale financial assets ( 1,050,000 ) ( 23,673,428 ) B00400 Disposition of available-for-sale financial assets 7,319,614 9,823,915 B00900 Acquisition of held-to-maturity financial assets ( 748,721,306 ) ( 10,960,910 ) B01000 Disposition of held-to-maturity financial assets 258,565 150,570 B01100 Return of capital from held-to-maturity financial assets 676,269,904 1,632,655 B02700 Acquisition of Property, plant, and equipment ( 122,022 ) ( 415,612 ) B02800 Disposal of Property, plant, and equipment - 1,130 B03700 Decrease (increase) in refundable deposits 63,679 ( 215,130 ) B04500 Acquisition of Intangible assets ( 52,367 ) ( 34,444 ) B05500 Disposition of investment property 403,950 - BBBB Net cash outflow from investing activities ( 65,629,983 ) ( 23,691,254 )
Cash flow from financing activities C01400 Issuance of financial bonds 6,000,000 1,500,000 C01500 Repayment of financial bonds ( 1,500,000 ) ( 4,400,000 ) C04500 Cash dividend released ( 1,780,972 ) ( 1,592,001 ) CCCC Net cash inflow (outflow) from financing activities 2,719,028 ( 4,492,001 )
DDDD Impact of changes in exchange rate on cash and cash equivalents ( 2,856 ) ( 10,738 )
EEEE Current cash and cash equivalents increase (decrease) ( 48,427,008 ) 1,422,616
E00100 Balance of cash and cash equivalents, beginning of period 87,238,346 85,815,730
E00200 Balance of cash and cash equivalent, end of period $ 38,811,338 $ 87,238,346 (Continued on next page)
- 13 - TAICHUNG BANK 2017 ANNUAL REPORT 257 (Continued from previous page)
Ending cash and cash equivalents adjustment Code December 31, 2017 December 31, 2016 E00210 Cash and cash equivalents on the balance sheet $ 13,944,328 $ 13,322,512
E00220 The “Due from Central Bank and Banks” in compliance with the definition of cash and cash equivalents under IAS 7 13,583,928 70,288,645
E00230 The “bonds and securities sold under repurchase agreements” that meet the definitions of cash and cash equivalents under IAS 7 11,283,082 3,627,189
E00200 Balance of cash and cash equivalent, end of period $ 38,811,338 $ 87,238,346
Chairman: Chin-Yuan Lai Manager: Te-Wei Chia Chief accountant: Chin-Min Liao
258 TAICHUNG BANK 2017 ANNUAL REPORT - 14 - Taichung Commercial Bank Company Limited Address:No. 87, Min Chuan Road, Taichung, Taiwan, R.O.C. Tel.:(04)2223-6021 Website: http://www.tcbbank.com.tw
Company Spokesman Name: Cheng-Yuan Chen Taichung Commercial Bank Job title: Executive Vice President Tel.:(04)2223-6021 Email:[email protected]
Acting Spokesman Name: Kai-Yu Lin Job title: Executive Vice President Tel.:(04)2223-6021 Eamil:[email protected]
Shares Registrar Name: by internal function Address: 11F., NO. 50, Sec. 1, XinSheng South Road, ZhongZheng District, Taipei, Taiwan, R.O.C. Website：http://www.tcbbank.com.tw Tel.：(02)2395-7388
Credit Rating Agency Chairman : Name: Fitch Australia Pty Ltd, Taiwan Branch Address: Suite 1306, 13F., No. 205, Tun Hwa N. Road, Taipei, Taiwan, R.O.C. Tel.:(02)8175-7600
External Auditors in the Most Recent Year Name of CPA firm: Deloitte & Touche Name of CPA: Kuan-Chung Lai & Wen-Ya Hsu Address: 12F., No. 156, MinSheng East Road, Sec. 3, Song Shan District, Taipei, Chin-Yuan Lai Taiwan, R.O.C. Wesbsite:http://www.deloitte.com.tw Tel.:(02)2545-9988
Name of any exchanges where the Company’s securities are traded overseas, and the method by which to access information on said offshore securities: None. Stock Code:2812 2017 Annual Report Annual Report 2017
We Do Our Best For You 總行 臺中市西區民權路87號 電話：04-22236021 Date of publication:March 2018 Website:http://www.tcbbank.com.tw M.O.P.S:http://mops.twse.com.tw No.87, Min-Chuan Road, Taichung, Taiwan, R.O.C.