1. Spokesperson Name：Jerry Harn Title ：President Tel ：（886）2-2771-6699#62111 E-mail：[email protected]
Acting Spokesperson Name：Sunny Yao Title ：Executive VP Tel ：（886）2-2771-6699#62700 E-mail：[email protected]
2. Contact Information – Corporate Headquarters and Branches Please see page 20
3. Stock Registration Agent Name：Fubon Securities Co., Ltd. Address：2F, No.17, Hsuchang St.,Taipei, Taiwan, R.O.C. Website：www.fubon.com Tel：（886）2-2361-1300
4. Credit Rating Institution Name Address Tel Taiwan Ratings Corporation 49F. Taipei 101 Tower, No.7, Sec. 5, (886)-2-8722 5800 Xinyi Rd., Taipei city 110, Taiwan (R.O.C.) Moody‟s Investors Service Room 2510, One International Finance (886)-852-2509 Centre One Harbour View Street Central, 0200 Hong Kong
5. Certified Public Accountants for Fiscal Year 2013 CPAs：Jessie Wu, S. C. Huang Company：Deloitte & Touche Address：12F., No. 156, Sec. 3, Minsheng E. Rd., Taipei City 105, Taiwan (R.O.C.) Website：www.deloitte.com.tw Tel：（886）2-2545-9988
6. Exchange Houses where Overseas Securities are Listed：None
7. Website：www.fubon.com CONTENTS
I. Message to Shareholders 1
II. Corporate Profile 4 1. Introduction 4 2. Organizational Structure 6
III. Business Operations 10 1. Business Information 10 2. Business Strategies and Business Plans for 2013 12 3. Research & Development Plans 15 4. Employees Profile 15
IV. Special Notes 16 1. Dividend Policy and Implementation Status 16 2.Implementation of the Internal Controls System 17
V. Headquarters and Branches 20
Appendix ： Annual Financial Reports for 27 2013 and 2012
I. Message to Shareholders In 2013, despite continuing recovery, the global economy witnessed only limited growth momentum, making Taiwan‟s economic performance fail to meet expectations. Weak demand in Europe, sub-par growth in China, lower domestic demand due to a decline in substantive wages, and low stock trading added further to the headwinds on Taiwan's economy in the first half of the year. The economy gradually picked up in the second half, thanks to gradual stabilization of a number of international economic indices and sustained private investment. According to the Cabinet-level Directorate General of Budget, Accounting, and Statistics (DGBAS), Taiwan's economy grew by 2.11% in 2013, slightly higher than 2012's 1.48%. Amid the lackluster economic performance, Taipei Fubon Bank still managed to stage steady growth in both sales and profit margin, thanks to the backing of the abundant resources of its parent firm, Fubon Financial Holding, and further strengthening of cross sales with affiliates and customer relationships. In institutional banking, the bank adjusted customer makeup and bolstered its platform for renminbi (RMB)-denominated products by expanding cross-border RMB businesses, loans, and transactions. In retail banking, the bank boosted customer satisfaction with wealth-management services, strengthened management of customer investment portfolios, deepened understanding of customers' risk tolerance and needs for wealth management, and offered, through advanced risk-management mechanism, tailor-made wealth-management products. In housing loans, the bank closely followed market trends and endeavored to consolidate existing assets to enhance the quality of customers and collateral. The bank also raised its product visibility, customer satisfaction, and profit margins by increasing sales of products with higher interest spreads, raising added value on housing loans, and making greater use of digital marketing tools. In the credit-card business, the bank actively cultivated topnotch customer segments and attracted market attention by seizing market trends. It also built up customer loyalty with Fubon cards highlighting "convenience" and "fun." In the unsecured-loan sector, the bank continued to cultivate quality credit-card holders, solicit salary-transfer accounts, and group customers, in addition to lifting product visibility and competitiveness through flexible risk management, convenient payment channels, and digital-media promotion. While pursuing business growth and profits, the bank still carefully implemented risk management. Consequently, as of the end of 2013, the bank's non-performing loan (NPL) rate and NPL coverage rate stood at the remarkable levels of 0.12% and 973.96%, respectively, laying a solid foundation for the bank's development. Thanks to satisfactory business performance and asset quality, Taiwan Ratings announced on Nov. 19, 2013 that it maintained the bank's long-term credit rating at "twAA+" and short-term credit rating at "twA-1+," on top of a "stable" outlook, underscoring the bank's industry-beating profitability and asset quality. In 2014, major international forecast bodies have taken a positive outlook for the global economy despite a number of uncertainties, such as the impact of the scaling down of the U.S. quantitative easing policy on emerging economies. The optimism is linked to the subsidence of the European sovereign-debt crisis, recovery of the U.S. economy, and steady growth of the Japanese economy. With the government also planning measures to bolster the economy, the DGBAS predicted that Taiwan's economy will grow 2.82% in 2014. Fubon hopes to enhance business performance and profits through organizational restructuring and joint marketing. In addition, it will actively upgrade service quality and develop competitive products to meet customer needs. Following its takeover of Shanghai-based First Sino Bank, the bank will also continue to advance towards its goal of becoming a premier regional bank in Asia by way of business cooperation and integration of resources through a financial service platform spanning China, Taiwan, and Hong Kong.
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Overview of operations in 2013 and plans for 2014: 1. 2013 Business Report As of the end of 2013, the bank's outstanding deposits stood at NT$1,351.2 billion, up 8.36% over a year earlier and outstanding loans reached NT$1,102.7 billion, up 7.42%. Net interest income amounted to NT$15.78 billion in 2013, up 7.83%, with fee income growing 2.06% to NT$8.45 billion and total net income jumping 15% to NT$33.63 billion. Operating expenses grew by 5.69% to NT$15.58 billion. In 2013, after-tax net profits hit NT$12.1 billion, with after-tax earnings per share reaching NT$1.57.
2. Summary of 2014 Business Plan
With Taiwan's economy expected to grow moderately in 2014, the bank will further enhance risk vigilance and strengthen risk recognition, implement risk-management mechanisms, and increase operational efficiency and quality. Moreover, the bank will step up efforts to establish a service-oriented corporate culture with an aim to become the most trustworthy bank in the minds of customers. (1). Institutional Banking Business In institutional banking, the bank will continue to provide various products and services to customers under the strategy of consolidating existing businesses and tapping business opportunities across the Taiwan Straits, taking advantage of a platform spanning Taiwan, mainland China, Vietnam, and the U.S., as well as joint efforts by customer- and product-oriented marketing teams. In order to expand its business scale, the bank will accelerate deployment of overseas offices, enhance the operations of overseas branches, broaden its service reach to meet the global operational needs of customers, and set up regional and industrial matrixes. The bank will also continue cultivating the customer base of small- and medium-sized enterprises (SMEs), increase the asset share contributed by SMEs, and further expand cross sales of products to utilize internal resources and cultivate core customers. In product planning and infrastructure, the bank will continue launching new types of trade financing businesses and actively deploying RMB-related businesses to increase business scale in this segment and meet customer needs. In addition, the bank will continue establishing basic core systems, strengthening credit-reviewing function, and integrating the inquiry function of financial trading systems, as well as set up overseas core systems and overseas business network to enhance operating efficiency and support the development of regional business. In financial trading, the bank will expand the scope and capability for quotes for RMB-denominated products, develop foreign currency-denominated bond trading, and diversify deployment in positions of various currencies to respond to market changes, meet customer needs and achieve balanced development for different profit sources. Meanwhile, the bank will further strengthen cooperation and strengthen market-making function with peers to hone the brand image of Taipei Fubon Bank in the international financial market.
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(2). Retail Banking Business In the mortgage segment, the bank will consolidate existing mortgage assets and offer a spectrum of products for customers. In terms of sales channels, the bank will intensify cross-sales of products and expand the magnitude and depth of dealings with customers. Regarding credit cards, the bank will strengthen cultivation of high-consumption customer groups and promote the status of Taipei Fubon card as the first-choice card to increase customer loyalty. The bank will concentrate on high-value cards, eliminate weak cards, and launch new co-branded cards in partnership with major enterprises. Customer satisfaction is an important factor in the wealth-management business. In line with the principle of active risk management for customers, the bank will continue building customer wealth. It will also offer customers a wider range of products, as well as innovative and complete wealth-management packages. In addition, the bank will strengthen product and channel services to create higher value for customers and become the wealth-management team most trusted by customers. Realizing the importance of "Knowing Your Customer（KYC）," the bank will deeply understand the risk tolerance of customers to meet their wealth-management needs at different stages of life. In terms of product strategy, the bank will further push diversified allocation for wealth management, in terms of currencies, risk, and assets. The bank will continue establishing and improving its digital platform, as well as develop innovative application services to provide real-time and convenient digital-channel services. The bank will enhance the effectiveness of digital-marketing services by utilizing digital-channel marketing to strengthen communications with customers and boost sales.
3. Credit Rating
Credit Rating Long-term Short-term Credit Rating Date Outlook Institution Credit Ratings Credit Ratings Worthiness 2013/6/26 Moody‟s A2 P-1 C- Stable 2013/11/19 Taiwan Ratings twAA+ twA-1+ --- Stable Corporation
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II. Corporate Profile 1. Introduction （1）Date of Establishment
The bank inaugurated operations on April 21, 1969, after receiving approval of establishment from the Ministry of Finance (MOF. No. 7864).
（2）History of Bank
The bank's predecessor is Taipei City Bank, established by the Taipei City Government on April 21, 1969, to coordinate with national financial policy, adjust municipal finances, support municipal development and serve as the city coffers. Initially, its business scope was confined to Taipei City. Originally a financial agency, it was reorganized into a company limited by shares on July 1, 1984.
On Jan. 1, 1993, as part of the effort for establishing a corporate identification system, the bank was renamed "Taipei Bank Co., Ltd.," or "TAIPEIBANK" for short. Thanks to the government's financial-liberalization policy, the bank set up a branch in Kaohsiung City in 1994. On Jan. 20, 1995, it was approved to reorganize from a regional bank to a national bank, which enabled it to expand throughout Taiwan. It went public on July 23, 1997, raising NT$2 billion of fresh capital through issuance of new shares for subscription by employees and general public. In line with the government policy, the bank was privatized on Nov. 30, 1999. To facilitate long-term development, the bank was converted into a wholly-owned subsidiary of Fubon Financial Holding on Dec. 23, 2002, when it was delisted from the Taiwan Stock Exchange.
Fubon Financial Holding continued to operate Taipei Bank independently of its existing banking subsidiary Fubon Bank but steadily integrated the information systems, workflows, and organizations/employees of the two banks, while retaining their respective management advantages and brand assets and minimizing the impact of merger.
After an ambitious two-year merger process, Taipei Bank and Fubon Bank became a unified entity on Jan. 1, 2005, under the new name of "Taipei Fubon Bank." The merger, the first between a former government-owned bank and a private bank in Taiwan, greatly expanded the profit-making potential of Fubon Financial Holding.
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Taipei Fubon Bank incorporated Fubon Bills Finance, a wholly owned subsidiary of the bank, on Dec. 25, 2006, thereby removing the overlapping businesses of the two entities.
On March 6, 2010, the bank acquired the Hanoi branch and the sub-branch in Ho Chi Minh City of Chinfon Commercial Bank. The bank's Vietnamese operations now include three branches in Hanoi, Ho Chi Minh City, and Binh Duong.
Fubon Insurance Agency, originally a wholly owned subsidiary of the bank, underwent clearance on Aug. 31, 2010, according to a resolution passed by its board of directors, with Taipei Fubon Bank serving as its bookkeeper.
The bank acquired a 10% stake in First Sino Bank on Dec. 31, 2013 and then gained control of the latter by increasing the stake to 51% on Jan. 7, 2014.
In 2013, there were no changes in the bank's management rights and there were no major incidents affecting shareholders' equity or the bank's operations.
- 5 - 2. Organizational Structure (1) Organization
Taipei Fubon Bank Organizational Chart
Shareholders’ Meeting Supervisors
Chief Auditor Board of Directors Trust Asset Evaluation Committee
Auditing Chairman Department Asset/Liability Credit Risk Management Market Risk Management Operational Risk Management Committee Committee Committee Management Committee
Human Affairs Appraisal President Committee
Institutional IT Banking Retail Banking Administration Service Risk Management
Financial Credit Risk Wealth Consumer Common Credit Coverage Products Operations IT Supporting Market Management Management Finance Platform Management
Operation Planning & Transactional Financial Customer Trading & Service - IT-Institutional Credit- Business Wealth Consumer Lottery Operational Application Government Banking Institutional Management Lending Segment Credit Accounting Risk System Compliance Banking Product Institutional Banking Administration- Trust -Retail Banking Business Product Structuring Banking Banking Institutional Marketing Marketing Management Management Development Banking -Retail Banking
Wealth Financial Market Corporate Consumer Human Corporate Corporate System Management eBanking IT Market Risk Technical Finance Planning Product Lending Resources Management Support Banking Development Product -Retail Banking -Retail Banking
Financial Market Planning & Branch Customer Retail Credit IT Strategy Commercial Treasury Sales Research Operation Credit Card Business General Affairs Development Banking Management Service Risk -Retail Banking Administration Management -Retail Banking
Treasury Central Corporate Overseas Legal Affairs Credit Risk Business Operation Management -Retail Banking
Small Corporate Business Planning ERM Banking Planning
Marketing Communication
Core Banking System
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（2）Board Members and Supervisors Title Name Representing Background & Education Date Term Organization Elected Chairman Daniel Tsai Fubon Financial Chairman, Taipei Fubon Commercial 2011/06/ 3 yrs Holding Co. Bank 24 Chairman, Fubon Insurance Graduate School of Law, University of Georgetown Vice Richard Tsai Fubon Financial Vice Chairman, Taipei Fubon 2011/06/ 3 yrs Chairman Holding Co. Commercial Bank 24 Chairman, Fubon Life Graduate School of Finance, New York University Standing and Hong-Chang Chang Fubon Financial Ph.D., Wharton School University of 2011/06/ 3 yrs independent Holding Co. Pennsylvania 24 director Standing and Yuan-Chi Chao Fubon Financial President, Da An Commercial Bank 2011/10/ 3 yrs independent Holding Co. President, China Development 06 director Financial Holding Chairman and president, First Financial Holding Master of Finance, University of New York Standing Jerry Harn Fubon Financial President, Taipei Fubon Commercial 2011/06/ 3 yrs Director Holding Co. Bank 24 Senior Vice President, Chinatrust Commercial Bank MBA ,The Ohio State University Independent Wei-Yi Lin Fubon Financial Director, business department, Central 2011/06/ 3 yrs Director Holding Co. Bank of the Republic of China 24 (Taiwan) Chairman, Central Deposit Insurance Corporation, Chairman, Taiwan Depository & Clearing Corporation Doctor, Lincoln University Director Goethe Tsai Fubon Financial Prosecutor, Taipei District Court 2011/10/ 3 yrs Holding Co. Master of law, National Taiwan 06 University
Director Patrick Chang Fubon Financial Chief risk-management officer, Taipei 2011/06/ 3 yrs Holding Co. Fubon Commercial Bank (Executive V 24 P) Senior vice president, Taiwan branch, HSBC MBA, University of Chicago Director Victor Kung Fubon Financial President, Fubon Financial Holding 2011/06/ 3 yrs Holding Co. Co. 24 Executive Vice President, Walden International Investment Group MA－Economics Graduate School of Arts and Science, New York University MBA－Finance Stern School, New York University Director John Y. Kuang Fubon Financial Senior Executive VP, Taipei Fubon 2011/06/ 3 yrs Holding Co. Commercial Bank 24 Co-Head of Wholesales Banking, Head of Global Markets in Standard Chartered Bank Taipei
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Title Name Representing Background & Education Date Term Organization Elected President of Fixed Income Group, Polaris Securities Co., Ltd. B.S in International Trade from the Business Administration Dept., National Taiwan University Director Morris Huang Fubon Financial Senior Executive VP, Taipei Fubon 2011/06/ 3 yrs Holding Co. Commercial Bank 24 MBA ,The Ohio State University Director Benny Chen (Note2) Fubon Financial Chairman, Fubon Securities Co., Ltd. 2011/06/ 3 yrs Holding Co. Country Business Manager - Global 24 Consumer Group, Citibank, China Citigroup Deputy President, Chinatrust Financial Holding Company Senior Vice President, McDonald‟s Corporation in Taiwan. MBA, Southern Illinois University Director Jen-Shou Hsu Fubon Financial President, Taiwan Stock Exchange 2013/10/ 3 yrs Holding Co. Chairman, Bank Taiwan Securities 01 Chairman, Chunghwa Post Co., Ltd. MBA,Chinese Culture University Director Thomas Liang Fubon Financial President, consumer-banking group, 2012/06/ 3 yrs Holding Co. Fubon Financial Holding Co. 23 President, Retail Banking, Taipei Fubon Commercial Bank Managing director, Fubon Bank (Hong Kong) Master, Operations Research, Case Western Reserve University Director Yan-Kwong Chan Fubon Financial Executive vice president, Taipei Fubon 2011/06/ 3 yrs Holding Co. Commercial Bank 24 MBA, Bath University Director Chao-Yang Kao Fubon Financial President, Retail Banking, Taipei 2012/06/ 3 yrs (Note3) Holding Co. Fubon Commercial Bank 23 Chairman, Fubon AMC President, Xiamen Bank Bachelor, Department of Law, National Taiwan University Supervisor Chia-Chen Lin Fubon Financial President, Fubon Commercial Bank. 2011/06/ 3 yrs (Note4) Holding Co. B.S in Dept. of Economics, National 24 Taiwan University Supervisor Chao-Yang Kao Fubon Financial President, Retail Banking, Taipei 2013/10/ 3 yrs Holding Co. Fubon Commercial Bank 01 Chairman, Fubon AMC President, Xiamen Bank Bachelor, Department of Law, National Taiwan University Supervisor Bang-Ren Liu (Note5) Fubon Financial Executive Vice President, Taipei 2011/06/ 3 yrs Holding Co. Fubon Commercial Bank 24 B.S in Dept.of Accountancy & Statistics, National Cheng Kung University Supervisor Kung-Liang Yeh Fubon Financial Senior advisor, wealth-management 2013/10/ 3 yrs Holding Co. business group, Fubon Financial 01 Holding Co. Chairman, Fubon Securities Chairman, Fubon Direct Marketing Consulting Master, Graduate School of Finance,
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Title Name Representing Background & Education Date Term Organization Elected National Taiwan University Supervisor Ruey-Chang Hu Fubon Financial Senior Vice President, Fubon 2011/06/ 3 yrs (Note6) Holding Co. Commercial Bank. 24 B.S in Dept. of Business, National Taiwan University Supervisor Tsan-Ming Shin Fubon Financial Senior advisor, insurance business 2013/10/ 3 yrs Holding Co. group, Fubon Financial Holding Co. 01 Chairman, Fubon Insurance Bachelor, department of law, Soochow University Note 1：The tenure of the 11th board of directors and supervisors of the company is June 24, 2011 - June 23, 2014. Note 2：Benny Chen resigned the tenure of the 11th board of directors on October 1, 2013. Note 3：Chao-Yang Kao resigned the tenure of the 11th board of directors on October 1, 2013. Note 4：Chia-Chen Lin resigned the tenure of the 11th board of Supervisors on October 1, 2013. Note 5：Bang-Ren Liu resigned the tenure of the 11th board of Supervisors on October 1, 2013. Note 6：Ruey-Chang Hu resigned the tenure of the 11th board of Supervisors on October 1, 2013.
（3）Major Shareholder of Major Institutional Shareholder Institutional Shareholders Major Shareholder of Major Institutional Shareholder
Fubon Financial Taipei City Government、Ming Tong Co.、Dao Ying Co. Holding Company
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III. Business Operations 1. Business Information （1） Breakdown of Total Revenues Unit：﹪ 49.91 44.87 49.44 50.00 47.31
40.00
30.00
20.00 5.69 2.78 10.00
0.00 IB RB OB
2013 49.91 47.31 2.78 2012 44.87 49.44 5.69
Note： IB ：Institutional Banking Business RB ：Retail Banking Business OB ：Others Business
（2） Business Performance
Institutional Banking Business
In 2013, the bank made major gains in institutional banking, in terms of loans and deposits by successfully cultivating SME business, meeting the financing needs of Taiwanese-invested businesses in mainland China, and expanding trade-financing business. The bank also performed strongly in financial marketing and trading. As a result, the bank achieved double-digit growth in the institutional banking segment over the year. Post-provision net profits also scored phenomenal growth, thanks to adequate control in business outlays and expense for provisions.
Changes in scale of major businesses:
In 2013, an expanded customer base and robust trade financing business pushed government and private enterprise loan assets up to NT$317.1 billion at the end of 2013, consolidating the bank's leading position among private peers with a 3.39% market share.
In 2013, when the market for letter of credit (L/C) issuance in Taiwan dropped 1.1%, the bank's L/C issuance volume declined 1.7% and its L/C market position ranked 11th at 2.97%. Gains in interbank forfaiting business on the secondary market helped to push up the bank's L/C negotiation business by 26% over the year, compared to a 9.9% growth nationwide, boosting the bank's share of this market to 3.71%.
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In 2013, due to economic slowdown and the thinning gross margin of Taiwan's electronics industry, major electronics firms, for cost consideration, had much less need for the service of accounts-receivable purchase by banks, most of which suffered considerable declines in this business. Compared to its peers, the bank experienced a less severe decline in the business thanks to phenomenal growth of accounts-receivable purchases related to cross-strait trade.
According to statistics compiled by International Financing Review, the syndicated-loan market in Taiwan reached US$24.15 billion in 2013, up 10.8%, mainly due to higher amount of major cases, offsetting the decrease of total syndicated-loan cases to 161, down from 2012's 173. The bank improved on 2012's performance in terms of ranking, market share, and the value of cases in which it served as the arranger, ranking fourth in the market and first among private banks.
The bank posted extraordinary growth in the financial marketing business by clearly assessing the market terrain and providing products meeting customer needs. The bank generated strong profits in forex business, helped by increased fluctuations on the forex market triggered by the QE exit, opening of RMB-denominated businesses for domestic banking units (DBUs), and achievements of the bank in promoting interbank market making business. The bank retained a second-place ranking in the outstanding amount of nominal principal for exchange rate-based derivatives. In the fixed-yield business, the bank ranked second in trading of domestic bonds, with a market share of 7.89%.
In institutional trust business, the bank served as trustee for NT$199 billion in bond issuance, ranking first in the market and up 49% from 2012. As of the end of 2013, outstanding value of realties under the bank's trust hit NT$27,164 million, up 58% over a year earlier, ranking fourth place: a major improvement over the seventh place showing a year earlier.
In government-coffers business, the bank provided loans for various government projects and financed various major construction projects of the Taipei City Government. Taking advantage of the experience for government coffers-related business, the bank actively took part in the bidding and price negotiation for loans for other municipal governments and central-government agencies. In 2013, the bank's government coffers-related loans averaged NT$187.8 billion. It also augmented its branch network by opening other fee-payment channels. In cooperation with various agencies of Taipei City Government, the bank increased surrogate-collection channels for fee payment to broaden its financial services and set up a quality and extensive service network.
Retail Banking Business
In the deposit and remittance business, backed by the stable and positive image of its parent Fubon Financial Holding, the bank continued to tap the abundant group marketing resources and offered competitive deposit rates, boosting outstanding deposits which stood at NT$856.1 billion as of the end of 2013, up 6.9% over a year earlier. Following the opening of RMB operations at DBUs, the bank will strive to boost its share of foreign-currency deposits, as well as improve its deposit structure, in the current low interest spread environment.
In the insurance business, the bank increased sales of dual-currency products to assist customers with currency allocation. For professional and regular investors with
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different risk-withstanding capabilities, the bank provided structured products with different structures and multiple currency denominations to meet the wealth-management needs of customers. As of the end of 2013, the bank's outstanding amount of insurance products stood at NT$508.1 billion, up 7.1% over a year earlier.
In consumer lending, the bank retained quality mortgage assets, with new housing loans amounting to NT$97.8 billion in 2013. This boosted the outstanding amount of mortgage to NT$357.9 billion at the end of the year. Despite the sluggish economy, the outstanding amount of the bank's unsecured loans grew 6.3% in 2013, thanks to deep cultivation of quality card holders, salary-transfer accounts, and group accounts, as well as a flexible marketing strategy and risk-management policy, along with convenient repayment channels.
In the credit-card business, the bank launched digital daily-life cards to tap young customer groups. The strategy boosted the amount of card issuance to 420,000 in 2013 and the amount of cards in circulation to 2.3 million.
In individual trust, the bank concentrated on promotion of designated separately managed accounts in 2013, with accumulated trust assets amounting to US$89.4 million, including products linked to global dynamic investments and global fixed-yield investments. Such products stressed disciplined investments and good risk management, offering customers tailor-made services combining trust and wealth management to meet their wealth-management needs.
2. Business Strategies and Business Plans for 2014 （1）Business Strategies Institutional Banking Business
In line with the cross-border operating mode of institutional customers, the bank will accelerate overseas deployment to expand service reach.
Seizing business opportunities connected with market opening, both at home and abroad, the bank will utilize its innovative and diverse product planning capability to provide a full spectrum of financial services meeting a broad range of customer needs.
The bank will integrate various financial-market businesses, including forex, fix-yield products, and financial marketing, and will also strengthen product packaging and financial trading capabilities to become a major market maker and provider of inter-peer products on the domestic financial market.
The bank will establish basic core systems to lay a solid foundation for long-term development.
The bank will continue to streamline operating flow and improve operational efficacy, as well as maintain quality service to boost customer satisfaction.
The bank will strengthen human resources to support long-term development, continue recruiting quality manpower, and carry out various educational and training activities through internal and external channels to meet future development needs.
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Retail Banking Business
Products: The bank will tap its extensive business intelligence to identify features of different customer segments and develop tailored products, as well as regularly review the risk-withstanding capabilities of customers, as the basis for diversifying asset allocation, expanding the scale of wealth-management customer groups, and increasing customer stickiness.
Pricing: In line with the principle of risk-based prices, the bank will set appropriate interest and fee rates according to the risk levels of different customer groups.
Channels: The bank will expand its digital platform, establish new channels, and add conduits for business solicitation. It will integrate physical and virtual channels to strengthen product promotion, expand its customer base, and enhance customer satisfaction.
Marketing: Taking advantage of multiple media channels, the bank will analyze target customer groups, formulate marketing strategies, and utilize lively visual design and intensive promotion to increase market visibility.
Services:
The bank will review its human resource flow (manpower planning, recruitment, education and training, performance evaluation, career development, and talent retention) as part of effort to expand its business team and strengthen professional expertise, as well as replace consultation-oriented personal wealth-management service for one-way marketing.
The bank will review the layout of branch offices and improve movement routes to create a friendly and comfortable experience, forge a new image, and duplicate the successful experience of exemplary branches to strengthen service quality and customer relationships.
Risk management: The bank will follow the principle of "know your customer" and deeply grasp customers' risk tolerance to meet the customer needs at different stages of life. It will also continue to use risk-management mechanisms to keep the overall risk-exposure level of customers at a relatively low level.
（2）Business Plans Institutional Banking Business
With domestic interest rates expected to remain at relatively low level, the bank will increase the shares of forex funds and demand deposits to widen interest spread. It will also enhance the share of the SME assets to increase loan yield rates.
To expand business scope, the bank will accelerate overseas deployment, expand overseas branches, and widen service reach to meet the global operating needs of customers. The bank will also actively grasp the needs of offshore funds and business opportunities associated with cross-border trade financing to sustain business growth.
The bank will further develop financial-trading business, including expanding the scope and capability for quotes for RMB-denominated products, develop forex bond trading, and continue strengthening cooperation with peers to increase the bank's
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market-making capability among peers.
The bank will improve infrastructure, including the establishment of core systems to back up long-term development, strengthen review function and integrate the inquiry function of financial trading systems, and establish overseas core systems and overseas business network to facilitate overseas expansion.
Strictly adhering to the principle of risk management, the bank will closely follow industrial development trends, enhance risk vigilance, and strengthen risk recognition to maintain good asset quality.
The bank will continue to recruit quality manpower and cultivate talent to support business development and expansion of business footholds, as well as establish a talent bank to increase the quantity and quality of its marketing team.
The bank will improve systems and simplify operating flow as coffers of Taipei City.
The bank will provide coffers service to other government agencies based on its extensive experience as the coffers for Taipei City.
The bank will solicit surrogate-collection business from various government agencies to tap new financial business opportunities.
Retail Banking Business
In wealth management, the bank will offer a full range of products to meet the needs of different customer groups, as well as develop convenient and effective transaction mechanisms to augment sales volume and customer satisfaction.
In the area of personal finance, the bank will strengthen inter-bloc cooperation to jointly develop quality customer sources, review and adjust pricing strategies, widen product interest spreads, and enhance maintenance of quality channel strategy.
In the credit card segment, the bank will strengthen cultivation of high-consumption groups and hone its first-choice card status to enhance customer loyalty. The bank will eliminate weak cards and concentrate resources on the promotion of high-value banking cards while rolling out new co-branded cards in partnership with major firms.
In e-commerce, the bank will continue establishing and improving digital platforms, develop new innovative application services, offer real-time and convenient digital channel services, and use digital-marketing channels to strengthen communications with customers, boost sales, and enhance digital-marketing capabilities.
The bank will strengthen international business cooperation, jointly develop quality customer sources within the group, and conduct cross sales or business transfers to expand magnitude and depth of customer dealings.
The bank will enhance the quality of personal banking services, boost the quality of counter services, and accelerate renovation of branches, as well as improve service design to offer a brand new service experience to customers.
The bank will enhance efficiency of back-end support, continue integrating and renovating information systems, and conduct operational improvement.
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3. Research ＆ Development Plans To boost the operating efficiency and management efficacy of overseas branches, the bank will set up core systems at overseas branches and complete online linkages with systems at its Hong Kong and Los Angeles branches to enable efficient and accurate data processing and support overseas business development.
In 2014, the bank began improving the functions of its new credit-examination system and establishing a digital platform to enhance review efficiency and control function for loans to micro enterprises.
The bank will offer traditional medium- and long-term insurance products denominated in different currencies to meet the insurance and wealth-management needs of customers with different asset scales and in different age brackets. With the increasingly optimistic outlook for investment markets, the bank will provide investment-oriented insurance products to strengthen insurance-cum-wealth management services for customers.
The bank will update its mutual-fund websites to strengthen contact with customers through increased interaction and thereby enhance service quality and achieve sales goals. In line with regulatory loosening, the bank will increase its line of RMB-denominated funds and provide a more comprehensive product lineup.
To provide customers with a range of convenient payment channels, the bank launched an automated clearing house (ACH) payment mechanism on May 1, 2012. It has also been steadily improving customer services through the system with the addition of new functions, such as text message notifications, to enhance customer satisfaction and boost usage.
The bank will actively promote e-services based on user experience and plan more intuitive, simple, and personalized Internet banking and mobile-banking platforms to increase customer usage and satisfaction.
4. Employees Profile As on March Year 2012 2013 31,2014 Staff 6,291 6,438 6,409 Number of Workers 127 122 124 employees Total 6,418 6,560 6,533 Average age (years) 36.66 37.60 37.81 Average seniority（years） 9.01 9.11 9.23 Graduate or higher 14.73％ 15.90％ 16.09％
College/University 77.89％ 77.63％ 77.58％ Education level Senior high school 7.21％ 6.35％ 6.15％
Below senior high 0.17％ 0.12％ 0.18％
Note：Overseas contract/temporary staff is excluded from the above table.
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IV. Special Notes
1. Dividend Policy and Implementation Status （1）Dividend Policy After yearly budget settlements, after-tax profits, if they exist, will be first used to make up deficits from the previous year, with 30% of the balance being set aside for legal reserves. Of the remainder, 1%-5% will be appropriated as employee bonuses, while the remainder will be incorporated into the accumulated retained earnings of past years. The board of directors will then make a proposal for payout of dividends, which will be submitted to the shareholders‟ meeting for final ratification. Should the Bank‟s legally-required reserves consist of equivalent paid-in capital or reach levels according to acceptable financial standards set by the regulator as per item 2, article 50 of the Banking Law, including appropriation of earnings for legally-required reserves according to the Company Law, the company can be exempt from restrictions regarding appropriation of earnings for legally-required reserves and cash-dividend payout.
Measures for the bonus payout will be formulated by the board of directors.
Before legal reserves equal paid-in capital and when the capital/risk-based assets ratio meets the requirements of the Banking Law, the ceiling for the payout of cash earnings should comply with the stipulations of the Banking Law and the requirements of the regulator.
（2）Implementation Status In 2014, the appropriation of the 2013 earnings and dividends per share was proposed by the board of directors as follows: Dividends Dividend Per Share Cash dividends NTD＄2,500,000,009 NTD＄0.30 Stock dividends NTD＄5,571,010,390 NTD＄0.67
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2. Implementation of the Internal Controls System
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Headquarters and Branches
Headquarters Address and Telephone Number Headquarter No.169, Sec. 4, Ren‟ai Rd., Da‟an Dist., Taipei City 106, Taiwan 886(2)27716699 (R.O.C.) Business Department No.50, Sec. 2, Zhongshan N. Rd., Zhongshan Dist., Taipei City 104, 886(2)25425656 Taiwan (R.O.C.) Lottery Department 10F, No.50, Sec. 2, Zhongshan N. Rd., Zhongshan Dist., Taipei City 104, 886(2)66085885 Taiwan (R.O.C.) Government Banking Department B1, No.1, Shihfu Rd., Xinyi Dist., Taipei City, Taiwan 110, Taiwan 886(2)27209001 (R.O.C.) Trust Department 3F/4F, No.138, Sec. 3, Minsheng E. Rd., Songshan Dist., Taipei City 886(2)27186888 105, Taiwan (R.O.C.) Securities Department（Dealer and Underwrite） 18F, No.169, Sec. 4, Ren‟ai Rd., Da‟an Dist., Taipei City 106, Taiwan 886(2)27716699 (R.O.C.)
Branches Address and Telephone Number Code Branch Name Address Tel. 012-5608 Offshore Banking 5F, No.169, Sec. 4, Ren‟ai Rd., Da‟an Dist., 886(2)27716699 Branch Taipei City 106, Taiwan (R.O.C.) 012-2032 Changan E. Road No.36, Sec. 1, Chang‟an E. Rd., Zhongshan 886(2)25212481 Branch Dist., Taipei City 104, Taiwan (R.O.C.) 012-2205 Chengdong Branch No.90, Sec. 2, Nanjing E. Rd., Zhongshan 886(2)25116388 Dist., Taipei City 104, Taiwan (R.O.C.) 012-2216 Nongan Branch No.369, Songjiang Rd., Zhongshan Dist., 886(2)25031451 Taipei City 104, Taiwan (R.O.C.) 012-3006 Shilin Branch No.288, Zhongzheng Rd., Shilin Dist., 886(2)28317444 Taipei City 111, Taiwan (R.O.C.) 012-3017 Shidong Branch No.360, Sec. 6, Zhongshan N. Rd., Shilin 886(2)28735757 Dist., Taipei City 111, Taiwan (R.O.C.) 012-3028 Ruiguang Branch No.392, Ruiguang Rd., Neihu Dist., Taipei 886(2)26562989 City 114, Taiwan (R.O.C.) 012-3039 Yucheng Branch No.126, Sec. 6, Zhongxiao E. Rd., Nangang 886(2)26511212 Dist., Taipei City 115, Taiwan (R.O.C.) 012-3040 Fugang Branch No.310, Sec. 4, Chengde Rd., Shilin Dist., 886(2)28836712 Taipei City 111, Taiwan (R.O.C.) 012-3051 Zhongxiao Branch No.107, Sec. 4, Zhongxiao E. Rd., Da‟an 886(2)27417880 Dist., Taipei City 106, Taiwan (R.O.C.) 012-3062 Chengde Branch No.142, Sec. 2, Chengde Rd., Datong Dist., 886(2)25536553 Taipei City 103, Taiwan (R.O.C.) 012-3073 Longjiang Branch No.28, Sec. 3, Nanjing E. Rd., Zhongshan 886(2)25073817 Dist., Taipei City 104, Taiwan (R.O.C.)
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Branches Address and Telephone Number Code Branch Name Address Tel. 012-3109 Yanping Branch No.69, Sec. 2, Yanping N. Rd., Datong 886(2)25552170 Dist., Taipei City 103, Taiwan (R.O.C.) 012-3202 Muzha Branch No.92, Sec. 3, Muzha Rd., Wenshan Dist., 886(2)29391035 Taipei City 116, Taiwan (R.O.C.) 012-3213 Muxin Branch No.236, Sec. 3, Muxin Rd., Wenshan Dist., 886(2)29383791 Taipei City 116, Taiwan (R.O.C.) 012-3305 Longshan Branch No.161, Xining S. Rd., Wanhua Dist., 886(2)23718720 Taipei City 108, Taiwan (R.O.C.) 012-3408 Bade Branch No.178, Sec. 3, Bade Rd., Songshan Dist., 886(2)25776467 Taipei City 105, Taiwan (R.O.C.) 012-3419 Yongchun Branch No.655, Songshan Rd., Xinyi Dist., Taipei 886(2)27592921 City 110, Taiwan (R.O.C.) 012-3420 Yongji Branch No.199, Yongji Rd., Xinyi Dist., Taipei 886(2)27628700 City 110, Taiwan (R.O.C.) 012-3501 Zhongshan Branch No.162, Sec. 2, Zhongshan N. Rd., 886(2)25963171 Zhongshan Dist., Taipei City 104, Taiwan (R.O.C.) 012-3604 Beitou Branch No.2, Sec. 1, Zhongyang N. Rd., Beitou 886(2)28915533 Dist., Taipei City 112, Taiwan (R.O.C.) 012-3615 Shipai Branch No.216, Wenlin N. Rd., Beitou Dist., Taipei 886(2)28271616 City 112, Taiwan (R.O.C.) 012-3707 Daan Branch No.37, Sec. 4, Ren‟ai Rd., Da‟an Dist., 886(2)27312333 Taipei City 106, Taiwan (R.O.C.) 012-3800 Datong Branch No.186, Sec. 3, Chongqing N. Rd., Datong 886(2)25929282 Dist., Taipei City 103, Taiwan (R.O.C.) 012-3903 Guting Branch No.100, Sec. 3, Roosevelt Rd., Zhongzheng 886(2)23650381 Dist., Taipei City 100, Taiwan (R.O.C.) 012-4003 Shuangyuan Branch No.19, Dongyuan St., Wanhua Dist., Taipei 886(2)23030374 City 108, Taiwan (R.O.C.) 012-4014 Wanhua Branch No.482, Wanda Rd., Wanhua Dist., Taipei 886(2)23325901 City 108, Taiwan (R.O.C.) 012-4106 Jiancheng Branch No.22, Nanjing W. Rd., Datong Dist., 886(2)25554161 Taipei City 103, Taiwan (R.O.C.) 012-4117 Shifu Branch 1F., No.1, Shifu Rd., Xinyi Dist., Taipei 886(2)27298999 City 110, Taiwan (R.O.C.) 012-4209 Nangang Branch No.19-5, Sanchong Rd., Nangang Dist., 886(2)26551177 Taipei City 115, Taiwan (R.O.C.) 012-4302 Jingmei Branch No.64, Jingwen St., Wenshan Dist., Taipei 886(2)29352636 City 116, Taiwan (R.O.C.) 012-4313 Xinglong Branch No.69, Sec. 3, Xinglong Rd., Wenshan 886(2)86639889 Dist., Taipei City 116, Taiwan (R.O.C.) 012-4405 Neihu Branch No.6, Ln. 174, Sec. 3, Chenggong Rd., 886(2)27961820 Neihu Dist., Taipei City 114, Taiwan (R.O.C.) 012-4427 Wende Branch No.42, Wende Rd., Neihu Dist., Taipei City 886(2)26582620 114, Taiwan (R.O.C.) 012-4508 Dunhua Branch No.201, Dunhua N. Rd., Songshan Dist., 886(2)27131660 Taipei City 105, Taiwan (R.O.C.) 012-4542 Minsheng Branch No.163-1, Sec. 5, Minsheng E. Rd., 886(2)27640853 Songshan Dist., Taipei City 105, Taiwan
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Branches Address and Telephone Number Code Branch Name Address Tel. (R.O.C.) 012-4601 Xinyi Branch No.299, Sec. 4, Xinyi Rd., Da‟an Dist., 886(2)27006381 Taipei City 106, Taiwan (R.O.C.) 012-4612 Zhuangjing Branch No.286, Zhuangjing Rd., Xinyi Dist., Taipei 886(2)27226206 City 110, Taiwan (R.O.C.) 012-4623 Xinsheng Mini- No.157, Sec. 2, Xinyi Rd., Zhongzheng 886(2)23279908 Branch Dist., Taipei City 100, Taiwan (R.O.C.) 012-4704 Songjiang Branch No.200, Songjiang Rd., Zhongshan Dist., 886(2)25434282 Taipei City 104, Taiwan (R.O.C.) 012-4807 Heping Branch No.236, Sec. 2, Fuxing S. Rd., Da‟an Dist., 886(2)27022421 Taipei City 106, Taiwan (R.O.C.) 012-4900 Yanji Branch No.389, Sec. 4, Ren‟ai Rd., Da‟an Dist., 886(2)27527600 Taipei City 106, Taiwan (R.O.C.) 012-5000 Chengzhong Branch No.7, Qingdao W. Rd., Zhongzheng Dist., 886(2)23615481 Taipei City 100, Taiwan (R.O.C.) 012-5103 Nanmen Branch No.17, Jinhua St., Zhongzheng Dist., Taipei 886(2)23971640 City 100, Taiwan (R.O.C.) 012-5206 Fuxing Branch No.234, Fuxing N. Rd., Zhongshan Dist., 886(2)25023530 Taipei City 104, Taiwan (R.O.C.) 012-5309 Xisong Branch No.75-1, Sec. 4, Nanjing E. Rd., Songshan 886(2)27170037 Dist., Taipei City 105, Taiwan (R.O.C.) 012-5402 Zhangan Branch No.76, Songjiang Rd., Zhongshan Dist., 886(2)25519797 Taipei City 104, Taiwan (R.O.C.) 012-5505 Guilin Branch No.52, Guilin Rd., Wanhua Dist., Taipei 886(2)23026226 City 108, Taiwan (R.O.C.) 012-5701 Dunhe Branch No.77, Sec. 2, Dunhua S. Rd., Da‟an Dist., 886(2)27012409 Taipei City 106, Taiwan (R.O.C.) 012-5804 Dongmen Branch No.61, Sec. 2, Ren‟ai Rd., Zhongzheng 886(2)23512081 Dist., Taipei City 100, Taiwan (R.O.C.) 012-5907 Zhonglun Branch No.6, Fuxing N. Rd., Zhongshan Dist., 886(2)27418257 Taipei City 104, Taiwan (R.O.C.) 012-6007 Keelung Road Branch No.21, Sec. 2, Keelung Rd., Xinyi Dist., 886(2)27373671 Taipei City 110, Taiwan (R.O.C.) 012-6100 Jinhua Branch No.178, Sec. 1, Heping E. Rd., Da‟an Dist., 886(2)23698566 Taipei City 106, Taiwan (R.O.C.) 012-6203 Songnan Branch No.412, Sec. 5, Zhongxiao E. Rd., Xinyi 886(2)27255111 Dist., Taipei City 110, Taiwan (R.O.C.) 012-6214 Huaisheng Branch No.215, Sec. 3, Zhongxiao E. Rd., Da‟an 886(2)27818380 Dist., Taipei City 106, Taiwan (R.O.C.) 012-6306 Minquan Branch No.37, Sec. 3, Minquan E. Rd., Zhongshan 886(2)25166786 Dist., Taipei City 104, Taiwan (R.O.C.) 012-6409 Jilin Branch No.146, Jilin Rd., Zhongshan Dist., Taipei 886(2)25681248 City 104, Taiwan (R.O.C.) 012-6502 Shezi Branch No.225, Sec. 5, Yanping N. Rd., Shilin 886(2)28168585 Dist., Taipei City 111, Taiwan (R.O.C.) 012-6605 Gangdou Branch No.358, Zhongshan 2nd Rd., Lingya Dist., 886(7)3356226 Kaohsiung City 802, Taiwan (R.O.C.) 012-6683 Xihu Branch No.240, Sec. 1, Neihu Rd., Neihu Dist., 886(2)87511788 Taipei City 114, Taiwan (R.O.C.)
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Branches Address and Telephone Number Code Branch Name Address Tel. 012-6694 Jincheng Branch No.46, Sec. 3, Jincheng Rd., Tucheng Dist., 886(2)22631678 New Taipei City 236, Taiwan (R.O.C.) 012-6708 Wanlong Branch No.136, Sec. 6, Roosevelt Rd., Wenshan 886(2)29339956 Dist., Taipei City 116, Taiwan (R.O.C.) 012-6719 Zhonggang Branch No.160, Sec. 1, Taichung Port Rd., 886(4)23207711 Taichung City 403, Taiwan (R.O.C.) 012-6720 Xinzhuang Branch No.227, Xintai Rd., Xinzhuang Dist., New 886(2)29903366 Taipei City 242, Taiwan (R.O.C.) 012-6731 Taoyuan Branch No.33, Zhonghua Rd., Taoyuan City, 886(3)3367171 Taoyuan County 330, Taiwan (R.O.C.) 012-6742 Anping Branch No.279, Sec. 2, Minsheng Rd., West Central 886(6)2265265 Dist., Tainan City 700, Taiwan (R.O.C.) 012-6764 Songlong No.176-1, Sec. 1, Keelung Rd., Xinyi Dist., 886(2)27473399 Mini-Branch Taipei City 110, Taiwan (R.O.C.) 012-6775 Puqian Branch No.143, Sec. 2, Zhongshan Rd., Banqiao 886(2)89535118 Dist., New Taipei City 220, Taiwan (R.O.C.) 012-6786 Beizhongli Branch No.268, Yuanhua Rd., Zhongli City, 886(3)4256699 Taoyuan County 320, Taiwan (R.O.C.) 012-6797 Sanchong Branch No.36, Sec. 2, Zhongxiao Rd., Sanchong 886(2)89836868 Dist., New Taipei City 241, Taiwan (R.O.C.) 012-6801 Fengyuan Branch No.139, Xiangyang Rd., Fengyuan Dist., 886(4)25220088 Taichung City 420, Taiwan (R.O.C.) 012-6812 Shuanghe Branch No.696, Jingping Rd., Zhonghe Dist., New 886(2)22438877 Taipei City 235, Taiwan (R.O.C.) 012-6823 Gushan Branch No.387, Huarong Rd., Gushan Dist., 886(7)5523111 Kaohsiung City 804, Taiwan (R.O.C.) 012-6845 Fengcheng Branch No.126, Minsheng Rd., East Dist., Hsinchu 886(3)5343888 City 300, Taiwan (R.O.C.) 012-6856 Changhua Branch No.349, Sec. 2, Zhongshan Rd., Changhua 886(4)7261333 City, Changhua County 500, Taiwan (R.O.C.) 012-6867 Donghu Branch No.69, Sec. 3, Kangning Rd., Neihu Dist., 886(2)26336677 Taipei City 114, Taiwan (R.O.C.) 012-6878 Yonghe Branch No.407, Dehe Rd., Yonghe Dist., New 886(2)86601616 Taipei City 234, Taiwan (R.O.C.) 012-6889 Gangshan No.178, Zhongshan N. Rd., Gangshan Dist., 886(7)6213969 Mini-Branch Kaohsiung City 820, Taiwan (R.O.C.) 012-6890 Taipei 101 Branch 1F., No.45, Shifu Rd., Xinyi Dist., Taipei 886(2)81018585 City 110, Taiwan (R.O.C.) 012-7015 Shuanglian Branch No.13, Sec. 1, Minsheng E. Rd., Zhongshan 886(2)25115511 Dist., Taipei City 104, Taiwan (R.O.C.) 012-7026 Nanjing E. Road No.139, Sec. 2, Nanjing E. Rd., Zhongshan 886(2)25155518 Branch Dist., Taipei City 104, Taiwan (R.O.C.) 012-7037 Dunbei Branch No.138, Sec. 3, Minsheng E. Rd., Songshan 886(2)27185151 Dist., Taipei City 105, Taiwan (R.O.C.) 012-7048 Renai Branch No.237, Sec. 1, Jianguo S. Rd., Da‟an Dist., 886(2)23258878 Taipei City 106, Taiwan (R.O.C.) 012-7059 Kaohsiung Branch No.1, Liuhe 1st Rd., Xinxing Dist., 886(7)2391515
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Branches Address and Telephone Number Code Branch Name Address Tel. Kaohsiung City 800, Taiwan (R.O.C.) 012-7060 Zhongzheng Branch No.476, Zhongzheng Rd., Taoyuan City, 886(3)3350335 Taoyuan County 330, Taiwan (R.O.C.) 012-7071 Taichong Branch No.196, Sec. 2, Liuchuan W. Rd., Taichung 886(4)22221911 City 403, Taiwan (R.O.C.) 012-7093 Songshan Branch No.421, Songshan Rd., Xinyi Dist., Taipei 886(2)27281199 City 110, Taiwan (R.O.C.) 012-7107 Tucheng Branch No.100, Sec. 1, Zhongyang Rd., Tucheng 886(2)22709898 Dist., New Taipei City 236, Taiwan (R.O.C.) 012-7118 Tainan Branch No.166-6, Zhongshan Rd., West Central 886(6)2290266 Dist., Tainan City 700, Taiwan (R.O.C.) 012-7129 Fengshan Branch No.223, Ziyou Rd., Fengshan Dist., 886(7)7482088 Kaohsiung City 830, Taiwan (R.O.C.) 012-7130 Zhongli Branch No.119, Sec. 2, Zhongbei Rd., Zhongli City, 886(3)4595766 Taoyuan County 320, Taiwan (R.O.C.) 012-7152 Anhe Branch B1F., No.169, Sec. 4, Ren‟ai Rd., Da‟an 886(2)27787717 Dist., Taipei City 106, Taiwan (R.O.C.) 012-7163 Zhengyi Branch No.279, Zhengyi N. Rd., Sanchong Dist., 886(2)29806688 New Taipei City 241, Taiwan (R.O.C.) 012-7174 Danan Branch No.968, Sec. 1, Jieshou Rd., Bade City, 886(3)3616565 Taoyuan County 334, Taiwan (R.O.C.) 012-7185 Chiayi Branch No.395, Ren‟ai Rd., West Dist., Chiayi City 886(5)2231688 600, Taiwan (R.O.C.) 012-7196 Lingya Branch No.39, Zhonghua 4th Rd., Lingya Dist., 886(7)3318822 Kaohsiung City 802, Taiwan (R.O.C.) 012-7211 Banqiao Branch No.266, Sec. 1, Wenhua Rd., Banqiao Dist., 886(2)22549999 New Taipei City 220, Taiwan (R.O.C.) 012-7222 Beitaichong Branch No.333, Sec. 4, Wenxin Rd., Beitun Dist., 886(4)22426222 Taichung City 406, Taiwan (R.O.C.) 012-7233 Sanmin Branch No.530, Dashun 2nd Rd., Sanmin Dist., 886(7)3871299 Kaohsiung City 807, Taiwan (R.O.C.) 012-7244 Jianguo Branch No.196, Sec. 2, Jianguo N. Rd., Zhongshan 886(2)25151775 Dist., Taipei City 104, Taiwan (R.O.C.) 012-7255 Hsinchu Branch No.141, Zhongzheng Rd., Hsinchu City 886(3)5278988 300, Taiwan (R.O.C.) 012-7266 Xindian Branch No.266, Sec. 2, Beixin Rd., Xindian Dist., 886(2)29129977 New Taipei City 231, Taiwan (R.O.C.) 012-7277 Tianmu Branch No.36, Tianmu E. Rd., Shilin Dist., Taipei 886(2)28763232 City 111, Taiwan (R.O.C.) 012-7288 Xizhi Branch No.175, Sec. 1, Datong Rd., Xizhi Dist., 886(2)26411689 New Taipei City 221, Taiwan (R.O.C.) 012-7303 Yongkang Branch No.856, Dawan Rd., Yongkang Dist., 886(6)2736099 Tainan City 710, Taiwan (R.O.C.) 012-7314 Xiangyang Branch No.9, Xiangyang Rd., Zhongzheng Dist., 886(2)23885889 Taipei City 100, Taiwan (R.O.C.) 012-7336 Wugu Branch No.445, Huacheng Rd., Xinzhuang Dist., 886(2)85213399 New Taipei City 242, Taiwan (R.O.C.) 012-7347 Xinying Branch No.301, Minzhi Rd., Xinying Dist., Tainan 886(6)6569889 City 730, Taiwan (R.O.C.)
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Branches Address and Telephone Number Code Branch Name Address Tel. 012-7358 Bingdong Branch No.459, Heping Rd., Pingtung City, 886(8)7336899 Pingtung County 900, Taiwan (R.O.C.) 012-7369 Qianzhen Branch No.289, Baotai Rd., Qianzhen Dist., 886(7)7170055 Kaohsiung City 806, Taiwan (R.O.C.) 012-7370 Dunnan Branch No.108, Sec. 1, Dunhua S. Rd., Songshan 886(2)87719898 Dist., Taipei City 105, Taiwan (R.O.C.) 012-7381 Baosheng Branch No.3, Baosheng Rd., Yonghe Dist., New 886(2)89230888 Taipei City 234, Taiwan (R.O.C.) 012-7392 Yuanlin Branch No.596, Juguang Rd., Yuanlin Township, 886(4)8369189 Changhua County 510, Taiwan (R.O.C.) 012-7406 Luodong Branch 1F., No.286, Xingdong Rd., Luodong 886(3)9566611 Township, Yilan County 265, Taiwan (R.O.C.) 012-7417 Ruihu Branch No.62, Ruihu St., Neihu Dist., Taipei City 886(2)26591088 114, Taiwan (R.O.C.) 012-7428 Jihe Mini-Branch No.172-1, Sec. 2, Keelung Rd., Da‟ an 886(2)66388988 Dist., Taipei City 106, Taiwan (R.O.C.) 012-7439 Nanchang No.65, Sec. 1, Heping W. Rd., Zhongzheng 886(2)66305678 Mini-Branch Dist., Taipei City 100, Taiwan (R.O.C.) 012-7451 Hualian Mini-Branch No.256, Linsen Rd., Hualien City, Hualien 886(3)8353838 County 970, Taiwan (R.O.C.) 012-7462 Zhubei Branch No.263, Guangming 6th Rd., Zhubei City, 886(3)5586199 Hsinchu County 302, Taiwan (R.O.C.) 012-7473 Nantaizhong Branch No.272, Sec. 1, Wenxin Rd., Nantun Dist., 886(4)36009868 Taichung City 408, Taiwan (R.O.C.) 012-7484 Boai Branch No.450, Bo‟ai 2nd Rd., Kaohsiung City 886(7)8628668 813, Taiwan (R.O.C.) 012-7495 Luzhou Branch No.71, Sanmin Rd., Luzhou Dist., New 886(2)82821799 Taipei City 247, Taiwan (R.O.C.) 012-7509 Huajiang Branch No.110, Sec. 2, Shuangshi Rd., Banqiao 886(2)22530598 Dist., New Taipei City 220, Taiwan (R.O.C.) 012-7510 Dazhi Branch No.602, Mingshui Rd., Zhongshan Dist., 886(2)85093878 Taipei City 104, Taiwan (R.O.C.) 012-7521 Shulin Branch No.27, Wenhua St., Shulin Dist., New 886(2)26838186 Taipei City 238, Taiwan (R.O.C.) Keelung Branch No.279, Ren 1st Rd., Ren‟ai Dist., Keelung 012-7532 886(2)24292888 City 200, Taiwan (R.O.C.) Zhuke Branch No.186, Guanxin Rd., East Dist., Hsinchu 012-7543 886(3)6663328 City 300, Taiwan (R.O.C.) - Los Angeles Branch 17800 CASTLETON STREET, SUITE 588, +1-626-363-18 CITY OF INDUSTRY, CA 91748, U.S.A. 66 - Hong Kong Branch 18th/F, CENTRAL TOWER 28 QUEEN‟S +852-2822-7700 RD. CENTRAL H.K. - Binh Duong Branch UNIT 1, FLOOR 2, MINH SANG PLAZA, +84-650-627-88 NO.888 BINH DUONG BOULEVARD, 99 THUAN GIAO WARD, THUAN AN TOWN, BINH DUONG PROVINCE, VIETNAM Hanoi Branch 22nd/F, CHARMVIT TOWER BUILDING, +84-4-3772-221
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Branches Address and Telephone Number Code Branch Name Address Tel. NO. 117, TRAN DUY HUNG ROAD, 2 CAU GIAY DISTRICT, HANOI, VIETNAM Ho Chi Minh City NO. 253 DIEN BIEN PHU STREET, +84-8-3932-588 Branch DISTRICT 3, HCMC, VIETNAM 8 Suzhou RM611, 6F, INTERNATIONAL +86-512-6238-9 Representative FINANCIAL CENTRE, 23B TIME 958 Office SQUARE, HUACHI STREET, SIP SUZHOU, CHINA
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Appendix
Annual Financial Reports for 2013 and 2012
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INDEPENDENT AUDITORS’ REPORT
The Board of Directors and Stockholder TAIPEI FUBON COMMERCIAL BANK Co., Ltd.
We have audited the accompanying consolidated balance sheets of TAIPEI FUBON COMMERCIAL BANK Co., Ltd. (the “Bank”) and its subsidiary as of December 31, 2013, December 31, 2012 and January 1, 2012 and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2013 and 2012. These consolidated financial statements are the responsibility of the Bank‟s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements of Financial Institutions by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of TAIPEI FUBON COMMERCIAL BANK Co., Ltd. and its subsidiary as of December 31, 2013, December 31, 2012 and January 1, 2012, and their consolidated financial performance and their consolidated cash flows for the years ended December 31, 2013 and 2012, in conformity with the Regulations Governing the Preparation of Financial Reports by Public Banks, International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed by the Financial Supervisory Commission of the Republic of China, and certain other guidelines issued by the authorities.
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We have also audited the financial statements of the parent bank, TAIPEI FUBON COMMERCIAL BANK Co., Ltd., as of and for the years ended December 31, 2013 and 2012 on which we have issued an unqualified report.
March 19, 2014
Notice to Readers
The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China.
For the convenience of readers, the independent auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and consolidated financial statements shall prevail.
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TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (In Thousands of New Taiwan Dollars)
December 31, 2013 December 31, 2012 January 1, 2012 ASSETS Amount % Amount % Amount %
CASH AND CASH EQUIVALENTS (Notes 4, 6 and 41) $ 74,257,224 4 $ 31,820,002 2 $ 27,224,781 2
DUE FROM THE CENTRAL BANK OF CHINA AND OTHER BANKS (Notes 6, 7, 17 and 41) 91,888,019 5 70,851,850 5 73,099,143 5
FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4, 8, 23, 41 and 42) 73,231,661 4 84,693,492 5 59,641,819 4
DERIVATIVE FINANCIAL ASSETS FOR HEDGING (Notes 4 and 9) 285,784 - 478,744 - 693,488 -
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL (Notes 4, 6 and 10) 20,179,897 1 16,343,491 1 200,000 -
RECEIVABLES, NET (Notes 4, 11, 17 and 41) 88,146,920 5 59,647,287 4 66,137,039 5
CURRENT TAX ASSETS (Notes 4, 39 and 41) 411,519 - 532,680 - 1,258,173 -
DISCOUNTS AND LOANS, NET (Notes 4, 12, 17 and 41) 1,102,747,108 63 1,026,535,634 64 952,718,962 63
AVAILABLE-FOR-SALE FINANCIAL ASSETS, NET (Notes 4, 9, 13, 23, 41 and 42) 69,228,489 4 67,271,936 4 50,346,936 3
HELD-TO-MATURITY FINANCIAL ASSETS (Notes 4, 14, 23 and 42) 209,762,227 12 227,013,136 14 256,826,642 17
INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD (Notes 4 and 15) 135,557 - 118,951 - 96,239 -
OTHER FINANCIAL ASSETS, NET (Notes 4, 16, 17 and 42) 16,339,822 1 2,204,848 - 2,787,024 -
PROPERTY AND EQUIPMENT, NET (Notes 4 and 18) 11,294,121 1 11,262,646 1 11,278,155 1
INVESTMENT PROPERTIES, NET (Notes 4 and 19) 1,720,295 - 1,775,982 - 1,734,175 -
INTANGIBLE ASSETS (Notes 4 and 20) 1,625,376 - 1,585,803 - 1,753,629 -
DEFERRED TAX ASSETS (Notes 4 and 39) 370,189 - 345,288 - 335,317 -
OTHER ASSETS (Notes 21 and 41) 4,134,747 - 2,461,325 - 1,601,246 -
TOTAL $ 1,765,758,955 100 $ 1,604,943,095 100 $ 1,507,732,768 100
LIABILITIES AND EQUITY
DUE TO THE CENTRAL BANK OF CHINA AND OTHER BANKS (Notes 22 and 41) $ 83,355,116 5 $ 69,753,342 4 $ 56,759,776 4
FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4, 8 and 41) 28,000,514 2 19,612,456 1 22,747,531 2
DERIVATIVE FINANCIAL LIABILITIES FOR HEDGING (Notes 4 and 9) 852,396 - 352,920 - 428,152 -
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Notes 4, 23 and 41) 27,945,876 1 26,360,932 2 28,503,088 2
PAYABLES (Notes 24 and 41) 28,795,930 2 33,007,120 2 28,503,723 2
CURRENT TAX LIABILITIES (Notes 4, 39 and 41) 1,588,497 - 1,508,732 - 993,236 -
DEPOSITS AND REMITTANCES (Notes 25 and 41) 1,351,974,078 76 1,247,741,397 78 1,183,392,509 78
BANK DEBENTURES (Notes 9 and 26) 65,271,143 4 66,929,382 4 62,143,488 4
OTHER FINANCIAL LIABILITIES (Notes 27 and 41) 37,850,450 2 27,644,584 2 25,502,063 2
PROVISIONS (Notes 4, 17, 28 and 29) 1,876,127 - 1,513,794 - 1,279,039 -
DEFERRED TAX LIABILITIES (Notes 4 and 39) 398,957 - 592,491 - 501,022 -
OTHER LIABILITIES (Notes 30 and 41) 4,614,527 - 3,493,022 - 4,248,933 -
Total liabilities 1,632,523,611 92 1,498,510,172 93 1,415,002,560 94
EQUITY (Notes 4 and 31) Attributable to owner of the Bank Capital stock Ordinary share 82,065,712 5 57,430,769 4 51,092,871 3 Capital surplus 13,856,908 1 13,613,508 1 13,613,508 1 Retained earnings Legal reserve 20,947,968 1 17,049,707 1 14,333,465 1 Special reserve 1,535,698 - 1,535,698 - 1,535,698 - Unappropriated earnings 11,702,393 1 12,704,760 1 9,054,140 1 Total retained earnings 34,186,059 2 31,290,165 2 24,923,303 2 Other equity 3,126,665 - 4,098,481 - 3,100,526 - Total equity attributable to owner of the Bank 133,235,344 8 106,432,923 7 92,730,208 6
Total equity 133,235,344 8 106,432,923 7 92,730,208 6
TOTAL $ 1,765,758,955 100 $ 1,604,943,095 100 $ 1,507,732,768 100
The accompanying notes are an integral part of the consolidated financial statements.
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TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Earnings Per Share)
Percentage For the Year Ended December 31 Increase 2013 2012 (Decrease) Amount % Amount % %
NET INTEREST (Notes 4, 32 and 41) Interest revenues $ 27,679,582 82 $ 26,299,212 90 5 Interest expenses (11,904,448) (35) (11,668,978) (40) 2
Total net interest 15,775,134 47 14,630,234 50 8
NET REVENUES OTHER THAN INTEREST (Note 4) Commission and fee revenues, net (Notes 33 and 41) 8,445,023 25 8,274,956 28 2 Gains on financial assets and liabilities at fair value through profit or loss (Notes 8, 34 and 41) 5,560,925 16 4,028,160 14 38 Realized gains on available-for-sale financial assets (Notes 31 and 35) 1,703,727 5 744,332 2 129 Foreign exchange gains, net 1,867,661 6 1,139,902 4 64 Reversal of impairment loss on assets (Notes 16, 19 and 20) 3,908 - 49,055 - (92) Share of the profit of the associate (Note 15) 8,719 - 7,157 - 22 Losses due to shortfall of guaranteed sports lottery earnings (649,064) (2) (395,589) (1) 64 Other noninterest net revenues (Notes 19, 37 and 41) 913,138 3 763,312 3 20
Total net revenues other than interest 17,854,037 53 14,611,285 50 22
TOTAL NET REVENUES 33,629,171 100 29,241,519 100 15
ALLOWANCE (REVERSAL OF ALLOWANCE) FOR CREDIT LOSSES AND LOSSES ON GUARANTEES (Notes 4 and 17) 3,857,105 12 (542,317) (2) 811
OPERATING EXPENSES (Notes 4, 29, 36, 37, 38 and 41) Employee benefits 9,307,663 28 8,655,036 30 8 Depreciation and amortization 751,055 2 759,276 3 (1) Others 5,523,356 16 5,329,099 18 4
Total operating expenses 15,582,074 46 14,743,411 51 6 (Continued)
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TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Earnings Per Share)
Percentage For the Year Ended December 31 Increase 2013 2012 (Decrease) Amount % Amount % %
NET PROFIT BEFORE INCOME TAX FROM CONTINUING OPERATIONS 14,189,992 42 15,040,425 51 (6)
INCOME TAX EXPENSE (Notes 4 and 39) 2,085,385 6 2,067,131 7 1
NET PROFIT FOR THE YEAR 12,104,607 36 12,973,294 44 (7)
OTHER COMPREHENSIVE INCOME (Note 4) Exchange differences on translating foreign operations 159,094 1 (223,631) (1) 171 Unrealized (loss) gain on available-for-sale financial assets (Note 31) (1,271,749) (4) 1,281,665 5 (199) Actuarial loss arising from defined benefit plans (Note 29) (135,868) - (323,535) (1) (58) Share of the other comprehensive income of the associate (Note 31) 13,460 - 15,555 - (13) Income tax relating to the components of other comprehensive income (Note 39) 150,477 - (20,633) - 829
Other comprehensive income for the year, net of income tax (1,084,586) (3) 729,421 3 (249)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR $ 11,020,021 33 $ 13,702,715 47 (20)
NET PROFIT ATTRIBUTE TO OWNER OF THE BANK $ 12,104,607 36 $ 12,973,294 44 (7)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTE TO OWNER OF THE BANK $ 11,020,021 33 $ 13,702,715 47 (20)
EARNINGS PER SHARE (Note 40) Basic $ 1.57 $ 1.79
The accompanying notes are an integral part of the consolidated financial statements. (Concluded)
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TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In Thousands of New Taiwan Dollars)
Other Equity (Notes 4 and 31) Exchange Unrealized Differences on Gain (Loss) on Capital Stock (Note 31) Retained Earnings (Notes 4 and 31) Translating Available-for- Shares Capital Surplus Unappropriated Foreign sale Financial (Thousands) Amount (Note 31) Legal Reserve Special Reserve Earnings Total Operations Assets Total Equity
BALANCE, JANUARY 1, 2012 5,109,287 $ 51,092,871 $ 13,613,508 $ 14,333,465 $ 1,535,698 $ 9,054,140 $ 24,923,303 $ 20,056 $ 3,080,470 $ 92,730,208
Appropriation of the 2011 earnings Legal reserve - - - 2,716,242 - (2,716,242) - - - - Stock dividends 633,790 6,337,898 - - - (6,337,898) (6,337,898) - - -
Net profit for the year ended December 31, 2012 - - - - - 12,973,294 12,973,294 - - 12,973,294
Other comprehensive income for the year ended December 31, 2012, net of income tax - - - - - (268,534) (268,534) (223,631) 1,221,586 729,421
Total comprehensive income for the year ended December 31, 2012 - - - - - 12,704,760 12,704,760 (223,631) 1,221,586 13,702,715
BALANCE, DECEMBER 31, 2012 5,743,077 57,430,769 13,613,508 17,049,707 1,535,698 12,704,760 31,290,165 (203,575) 4,302,056 106,432,923
Appropriation of the 2012 earnings Legal reserve - - - 3,898,261 - (3,898,261) - - - - Stock dividends 909,594 9,095,943 - - - (9,095,943) (9,095,943) - - -
Other changes in capital surplus Issue of share dividends from capital surplus 612,308 6,123,077 (6,123,077) ------
Net profit for the year ended December 31, 2013 - - - - - 12,104,607 12,104,607 - - 12,104,607
Other comprehensive loss for the year ended December 31, 2013, net of income tax - - - - - (112,770) (112,770) 159,094 (1,130,910) (1,084,586)
Total comprehensive income for the year ended December 31, 2013 - - - - - 11,991,837 11,991,837 159,094 (1,130,910) 11,020,021
Issue of ordinary shares for cash 941,592 9,415,923 6,366,477 ------15,782,400
BALANCE, DECEMBER 31, 2013 8,206,571 $ 82,065,712 $ 13,856,908 $ 20,947,968 $ 1,535,698 $ 11,702,393 $ 34,186,059 $ (44,481) $ 3,171,146 $ 133,235,344
The accompanying notes are an integral part of the consolidated financial statements.
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TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars)
For the Year Ended December 31 2013 2012
CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax from continuing operations $ 14,189,992 $ 15,040,425 Adjustments for: Depreciation expenses 446,825 474,413 Amortization expenses 316,052 296,752 Allowance (reversal of allowance) for credit losses 3,697,691 (465,091) Interest expenses 11,904,448 11,668,978 Interest revenues (27,679,582) (26,299,212) Dividend income (601,255) (661,198) Changes in reserve for losses on guarantees 159,414 (77,226) Changes in provisions (2,057) (38,537) Share of profit of the associate (8,719) (7,157) Loss on disposal of property and equipment 5,253 22,062 Loss on disposal of intangible asset 350 - Impairment loss on financial assets 1,422 4,260 Reversal of impairment loss on financial assets (94,130) (12,120) Impairment loss on nonfinancial assets 88,800 - Reversal of impairment loss on nonfinancial assets - (41,195) Other adjustments (113,863) (53,252) Subtotal (11,879,351) (15,188,523) Changes in operating assets and liabilities Increase in due from the Central Bank of China and other banks (7,508,275) (11,779,940) Decrease (increase) in financial assets at fair value through profit or loss 11,461,831 (25,051,673) Increase in securities purchased under agreements to resell (400,347) - (Increase) decrease in receivables (28,283,931) 7,420,693 Increase in discounts and loans (80,073,231) (73,869,628) Increase in available-for-sale financial assets (2,780,242) (27,717,281) Decrease in held-to-maturity financial assets 17,250,909 41,866,110 (Increase) decrease in other financial assets (10,440,660) 948,583 Increase in due to the Central Bank of China and other banks 13,601,774 12,993,566 Increase (decrease) in financial liabilities at fair value through profit or loss 8,388,058 (3,135,075) Increase (decrease) in securities sold under agreements to repurchase 1,584,944 (2,142,156) (Decrease) increase in payables (4,147,772) 4,242,016 Increase in deposits and remittances 104,232,681 64,348,888 Increase in other financial liabilities 10,205,866 2,142,521 Increase in provision for employee benefits 68,919 27,461 Increase (decrease) in other liabilities 383,077 (779,195) Net cash provided by (used in) operations 35,854,242 (10,633,208) Interest received 28,100,094 25,558,104 Dividends received 608,018 660,008 Interest paid (11,967,866) (11,407,597) Income tax paid (1,952,417) (765,277)
Net cash provided by operating activities 50,642,071 3,412,030 (Continued)
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TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars)
For the Year Ended December 31 2013 2012
CASH FLOWS FROM INVESTING ACTIVITIES Purchase of financial assets carried at cost $ (3,455,948) $ - Proceeds of the capital reduction of financial assets carried at cost 76,280 - Payments for property and equipment (445,969) (526,723) Proceeds of the disposal of property and equipment 542 5,691 Payments for intangible assets (244,681) (52,105) Proceeds of the sale of nonperforming loans - 42,512 Increase in other assets (1,849,541) (897,918)
Net cash used in investing activities (5,919,317) (1,428,543)
CASH FLOWS FROM FINANCING ACTIVITIES Issuance of bank debentures 4,250,000 6,000,000 Repayment of bank debentures (5,550,000) (1,000,000) Proceeds of the issue of ordinary shares 15,782,400 -
Net cash provided by financing activities 14,482,400 5,000,000
EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES 190,278 (266,253)
NET INCREASE IN CASH AND CASH EQUIVALENTS 59,395,432 6,717,234
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 63,315,057 56,597,823
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 122,710,489 $ 63,315,057
Reconciliation of the amounts in the consolidated statements of cash flows with the equivalent items reported in the consolidated balance sheets at December 31, 2013 and 2012:
For the Year Ended December 31 2013 2012
Cash and cash equivalents in consolidated balance sheets $ 74,257,224 $ 31,820,002 Due from the Central Banks and other banks that meet the definition of cash and cash equivalents in IAS 7 28,673,715 15,151,564 Securities purchased under agreements to resell that meet the definition of cash and cash equivalents in IAS 7 19,779,550 16,343,491 Cash and cash equivalents in consolidated statements of cash flows $ 122,710,489 $ 63,315,057
The accompanying notes are an integral part of the consolidated financial statements. (Concluded)
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TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Stated)
1. GENERAL INFORMATION
TAIPEI FUBON COMMERCIAL BANK Co., Ltd. (the “Bank”) started as a financial institution under the Taipei City Government (TCG) in 1969. On July 1, 1984, it was reorganized into a limited liability corporation and was renamed City Bank of Taipei Co., Ltd. On January 1, 1993, the Bank was renamed TAIPEIBANK Co., Ltd. (“TAIPEIBANK”). On November 30, 1999, the Bank was privatized through the sale of its shares to the public, with TCG‟s holdings reduced to less than 50% of the Bank‟s outstanding capital stock. In their special meeting on October 4, 2002, the stockholder approved a share swap, which resulted in the Bank‟s becoming a wholly owned subsidiary of the Fubon Financial Holdings Company (FFH). The board of directors designated December 23, 2002 as the effective date of the share swap and of the delisting of the Bank‟s stock from the Taiwan Stock Exchange.
To fully harness the synergy of two diversified business operations and reduce operating costs, the boards of directors of the Bank and Fubon Bank Co., Ltd. (“Fubon Bank,” a wholly owned subsidiary of FFH) decided on January 1, 2005 to combine these two entities. On January 1, 2005, the Bank acquired the assets and liabilities of Fubon Bank through a share swap and had its name changed to Taipei Fubon Commercial Bank Co., Ltd.
On September 20, 2006, the boards of directors of the Bank and Fubon Bills Finance Co., Ltd. (FBFC) decided to merge the Bank and FBFC to strengthen their operating synergy and lower operating costs, with the Bank as the survivor entity. The Bank set December 25, 2006 as the effective merger date.
Pursuant to the terms and conditions set out in the “Sale and Assumption Agreement” signed by the Bank, Chinfon Commercial Bank Co., Ltd. (hereinafter referred to as “Chinfon Bank”), Central Deposit Insurance Corp. and the Executive Yuan‟s Financial Reconstruction Trust Corporation on October 30, 2009, effective midnight, March 6, 2010, the Bank assumed the assets, liabilities and businesses of the Hanoi branch and Ho Chi Minh City subbranch of Chinfon Bank under the conditions that the acquirer has obtained the competent authority‟s approval and completed the settlement procedure.
The Bank engages in the following: (a) act for the municipal treasures of Taipei City; (b) management of municipal treasury bills of Taipei City; (c) all commercial banking operations authorized under the Banking Act; (d) securities and trust operations; (e) lottery operations; (f) futures trading (It is terminated on June 1, 2013); and (g) other authorized operations.
The Bank has its head office in Taipei City, and as of December 31, 2013, had 4 major operating departments - Banking, Trust, Public Treasury and Lottery departments - with 132 branches (including one offshore banking unit (OBU), 5 overseas branches), and 1 overseas representative office.
The operations of the Bank‟s Trust Department are (1) planning, managing and operating a trust business; and (2) custodianship of nondiscretionary trust funds in domestic and overseas securities and mutual funds. These operations are regulated under the Banking Act and the Trust Law.
The Bank was granted the right to run the Taiwan Sports Lottery from 2008 to 2013 by the Ministry of Finance.
Taipei Fubon Bank Life Insurance Agency Co., Ltd. was incorporated in accordance with the Company Law on June 26, 2000 and mainly engages in the life insurance agency business.
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The Bank‟s ultimate parent is Fubon Financial Holdings Company, which holds all the ordinary shares of the Bank.
The functional currency of the Bank is the New Taiwan dollar, and the consolidated financial statements are presented in New Taiwan dollars.
2. APPROVAL OF FINANCIAL STATEMENTS
The consolidated financial statements were approved by the board of directors and authorized for issue on March 19, 2014.
3. APPLICATION OF NEW AND REVISED STANDARDS, AMENDMENTS AND INTERPRETATIONS
a. New, amended and revised standards and interpretations in issue but not yet effective
The Bank and its subsidiaries have not applied the following International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) issued by the IASB. On January 28, 2014, the Financial Supervisory Commission (FSC) announced the framework for the adoption of updated IFRSs version in the ROC. Under this framework, starting January 1, 2015, the previous version of IFRSs endorsed by the FSC (the 2010 IFRSs version) currently applied by companies with shares listed on the Taiwan Stock Exchange or traded on the Taiwan GreTai Securities Market or Emerging Stock Market and the financial industry regulated by the FSC will be replaced by the updated IFRSs without IFRS 9 (the 2013 IFRSs version). However, as of the date that the consolidated financial statements were authorized for issue, the FSC has not endorsed the following new, amended and revised standards and interpretations issued by the IASB (the “New IFRSs”) included in the 2013 IFRSs version. Furthermore, the FSC has not announced the effective date for the following New IFRSs that are not included in the 2013 IFRSs version.
The New IFRSs Included in the Effective Date 2013 IFRSs Version Not Yet Endorsed by the FSC Announced by IASB (Note 1)
Improvements to IFRSs (2009) - amendment to IAS 39 January 1, 2009 and January 1, 2010, as appropriate Amendment to IAS 39 “Embedded Derivatives” Effective for annual periods ending on or after June 30, 2009 Improvements to IFRSs (2010) July 1, 2010 and January 1, 2011, as appropriate Annual Improvements to IFRSs 2009-2011 Cycle January 1, 2013 Amendment to IFRS 1 “Limited Exemption from Comparative IFRS 7 July 1, 2010 Disclosures for First-time Adopters” Amendment to IFRS 1 “Severe Hyperinflation and Removal of Fixed July 1, 2011 Dates for First-time Adopters” Amendment to IFRS 1 “Government Loans” January 1, 2013 Amendment to IFRS 7 “Disclosure - Offsetting Financial Assets and January 1, 2013 Financial Liabilities” Amendment to IFRS 7 “Disclosure - Transfer of Financial Assets” July 1, 2011 IFRS 10 “Consolidated Financial Statements” January 1, 2013 IFRS 11 “Joint Arrangements” January 1, 2013 (Continued)
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The New IFRSs Included in the Effective Date 2013 IFRSs Version Not Yet Endorsed by the FSC Announced by IASB (Note 1)
IFRS 12 “Disclosure of Interests in Other Entities” January 1, 2013 Amendments to IFRS 10, IFRS 11 and IFRS 12 “Consolidated January 1, 2013 Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance” Amendments to IFRS 10 and IFRS 12 and IAS 27 “Investment January 1, 2014 Entities” IFRS 13 “Fair Value Measurement” January 1, 2013 Amendment to IAS 1 “Presentation of Other Comprehensive Income” July 1, 2012 Amendment to IAS 12 “Deferred Tax: Recovery of Underlying January 1, 2012 Assets” IAS 19 (Revised 2011) “Employee Benefits” January 1, 2013 IAS 27 (Revised 2011) “Separate Financial Statements” January 1, 2013 IAS 28 (Revised 2011) “Investments in Associates and Joint January 1, 2013 Ventures” Amendment to IAS 32 “Offsetting Financial Assets and Financial January 1, 2014 Liabilities” IFRIC 20 “Stripping Costs in Production Phase of a Surface Mine” January 1, 2013 (Concluded)
Effective Date The New IFRSs Not Included in the 2013 IFRSs Version Announced by IASB (Note 1)
Annual Improvements to IFRSs 2010-2012 Cycle July 1, 2014 (Note 2) Annual Improvements to IFRSs 2011-2013 Cycle July 1, 2014 IFRS 9 “Financial Instruments” Effective date not determined Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of Effective date not determined IFRS 9 and Transition Disclosures” Amendment to IAS 19 “Defined Benefit Plans: Employee July 1, 2014 Contributions” Amendment to IAS 36 “Impairment of Assets: Recoverable Amount January 1, 2014 Disclosures for Non-financial Assets” Amendment to IAS 39 “Novation of Derivatives and Continuation of January 1, 2014 Hedge Accounting” IFRIC 21 “Levies” January 1, 2014 (Concluded)
Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after the respective effective dates.
Note 2: The amendment to IFRS 2 applies to share-based payment transactions for which the grant date is on or after July 1, 2014; the amendment to IFRS 3 applies to business combinations for which the acquisition date is on or after July 1, 2014; the amendment to IFRS 13 is effective immediately; the remaining amendments are effective for annual periods beginning on or after July 1, 2014.
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b. Significant impending changes in accounting policy resulted from new, amended and revised standards and interpretations in issue but not yet effective
Except for the following, the initial application of the above new, amended and revised standards and interpretations have not had any material impact on the Bank and its subsidiary‟s accounting policies:
1) IFRS 9 “Financial Instruments”
With regards to financial assets, all recognized financial assets that are within the scope of IAS 39 “Financial Instruments: Recognition and Measurement” to be subsequently measured at amortized cost or fair value. Specifically, financial assets that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. All other financial assets are measured at their fair values at the balance sheet date. However, the Bank and its subsidiary may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss.
As for financial liabilities, the main changes in the classification and measurement relate to the subsequent measurement of financial liabilities designated as at fair value through profit or loss. The amount of change in the fair value of such financial liability attributable to changes in the credit risk of that liability, is presented in other comprehensive income and the remaining amount of change in the fair value of that liability is presented in profit or loss, unless the recognition of the effects of changes in the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability's credit risk are not subsequently reclassified to profit or loss. If the above accounting treatment would create or enlarge an accounting mismatch in profit or loss, the Bank and its subsidiary present all gains or losses on that liability in profit or loss.
The main changes in hedge accounting amended the application requirements for hedge accounting to better reflect the entity‟s risk management activities. Compared with IAS 39, the main changes include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening the risk eligible for hedge accounting of nonfinancial items; (2) changing the way hedging derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item.
The mandatory effective date of IFRS 9, which was previously set at January 1, 2015, was removed and will be reconsidered once the standard is complete with a new impairment model and finalization of any limited amendments to classification and measurement.
2) New and revised standards on consolidation, joint arrangement, and associates and disclosure
a) IFRS 10 “Consolidated Financial Statements”
IFRS 10 replaces IAS 27 “Consolidated and Separate Financial Statements” and SIC 12 “Consolidation - Special Purpose Entities”. The Bank and its subsidiary consider their ability of control over other entities for consolidation. The Bank and its subsidiary have control over an investee if and only if they have a) power over the investee; b) exposure, or rights, to variable returns from its involvement with the investee and c) the ability to use its power over the investee to affect the amount of its returns. Additional guidance has been included in IFRS 10 to explain when an investor has control over an investee.
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b) IFRS 12 “Disclosure of Interests in Other Entities”
IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. In general, the disclosure requirements in IFRS 12 are more extensive than in the current standards.
c) Revision to IAS 28 “Investments in Associates and Joint Ventures”
Revised IAS 28 requires when a portion of an investment in associates meets the criteria to be classified as held for sale, that portion is classified as held for sale. Any retained portion that has not been classified as held for sale is accounted for using the equity method. Under current IAS 28, when a portion of an investment in associates meets the criteria to be classified as held for sale, the entire investment is classified as held for sale and ceases to apply the equity method.
3) IFRS 13 “Fair Value Measurement”
IFRS 13 establishes a single source of guidance for fair value measurements. It defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. The disclosure requirements in IFRS 13 are more extensive than those required in the current standards. For example, quantitative and qualitative disclosures based on the three-level fair value hierarchy currently required for financial instruments only will be extended by IFRS 13 to cover all assets and liabilities within its scope.
4) Amendments to IAS 1 “Presentation of Items of Other Comprehensive Income”
The amendments to IAS 1 require items of other comprehensive income to be grouped into those that (1) will not be reclassified subsequently to profit or loss; and (2) will be reclassified subsequently to profit or loss when specific conditions are met. Income taxes on related items of other comprehensive income are grouped on the same basis. Under current IAS 1, there were no such requirements.
5) Revision to IAS 19 “Employee Benefits”
Revised IAS 19 requires the recognition of changes in defined benefit obligations and in the fair value of plan assets when they occur, and hence eliminate the “corridor approach” permitted under current IAS 19 and accelerate the recognition of past service costs. The revision requires all actuarial gains and losses to be recognized immediately through other comprehensive income in order for the net pension asset or liability to reflect the full value of the plan deficit or surplus. Furthermore, the interest cost and expected return on plan assets used in current IAS 19 are replaced with a “net interest” amount, which is calculated by applying the discount rate to the net defined benefit liability or asset.
6) Amendments to IAS 36 “Recoverable Amount Disclosures for Non-financial Assets”
In issuing IFRS 13 “Fair Value Measurement”, the IASB made some consequential amendments to the disclosure requirements in IAS 36 “Impairment of Assets”, introducing a requirement to disclose in every reporting period the recoverable amount of an asset or each cash-generating unit. The amendment clarifies that the disclosure of such recoverable amount is required during the period when an impairment loss has been recognized or reversed. Furthermore, the Bank and its subsidiary are required to disclose the discount rate used in current and previous measurements of the recoverable amount based on fair value less costs of disposal measured using a present value technique.
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7) Annual Improvements to IFRSs: 2010-2012 Cycle
Several standards including IFRS 2 “Share-Based Payment”, IFRS 3 “Business Combinations” and IFRS 8 “Operating Segments” were amended in this annual improvement.
The amended IFRS 2 changes the definitions of „vesting condition‟ and „market condition‟ and adds definitions for 'performance condition' and 'service condition'. The amendment clarifies that a performance target can be based on the operations (i.e. a non-market condition) of the Group or another entity in the same group or the market price of the equity instruments of the Group or another entity in the same group (i.e. a market condition); that a performance target can relate either to the performance of the Group as a whole or to some part of it (e.g. a division); and that the period for achieving a performance condition must not extend beyond the end of the related service period. In addition, a share market index target is not a performance condition because it not only reflects the performance of the Group, but also of other entities outside the Group.
IFRS 3 was amended to clarify that contingent consideration should be measured at fair value, irrespective of whether the contingent consideration is a financial instrument within the scope of IFRS 9 or IAS 39. Changes in fair value should be recognized in profit or loss.
The amended IFRS 8 requires an entity to disclose the judgments made by management in applying the aggregation criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining whether the operating segments have „similar economic characteristics‟. The amendment also clarifies that a reconciliation of the total of the reportable segments‟ assets to the entity‟s assets should only be provided if the segments‟ assets are regularly provided to the chief operating decision-maker.
IFRS 13 was amended to clarify that the issuance of IFRS 13 did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amounts without discounting, if the effect of not discounting is immaterial.
IAS 24 was amended to clarify that a management entity providing key management personnel services to the Bank and its subsidiary is a related party of the Bank and its subsidiary. Consequently, the Bank and its subsidiary are required to disclose as related party transactions the amounts incurred for the service paid or payable to the management entity for the provision of key management personnel services. However, disclosure of the components of such compensation is not required.
c. The impact of the application of New IFRSs and the Regulations Governing the Preparation of Financial Reports by Public Banks (the “Regulations”) in issue but not yet effective on the Bank and its subsidiary‟s consolidated financial statements is as follows:
As of the date the consolidated financial statements were authorized for issue, the Bank and its subsidiary are continuingly assessing the possible impact that the application of the above New IFRSs will have on the Bank and its subsidiary's financial position and operating result, and will disclose the relevant impact when the assessment is complete.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Under Rule No. 100000073410 issued by the Financial Supervisory Commission (FSC) on April 7, 2011, the Bank and its subsidiary should prepare consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks and the International Financial Reporting Standards, International Accounting Standards, and the Interpretations endorsed by the FSC. The date of transition to IFRSs was January 1, 2012. The Bank and its subsidiary‟s consolidated financial statements for the year ended December 31, 2013 is their first IFRS consolidated financial statements. Refer to Note 54 for the impact of IFRS conversion on the consolidated financial statements.
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Statement of Compliance
The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks, IFRSs endorsed by the FSC and certain other guidelines issued by the authority.
Basis of Preparation
The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values. Historical cost is generally based on the fair value of the consideration given in exchange for assets.
The opening consolidated balance sheets as of the date of transition to IFRSs was prepared in accordance with IFRS 1 “First-time Adoption of International Financial Reporting Standards”. The applicable IFRSs have been applied retrospectively by the Bank and its subsidiary except for some aspects where other IFRSs prohibit retrospective application and specified areas where IFRS 1 grants limited exemptions from the requirements of other IFRSs. For the exemptions that the Bank and its subsidiary elected, refer to Note 54. The accounting policies are summarized as follows.
Current and Noncurrent Assets and Liabilities
Since the Bank accounts for major parts of the consolidated accounts, and the operating cycle in the banking industry cannot be clearly identified, accounts included in the consolidated financial statements of the Bank and its subsidiary were not classified as current or noncurrent. Nevertheless, accounts were properly categorized according to the nature of each account and sequenced by their liquidity. Please refer to Note 47 for the maturity analysis of assets and liabilities.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of the Bank and the entity controlled by the Bank (i.e. its subsidiary). Control is achieved when the Bank has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
The consolidated entities as of December 31, 2013, December 31, 2012 and January 1, 2012, were as follows:
% of Ownership December 31, December 31, January 1, Investor Investee Main Business 2013 2012 2012
The Bank Taipei Fubon Bank Life Insurance Life insurance agent 100 100 100 Agency Co., Ltd.
When necessary, adjustments are made to the financial statements of its subsidiary to bring its accounting policies into line with those used by the Bank. All significant intragroup transactions, balances, income and expenses are eliminated upon consolidation (refer to Table 4).
Foreign Currencies
At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Nonmonetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Nonmonetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
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Exchange differences arising from settlement are recognized in profit or loss in the period in which they arise. Exchange differences on monetary items arising from translation at period end are recognized in profit or loss except for cash flow hedges or effective portions of hedge of net investments in foreign operations are recognized in other comprehensive income.
Exchange differences arising on the retranslation of nonmonetary assets (such as equity instruments) or liabilities measured at fair value are included in profit or loss for the period at the rates prevailing at the end of reporting period except for exchange differences arising on the retranslation of nonmonetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income.
For the purposes of presenting consolidated financial statements, the assets and liabilities of the Bank‟s foreign operations are translated into New Taiwan dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising are recognized in other comprehensive income and accumulated in equity.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits, time deposits that can be readily terminated without deduction of principal, and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For consolidated statement of cash flows, cash and cash equivalents include cash and cash equivalents in consolidated balance sheets, and those amounts of due from the Central Bank of China and other banks and securities purchased under agreements to resell that meet the definition of cash and cash equivalents in IAS 7, etc.
Investment in Associates
An associate is an entity over which the Bank and its subsidiary have significant influence and that is neither a subsidiary nor an interest in a joint venture.
The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in an associate is initially recognized at cost and adjusted thereafter to recognize the Bank and its subsidiary‟s share of the profit or loss and other comprehensive income of the associate. The Bank and its subsidiary also recognize the changes in the Bank and its subsidiary‟s share of equity of associates.
Financial Instruments
Financial assets and financial liabilities are recognized when the Bank and its subsidiary become a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss. a. Financial assets
All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.
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1) Measurement category
Financial assets are classified into the following specified categories: Financial assets at fair value through profit or loss, held-to-maturity investments, available-for-sale financial assets and loans and receivables.
a) Financial assets at fair value through profit or loss
Financial assets are classified as at fair value through profit or loss when the financial asset is either held for trading or it is designated as at fair value through profit or loss.
A financial asset may be designated as at fair value through profit or loss upon initial recognition if:
i. Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
ii. The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Company‟s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
iii. The contract contains one or more embedded derivatives so that the entire hybrid (combined) contract can be designated as at fair value through profit or loss.
Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss.
b) Held-to-maturity investments
Held-to-maturity investments are nonderivative financial assets with fixed or determinable payments and fixed maturity dates that the Bank and its subsidiary have the positive intent and ability to hold to maturity other than those that the Bank and its subsidiary upon initial recognition designate as at fair value through profit or loss, or designate as available for sale, or meet the definition of loans and receivables.
Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method less any impairment.
c) Available-for-sale financial assets
Available-for-sale financial assets are nonderivatives that are either designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss.
Available-for-sale financial assets are measured at fair value. Changes in the carrying amount of available-for-sale monetary financial assets relating to changes in foreign currency exchange rates, interest income calculated using the effective interest method and dividends on available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income and will be reclassified to profit or loss when the investment is disposed of or is determined to be impaired.
Dividends on available-for-sale equity instruments are recognized in profit or loss when the Bank and its subsidiary‟s right to receive the dividends is established.
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Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment loss at the end of each reporting period and are recognized in a separate line item as financial assets carried at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between carrying amount and fair value is recognized in profit or loss or other comprehensive income on financial assets.
d) Loans and receivables
Loans and receivables (including discounts and loans, receivables, cash and cash equivalent, debt investments with no active market, etc.) are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial.
2) Impairment of financial assets
Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.
The objective evidence of impairment could include significant financial difficulty of the issuer or counterparty, breach of contract (such as a default or delinquency of interest or principal payments), it becoming that the borrower will enter bankruptcy or financial reorganization, or the disappearance of an active market for financial asset because of financial difficulties.
a) Financial assets carried at amortized cost
For certain categories of financial assets, such as discounts and loans, and receivables are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of discounts and loans and receivables could include the Bank and its subsidiary‟s past experience of collecting payments, an increase in the number of delayed payments in the portfolio, as well as observable changes in national or local economic conditions that correlate with default on discounts and loans and receivables.
For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset‟s carrying amount and the present value of estimated future cash flows, discounted at the financial asset‟s original effective interest rate.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
Pursuant to “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Nonaccrual Loans” (the “Regulations”) issued by the authority, the Bank assesses the recoverability of credit assets on the basis of a customer‟s financial position, delinquency in interest or principal payments, and the Bank‟s internal valuation of collaterals.
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Under the regulations, the Bank categorize the credit assets into Normal, Special Mention, Substandard, Doubtful, and Loss, and then make minimum provisions at 0.5% of the normal credits (other than those loans to ROC government), 2% of special mention, 10% of substandard, 50% of doubtful, and 100% of loss. In addition, in accordance with Rule No. 10010006830 subsequently issued by the FSC, the coverage ratio of loans should be more than 1%.
Credits deemed uncollectible may be written off if the write-off is approved by the board of directors. Recoveries of amounts previously written off are credited to the allowance account.
b) Available-for-sale financial assets
For available-for-sale equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.
When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period.
In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income and accumulated under the heading of investments revaluation reserve. In respect of available-for-sale debt securities, impairment loss are subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.
c) Financial assets carried at cost
For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset‟s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.
The carrying amount of the financial asset is reduced through the use of an allowance account. When those financial assets are considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss
3) Derecognition of financial assets
The Bank and its subsidiary derecognize a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Bank and its subsidiary neither transfer nor retain substantially all the risks and rewards of ownership and continue to control the transferred asset, the Bank and its subsidiary recognize their retained interest in the asset and an associated liability for amounts they may have to pay. If the Bank and its subsidiary retain substantially all the risks and rewards of ownership of a transferred financial asset, the Bank and its subsidiary continue to recognize the financial asset and also recognize a collateralized borrowing for the proceeds received.
On derecognition of a financial asset in its entirety, the difference between the asset‟s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.
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On derecognition of a financial asset other than in its entirety (e.g. when the Bank and its subsidiary retain an option to repurchase part of a transferred asset), the Bank and its subsidiary allocate the previous carrying amount of the financial asset between the part they continue to recognize under continuing involvement, and the part they no longer recognize on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts. b. Equity instruments
Debt and equity instruments issued by the Bank and its subsidiary are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Bank and its subsidiary are recognized at the proceeds received, net of direct issue costs.
Repurchase of the Bank‟s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Bank‟s own equity instruments. c. Financial liabilities
1) Subsequent measurement
Except the following situation, all the financial liabilities are measured at amortized cost using the effective interest method, less any impairment (see above for the definition of effective interest method):
a) Financial liabilities at fair value through profit or loss
Financial liabilities are classified as at fair value through profit or loss when the financial liability is either held for trading or it is designated as at fair value through profit or loss.
A financial liability may be designated as at fair value through profit or loss upon initial recognition when doing so results in more relevant information and if:
i. Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
ii. The financial liability forms part of the Bank and its subsidiary of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Bank and its subsidiary‟s documented risk management or investment strategy, and information about the grouping is provided internally on that basis.
iii. The contract contains one or more embedded derivatives so that the entire combined contract (asset or liability) can be designated as at fair value through profit or loss.
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Financial liabilities at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid on the financial liability and is included in the other gains and losses line item. Fair value is determined in the manner described in Note 46.
b) Financial guarantee contracts
Financial guarantee contracts issued by the Bank and its subsidiary are initially measured at their fair values and, if not designated as at fair value through profit or loss, are subsequently measured at the higher of the best estimate of the obligation under the contract or the amount initially recognized less cumulative amortization recognized.
2) Derecognition of financial liabilities
The difference between the carrying amount of the financial liability derecognized and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss. d. Derivative financial instruments
Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. When the fair value of derivative financial instruments is positive, the derivative is recognized as a financial asset; when the fair value of derivative financial instruments is negative, the derivative is recognized as a financial liability.
Derivatives embedded in nonderivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at fair value through profit or loss.
Hedge Accounting
The Bank and its subsidiary designate certain hedging instruments, which include derivatives, embedded derivatives and nonderivatives in respect of foreign currency risk, as either fair value hedges or cash flow hedges.
At the inception of the hedge relationship, the Bank and its subsidiary document the relationship between the hedging instrument and the hedged item, along with their risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Bank and its subsidiary document whether the hedging instrument is highly effective in offsetting the exposure of changes in fair values or cash flows of the hedged item attributable to the hedged risk. Note 9 sets out details of the fair values of the derivative instruments used for hedging purposes. a. Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognized in profit or loss in the line item relating to the hedged item.
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Hedge accounting is discontinued prospectively when the Bank and its subsidiary revoke the designated hedging relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer meets the criteria for hedge accounting. The fair value adjustment to the carrying amount of the hedged instrument arising from the hedged risk for which the effective interest method is used is amortized to profit or loss from the date of hedge accounting is discontinued. The adjustment is based on a recalculated effective interest rate at the date amortization begins is amortized fully by maturity of the financial instrument. b. Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss.
The associated gains or losses that were recognized in other comprehensive income are reclassified from equity to profit or loss as a reclassification adjustment in the line item relating to the hedged item in the same period when the hedged item affects profit or loss. If a hedge of a forecast transaction subsequently results in the recognition of a nonfinancial asset or a nonfinancial liability, the associated gains and losses that were recognized in other comprehensive income are removed from equity and are included in the initial cost of the nonfinancial asset or nonfinancial liability.
Hedge accounting is discontinued prospectively when the Bank and its subsidiary revoke the designated hedging relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument that has been previously recognized in other comprehensive income from the period when the hedge was effective remains separately in equity until the forecast transaction occurs. When the forecast transaction is ultimately recognized in profit or loss, the associated gains or losses that were recognized in other comprehensive income are reclassified from equity to profit or loss or are included in the initial cost of the nonfinancial asset or nonfinancial liability. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss.
Nonperforming Loans
Under the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/Nonaccrual Loans” issued by the authority, loans and other credits (including the accrued interests) that remained unpaid as they fall due are transferred to nonperforming loans, if the transfer is approved by the board of directors.
Nonperforming loans transferred from loans are recognized as discounts and loans, and those transferred from other credits are recognized as other financial assets.
Repurchase and Resell Transactions
Securities under agreement to repurchase or to resell are accounted for securities sold under agreements to purchase or securities purchased under agreements to resell. Related interest expenses and interest revenues are accrued over the period between the date of sale and repurchase or the date of purchase and resale.
Property and Equipment
Property and equipment are stated at cost, less subsequent accumulated depreciation and subsequent accumulated impairment loss.
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Depreciation is recognized using the straight-line method. Each significant part is depreciated separately. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
Investment Properties
Investment properties are properties held to earn rentals and/or for capital appreciation.
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at cost less accumulated depreciation and accumulated impairment loss.
Depreciation is recognized so as to write off the cost of assets less their residual values over their useful lives, using the straight-line method.
Any gain or loss arising on derecognition of the property is calculated as the difference between the net disposal proceeds and the carrying amount of the asset and is included in profit or loss in the period in which the property is derecognized.
Goodwill
Goodwill arose from winning the bid for the Hanoi branch and Ho Chi Minh City subbranch of Chinfon Bank from the Financial Restructuring Fund. Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment loss.
For the purposes of impairment testing, goodwill is allocated to each of the Bank and its subsidiary‟s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired, by comparing its carrying amount, including the allocated goodwill, with its recoverable amount. However, if the goodwill allocated to a cash-generating unit was acquired in a business combination during the current annual period, that unit shall be tested for impairment before the end of the current annual period. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.
If goodwill has been allocated to a cash-generating unit and the entity disposes of an operation within that unit, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal, and is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained.
Intangible Assets a. Customer relationships
Customer relationships arose from winning the bid for the Hanoi branch and Ho Chi Minh City subbranch of Chinfon Bank from the Financial Restructuring Fund. Customer relationships are amortized by a straight-line method over 7 years.
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b. Operating right
Operating right arose from winning the bid for the Hanoi branch and Ho Chi Minh City subbranch of Chinfon Bank from the Financial Restructuring Fund. Operating right is amortized by the straight-line method over 97 years. c. Core deposits
Core deposits arose from wining the bid for the Hanoi branch and Ho Chi Minh City subbranch of Chinfon Bank from the Financial Restructuring Fund. Core deposit intangible is amortized by the straight-line method over 10 years. d. Computer software
Computer software is amortized by the straight-line method over 5 years.
Intangible assets mentioned above are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life, residual value, and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless the Bank and its subsidiary expect to dispose of the intangible asset before the end of its economic life.
Impairment of Tangible and Intangible Assets Other than Goodwill
At the end of each reporting period, the Bank and its subsidiary review the carrying amounts of their tangible and intangible assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Bank and its subsidiary estimate the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to the individual cash-generating units; otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount.
When an impairment loss subsequently is reversed, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.
Employee Benefits a. Retirement benefit
Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions.
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For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method. Actuarial gains and losses on the defined benefit obligation are recognized immediately in other comprehensive income. Past service cost is recognized immediately to the extent that the benefits are already vested, and otherwise is amortized on a straight-line basis over the average period until the benefits become vested.
The retirement benefit obligation recognized in the consolidated balance sheets represents the present value of the defined benefit obligation as adjusted for unrecognized past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to the unrecognized past service cost, plus the present value of available refunds and reductions in future contributions to the plan.
Curtailment or settlement gains or losses on the defined benefit plan are recognized when the curtailment or settlement occurs. b. Employee benefit - employees‟ preferential deposits
The Bank and its subsidiary offered preferential interest rate to its current employees and retired employees for their deposits within a prescribed amount. The preferential interest rate in excess of market interest rate is considered employee benefits.
Under Article 28 of the Regulations Governing the Preparation of Financial Reports by Public Banks, if the Bank‟s preferential deposit interest rate for an employee as stated in the employment contract exceeds the market interest rate, the excess will be subject to IAS 19 “Employee Benefits” upon the employees‟ retirement. The actuarial valuation assumptions and parameters are based on the guidelines announced by the authority, if any.
Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determined pension cost rate at the end of the prior financial year, adjusted for significant market fluctuations since that time and for significant curtailments, settlements, or other significant one-time events.
Income Tax
Income tax expense represents the sum of the tax currently payable and deferred tax. a. Current tax
According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as income tax in the year the stockholders approve to retain the earnings.
Adjustments of prior years‟ tax liabilities are added to or deducted from the current year‟s tax provision. b. Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
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Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Bank and its subsidiary expect, at the end of the reporting period, to recover or settle the carrying amount of their assets and liabilities.
c. Current and deferred tax for the period
Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively.
Recognition of Interest Revenue and Interest Expense
Except for financial assets and liabilities at fair value through profit or loss, all interest-earning financial assets and interest-bearing financial liabilities are accrued using the effective interest rate method and are accounted for as interest revenue and interest expense in the consolidated statement of comprehensive income.
Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest revenue is recognized using the interest rate that is used to discount the future cash flows when assessing impairment.
Recognition of Commission Fee Revenue and Commission Fee Expense
Commission fee revenue and expense are recognized when loans or other services are provided. Service fees on significant projects are recognized when the project has been completed, for instance, loan syndication fees are recognized as revenue when the syndication has been completed. If fee revenue and expense are related to provide service on loans, fee revenue and expense are either recognized over the period that service is performed or as an adjustment to the effective interest rate on the loans and receivables, mainly depend on their materiality.
Operating Leases
Rental payments or receipts under operating lease are recognized in profit or loss on a straight-line basis over the lease term and are included in the “other operating expenses” or “other noninterest net revenues”.
5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Bank and its subsidiary‟s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed by management on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
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a. Held-to-maturity financial assets
Management has reviewed the Bank and its subsidiary‟s held-to-maturity financial assets in light of their capital maintenance and liquidity requirements and has confirmed the Bank and its subsidiary‟s positive intention and ability to hold those assets to maturity.
Please refer to Note 14 for related information on held-to-maturity financial assets. b. Estimated impairment loss of loans and receivables
The Bank and its subsidiary review loan portfolios and receivables to assess impairment periodically. In determining whether an impairment loss should be recognized, the Bank and its subsidiary make judgments as to whether there is any observable data indicating that an impairment loss occurs. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in the portfolio (e.g. payment delinquency or default), national or economic condition that correlates with defaults on the assets in the portfolio. For the purpose of assessing impairment, the management determines the future cash flows in the portfolio using estimates based on historical loss experience for financial assets grouped on the basis of similar credit risk characteristics. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to decrease any difference between estimated loss and actual loss.
Please refer to Notes 17 and 47 for impairment loss on loans and receivables. c. Fair value of financial instruments
The fair value of non-active market or non-quoted financial instruments is determined using valuation techniques. In this case, the fair value is based on observable data of similar financial instruments or valuation model. If there are no observable market parameters, the fair value of financial instruments is evaluated based on appropriate assumptions. When the fair value are determined by the valuation model, the model shall be calibrated to ensure that all output data and the results reflect the actual market price. The models use only observable data as possible.
Please refer to Notes 46 and 47 for information on assumptions used when determining fair value of financial instruments and sensitive analysis. d. Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The calculation of the value in use requires management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. When the actual future cash flows are less than expected, a material impairment loss may arise.
Please refer to Note 20 for related information. e. Retirement benefit
The present value of the retirement benefit obligations is determined by the actuarial result using a number of assumptions. Any changes in these assumptions will affect the carrying amount of retirement benefit obligations. The assumptions used in determining the net cost (income) for pensions include the discount rate. The Bank and its subsidiary determined the appropriate discount rate at the end of each year, which is used to determine the present value of estimated future cash outflows expected to be required to settle the retirement benefit obligation. In determining the appropriate discount rate, the Bank and its subsidiary should consider the interest rates of high-quality corporate bonds or government bonds, the currency of those bonds should be the same as the currency of the benefits paid and the maturity of those bonds should be matched with the maturity of pension
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liability. Other key assumptions for retirement benefit obligations are based on current market conditions.
Please refer to Note 29 for retirement benefit plan.
6. CASH AND CASH EQUIVALENTS
December 31, December 31, 2013 2012 January 1, 2012
Cash on hand $ 6,910,761 $ 6,489,072 $ 6,519,031 Due from other banks 64,016,718 19,653,700 15,788,153 Notes and checks for clearing 3,329,745 5,677,230 4,917,597
$ 74,257,224 $ 31,820,002 $ 27,224,781
For consolidated statement of cash flow, cash and cash equivalents include accounts listed below:
December 31, December 31, 2013 2012 January 1, 2012
Cash and cash equivalents in consolidated balance sheets $ 74,257,224 $ 31,820,002 $ 27,224,781 Due from the Central Bank of China and other banks that meet the definition of cash and cash equivalents in IAS 7 28,673,715 15,151,564 29,173,042 Securities purchased under agreements to resell that meet the definition of cash and cash equivalents in IAS 7 19,779,550 16,343,491 200,000
Cash and cash equivalents in consolidated statement of cash flows $ 122,710,489 $ 63,315,057 $ 56,597,823
7. DUE FROM THE CENTRAL BANK OF CHINA AND OTHER BANKS, NET
December 31, December 31, 2013 2012 January 1, 2012
Call loans to banks $ 42,541,643 $ 25,992,501 $ 34,177,704 Deposit reserve - checking account 14,382,807 12,381,802 10,450,483 Required deposit reserve 30,117,991 29,084,112 27,345,650 Deposit reserve - foreign-currency deposits 685,815 2,141,639 516,782 Due from the Central Bank of China 2,340 2,747 2,563 Due from the Central Bank of China - interbank settlement funds 1,007,423 1,254,792 605,961 Due from the Central Bank of China - time deposits 3,150,000 - - 91,888,019 70,857,593 73,099,143 Less: Allowance for credit losses (Note 17) - 5,743 -
$ 91,888,019 $ 70,851,850 $ 73,099,143
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Under a directive issued by the Central Bank of China, New Taiwan dollar (NTD)-denominated deposit reserves are determined by applying a prescribed percentage to the average monthly balances of customers‟ NTD-denominated deposits. These required deposit reserves are subject to withdrawal restrictions. In addition, foreign-currency deposit reserves are determined by applying a prescribed percentage to the balances of foreign-currency deposits. These reserves may be withdrawn anytime but bear no interests.
Allowance for credit loss is provided by the general provision of Vietnam branches in accordance with Vietnam‟s local regulations.
8. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
December 31, December 31, 2013 2012 January 1, 2012
Held-for-trading financial assets
Commercial paper $ 12,400,611 $ 20,663,557 $ 11,594,415 Corporate bonds 10,386,231 16,737,342 6,167,509 Government bonds 8,914,118 16,540,781 11,579,037 Bank debentures 1,003,857 2,309,874 805,743 Beneficiary securities 389,444 409,733 325,081 Treasury bills - 1,734,939 2,385,669 Listed stocks and beneficiary certificates - 265,567 238,046 Convertible corporate bonds - 33,280 63,520 Others - 499 - 33,094,261 58,695,572 33,159,020 Derivatives Currency swap contracts 13,879,297 8,910,689 7,862,375 Interest rate swap contracts 6,262,058 6,995,630 10,819,982 Forward contracts 2,682,636 1,347,389 1,274,795 Option contracts 2,202,698 1,255,133 2,193,632 Cross-currency swap contracts 1,279,193 1,228,063 1,503,988 Others 986,176 207,455 89,804 27,292,058 19,944,359 23,744,576 60,386,319 78,639,931 56,903,596 Financial assets designated as at fair value through profit or loss
Convertible corporate bonds 10,545,239 3,825,331 - Credit-linked notes 2,300,103 2,228,230 2,438,743 Bank debentures - - 299,480 12,845,342 6,053,561 2,738,223
$ 73,231,661 $ 84,693,492 $ 59,641,819
Held-for-trading financial liabilities
Borrowed bonds $ 99,980 $ - $ - Derivatives Currency swap contracts 13,456,226 9,146,317 6,157,272 Interest rate swap contracts 6,225,779 6,787,720 10,703,826 Option contracts 3,224,492 1,949,574 2,577,617 Forward contracts 2,737,547 1,012,595 1,687,223 (Continued)
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December 31, December 31, 2013 2012 January 1, 2012
Cross-currency swap contracts $ 1,380,075 $ 679,394 $ 1,592,074 Others 876,415 36,856 29,519 27,900,534 19,612,456 22,747,531
$ 28,000,514 $ 19,612,456 $ 22,747,531 (Concluded)
The Bank and its subsidiary engage in derivative transactions mainly to accommodate customers‟ needs, to manage their exposure positions, and to accommodate their fund needs in different currencies.
The above financial assets were designated as at fair value through profit or loss because those assets are hybrid instruments or when such designation eliminates or significantly reduces a measurement or recognition inconsistency.
The contract (notional) amounts of the Bank and its subsidiary‟s outstanding derivative financial instruments as of December 31, 2013, December 31, 2012 and January 1, 2012 were summarized as follows:
Notional Amount December 31, December 31, 2013 2012 January 1, 2012
Currency swap contracts $ 1,795,801,464 $ 1,817,653,177 $ 1,669,029,094 Interest rate swap contracts 1,408,452,375 1,291,614,959 1,491,718,210 Option contracts 958,030,493 554,084,887 517,085,542 Forward contracts 245,747,589 178,870,569 231,772,342 Cross-currency swap contracts 200,413,356 111,909,600 62,959,310 Futures contracts 34,925,395 6,118,518 1,817,382 Stock price swap contracts 19,489,129 1,861,306 21,534 Commodity swap contracts 681,452 847,693 861,020 Commodity forward contracts 234,410 419,028 630,834 Credit default swap contracts - - 302,897
Gains on financial assets and liabilities at fair value through profit or loss for the years ended December 31, 2013 and 2012 were as follows:
For the Year Ended December 31 2013 2012
Net gain on held-for-trading financial assets and liabilities $ 4,918,306 $ 3,646,457 Net gain on financial assets designated as at fair value through profit or loss 642,619 381,703
$ 5,560,925 $ 4,028,160
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9. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING
December 31, December 31, 2013 2012 January 1, 2012
Hedging derivative financial assets
Fair value hedge-interest rate swap $ 285,784 $ 478,744 $ 693,488
Hedging derivative financial liabilities
Fair value hedge-interest rate swap $ 852,396 $ 352,920 $ 428,152
Fair Value Hedge
The Bank and its subsidiary are exposed to the risk of fair value fluctuation due to the change of interest rate on the corporate bonds and bank debentures included in available-for-sale financial assets and bank debentures issued. Since the risk is considered to be material, the Bank and its subsidiary enter into interest rate swap contracts to hedge against this risk.
December 31, 2013 December 31, 2012 January 1, 2012 Hedging Nominal Nominal Nominal Hedged Items Instruments Amount Fair Value Amount Fair Value Amount Fair Value
Bank debentures Interest rate $ 24,150,000 $ 121,143 $ 25,450,000 $ 478,744 $ 23,550,000 $ 693,488 swap contract Available-for-sale financial Interest rate 3,986,431 (350,696 ) 728,332 (20,862 ) 861,441 (53,890 ) assets - corporate bonds swap contract Available-for-sale financial Interest rate 13,118,279 (337,059 ) 7,511,512 (332,058 ) 7,146,904 (374,262 ) assets - bank debentures swap contract
Gains (losses) on hedging instruments and hedged items for the years ended December 31, 2013 and 2012 were as follows:
For the Year Ended December 31 2013 2012
Losses on hedging instruments $ (975,592) $ (60,482) Gains (losses) on hedged items $ 990,966 $ (15,500)
10. SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
December 31, December 31, 2013 2012 January 1, 2012
Commercial papers $ 10,322,852 $ 4,959,905 $ - Government bonds 7,717,582 9,913,184 200,000 Corporate bonds 1,433,163 1,470,402 - Negotiable certificate of deposits 706,300 - -
$ 20,179,897 $ 16,343,491 $ 200,000
Date of agreement to resell 2014.01.02- 2013.01.02- 2012.01.03 2014.03.27 2013.01.28
Amount of agreement to resell $ 20,190,811 $ 16,348,924 $ 200,046
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11. RECEIVABLES, NET
December 31, December 31, 2013 2012 January 1, 2012
Accounts receivable - forfaiting $ 32,411,109 $ 5,795,996 $ 8,926,519 Credit card receivable 24,134,211 21,723,216 22,497,972 Accounts receivable - factoring 19,777,437 20,970,301 24,211,022 Interest receivable 4,189,155 3,871,239 3,106,847 Acceptances 2,836,206 3,025,267 3,330,505 Sports lottery related receivable 2,631,482 2,659,450 2,164,233 Accounts receivable 1,061,329 835,874 1,208,669 Others 1,972,722 1,490,547 1,603,102 89,013,651 60,371,890 67,048,869 Less: Allowance for credit losses (Note 17) 866,731 724,603 911,830
$ 88,146,920 $ 59,647,287 $ 66,137,039
Please refer to Note 47 for impairment loss analysis of receivables.
The Bank and its subsidiary have accrued allowance for credit losses on receivables. Please refer to Note 17 for the movements of allowance for credit losses.
12. DISCOUNTS AND LOANS, NET
December 31, December 31, 2013 2012 January 1, 2012
Discount and overdraft $ 1,299,740 $ 1,545,401 $ 1,827,420 Accounts receivables - financing 10,156,329 4,238,561 1,917,902 Short-term loans 262,342,016 231,527,588 193,302,964 Short-term secured loans 48,061,118 37,357,978 48,696,578 Medium-term loans 203,811,762 189,249,345 178,266,816 Medium-term secured loans 105,303,711 99,047,096 105,442,820 Long-term loans 49,985,817 58,074,311 51,626,338 Long-term secured loans 424,563,190 409,193,074 374,147,654 Import and export bill negotiation 9,789,918 4,395,228 3,715,976 Nonperforming loans transferred from loans 1,093,390 1,231,922 2,373,039 1,116,406,991 1,035,860,504 961,317,507 Less: Allowance for credit losses (Note 17) 13,217,588 8,924,275 8,376,947 Less: Adjustments of premium and discount 442,295 400,595 221,598
$ 1,102,747,108 $ 1,026,535,634 $ 952,718,962
During the years ended December 31, 2013 and 2012, the Bank had not written off credits that had not been subject to legal proceedings.
Please refer to Note 47 for impairment loss analysis of discounts and loans.
The Bank and its subsidiary have made an allowance for credit losses on discounts and loans. Please refer to Note 17 for the movements of allowance for credit losses.
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13. AVAILABLE-FOR-SALE FINANCIAL ASSETS, NET
December 31, December 31, 2013 2012 January 1, 2012
Commercial papers $ 19,521,434 $ 26,935,303 $ - Bank debentures 15,150,087 12,797,389 18,890,591 Government bonds 12,350,712 9,781,747 8,823,281 Stocks 9,206,976 10,707,269 10,087,574 Corporate bonds 7,542,231 2,150,452 8,635,398 Treasury bills 4,735,498 4,123,599 779,642 Beneficiary securities 1,057,145 1,011,606 3,466,044 Negotiable certificate of deposits - 100,165 - 69,564,083 67,607,530 50,682,530 Less: Accumulated impairment loss 335,594 335,594 335,594
$ 69,228,489 $ 67,271,936 $ 50,346,936
14. HELD-TO-MATURITY FINANCIAL ASSETS
December 31, December 31, 2013 2012 January 1, 2012
Negotiable certificates of deposits $ 173,256,069 $ 198,033,122 $ 240,111,637 Bank debentures 16,243,272 16,152,099 2,392,287 Corporate bonds 10,268,750 9,674,751 12,893,191 Commercial papers 5,106,897 - - Government bonds 3,703,673 1,367,765 1,429,527 Beneficiary securities 1,183,566 1,785,399 -
$ 209,762,227 $ 227,013,136 $ 256,826,642
Because of a change of intention, the Bank and its subsidiary reclassify their beneficiary securities amounting to $2,567,568 thousand and bank debentures amounting to $9,485,036 thousand, from available-for-sale financial assets to held-to-maturity financial assets in January 2012.
15. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
December 31, 2013 December 31, 2012 January 1, 2012 Amount % Amount % Amount %
Fubon Real Estate Management Co., Ltd. $ 135,557 30 $ 118,951 30 $ 96,239 30
The Bank and its subsidiary‟s investment accounted for by the equity method had not been pledged as security or collateral.
Investment income from equity investments for the years ended December 31, 2013 and 2012 is summarized as follows:
For the Year Ended December 31 2013 2012
Fubon Real Estate Management Co., Ltd. $ 8,719 $ 7,157
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The summarized financial information of the Bank and its subsidiary‟s associate is set out below:
December 31, December 31, 2013 2012 January 1, 2012
Total assets $ 465,624 $ 408,998 $ 331,987 Total liabilities $ 13,765 $ 12,495 $ 11,190
For the Year Ended December 31 2013 2012
Revenue $ 72,869 $ 63,272 Profit for the year $ 29,062 $ 23,854 Other comprehensive income $ 44,866 $ 51,850
The Bank and its subsidiary‟s share of profit and other comprehensive income of the associate for the years ended December 31, 2013 and 2012 was based on the associate‟s financial statements for the same reporting periods as those of the Bank, which had been audited by independent auditors.
16. OTHER FINANCIAL ASSETS, NET
December 31, December 31, 2013 2012 January 1, 2012
Time deposits not qualifying as cash equivalents $ 12,042,366 $ - $ - Financial assets carried at cost, net 4,010,787 647,541 653,604 Debt instruments with no active markets, net 272,219 1,552,058 2,129,839 Nonperforming loans transferred from other than loans 58,820 21,992 24,553 Bills purchased 10,654 3,768 2,580 16,394,846 2,225,359 2,810,576 Less: Allowance for credit losses (Note 17) 55,024 20,511 23,552
$ 16,339,822 $ 2,204,848 $ 2,787,024
a. Financial assets carried at cost, net
December 31, December 31, 2013 2012 January 1, 2012
Unlisted common stocks First Sino Bank $ 3,455,948 $ - $ - Taiwan Asset Management Co., Ltd. 225,000 300,000 300,000 Taiwan Financial Asset Service Co., Ltd. 100,000 100,000 100,000 Financial Information Service Co., Ltd. 91,000 91,000 91,000 Easy Card Investment Holding Co., Ltd. 47,500 47,500 47,500 Others 130,960 147,240 149,707 4,050,408 685,740 688,207 Less: Accumulated impairment loss 39,621 38,199 34,603
$ 4,010,787 $ 647,541 $ 653,604
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The Bank and its subsidiary recognized an impairment loss on certain unlisted common stocks because of objective evidence of impairment. The movements of accumulated impairment loss are shown below:
For the Year Ended December 31 2013 2012
Balance, beginning of the year $ 38,199 $ 34,603 Impairment loss 1,422 4,260 Write-off - (664)
Balance, end of the year $ 39,621 $ 38,199
Financial assets carried at cost were classified as available-for-sale financial assets according to financial asset measurement categories.
Management believed that the above unlisted equity investments held by the Bank and its subsidiary, whose fair value cannot be reliably measured due to the range of reasonable fair value estimates was so significant; therefore they were measured at cost less impairment at the end of reporting period. b. Debt investments with no active market, net
December 31, December 31, 2013 2012 January 1, 2012
Bank debentures $ 272,219 $ 1,552,058 $ 1,833,616 Corporate bonds - 91,705 107,895 Collateralized debt obligation - - 296,223 272,219 1,643,763 2,237,734 Less: Accumulated impairment loss - 91,705 107,895
$ 272,219 $ 1,552,058 $ 2,129,839
An impairment loss on corporate bonds had been fully accrued. However, there were bond repayments during the years ended December 31, 2013 and 2012; thus, the Bank and its subsidiary recognized gains on the reversal of impairment loss. The movements of accumulated impairment loss are shown below:
For the Year Ended December 31 2013 2012
Balance, beginning of the year $ 91,705 $ 107,895 Reversal of impairment loss (94,130) (12,120) Effect of foreign currency exchange differences 2,425 (4,070)
Balance, end of the year $ - $ 91,705
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17. ALLOWANCE FOR CREDIT LOSSES
The movements of allowance for credit losses and reserve for losses on guarantees liabilities for the years ended December 31, 2013 and 2012 are summarized as follows (for more information, please refer to Note 47):
For the Year Ended December 31, 2013 Due from the Central Bank Other Reserve for of China and Discounts and Financial Losses on Other Banks Receivables Loans Assets Guarantees Total
Balance, January 1, 2013 $ 5,743 $ 724,603 $ 8,924,275 $ 20,511 $ 307,353 $ 9,982,485 Allowance (reversal of allowance) for bad debts (5,944 ) 96,627 3,828,946 (221,938 ) 159,414 3,857,105 Write-offs - (49,269 ) (305,580 ) (261,363 ) - (616,212 ) Recovery of written-off credits - 90,373 737,136 517,814 - 1,345,323 Effects of exchange rate changes 201 4,397 32,811 - 189 37,598
Balance, December 31, 2013 $ - $ 866,731 $ 13,217,588 $ 55,024 $ 466,956 $ 14,606,299
For the Year Ended December 31, 2012 Due from the Central Bank Other Reserve for of China and Discounts and Financial Losses on Other Banks Receivables Loans Assets Guarantees Total
Balance, January 1, 2012 $ - $ 911,830 $ 8,376,947 $ 23,552 $ 385,057 $ 9,697,386 Allowance (reversal of allowance) for bad debts 5,755 (159,693 ) 47,394 (358,547 ) (77,226 ) (542,317 ) Write-offs - (21,869 ) (509,775 ) (268,125 ) - (799,769 ) Recovery of written-off credits - - 1,046,659 623,631 - 1,670,290 Effects of exchange rate changes (12 ) (5,665 ) (36,950 ) - (478 ) (43,105 )
Balance, December 31, 2012 $ 5,743 $ 724,603 $ 8,924,275 $ 20,511 $ 307,353 $ 9,982,485
18. PROPERTY AND EQUIPMENT, NET
For the Year Ended December 31, 2013 Construction in Machinery and Office and Progress and Computer Transportation Other Prepayments Land Buildings Equipment Equipment Equipment for Equipment Total
Cost
Balance at January 1, 2013 $ 6,774,522 $ 4,491,083 $ 2,076,983 $ 245,405 $ 1,670,486 $ 343,849 $ 15,602,328 Additions - - 121,521 9,800 62,414 252,234 445,969 Disposals - - (164,577 ) (12,054 ) (46,952 ) - (223,583 ) Reclassification 33,792 13,700 70,590 7,105 63,898 (161,537 ) 27,548 Effect of foreign currency exchange differences - - 1,646 547 4,581 - 6,774 Balance at December 31, 2013 6,808,314 4,504,783 2,106,163 250,803 1,754,427 434,546 15,859,036
Accumulated depreciation
Balance at January 1, 2013 - 1,457,548 1,580,282 163,103 1,138,749 - 4,339,682 Depreciation - 79,506 175,281 25,618 154,598 - 435,003 Disposals - - (160,830 ) (11,316 ) (42,165 ) - (214,311 ) Reclassification - 3,627 - - - - 3,627 Effect of foreign currency exchange differences - - 255 301 358 - 914 Balance at December 31, 2013 - 1,540,681 1,594,988 177,706 1,251,540 - 4,564,915
Carrying amount at December 31, 2013 $ 6,808,314 $ 2,964,102 $ 511,175 $ 73,097 $ 502,887 $ 434,546 $ 11,294,121
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For the Year Ended December 31, 2012 Construction in Machinery and Office and Progress and Computer Transportation Other Prepayments Land Buildings Equipment Equipment Equipment for Equipment Total
Cost
Balance at January 1, 2012 $ 6,768,690 $ 4,515,139 $ 2,512,576 $ 252,025 $ 2,092,659 $ 190,463 $ 16,331,552 Additions - - 136,685 13,155 60,792 316,091 526,723 Disposals - - (626,326 ) (19,232 ) (548,936 ) (146 ) (1,194,640 ) Reclassification 5,832 (24,056 ) 56,089 161 72,383 (162,557 ) (52,148 ) Effect of foreign currency exchange differences - - (2,041 ) (704 ) (6,412 ) (2 ) (9,159 ) Balance at December 31, 2012 6,774,522 4,491,083 2,076,983 245,405 1,670,486 343,849 15,602,328
Accumulated depreciation
Balance at January 1, 2012 - 1,384,185 2,009,895 154,369 1,504,948 - 5,053,397 Depreciation - 79,085 176,196 27,766 179,477 - 462,524 Disposals - - (603,632 ) (18,549 ) (543,018 ) - (1,165,199 ) Reclassification - (5,722 ) - - - - (5,722 ) Effect of foreign currency exchange differences - - (2,177 ) (483 ) (2,658 ) - (5,318 ) Balance at December 31, 2012 - 1,457,548 1,580,282 163,103 1,138,749 - 4,339,682
Carrying amount at January 1, 2012, net $ 6,768,690 $ 3,130,954 $ 502,681 $ 97,656 $ 587,711 $ 190,463 $ 11,278,155
Carrying amount at December 31, 2012 $ 6,774,522 $ 3,033,535 $ 496,701 $ 82,302 $ 531,737 $ 343,849 $ 11,262,646
The above items of property and equipment were depreciated on a straight-line basis at the following rates per annum:
Buildings 46-61 years Machinery and computer equipment 3-16 years Transportation equipment 3-11 years Office and other equipment 3-21 years Lease assets 47 years
19. INVESTMENT PROPERTIES, NET
December 31, 2013 Accumulated Accumulated Impairment Carrying Item Cost Depreciation Loss Amount
Land $ 1,325,179 $ - $ 45,848 $ 1,279,331 Buildings 867,834 314,395 112,475 440,964
$ 2,193,013 $ 314,395 $ 158,323 $ 1,720,295
December 31, 2012 Accumulated Accumulated Impairment Carrying Item Cost Depreciation Loss Amount
Land $ 1,358,971 $ - $ 45,848 $ 1,313,123 Buildings 881,534 306,200 112,475 462,859
$ 2,240,505 $ 306,200 $ 158,323 $ 1,775,982
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January 1, 2012 Accumulated Accumulated Impairment Carrying Item Cost Depreciation Loss Amount
Land $ 1,364,803 $ - $ 69,633 $ 1,295,170 Buildings 857,478 288,589 129,884 439,005
$ 2,222,281 $ 288,589 $ 199,517 $ 1,734,175
The movements of investment properties are listed below:
For the Year Ended December 31 2013 2012 Cost
Balance, beginning of the year $ 2,240,505 $ 2,222,281 Additions - - Reclassification (47,492) 18,224 Balance, end of the year 2,193,013 2,240,505
Accumulated depreciation
Balance, beginning of the year 306,200 288,589 Depreciation 11,822 11,889 Reclassification (3,627) 5,722 Balance, end of the year 314,395 306,200
Accumulated impairment loss
Balance, beginning of the year 158,323 199,517 Impairment loss - (41,194) Reclassification - - Balance, end of the year 158,323 158,323
Carrying amount $ 1,720,295 $ 1,775,982
The fair values of the Bank and its subsidiary‟s investment properties as of December 31, 2013, December 31, 2012 and January 1, 2012 were $3,284,408 thousand, $3,239,227 thousand and $3,192,270 thousand, respectively. The fair values had been based on valuations carried out as of the balance sheet dates by qualified independent appraisers. Appraisal approaches included the sales comparison approach, income approach and cost approach. In making the valuations, the appraisers need choose an appropriate approach based on location, supply, demand, and characteristics of the subject property, and use the weighted-average value. The sales comparison approach is a method based on the value of similar properties, through which comparison, analysis and adjustment are made to estimate the value of the subject property. Two of the methods used under the income approach are direct capitalization and discounted cash flow analysis. The cost approach involves adding to an estimated land value the appraiser's estimate of the reproduction or replacement cost of the building, less depreciation.
For the years ended December 31, 2013 and 2012, the rental income from investment properties was $85,266 thousand and $84,427 thousand, respectively. For the years ended December 31, 2013 and 2012, the direct operating expense were $20,941 thousand and $20,980 thousand, respectively, which included $6 thousand and $10 thousand from investment properties not earning rental income, respectively.
The investment properties held by the Bank and its subsidiary were depreciated over 61 years, using the straight-line method.
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20. INTANGIBLE ASSETS
December 31, December 31, 2013 2012 January 1, 2012
Operating right $ 549,431 $ 555,328 $ 561,226 Computer software 497,523 307,377 413,430 Core deposits 344,157 399,966 455,775 Goodwill 234,055 322,855 322,855 Customer relationships 210 277 343
$ 1,625,376 $ 1,585,803 $ 1,753,629
The movements of intangible assets are listed below:
For the Year Ended December 31 2013 2012 Goodwill Others Total Goodwill Others Total
Balance, beginning of the year $ 322,855 $ 1,262,948 $ 1,585,803 $ 322,855 $ 1,430,774 $ 1,753,629 Additions - 244,681 244,681 - 52,105 52,105 Disposals - (350) (350) - - - Amortization - (279,339) (279,339) - (246,396) (246,396) Impairment loss (88,800) - (88,800) - - - Reclassification - 162,827 162,827 - 26,787 26,787 Effect of foreign currency exchange differences - 554 554 - (322) (322)
Balance, end of the year $ 234,055 $ 1,391,321 $ 1,625,376 $ 322,855 $ 1,262,948 $ 1,585,803
The above operating right, core deposits, customer relationships and goodwill arised on the bank‟s acquisition of the Hanoi branch and Ho Chi Minh City subbranch of Chinfon Bank, which were monitored by Financial Restructuring Fund.
For the purpose of goodwill impairment testing, branches in Vietnam were deemed as a cash generating unit, and the recoverable amounts of these branches were determined on the basis of their net fair value. The key assumptions used in the net fair value calculation included the branches‟ profitability, business cycle and prosperity, the overall state of the Vietnam‟s economy, and the estimated salvage value of the Vietnam branches.
For the year ended December 31, 2013, the Bank recognized an impairment loss of $88,000 thousand and no goodwill impairment was resulted from the assessment as of December 31, 2012 and January 1, 2012.
21. OTHER ASSETS
December 31, December 31, 2013 2012 January 1, 2012
Refundable deposits $ 3,675,824 $ 2,062,994 $ 1,245,103 Prepaid expense 363,750 237,424 195,434 Others 95,173 160,907 160,709
$ 4,134,747 $ 2,461,325 $ 1,601,246
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22. DUE TO THE CENTRAL BANK OF CHINA AND OTHER BANKS
December 31, December 31, 2013 2012 January 1, 2012
Call loans $ 80,067,622 $ 64,622,043 $ 51,065,074 Deposit from Chunghwa Post Co., Ltd. 3,078,589 4,675,206 5,497,437 Due to the Central Bank of China and other banks 208,364 456,093 162,595 Overdrafts of the Bank 541 - 34,670
$ 83,355,116 $ 69,753,342 $ 56,759,776
23. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
December 31, December 31, 2013 2012 January 1, 2012
Bank debentures $ 21,603,089 $ 19,059,145 $ 12,157,138 Corporate bonds 3,469,009 142,505 7,916,769 Government bonds 2,022,763 6,443,838 6,143,952 Beneficiary securities 851,015 715,444 2,285,229
$ 27,945,876 $ 26,360,932 $ 28,503,088
Date of agreement to repurchase 2014.01.02- 2013.01.02- 2012.01.02- 2014.06.20 2013.03.28 2012.05.31
Amount of agreement to repurchase $ 27,984,559 $ 26,396,701 $ 28,541,270
As of December 31, 2013, December 31, 2012 and January 1, 2012, the Bank and its subsidiary‟s investments in financial assets at fair value through profit or loss, available-for-sale financial assets and held-to-maturity financial assets sold under repurchase agreements were listed below:
December 31, December 31, 2013 2012 January 1, 2012
Financial assets at fair value through profit or loss $ - $ 239,352 $ 481,469 Available-for-sale financial assets 18,859,740 15,319,292 29,112,072 Held-to-maturity financial assets 10,686,550 13,018,419 484,759
24. PAYABLES
December 31, December 31, 2013 2012 January 1, 2012
Accounts payable - factoring $ 7,119,104 $ 6,419,759 $ 7,434,117 Sports lottery related 4,144,196 2,971,669 2,548,087 Accrued expenses 3,707,292 3,908,033 3,539,415 Checks for clearing 3,329,745 5,677,230 4,917,597 Accrued interest 3,206,638 3,270,056 3,008,675 Acceptances 2,824,375 3,002,890 3,332,662 Others 4,464,580 7,757,483 3,723,170
$ 28,795,930 $ 33,007,120 $ 28,503,723
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25. DEPOSITS AND REMITTANCES
December 31, December 31, 2013 2012 January 1, 2012
Checking $ 12,604,951 $ 12,806,863 $ 14,242,325 Public treasury 21,692,182 24,255,272 19,423,914 Demand 237,802,417 199,771,537 200,825,687 Savings 667,563,316 632,907,754 606,288,155 Time 411,041,073 375,593,969 338,369,239 Negotiable certificates of deposit 412,700 1,522,700 3,582,800 Outward remittances 857,439 883,302 660,389
$ 1,351,974,078 $ 1,247,741,397 $ 1,183,392,509
26. BANK DEBENTURES
To maintain its capital adequacy ratio and the medium-term to long-term working capital, the Bank (“Taipei Fubon Bank”), TAIPEIBANK, and Fubon Bills Finance Co., Ltd. had applied and obtained approval to issue bank debentures from the Financial Supervisory Commission. The outstanding balances of bank debentures as of December 31, 2013, December 31, 2012 and January 1, 2012 are summarized as follows:
December 31, December 31, 2013 2012 January 1, 2012
Financial liabilities - fair value hedge TAIPEIBANK First issue of dominant bank debentures in 2003; floating interest rate; maturity: July 2013 $ - $ 5,000,000 $ 5,000,000 Taipei Fubon Bank Third issue of subordinated bank debentures in 2008; fixed 3.09%; maturity: May 2015 2,500,000 2,500,000 2,500,000 Fourth issue of subordinated bank debentures in 2008; fixed 3.14%; maturity: June 2015 500,000 500,000 500,000 First issue of subordinated bank debentures in 2009; fixed 2.2%; maturity: November 2016 300,000 300,000 300,000 Second issue of subordinated bank debentures in 2009; fixed 2.2%; maturity: December 2016 600,000 600,000 600,000 First issue of subordinated bank debentures in 2010; fixed 2.2%; maturity: January 2017 600,000 600,000 600,000 Third issue of dominant bank debentures in 2010; fixed 1.6%; maturity: March 2015 600,000 600,000 600,000 Third issue of dominant bank debentures in 2010; fixed 1.8%; maturity: March 2017 600,000 600,000 600,000 Fifth issue of dominant bank debentures in 2010; fixed 1.6%; maturity: May 2015 3,800,000 3,800,000 3,800,000 (Continued)
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December 31, December 31, 2013 2012 January 1, 2012
Fifth issue of dominant bank debentures in 2010; fixed 1.7%; maturity: May 2017 $ 500,000 $ 500,000 $ 500,000 Seventh issue of subordinated bank debentures in 2010; fixed 1.55%; maturity: October 2020 900,000 900,000 900,000 Eighth issue of subordinated bank debentures in 2010; fixed 1.5%; maturity: November 2017 2,550,000 2,550,000 2,550,000 First issue of subordinated bank debentures in 2011; fixed 1.65%; maturity: March 2018 1,700,000 1,700,000 1,700,000 Second issue of subordinated bank debentures in 2011; fixed 1.7%; maturity: August 2018 1,500,000 1,500,000 1,500,000 Third issue of subordinated bank debentures in 2011; fixed 1.65%; maturity: December 2018 2,500,000 2,500,000 1,900,000 First issue of subordinated bank debentures in 2012; fixed 1.48%; maturity: April 2019 1,300,000 1,300,000 - Second issue of subordinated bank debentures in 2012; fixed 1.68%; maturity: May 2022 3,700,000 - - 24,150,000 20,450,000 18,550,000 Valuation adjustments of bank debentures 121,143 479,382 693,488 24,271,143 25,929,382 24,243,488 Bank debentures - non-hedged Former Fubon Bills Finance Co., Ltd. First issue of dominant bank debentures in 2005; fixed 2.1%; maturity: July 2012 - - 1,000,000 Taipei Fubon Bank First issue of subordinated bank debentures in 2007; fixed 2.9%; maturity: June 2013 - 550,000 550,000 First issue of subordinated bank debentures in 2008; fixed 3.05%; maturity: January 2014 4,250,000 4,250,000 4,250,000 First issue of subordinated bank debentures in 2008; floating interest rate; maturity: January 2015 100,000 100,000 100,000 Second issue of subordinated bank debentures in 2008; fixed 3.05%; maturity: March 2015 1,350,000 1,350,000 1,350,000 Second issue of subordinated bank debentures in 2008; floating interest rate; maturity: March 2015 1,200,000 1,200,000 1,200,000 Third issue of subordinated bank debentures in 2008; fixed 3.09%; maturity: May 2015 2,500,000 2,500,000 2,500,000 Fourth issue of subordinated bank debentures in 2008; fixed 3.14%; maturity: June 2015 2,300,000 2,300,000 2,300,000 First issue of subordinated bank debentures in 2009; fixed 2.2%; maturity: November 2016 1,700,000 1,700,000 1,700,000 (Continued)
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December 31, December 31, 2013 2012 January 1, 2012
Second issue of subordinated bank debentures in 2009; fixed 2.2%; maturity: December 2016 $ 1,450,000 $ 1,450,000 $ 1,450,000 First issue of subordinated bank debentures in 2010; fixed 2.2%; maturity: January 2017 1,650,000 1,650,000 1,650,000 First issue of subordinated bank debentures in 2010; fixed 2.5%; maturity: January 2020 2,400,000 2,400,000 2,400,000 Second issue of subordinated bank debentures in 2010; fixed 2.3%; maturity: January 2017 600,000 600,000 600,000 Third issue of dominant bank debentures in 2010; fixed 1.6%; maturity: March 2015 1,450,000 1,450,000 1,450,000 Third issue of dominant bank debentures in 2010; fixed 1.8%; maturity: March 2017 900,000 900,000 900,000 Fourth issue of subordinated bank debentures in 2010; fixed 2.5%; maturity: March 2020 2,000,000 2,000,000 2,000,000 Fifth issue of dominant bank debentures in 2010; fixed 1.6%; maturity: May 2015 1,700,000 1,700,000 1,700,000 Sixth issue of subordinated bank debentures in 2010; fixed 1.95%; maturity: August 2017 4,500,000 4,500,000 4,500,000 Sixth issue of subordinated bank debentures in 2010; fixed 2.05%; maturity: August 2020 1,900,000 1,900,000 1,900,000 First issue of subordinated bank debentures in 2011; fixed 1.65%; maturity: March 2018 1,350,000 1,350,000 1,350,000 Second issue of subordinated bank debentures in 2011; fixed 1.7%; maturity: August 2018 950,000 950,000 950,000 Third issue of subordinated bank debentures in 2011; fixed 1.65%; maturity: December 2018 1,500,000 1,500,000 2,100,000 Second issue of subordinated bank debentures in 2012; fixed 1.68%; maturity: May 2022 1,000,000 4,700,000 - First issue of subordinated bank debentures in 2013; fixed 1.52%; maturity: August 2020 3,750,000 - - Second issue of subordinated bank debentures in 2013; fixed 1.7%; maturity: August 2023 500,000 - - 41,000,000 41,000,000 36,900,000 41,000,000 41,000,000 37,900,000
$ 65,271,143 $ 66,929,382 $ 62,143,488 (Concluded)
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27. OTHER FINANCIAL LIABILITIES
December 31, December 31, 2013 2012 January 1, 2012
Principals of structured products $ 37,683,700 $ 27,244,584 $ 24,876,563 Funds obtained from the government - intended for specific types of loans 166,750 400,000 625,500
$ 37,850,450 $ 27,644,584 $ 25,502,063
28. PROVISIONS
December 31, December 31, 2013 2012 January 1, 2012
Provisions for employee benefits (Note 29) $ 1,242,095 $ 1,037,308 $ 686,312 Reserve for losses on guarantees (Note 17) 466,956 307,353 385,057 Others 167,076 169,133 207,670
$ 1,876,127 $ 1,513,794 $ 1,279,039
29. EMPLOYEE BENEFITS PLANS
December 31, December 31, 2013 2012 January 1, 2012
Provisions for employee benefits Defined benefit plans $ 567,819 $ 428,054 $ 213,679 Preferential interest rate plan for employees‟ deposits 608,645 548,328 396,377 Other long-term employee benefits plan 65,145 60,345 69,398 Others 486 581 6,858
$ 1,242,095 $ 1,037,308 $ 686,312
a. Defined contribution plans
The Bank and its subsidiary adopted a pension plan under the Labor Pension Act (the “LPA”), which is a state-managed defined contribution plan. Under the LPA, the entity makes monthly contributions to employees‟ individual pension accounts at 6% of monthly salaries and wages.
The total expense recognized in profit or loss for the years ended December 31, 2013 and 2012 was $240,353 thousand and $228,450 thousand, respectively, represents contributions payable to these plans by the Bank and its subsidiary at rates specified in the rules of the plans.
b. Defined benefit plans
The Bank adopted the defined benefit plan under the Labor Standard Law, pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. The Bank contributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee‟s name.
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The actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out by qualifying actuaries. The principal assumptions used for the purposes of the actuarial valuations were as follows:
The principal assumptions used for the purposes of the actuarial valuations were as follows:
Valuation Date December 31, December 31, 2013 2012 January 1, 2012
Discount rate 1.85% 1.60% 1.75% Expected return on plan assets 2.00% 1.875% 2.00% Expected rate of salary increase 2.25% 2.25% 2.25%
Amounts recognized in profit or loss in respect of these defined benefit plans are as follows:
For the Year Ended December 31 2013 2012
Current service cost $ 102,754 $ 99,550 Interest cost 38,634 39,278 Expected return on plan assets (38,120) (41,526) Past service cost (1,583) (2,836)
$ 101,685 $ 94,466
Actuarial losses (net of income tax) recognized in other comprehensive income for the years ended December 31, 2013 and 2012 was $74,268 thousand and $134,894 thousand, respectively. The cumulative amount of actuarial losses recognized in other comprehensive income as of December 31, 2013 and 2012 was $209,162 thousand and $134,894 thousand, respectively.
Actual return on plan assets recognized were $25,838 thousand and 19,349 thousand for the years ended December 31, 2013 and 2012.
The amount included in the consolidated balance sheet arising from the Bank and its subsidiary‟s obligation in respect of its defined benefit plans was as follows:
December 31, December 31, 2013 2012 January 1, 2012
Present value of funded defined benefit obligation $ 2,624,063 $ 2,491,520 $ 2,272,728 Fair value of plan assets (2,076,100) (2,086,158) (2,084,577) Deficit 547,963 405,362 188,151 Past service cost not yet recognized 19,856 22,692 25,528
Net liability arising from defined benefit obligation $ 567,819 $ 428,054 $ 213,679
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Movements in the present value of the defined benefit obligations were as follows:
For the Year Ended December 31 2013 2012
Opening defined benefit obligation $ 2,491,520 $ 2,272,728 Current service cost 102,754 99,550 Interest cost 38,634 39,278 Past service cost 1,253 - Actuarial losses 77,198 140,346 Benefits paid (87,296) (60,382)
Closing defined benefit obligation $ 2,624,063 $ 2,491,520
Movements in the fair value of the plan assets were as follows: For the Year Ended December 31 2013 2012
Opening fair value of plan assets $ 2,086,158 $ 2,084,577 Expected return on plan assets 38,120 41,526 Contributions from the employer 44,372 38,508 Actuarial losses (12,282) (22,177) Benefits paid (80,268) (56,276)
Closing fair value of plan assets $ 2,076,100 $ 2,086,158
The major categories of plan assets at the end of the reporting period for each category were as follows:
December 31, December 31, 2013 2012 January 1, 2012
Equity instruments 45 37 41 Cash and short-term bills 27 34 31 Fixed-income instruments 18 16 16 Debt instruments 10 11 12 Others - 2 -
100 100 100
The overall expected rate of return was based on historical return trends and analysts‟ predictions of the market for the asset over the life of the related obligation, with reference to the use of the Labor Pension Fund by Labor Pension Fund Supervision Committee, taking into consideration the effect of possible differences between the guaranteed minimum income and the return on local banks‟ two-year time deposits.
The Bank chose to disclose the history of experience adjustments as the amounts determined for each accounting period prospectively from the date of transition to IFRSs (please refer Note 54):
December 31, December 31, 2013 2012 January 1, 2012
Present value of defined benefit obligation $ 2,624,063 $ 2,491,520 $ 2,272,728 Fair value of plan assets $ 2,076,100 $ 2,086,158 $ 2,084,577 Deficit $ 547,963 $ 405,362 $ 188,151 Experience adjustments on plan liabilities $ 77,198 $ 140,346 $ - Experience adjustments on plan assets $ 12,282 $ 22,177 $ -
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The Bank expects to make a contribution of $44,400 thousand and $38,560 thousand, respectively to the defined benefit plans during the annual period beginning after 2013 and 2012.
As of December 31, 2013, assuming that all factors remained constant, (a) except for a 0.5% increase/decrease in discount rate, the present value of defined benefit obligations would have decreased by $132,980 thousand or increased by $143,793 thousand, respectively; and (b) except for a 0.5% increase/decrease in expected salary rate, the present value of defined benefit obligations would have increased by $139,344 thousand or decreased by $130,166 thousand, respectively. c. Preferential interest rate plan for employees‟ deposits
The Bank was obligated to pay retired employees fixed preferential interest rate for their deposits in conformity with “Rules of Deposits of Taipei Fubon Commercial Bank”.
The principal assumptions used for the purposes of the actuarial valuations were as follows:
Valuation Date December 31, December 31, 2013 2012 January 1, 2012
Discount rate 4.00% 4.00% 4.00% Expected return on employees‟ deposits 2.00% 2.00% 2.00% Withdrawal percentage of preferential deposits 1.32% 1.00% 1.24%
Amounts recognized in profit or loss in respect of these employee‟s preferential deposits are as follows:
For the Year Ended December 31 2013 2012
Interest cost $ 21,933 $ 15,855 Past service cost 36,478 19,086
$ 58,411 $ 34,941
Actuarial losses (net of income tax) recognized in other comprehensive income for the years ended December 31, 2013 and 2012 was $38,502 thousand and $133,640 thousand, respectively. The cumulative amount of actuarial losses recognized in other comprehensive income as of December 31, 2013 and 2012 was $172,142 thousand and $133,640 thousand, respectively.
The amount included in the consolidated balance sheets arising from the Bank and its subsidiary‟s obligations for the employees‟ preferential deposits were as follows:
December 31, December 31, 2013 2012 January 1, 2012
Present value of funded retired benefit obligation $ 608,645 $ 548,328 $ 396,377 Fair value of plan assets - - -
Net liability arising from retired benefit obligation $ 608,645 $ 548,328 $ 396,377
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Movements in the present value of the defined benefit obligations were as follows:
For the Year Ended December 31 2013 2012
Opening defined benefit obligation $ 548,328 $ 396,377 Interest cost 21,933 15,855 Past service cost 36,478 19,086 Actuarial losses 46,388 161,012 Benefits paid (44,482) (44,002)
Closing defined benefit obligation $ 608,645 $ 548,328
The Bank and its subsidiary chose to disclose the history of experience adjustments as the amounts determined for each accounting period prospectively from the date of transition to IFRSs:
December 31, December 31, 2013 2012 January 1, 2012
Present value of defined benefit obligation $ 608,645 $ 548,328 $ 396,377 Fair value of plan assets $ - $ - $ - Deficit $ 608,645 $ 548,328 $ 396,377 Experience adjustments on plan liabilities $ 46,388 $ 161,012 $ - Experience adjustments on plan assets $ - $ - $ -
As of December 31, 2013, assuming that all variables had remained constant (a) except for a discount rate increase/decrease by 0.5%, the present value of defined benefit obligations would have decreased by $27,158 thousand or increased by $29,359 thousand, respectively; and (b) except for a 0.5% increase/decrease in the withdrawal percentage of preferential deposits, the present value of defined benefit obligations would have decreased by $20,689 thousand or increased by $22,137 thousand, respectively.
30. OTHER LIABILITIES
December 31, December 31, 2013 2012 January 1, 2012
Advance receipts $ 1,986,755 $ 1,655,213 $ 2,496,059 Guarantee deposits received 1,091,114 697,842 772,241 Suspense account and clearing payments 1,026,279 673,510 455,703 Others 510,379 466,457 524,930
$ 4,614,527 $ 3,493,022 $ 4,248,933
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31. EQUITY
a. Capital stock
Common stock
December 31, December 31, 2013 2012 January 1, 2012
Numbers of shares authorized (in thousands) 10,000,000 8,000,000 5,109,287 Capital stock authorized $ 100,000,000 $ 80,000,000 $ 51,092,871 Number of shares issued and received (in thousands) 8,206,571 5,743,077 5,109,287 Outstanding and issued shares $ 82,065,712 $ 57,430,769 $ 51,092,871
As of December 31, 2013, the Bank‟s authorized capital stock consisted of 10,000,000 thousand shares with a par value of NT$10, for a total amount of $100,000,000 thousand; there were 8,206,571 shares issued and outstanding, which amounted to $82,065,712 thousand.
On December 27, 2012, the Bank‟s board of directors, resolved to increase its capital through a private placement of 380,000 thousand shares. On January 28, 2013, an issue price of $18.33 with total amount of $6,965,400 thousand issued was resolved by the Bank‟s board of directors and the issued capital was increased by $3,800,000 thousand. The subscription date was determined at January 30, 2013.
On June 26, 2013, the Bank‟s board of directors, exercising the power delegated by the stockholder‟s meeting, approved the capitalization of $9,095,943 thousand of retained earnings and $6,123,077 thousand of capital surplus, for a total of $15,219,020 thousand and the issuance of 1,521,902 thousand shares. The subscription date was July 24, 2013.
On August 23, 2013, the Bank‟s board of director resolved to increase its capital through a private placement of US300,000 thousand dollars approximately the equivalent amount in New Taiwan dollars of shares with a par value of $15.7. The total New Taiwan dollar amount of $8,817,000 thousand was calculated at the exchange rate on the subscription date of October 31, 2013, and issued capital stock was increased by 561,592 shares, amounting to $5,615,923 thousand.
On December 30, 2013, the Bank‟s board of directors resolved to increase its capital through private placement, with between 61,996,280 shares and 371,977,681 shares to be issued at NT$16.13 per share. On the subscription date of January 16, 2014, capital stock was increased by 154,000 shares, amounting to $1,540,000 thousand.
b. Capital surplus
December 31, December 31, 2013 2012 January 1, 2012
Arising from consolidation excess $ 7,490,431 $ 13,613,508 $ 13,613,508 Arising from issuance of common shares 6,366,477 - -
$ 13,856,908 $ 13,613,508 $ 13,613,508
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Arising from Arising from Issuance of Consolidation Common Excess Shares
Balance, January 1, 2013 $ 13,613,508 $ - Issuance of common shares - 6,366,477 Issue of share dividends from capital surplus (6,123,077) -
Balance, December 31, 2013 $ 7,490,431 $ 6,366,477
The capital surplus arising from shares issued in excess of par (additional paid-in capital from issuance of common shares, issuance of shares in a business combination, and treasury stock transactions, etc.) and donations may be used to offset a deficit; in addition, when the Bank has no deficit, such capital surplus may be distributed as cash dividends or transferred to capital (limited to a prescribed certain percentage of the Bank‟s paid-in capital and once a year). c. Legal reserves
According to the Banking Act, the Bank, when appropriating its earnings, shall set aside 30% of its after-tax earnings as legal reserve. According to the Company Law, the appropriations for legal reserve should be made until it equals to the Bank‟s paid-in-capital. Legal reserve may be used to offset deficit. If the Bank had no deficit, and the legal reserve has exceeded 25% of its paid-in capital, the excess may be transferred to capital or distributed in cash. In addition, according to the Banking Act, unless and until the legal reserve equals the Bank‟s paid-in capital, the maximum amounts that may be distributed in cash shall not exceed 15% of the Bank‟s paid-in-capital. d. Special reserve
December 31, December 31, 2013 2012 January 1, 2012
Appropriations by TAIPEIBANK under its articles of incorporation $ 1,285,676 $ 1,285,676 $ 1,285,676 Transferred from trading loss reserve 123,497 123,497 123,497 Arising from first-time adoption of IFRSs 126,525 126,525 126,525
$ 1,535,698 $ 1,535,698 $ 1,535,698
Under Rule No. 1010012865 issued by the FSC on April 6, 2012 and the directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of IFRSs,” on the first-time adoption of IFRSs, a company should appropriate to a special reserve an amount that was the same as these of unrealized revaluation increment and cumulative translation differences (gains) transferred to retained earnings as a result of the company‟s use of exemptions under IFRS 1. However, at the date of transitions to IFRSs, if the increase in retained earnings that resulted from all IFRSs adjustments is not sufficient for this appropriation, only the increase in retained earnings that resulted from all IFRSs adjustments will be appropriated to special reserve. The special reserve appropriated as above may be reversed to retained earnings in proportion to the usage, disposal or reclassification of the related assets and thereafter distributed. The special reserve appropriated on the first-time adoption of IFRSs may be used to offset deficits in subsequent years. No appropriation of earnings shall be made until any shortage of the aforementioned special reserve is appropriated in subsequent years if the company has earnings and the original need to appropriate a special reserve is not eliminated.
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The increase in retained earnings that resulted from all IFRSs adjustments was not enough for this appropriation; therefore, the Bank and its subsidiary appropriated to the special reserve an amount of $126,525 thousand, the increase in retained earnings that resulted from all IFRSs adjustments on transition to IFRSs. e. Appropriation of earnings and dividend policy
Under the Bank‟s Articles of Incorporation, the Bank should make appropriations from its net income (less any deficit) in the following order:
1) 30% as legal reserve;
2) 1%-5% as bonus to employees;
3) Dividends to stockholders. All or part of the remainder and unappropriated accumulated earnings generated in prior years can be distributed as dividends to stockholders, as proposed by the board of directors and approved by stockholder‟s meeting. If the legal reserve reaches the Bank‟s paid-in capital, or if the Bank has meet the standards of sound finance and business practices prescribed by the regulatory authorities as stated in Article 50 of the Banking Act and has set aside legal reserve in compliance with the Company Law, the restrictions stipulated in the preceding paragraph shall not prevail.
On November 12, 2009, the Financial Supervisory Commission prescribed the regulations for the standards of sound finance and business practices as stated in Article 50 of the Banking Act. On April 30, 2012, the regulations were amended, specifying the criteria for sound finance and business.
Appropriations of earnings should be resolved by the stockholder‟s meeting held in, and reflected in the financial statements of, the following year. Under the Financial Holdings Company Law, the Bank‟s board of directors is designated to exercise the power of stockholder‟s meetings, and the regulations with regards to the stockholder‟s meetings included in the Company Law shall not prevail.
For the years ended December 31, 2013 and 2012, the bonus to employees were $84,732 thousand and $90,959 thousand, respectively. The estimates of the bonus to employees were based on past experience. Bonus to employees was accrued at 1% of the reminder of net income after 30% of net income was appropriated as legal reserve.
Material differences between such estimated amounts and the amounts proposed by the board of directors in the following year are adjusted for in the current year. If the actual amounts subsequently resolved by the stockholder differ from the proposed amounts, the differences are recorded in the year of stockholder‟s resolution as a change in accounting estimate.
Under the Integrated Income Tax System, local resident and corporate stockholders are allowed tax credits equal to their proportionate share of the income tax paid by the Bank on the date of dividend distribution.
On June 26, 2013 and June 27, 2012, the board of directors exercised the power and authority of shareholder‟s meeting, and resolved the appropriations of the 2012 and 2011 earnings, respectively. The appropriations and dividends per share were as follows:
Appropriations of Earnings Per Share (NT$) 2012 2011 2012 2011
Legal reserve $ 3,898,261 $ 2,716,242 Stock dividends 9,095,943 6,337,898 $ 1.49 $ 1.24
$ 12,994,204 $ 9,054,140
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On June 26, 2013 and June 27, 2012, the board of directors resolved and proposed, on behalf of the stockholder‟s meeting, the appropriations of bonus to employees, which were $90,959 thousand and $63,379 thousand for 2012 and 2011, respectively. The approved amounts do not differ from the accrual amounts reflected in the consolidated financial statements for the years ended December 31, 2012 and 2011.
Information on the appropriation of earnings is available on the Market Observation Post System website of the Taiwan Stock Exchange.
f. Unrealized gains or losses on available-for-sale financial assets
For the Year Ended December 31 2013 2012
Balance, beginning of the year $ 4,302,056 $ 3,080,470 Unrealized gain arising on revaluation of available-for-sale financial assets (91,578) 1,452,866 Income tax relating to unrealized gain arising on revaluation of available-for-sale financial assets 127,379 (75,634) Cumulative gain reclassified to profit or loss on sale of available-for-sale financial assets (1,180,171) (171,201) Share of unrealized gain on revaluation of available-for-sale financial assets of the associate accounted for by the equity method 13,460 15,555
Balance, end of the year $ 3,171,146 $ 4,302,056
32. NET INTEREST
For the Year Ended December 31 2013 2012 Interest revenue
Discounts and loans $ 21,205,283 $ 20,267,837 Held-to-maturity financial assets 2,330,143 3,021,544 Due from bank and call loans to banks 1,654,699 887,055 Available-for-sale financial assets 750,331 573,264 Others 1,739,126 1,549,512 27,679,582 26,299,212 Interest expense
Deposits 9,175,817 9,014,674 Bank debentures 1,175,092 1,155,587 Structured products 651,546 422,385 Due to the Central Bank of China and other banks 558,743 583,449 Others 343,250 492,883 11,904,448 11,668,978
$ 15,775,134 $ 14,630,234
Interest revenue and interest expense shown on the table above exclude those from financial assets and liabilities at fair value through profit or loss.
For the years ended December 31, 2013 and 2012, the interests accrued on impaired financial assets were $544,347 thousand and $590,510 thousand, respectively.
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33. COMMISSION AND FEE REVENUES, NET
For the Year Ended December 31 2013 2012 Commission and fee revenue Trust and custody business $ 3,128,515 $ 2,472,134 Agency income 3,239,882 3,916,157 Credit card business 1,866,366 1,742,715 Credit business 1,265,980 1,150,791 Sports lottery business 495,746 494,755 Others 559,840 556,318 10,556,329 10,332,870 Commission and fee expense Credit card business 787,850 782,871 Sports lottery business 445,831 442,985 Office space expense 263,455 295,989 Interbank service fee 213,875 209,035 Marketing bonus 107,389 76,298 Others 292,906 250,736 2,111,306 2,057,914
$ 8,445,023 $ 8,274,956
The Bank and its subsidiary provided custody, trust, investment management and consultation services to the third parties, which involve the Bank and its subsidiary‟s planning, management, and trading rules of financial instruments. Trust funds or investment portfolios managed and administered on behalf of investors were not included in the Bank and its subsidiary‟s financial statements, but separate accounts were established and separate financial statements were prepared for the purpose of internal management.
34. GAINS ON FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT LOSS
For the Year Ended December 31 2013 2012
Interest revenue $ 555,730 $ 589,099 Realized gain Options 2,922,179 948,061 Currency swap contracts 1,383,822 1,114,429 Forward contracts 1,187,347 422,938 Others 391,078 490,661 5,884,426 2,976,089 Gains (losses) on valuation Options (281,988) 277,644 Convertible corporate bonds 560,446 136,794 Currency swap contracts 97,712 131,119 Interest rate swap contracts (174,954) (103,022) Forward contracts (1,257,571) (369,920) Others 177,124 390,357 (879,231) 462,972
$ 5,560,925 $ 4,028,160
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35. REALIZED GAINS ON AVAILABLE-FOR-SALE FINANCIAL ASSETS
For the Year Ended December 31 2013 2012
Beneficiary securities and stocks $ 1,055,189 $ 45,215 Dividends revenue 523,556 573,131 Bank debentures 112,658 7,870 Government bonds 10,432 56,921 Corporate bonds (1,813) 54,209 Others 3,705 6,986
$ 1,703,727 $ 744,332
36. EMPLOYEE BENEFITS EXPENSE
For the Year Ended December 31 2013 2012
Salaries and wages $ 6,763,350 $ 6,428,427 Labor insurance, national health insurance, and group insurance for life 571,607 513,390 Pension 349,898 329,980 Other employee benefits expense 1,622,808 1,383,239
$ 9,307,663 $ 8,655,036
37. DEPRECIATION AND AMORTIZATION
For the Year Ended December 31 2013 2012
Depreciation $ 435,003 $ 462,524 Amortization 316,052 296,752
$ 751,055 $ 759,276
Depreciation on investment property (included in other noninterest net revenue) $ 11,822 $ 11,889
38. OTHER OPERATING EXPENSES
For the Year Ended December 31 2013 2012
Rental $ 1,795,360 $ 1,746,883 Taxation and government fee 892,331 877,144 Professional services 495,534 548,621 Insurance 388,994 369,499 Advertisement 323,459 251,677 Others 1,627,678 1,535,275
$ 5,523,356 $ 5,329,099
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39. INCOME TAXES
Since 2003, Fubon Financial Holdings Co., Ltd. has been using the linked-tax system for filing regular corporate income tax and 10% income tax on undistributed earnings with its eligible subsidiaries, including the Bank.
a. Income tax recognized in profit or loss
The major components of tax expense were as follows:
For the Year Ended December 31 2013 2012
Current tax In respect of the current period $ 2,151,675 $ 1,872,283 In respect of prior periods (983) 138,128 2,150,692 2,010,411 Deferred tax In respect of the current period (65,307) 56,720
Income tax expense recognized in profit or loss $ 2,085,385 $ 2,067,131
A reconciliation of accounting profit and current income tax expense is as follows:
For the Year Ended December 31 2013 2012
Income tax expense calculated at statutory rate (17%) $ 2,412,298 $ 2,556,872 Tax-exempt income (803,422) (664,640) Unqualified items in determining taxable income 368,136 (5,687) Overseas branches income tax expense 108,099 180,821 Adjustments for prior years‟ tax (983) (2,632) Others 1,257 2,397
Income tax expense recognized in profit or loss $ 2,085,385 $ 2,067,131
b. Income tax recognized in other comprehensive income
For the Year Ended December 31 2013 2012
Deferred tax
Recognized in other comprehensive income Unrealized gains and losses for available-for-sale financial assets $ 127,379 $ (75,634) Defined benefit plan actuarial losses 23,098 55,001
$ 150,477 $ (20,633)
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c. Current tax assets and liabilities
December 31, December 31, 2013 2012 January 1, 2012
Current tax assets Linked-tax receivable $ 385,912 $ 509,226 $ 1,092,483 Prepaid income tax 25,607 23,454 165,690
$ 411,519 $ 532,680 $ 1,258,173
Current tax liabilities Linked-tax payable $ 1,243,044 $ 1,188,567 $ 730,417 Income tax payable 345,453 320,165 262,819
$ 1,588,497 $ 1,508,732 $ 993,236 d. Deferred tax assets and liabilities
The movements of deferred tax assets and deferred tax liabilities were as follows:
For the year ended December 31, 2013
Recognized in Other Opening Recognized in Comprehensive Exchange Balance Profit or Loss Income Differences Closing Balance
Deferred tax assets
Temporary differences Employee benefit plans $ 196,213 $ 18,934 $ 23,098 $ - $ 238,245 Overseas branches 98,417 (18,772) (3,350) 2,651 78,946 Impairment loss 18,585 (236) - - 18,349 Unrealized loss on foreign exchange 22,156 (5,541) - - 16,615 Others 9,917 4,839 3,278 - 18,034
$ 345,288 $ (776) $ 23,026 $ 2,651 $ 370,189
Deferred tax liabilities
Temporary differences Land value increment tax $ 270,467 $ - $ - $ - $ 270,467 Unrealized gain on derivative financial instrument 138,758 (70,686) - - 68,072 Intangible assets 55,815 4,603 - - 60,418 Available-for-sale financial assets 127,451 - (127,451) - -
$ 592,491 $ (66,083) $ (127,451) $ - $ 398,957
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For the year ended December 31, 2012
Recognized in Other Opening Recognized in Comprehensive Exchange Balance Profit or Loss Income Differences Closing Balance
Deferred tax assets
Temporary differences Employee benefit plans $ 138,352 $ 2,860 $ 55,001 $ - $ 196,213 Overseas branches 146,170 (9,812) (33,796) (4,145) 98,417 Impairment loss 22,080 (3,495) - - 18,585 Unrealized loss on foreign exchange 14,309 7,847 - - 22,156 Others 14,406 (4,489) - - 9,917
$ 335,317 $ (7,089) $ 21,205 $ (4,145) $ 345,288
Deferred tax liabilities
Temporary differences Land value increment tax $ 270,467 $ - $ - $ - $ 270,467 Unrealized gain on derivative financial instrument 108,827 29,931 - - 138,758 Intangible assets 36,115 19,700 - - 55,815 Available-for-sale financial assets 85,613 - 41,838 - 127,451
$ 501,022 $ 49,631 $ 41,838 $ - $ 592,491 e. The information on the integrated income tax system is as follows:
1) The Bank and its subsidiary do not have unappropriated earnings generated before January 1, 1998.
2) The information on the imputation credits account is as follows:
December 31, December 31, 2013 2012 January 1, 2012
The Bank $ 88,146 $ 115,970 $ 14,850 Taipei Fubon Bank Life Insurance Agency Co., Ltd. $ 8,439 $ 9,873 $ 14,539
3) Creditable tax ratio
The Bank‟s estimated creditable tax ratio for distribution of earnings of 2013 was 0.75%, and actual creditable tax ratio for distribution of earnings of 2012 was 0.93%.
Taipei Fubon Bank Life Insurance Agency Co., Ltd.‟s expected creditable tax ratio for distribution of earnings of 2013 was 20.48%, and the actual creditable tax ratio for distribution of earnings of 2012 was 20.48%.
Under the Income Tax Law, for distribution of earnings generated after January 1, 1998, the imputation credits allocated to ROC resident shareholders of the Bank was calculated based on the creditable ratio as of the date of dividend distribution. The actual imputation credits allocated to shareholders of the Bank was based on the balance of the Imputation Credit Accounts (ICA) as of the date of dividend distribution. Therefore, the expected creditable ratio for the 2013 earnings may differ from the actual creditable ratio to be used in allocating imputation credits to the shareholders.
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According to legal interpretation No. 10204562810 announced by the Taxation Administration of the Ministry of Finance, when calculating imputation credits in the year of first-time adoption of IFRSs, the cumulative retained earnings include the net increase or net decrease in retained earnings arising from first-time adoption of IFRSs. The actual imputation credits allocated to shareholders of the Bank was limited to the balance of ICA as of the date of dividend distribution.
f. Income tax returns of the TAIPEIBANK Co., Ltd. and the Fubon Bank through 2007 and 2004 had been assessed by the Taipei National Tax Administrative (TNTA). The Bank disagreed with the tax authorities‟ assessment of the Bank‟s 2003 to 2007 tax returns with regards to the amortization of premium on bonds and had applied for a re-examination and an administrative appeal. Income tax returns of the former Fubon Bills Finance Co., Ltd. through 2006 had been assessed by TNTA. TNTA decided to give a tax refund at 65% of tax paid on interest income earned by the Bank, and the Bank accepted this refund of the withholding tax denied.
g. Income tax returns of the Taipei Fubon Bank Life Insurance Agency Co., Ltd. through 2011 had been assessed by the TNTA.
40. EARNINGS PER SHARE
For the Year Ended December 31 2013 2012
Basic earnings per share From continuing operations $ 1.57 $ 1.79
The earnings and weighted average number of ordinary shares outstanding in the computation of earnings per share from continuing operations were as follows:
Net Profit for the Year
For the Year Ended December 31 2013 2012
Profit for the year attributable to owner of the Bank $ 12,104,607 $ 12,973,294
Shares
For the Year Ended December 31 2013 2012
Weighted average number of ordinary shares in computation of basic earnings per share 7,709,140 7,264,979
The weighted average number of shares outstanding used for earnings per share calculation has been retroactively adjusted for the issuance of bonus shares. This adjustment caused the basic earnings per share for the year ended December 31, 2012 to decrease from $2.26 to $1.79.
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41. RELATED-PARTY TRANSACTIONS
The Bank and its subsidiary‟s related parties were as follows:
a. Related parties
Related Party Relationship with the Bank and Its Subsidiary
Fubon Financial Holdings Co., Ltd. (FFH) Parent company Fubon Insurance Co., Ltd. (“Fubon Insurance”) Subsidiary of FFH Fubon Life Insurance Co., Ltd. (“Fubon Life Subsidiary of FFH Insurance”) Fubon Securities Co., Ltd. (“Fubon Securities”) Subsidiary of FFH Fubon Bank (Hong Kong) Limited (“Fubon Bank Subsidiary of FFH (Hong Kong)”) Fubon Securities Investment Trust Co., Ltd. Equity-method investee of FFH‟s subsidiary (“Fubon Securities Investment Trust”) Fubon Direct Marketing Consulting Co., Ltd. Subsidiary of FFH (“Fubon Direct Marketing Consulting”) Fubon Insurance Brokers (Philippines) Co., Ltd. Equity-method investee of FFH‟s subsidiary Fubon Insurance Brokers (Thailand) Co., Ltd. Equity-method investee of FFH‟s subsidiary Fubon Asset Management Co., Ltd. (“Fubon Subsidiary of FFH Asset Management”) Fubon Financial Holding Venture Co., Ltd. Subsidiary of FFH Taiwan Sports Lottery Co., Ltd. (“Taiwan Sports Subsidiary of FFH Lottery”) Fubon Insurance (Vietnam) Co., Ltd. Equity-method investee of FFH‟s subsidiary Fubon Real Estate Management Co., Ltd. Equity-method investee of the Bank Taipei City Government (TCG) and its Major stockholder of parent company departments Chung Hsing Land Development Co., Ltd. Major stockholder of parent company (CHLDC) Ming Tong Co., Ltd. Major stockholder of parent company Tao Yin Co., Ltd. Major stockholder of parent company Fu Sheng Travel Service Co., Ltd. Related party in substance Fubon Securities (BVI) Co., Ltd. Equity-method investee of FFH‟s subsidiary Fubon Securities USA, Inc. Related party in substance until third quarter, 2013 Fubon Futures Co., Ltd. Equity-method investee of FFH‟s subsidiary Fubon Securities Investment Consulting Co., Ltd. Equity-method investee of FFH‟s subsidiary (“Fubon Investment”) Fu-Sheng Properties Insurance Agent Co., Ltd. Equity-method investee of FFH‟s subsidiary Fu-Sheng Life Assurance Agent Co., Ltd. Equity-method investee of FFH‟s subsidiary Fuly Properties Insurance Agent Co., Ltd. Related party in substance Fuly Life Assurance Agent Co., Ltd. Related party in substance Fubon Properties Insurance Equity-method investee of FFH‟s subsidiary Fubon Life Insurance (Vietnam) Equity-method investee of FFH‟s subsidiary Asian Crown International Co., Ltd. Related party in substance Fortune Kingdom Corporation Related party in substance Hong Kong Fubon Multimedia Technology Co., Related party in substance Ltd. Taipei Fubon Commercial Bank Charity Related party in substance Foundation Fubon Securities Investment‟s affiliate funds Related party in substance Taiwan Mobile Co., Ltd. (“Taiwan Mobile”) Related party in substance (Continued)
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Related Party Relationship with the Bank and Its Subsidiary
EasyCard Co., Ltd. Related party in substance Taiwan Fixed Network Co., Ltd. Related party in substance Fubon Art Foundation Related party in substance Fubon Charity Foundation Related party in substance Fubon Culture and Education Foundation Related party in substance Fubon Building Management Maintain Co., Ltd. Related party in substance (“Fubon Building Management”) Fubon Land Development Co., Ltd. (“Fubon Land Related party in substance Development”) Taiwan High Speed Rail Corporation Related party in substance Taiwan Customer Service Technology Co., Ltd. Related party in substance Win TV Broadcasting Co., Ltd. Related party in substance Taiwan Stock Exchange Corporation Related party in substance Straits Exchange Foundation (SEF) Related party in substance Fubon Construction Co., Ltd. Related party in substance Fubon Real Estate Co., Ltd. Related party in substance Taiwan Digital Communication Co., Ltd. Related party in substance Sinostar Investment Consulting Co., Ltd. Related party in substance Kuo Chi Investment Co., Ltd. Related party in substance Wealth Media Technology Co., Ltd. Related party in substance Youth Development Foundation Related party in substance China University of Technology Related party in substance World Vision Taiwan Related party in substance The Chinese Commercial & Industrial Related party in substance until second quarter, Coordination Society 2013 Taiwan Residential Earthquake Insurance Fund Related party in substance Taiwan Futures Exchange Corporation Related party in substance Taiwan Mobile Foundation Related party in substance Tai-Shin Investment Co., Ltd. Related party in substance Taiwan Integrated Shareholder Service Company Related party in substance Tai Shin Communication Co., Ltd. Related party in substance Safety and Health Technology Center Related party in substance Chien Kuo Construction Co., Ltd. Related party in substance Century Development Corporation Related party in substance Motor Vehicle Accident Compensation Fund Related party in substance until third quarter, 2013 Vision Venture Capital Corporation Related party in substance TFN Media Co., Ltd. Related party in substance Taiwan Depository & Clearing Corporation Related party in substance Hong Fu Investment Related party in substance DaFu Media Corporation Related party in substance Taiwan Mobile Basketball & Entertainment Related party in substance PTI Technology Inc. Related party in substance Kbro Co., Ltd. Related party in substance Mangrove Cable TV Inc. Related party in substance until second quarter, 2013 Taiwan Cogeneration Corporation Related party in substance Fubon Multimedia Technology Co., Ltd. Related party in substance Silicon Power & Communication Inc. Related party in substance Easy Card Investment holding Corporation Related party in substance Han Cheng Financial Management Co., Ltd. Related party in substance Mercuries Data Systems Ltd. Related party in substance Key Ware Electronics Co., Ltd. Related party in substance (Continued)
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Related Party Relationship with the Bank and Its Subsidiary
Motomax Electric Co., Ltd. Related party in substance Broadcasting Corporation of China Related party in substance FB Top Select Absolute Return Income Fund Related party in substance FB Top Select China Columbus Fund Related party in substance FB Top Select Series SPC Related party in substance Dayu Optoelectronics Co., Ltd. Related party in substance Taiwan Corporate Governance Association Related party in substance General Chamber of Commerce of the Republic of Related party in substance China The Non-life Insurance Association of the Related party in substance Republic of China Chung-Hua Institution for Economic Research Related party in substance Taiwan Fixed Newly Created Investment Co., Ltd. Related party in substance Taiwan Units Networked Investment Co., Ltd. Related party in substance Taiwan Financial Assets Service Co., Ltd. Related party in substance Nice Co., Ltd. Related party in substance Good TV Broadcasting Corp., Ltd. Related party in substance Foundation Taipei Jianguo High School Alumni Related party in substance Association Cultural and Educational Foundation Taiwan After-Care Association Related party in substance Commerce Development Research Institute Related party in substance Foundation following Yun Insurance Cultural and Related party in substance Educational Foundation Bo Yu Investment Consultants Limited Related party in substance Love to Speak Co., Ltd. Related party in substance Cheng Xin Technology Development Corporation, Related party in substance Ltd. Fubon Gehna (Beijing) Enterprise, Ltd. Related party in substance until third quarter, 2013 The Hsinchu Private Foundation Jianhui Social Related party in substance Cultural Foundation Warwick Century Venture Capital Shares, Ltd. Related party in substance Dengfeng Venture Capital Co., Ltd. Related party in substance Jung Shing Policy Foundation Related party in substance The Sound of Music the Broadcasting Foundation Related party in substance Da Ka Co., Ltd. Related party in substance Sheng Ting Co., Ltd. Related party in substance Sheng Hau Co., Ltd. Related party in substance Taiwan advanced materials Co., Ltd. Related party in substance Tai Tung communication Co., Ltd. Related party in substance China Evangelical Seminary Related party in substance Fubon Taiwan Phoenix Fund LDC Related party in substance University of Southern California Related party in substance Chi Duen Consultant Co., Ltd. Related party in substance Han You Management Consultant Co., Ltd. Related party in substance Cheng Da Financial Management Consultant Co., Related party in substance Ltd. Yung Jia Financial Management Consultant Co., Related party in substance Ltd. Taiwan Sotheby‟s International Realty Related party in substance Phycos International Co., Ltd. Related party in substance (Continued)
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Related Party Relationship with the Bank and Its Subsidiary
Asia Real Estate Management Co., Ltd. Related party in substance Xiamen Bank Co., Ltd. Related party in substance Founder Fubon Fund Related party in substance Fubon Shing Ji Investment Co., Ltd. Related party in substance Krob Entertainment Co., Ltd. Related party in substance NTU Law Foundation Related party in substance Taiwan Academy of Banking and Finance Related party in substance Taiwan Art & Business Interdisplinary Foundation Related party in substance Taiwan Telecommunication Industry Related party in substance Development Association Asia Business Council Related party in substance Environmental Quality Protection Foundation Related party in substance Casetek Holdings Limited Related party in substance Financial Engineering Association of Taiwan Related party in substance GreTai Securities Market Related party in substance Fuji Investment Co., Ltd. Related party in substance Pingnan Cable TV Co., Ltd. Related party in substance Giant Cable TV Co., Ltd. Related party in substance Formosa Cancer Foundation Related party in substance One Production Film Co. Related party in substance Allied Industrial Corp. Ltd. Related party in substance Ruji Investment Co., Ltd. Related party in substance Founder Fubon Venture Co., Ltd. Related party in substance Stemcyte Taiwan Co., Ltd. Related party in substance Lidium Venture Management Co., Ltd. Related party in substance Hualu Venture Management Co., Ltd. Related party in substance Stem Cytle Inc. Related party in substance Zuan Shi Investment Corp., Ltd. Related party in substance Standard Chartered PLC Related party in substance Syneu Rx Biotechnology and Medicine Co., Ltd. Related party in substance Taiwan Mobile Digitimes Services Co., Ltd Related party in substance The Bankers Association of Taipei Related party in substance The Bankers Association of The Republic of Related party in substance China Police of The Republic of China Related party in substance Gabriel Broadcasting Foundation Related party in substance Taiwan Biotechnology and Medicine Related party in substance Development Foundation Tang Quan Biotechnology and Medicine Co., Ltd. Related party in substance Taipei Foundation of Universal Design Education Related party in substance Taoyuan Metro Corporation Related party in substance Jiao Da Culture Foundation Related party in substance Citibank Taiwan Related party in substance until fourth quarter, 2012 Eutech Microelectronics Inc. Related party in substance Cross-strait Entrepreneur Purple Mountain Related party in substance Summit Chinese Taipei Football Association, ROC Related party in substance Taipei Municipal Chien Kuo High School Alumni Related party in substance Association (Continued)
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Related Party Relationship with the Bank and Its Subsidiary
FocalTech Systems Co., Ltd. Related party in substance Taiwan Securities Association Related party in substance China Research and Development Association for Related party in substance Financial Service Taiwan Venture Capital Association Related party in substance Taiwan Private Equity Association Related party in substance Taipei New Horizon Related party in substance Dao Ji Co., Ltd. Related party in substance Dao Ji Investment Co., Ltd. Related party in substance Taishin Financial Holding Co,. Ltd. Related party in substance Hau Ming Co., Ltd. Related party in substance Hau Wei Co., Ltd. Related party in substance Hong Kong Fubon Multimedia Technology Co., Related party in substance Ltd. Taipei new horizon Related party in substance China World Vision Related party in substance Sheng Yen Education Foundation Related party in substance Taiwan Insurance Association Related party in substance Academy of Promoting Economic Legislation Related party in substance Social Enterprise Foundation Related party in substance First Sino Bank Related party in substance Taishin International Bank Co., Ltd. Related party in substance Others Directors, supervisors, managers and their relatives within the second degree of consanguinity (Concluded) b. Significant transactions with related parties are summarized as follows:
For the Year Ended December 31, 2013 Highest % of the Balance for the Account Allowance for Allowance for Ending Balance Period Balance Credit Loss Rate (%) Interest Income Credit Loss
1) Loans $ 49,471,182 $ 79,363,022 4.49 $ 43,182 0-19.98 $ 844,962 $ 28,169
For the Year Ended December 31, 2013 Is the Transaction at Arm’s Number of Accounts or Length Name of Related Highest Ending Type of Commercial Category Party Balance Balance Normal Overdue Collaterals Term
Consumer loans 62 $ 23,380 $ 22,807 v $ - Unsecured Yes for employees Housing mortgage 342 2,660,667 2,604,295 v - Properties Yes loans Others Department of Urban 1,400,790 1,199,429 v - Public treasury Yes Development, TCG guarantees TCG 13,564,823 7,951,330 v - Public treasury Yes guarantees Department of Rapid 52,486,507 28,500,000 v - Public treasury Yes Transit Systems, TCG guarantees Taipei Municipal 4,355 3,321 v - Public treasury Yes Secured Swan Loans guarantees Service Fubon Land 1,690,000 1,690,000 v - Land and Yes Development buildings, stock Department of Finance, 7,500,000 7,500,000 v - Unsecured Yes TCG Taipei New Horizon 32,500 - v Unsecured Yes
$ 79,363,022 $ 49,471,182
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For the Year Ended December 31, 2012 Highest % of the Balance for the Account Allowance for Allowance for Ending Balance Period Balance Credit Loss Rate (%) Interest Income Credit Loss
Loans $ 45,950,642 $ 72,711,322 4.48 $ 15,013 0-19.98 $ 798,422 $ 3,470
For the Year Ended December 31, 2012 Is the Transaction at Arm’s Number of Accounts or Length Name of Related Highest Ending Type of Commercial Category Party Balance Balance Normal Overdue Collaterals Term
Consumer loans 75 $ 24,321 $ 23,787 v $ - Unsecured Yes for employees Housing mortgage 342 2,538,516 2,481,784 v - Land and Yes loans buildings Others Department of Urban 1,639,388 1,399,386 v - Public treasury Yes Development, TCG guarantees TCG 20,164,823 13,564,823 v - Public treasury Yes guarantees Department of Rapid 46,986,507 27,986,507 v - Public treasury Yes Transit Systems, TCG guarantees Taipei Municipal 6,161 4,355 v - Public treasury Yes Secured Swan Loans guarantees Service Fubon Land 490,000 490,000 v - Land and Yes Development buildings Hanns Touch Solution, 861,606 - v - Unsecured Yes Inc.
$ 72,711,322 $ 45,950,642
For the Year Ended December 31 2013 2012 % of % of the Interest the Interest Ending Account Rate Income Ending Account Rate Income Balance Balance (%) (Expense) Balance Balance (%) (Expense)
2) Deposits $ 85,498,800 6.32 0-6.395 $ (481,319 ) $ 79,404,045 6.36 0-6.395 $ (630,455 )
3) Due from other banks - call loans $ - - - $ - $ - - 1.3 $ 71
4) Due to other banks - call loans $ - - - $ (4 ) $ - - 0.22.2.00 $ (20 )
5) Due from other banks - deposits $ 1,993,295 3.11 4.9 $ 22,168 $ 54,769 2.79 - $ -
6) Guarantees $ 1,198 - 0.85-1 $ 35 $ 1,165 - 1 $ 66
For the Year Ended December 31, 2013 Reserve for Highest Losses on Balance in Ending Guarantees Related Party Current Period Balance (Note) Rates Type of Collaterals
TCG $ 1,205 $ 1,198 $ - 1% Public treasury guarantees Taipei New Horizon $ 32,500 $ - $ - 0.85% Unsecured
For the Year Ended December 31, 2012 Reserve for Highest Losses on Balance in Ending Guarantees Related Party Current Period Balance (Note) Rates Type of Collaterals
TCG $ 1,165 $ 1,165 $ - 1% Public treasury guarantees TFN Media Co., Ltd. $ 9,000 $ - $ - 1% Certificate of deposits
Note: The reserve for losses on guarantees was a collective provision for the Bank‟s entire credits.
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7) Securities
For the Year Ended December 31 Related Parties Type 2013 2012
Fubon Securities Bonds purchased $ - $ 149,856 Fubon Life Insurance Bonds purchased 7,381,012 5,375,251 Bonds sold 3,165,481 4,108,654 Fubon Insurance Bonds purchased - 305,194 Fu-Sheng Properties Insurance Agent Bonds sold - 2,044 Fu-Sheng Life Assurance Agent Bonds sold - 3,066 Citibank Taiwan Bonds sold - 1,103,268 Hantai Life Insurance Bonds purchased - 708,270
December 31, December 31, January 1, Related Parties Type 2013 2012 2012
Taiwan High Speed Rail Corporation Bonds sold under agreements to $ - $ - $ 391,000 repurchase Fubon Life Insurance Bonds sold under agreements to - - 1,450,000 repurchase Taiwan Fixed Network Bonds sold under agreements to - 339,156 407,459 repurchase Fuji Investment Co., Ltd. Bonds sold under agreements to 81,000 22,506 - repurchase Taiwan Sports Lottery Bonds sold under agreements to - 22,000 - repurchase Ruji Investment Co., Ltd. Bonds sold under agreements to - 26,098 - repurchase Directors, supervisors, managers and their Bonds sold under agreements to 1,179,606 596,814 1,256,902 relatives within the second degree of repurchase consanguinity
8) Mutual fund and stock transactions
December 31, 2013 December 31, 2012 January 1, 2012 Units (In Units (In Units (In Fund Thousands) Amount Thousands) Amount Thousands) Amount
Fubon No. 1 REIT 57,680 $ 963,256 57,680 $ 1,013,438 57,680 $ 804,059 Fubon No. 2 REIT 1,848 24,209 1,008 13,648 - - Fubon Fund - - 34,943 265,567 35,266 238,046
9) Derivative financial instruments
For the Year Ended December 31, 2013 Contract (Notional) Gains (Losses) Balance Sheet Related Party Derivative Instrument Contract Period Amount on Valuation Account Balance
Fubon Bank (Hong Kong) Interest rate swap 2010.11.26-2020.03.19 $ 1,692,209 $ (107,134 ) Revaluation of held-for- $ 182,491 contract trading financial assets Fubon Life Insurance Interest rate swap 2007.09.27-2018.06.24 2,750,000 152,706 Revaluation of held-for- (610,816 ) contract trading financial liabilities Department of Cultural Affairs, Forward contracts 2010.02.03-2014.03.03 24,132 (3,881 ) Revaluation of held-for- 1,381 TCG trading financial assets Fubon Securities Investment Trust Currency swap contracts 2013.12.05-2014.02.24 1,361,970 13,438 Revaluation of held-for- 14,192 trading financial assets
For the Year Ended December 31, 2012 Contract (Notional) Gains (Losses) Balance Sheet Related Party Derivative Instrument Contract Period Amount on Valuation Account Balance
Fubon Bank (Hong Kong) Interest rate swap 2010.11.26-2020.03.19 $ 1,646,173 $ 22,386 Revaluation of $ 289,625 contract held-for-trading financial assets Fubon Securities Interest rate swap 2008.03.26-2013.03.28 300,000 (20,063 ) Revaluation of 1,180 contract held-for-trading financial assets Fubon Securities Interest rate swap 2008.01.23-2013.06.10 1,500,000 40,166 Revaluation of (12,243 ) contract held-for-trading financial liabilities (Continued)
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For the Year Ended December 31, 2012 Contract (Notional) Gains (Losses) Balance Sheet Related Party Derivative Instrument Contract Period Amount on Valuation Account Balance
Fubon Life Insurance Interest rate swap 2007.09.27-2018.06.24 $ 2,750,000 $ 46,065 Revaluation of $ (763,522 ) contract held-for-trading financial liabilities Department of Cultural Affairs, Forward contracts 2010.02.03-2014.03.03 41,948 (2,045 ) Revaluation of held-for- 5,262 TCG trading financial assets Fubon Securities Investment Trust Currency swap contracts 2012.11.16-2013.03.11 785,850 754 Revaluation of held-for- 754 trading financial assets Fubon Securities Investment Trust Currency swap contracts 2012.10.03-2013.01.22 195,970 (1,158 ) Revaluation of held-for- (1,158 ) trading financial liabilities (Concluded)
10) Lease
Rental Revenue (Expense) for the Year Ended December 31 Name Bank’s Role Payment Frequency Deposits Lease Term 2013 2012
TCG Lessee Rentals payable monthly $ 2,378 December 2015 $ (25,769 ) $ (23,800 ) Fubon Securities Lessee Rentals payable monthly 1,549 July 2015 (8,923 ) (8,179 ) Lessor Rentals received monthly 6,379 March 2018 39,998 41,673 Fubon Insurance Lessee Rentals payable monthly 21,770 September 2016 (129,015 ) (131,333 ) Fubon Life Insurance Lessee Rentals payable monthly 1,051 September 2016 (6,332 ) (6,332 ) CHLDC Lessee Rentals payable monthly 28,278 December 2014 (177,573 ) (176,827 ) Ming Tong Co., Ltd. Lessee Rentals payable monthly 3,370 April 2016 (20,220 ) (20,220 ) Taiwan Mobile Lessee Rentals payable monthly 2,282 March 2017 (7,784 ) (7,784 ) Lessor Rentals received monthly 444 October 2018 7,399 7,330 Fubon Asset Management Lessor Rentals received monthly 1,139 November 2014 7,175 7,014 Taiwan Sports Lottery Lessor Rentals received monthly 1,907 January 2014 11,442 11,442 Fubon Charity Foundation Lessee Rentals payable monthly 509 November 2015 (6,281 ) (3,204 ) Taiwan Fixed Network Lessor Rentals received annually 20 June 2016 126 126 Others Lessee Rentals payable monthly 70 March 2014 (420 ) (420 )
11) Insurance
The Bank entered into several insurance contracts with Fubon Insurance, as follows:
Insurance Insurance Insured Item/Insurance Type Insurance Period Amount Premium
For the year ended December 31, 2013
Cash on hand 2013.04.20-2014.04.20 $ 200,000 $ 390 Safe burglary insurance 2013.04.20-2014.04.20 150,600 1,398 Computer equipment 2013.11.01-2014.11.01 2,455,063 4,910 Commercial fire insurance 2013.03.01-2014.03.01 5,792,552 9,926 Public accident 2013.04.20-2014.04.20 468,000 645 Car insurance 2012.12.31-2013.12.31 - 45 Combined insurance for the Bank 2013.04.20-2014.04.20 122,500 8,850 Motorcycle insurance 2013.06.04-2014.06.04 - 165 Fidelity insurance 2013.01.01-2014.01.01 Note 5,901
For the year ended December 31, 2012
Cash on hand 2012.04.20-2013.04.20 200,000 409 Safe burglary insurance 2012.04.20-2013.04.20 150,000 671 Computer equipment 2012.11.01-2013.11.01 2,302,230 4,720 Commercial fire insurance 2012.03.01-2013.03.01 6,284,377 10,879 Public accident 2012.04.20-2013.04.20 468,000 672 Car insurance 2011.12.31-2012.12.31 - 45 Combined insurance for the Bank 2012.04.20-2013.04.20 122,500 8,980 Motorcycle insurance 2012.06.04-2013.06.04 - 207 Fidelity insurance 2012.01.01-2013.01.01 Note 6,642
Note: The insurance coverage for each employee was $1,000 thousand, $3,000 thousand or $5,000 thousand, depending on the nature of his/her job function.
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12) Marketing collaboration
The Bank entered into a collaboration arrangement with Fubon Securities for deal settlement of securities, cost sharing, and cross-selling. Under this contract, the expense allocation was based on the average balance that the customers of Fubon Securities deposited in the Bank. The allocation costs for office space that the Bank paid to Fubon Securities were $261,447 thousand and $293,918 thousand for the years ended December 31, 2013 and 2012, respectively.
13) Donation
For public welfare lottery‟s purpose of social welfare, 30% of the Lottery department‟s net income was contributed to a public welfare foundation in prior years when the public welfare lotteries were issued. For the years ended December 31, 2013 and 2012, the Bank donated $18,700 thousand and $16,500 thousand, to Taipei Fubon Bank Charity Foundation, the Bank also contributed $15,000 thousand for the year ended December 31, 2012, to Taipei Fubon Culture and Education Foundation.
14) Compensation of key management personnel
For the Year Ended December 31 2013 2012
Short-term employee benefits $ 313,192 $ 252,835 Post-employment benefits 8,793 2,889 Others 834 969
$ 322,819 $ 256,693
15) Linked-tax system
The Bank‟s parent company, FFH, uses the linked-tax system for filing income tax returns of FFH and eligible subsidiaries, which include the Bank.
December 31, December 31, 2013 2012 January 1, 2012
Linked-tax receivable (included in current tax assets) $ 385,912 $ 509,226 $ 1,092,483 Linked-tax payable (included in current tax liabilities) 1,243,044 1,188,567 730,417
16) Others
December 31, December 31, 2013 2012 January 1, 2012
Receivables - Taiwan Sports Lottery $ 2,570,942 $ 2,429,382 $ 2,146,814 Receivables - Fubon Life Insurance 465,095 501,738 563,810 Receivables - others 57,679 64,069 42,290 Payables - Taiwan Sports Lottery 85,985 88,065 75,509 Payables - others 103,654 52,101 31,583 Refundable deposits - others 161,553 172,374 53,924 Guarantee deposits received - others 9,097 9,978 8,866 Principals of structured products - Fubon Life Insurance 2,750,000 2,750,000 2,750,000
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For the Year Ended December 31 2013 2012
Commission and fee revenue - Fubon Life Insurance $ 3,490,853 $ 4,133,084 Commission and fee revenue - others 455,595 354,069 Other revenue - Taiwan Sports Lottery 2,605,273 2,366,616 Other revenue - Fubon Asset Management 42,120 48,290 Other revenue - others 1,316 1,200 Commission and fee expense - Taiwan Sports Lottery 415,296 421,217 Commission and fee expense - others 142,283 118,919 Donation - others 56,920 32,471 Insurance expense - others 129,031 139,136 Other operating expense - others 144,560 220,098
Transactions between the Bank and related parties were at arm‟s length commercial terms, except for the preferential interest rates offered to employees for their savings and loans of up to certain amounts.
Under the Banking Act, except for consumer and government loans, credits extended by the Bank to any related party should be fully secured, and the credit terms for related parties should be similar to those for unrelated parties.
42. PLEDGED ASSETS
The following assets had been provided as refundable deposits:
December 31, December 31, 2013 2012 January 1, 2012
Government bonds (included in financial assets at fair value through profit or loss) $ 323,450 $ 322,467 $ - Government bonds (included in available-for-sale financial assets) 372,540 413,231 773,503 Negotiable certificates of deposit of the Central Bank (included in held-to-maturity financial assets) 20,000,000 20,000,000 20,000,000 Negotiable certificates of deposit (included in held-to-maturity financial assets) 65,891 64,099 66,637 Government bonds (included in held-to-maturity financial assets) 1,261,342 1,357,865 1,420,659 Pledged time deposits (included in other financial assets) 692,090 - -
$ 22,715,313 $ 22,157,662 $ 22,260,799
The above negotiable certificates of deposit of the Central Bank amounted to $10,000,000 thousand on December 31, 2013, December 31, 2012 and January 1, 2012 had been provided as collaterals for day-term overdraft to comply with the Central Bank‟s clearing system requirement for real-time gross settlement (RTGS). The unused overdraft amount at the end of the day may also be treated as liquidity reserve.
In addition, negotiable certificates of deposit of the Central Bank amounted to $10,000,000 thousand on December 31, 2013, December 31, 2012 and January 1, 2012 were provided for the Central Bank as collaterals for the Bank‟s foreign currency call loans.
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Other pledged assets had been placed with (a) courts for meeting requirements for judiciary provisional seizure of debtors‟ property, (b) the National Credit Card Center for the Bank‟s potential obligations on credit card activities, (c) the Central Bank for the Bank‟s potential obligations on its trust activities, and (d) foreign governments for the Bank‟s potential obligations on its overseas operations.
43. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS
a. Except for disclosed in other notes of consolidated financial statements, as of December 31, 2013, December 31, 2012 and January 1, 2012, the Bank and its subsidiary had commitments as follows:
December 31, December 31, 2013 2012 January 1, 2012
Collections for customers $ 62,330,124 $ 48,702,671 $ 52,903,597 Agency loans payable 33,116,682 36,742,068 40,192,791 Travelers‟ checks consigned-in 813,173 833,655 708,518 Marketable securities under custody 213,536,978 243,618,331 247,591,096 Trust assets 294,693,857 308,911,492 307,218,177 Management for book-entry government bonds 308,825,400 357,025,500 370,799,700
b. Operating lease commitment is the future minimum payment under non-cancellable operating lease where the Bank and its subsidiary are the lessees. The capital commitments of the Bank and its subsidiary were the amount of contractual commitment for acquisition of buildings and equipment. The analysis of maturity for operating lease commitments and capital outflow commitments were as follows:
December 31, 2013 Less than 1 Year 1-5 Years Over 5 Years Total Operating lease commitments Operating lease expense (lessee) $ 226,634 $ 189,567 $ 19,267 $ 435,468 Capital commitments 74,711 285,076 - 359,787 Total 301,345 474,643 19,267 795,255
December 31, 2012 Less than 1 Year 1-5 Years Over 5 Years Total Operating lease commitments Operating lease expense (lessee) $ 188,908 $ 323,356 $ 75,576 $ 587,840 Capital commitments 76,318 34,543 - 110,861 Total 265,226 357,899 75,576 698,701
January 1, 2012 Less than 1 Year 1-5 Years Over 5 Years Total Operating lease commitments Operating lease expense (lessee) $ 194,450 $ 329,824 $ 85,994 $ 610,268 Capital commitments 75,026 37,031 - 112,057 Total 269,476 366,855 85,994 722,325
As of December 31, 2013, December 31, 2012 and January 1, 2012, the refundable deposits paid under operating lease amounted to $179,686 thousand, $173,790 thousand and $166,958 thousand, respectively.
c. The Bank sold its Fubon Nei-hu building to Taiwan Land Bank Co., Ltd., the trust company of Fubon No. 2 REITs, and then leased back the building. The disposal gain of $295,819 thousand was recognized over the three-year lease term.
However, at the end of the lease term in April 2009, the Bank renewed the lease, thereby extending the lease term to another 10 years. Consequently, the unrealized profit on the sale and leaseback transaction was recognized over 124 months commencing from January 1, 2009.
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d. For the period from May 2, 2008 to December 31, 2013, the Bank was designated as the institution to run the sports lottery program and was required to cover any shortfall of the guaranteed 80% of earnings to be turned over to the Sports Administration. However, as a result of some unexpected factors such as the delay in setting up the operating channels, the shortfall amounts calculated by the Bank were lower than those calculated by the Sports Administration. Although the Bank disagreed with the higher calculations by the authorities, the Bank paid these amounts within the deadline. Nevertheless, to protect its interest, the Bank had filed administrative appeals; related information is shown below.
Amount Additional Additional Remitted on Amount Amount Paid Amount the Year the Basis of Notes Requested by by the Bank Bank Need Actual the Authorities Pay Revenue 2008 $ 6.80 $ 3.90 $ 3.90 $ - The retrial was still in proceedings under Taipei High Administrative Court (THAC) as of December 31, 2013. 2009 18.48 3.98 3.98 - The retrial was still in proceedings under Taipei High Administrative Court (THAC) as of December 31, 2013. 2010 19.75 15.87 15.87 - The Supreme Administrative Court ruled that the supplementary payments need not be adjusted. 2011 16.60 23.53 23.53 - The Bank filed for administrative appeal and THAC adjudicated the case in favor of the Bank. The Sports Administration appealed against the decision. The Sports Administration appealed THAC‟ s decision. This case was still pending. 2012 19.65 26.85 26.85 - The decision on the appeal was still pending as of December 31, 2013. 2013 27.75 - - - As of December 31, 2013, the authorities had not yet determined if they agreed with the amount remitted by the Bank.
As of December 31, 2013, the Bank had remitted more than NT$10 billion in guaranteed earnings. The remitted amounts are used to promote sports events and subsidize the national pension plan and the national health insurance program, as well as social welfare activities. Those contributions also form part of national finance revenue as well as show the Bank‟s carrying out its corporate social responsibility. e. Acting as an agent, the Bank had sold to customers financial products linked to securities issued by Lehman Brothers Company (LEH) and other companies. However, LEH filed for bankruptcy in September 2008. The customers then filed a claim against the Bank. The Bank had estimated a settlement loss of $420,000 thousand and accrued it accordingly in 2009 and 2008. As of December 31, 2013, the Bank had paid compensation of $330,928 thousand.
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44. TRUST BUSINESS UNDER THE TRUST LAW
The trust-related items shown below were managed by the Bank‟s Trust Department. However, these items were not included in the Bank and its subsidiary‟s consolidated financial statements.
Balance Sheets of Trust Accounts December 31, 2013 and 2012
December 31, December 31, December 31, December 31, 2013 2012 2013 2012
Bank deposits $ 2,699,995 $ 2,063,968 Payables $ 1,639 $ 263
Short-term investment Capital Mutual funds 175,397,506 186,779,423 Money 190,220,217 202,237,563 Bonds 6,504,463 6,965,851 Marketable securities 4,394,140 9,815,415 Stocks 14,876,276 23,031,615 Real estate 28,632,685 18,371,386 Borrowed stock - common stock 747,463 805,517 Public welfare 238,088 58,328 197,525,708 217,582,406 Employee benefits 4,831,480 9,712,390 228,316,610 240,195,082 Securities investment trust fund under custody 68,760,821 72,627,187 Securities investment trust fund under custody 68,760,821 72,627,187 Real estate Land 19,824,401 12,510,623 Reserves and cumulative earnings Buildings 100,081 158,857 Cumulative earnings (4,090,476 ) (5,301,228 ) Construction in progress 5,782,851 3,968,451 Net income 1,705,263 1,390,188 25,707,333 16,637,931 (2,385,213 ) (3,911,040 )
Total trust assets $ 294,693,857 $ 308,911,492 Total trust liabilities $ 294,693,857 $ 308,911,492
Trust Income Statement December 31, 2013 and 2012
For the Year Ended December 31 2013 2012
Trust income Interest income $ 4,696 $ 2,412 Borrowed stock income 18,128 56,828 Others 8,335 5,626 Cash dividends 4,965,096 4,504,194 Realized capital income - common stock 106,234 17,271 Realized capital income - mutual funds 231,578 280,515 Gains from assets trading 4,225,111 1,996,082 Distribution of beneficiary certificates 32,167 12,560 Total trust income 9,591,345 6,875,488 Trust expense Trust administrative expense 346,224 321,141 Supervision fee 539 600 Commission and fees 727 1,771 Income tax expense 462 276 Others 1,163 976 Service fees on loans 304 955 Realized capital loss - common stock 666,070 246,123 Realized capital loss - mutual funds 55,261 5,992 Losses from assets trading 6,815,332 4,907,466 Total trust expense 7,886,082 5,485,300
Net income $ 1,705,263 $ 1,390,188
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Trust Property of Trust Accounts December 31, 2013 and 2012
For the Year Ended December 31 Investment Portfolio 2013 2012
Bank deposits $ 2,699,995 $ 2,063,968 Short-term investments Mutual funds 175,397,506 186,779,423 Bonds 6,504,463 6,965,851 Stocks 14,876,276 23,031,615 Borrowed stock - common stock 747,463 805,517 197,525,708 217,582,406 Securities investment trust fund under custody 68,760,821 72,627,187 Real estate Land 19,824,401 12,510,623 Buildings 100,081 158,857 Construction in progress 5,782,851 3,968,451 25,707,333 16,637,931
$ 294,693,857 $ 308,911,492
45. ALLOCATION OF REVENUE, COST AND EXPENSE RESULTING FROM INTERCOMPANY SHARING OF RESOURCES
The Bank entered a marketing collaboration agreement with Fubon Financial Holdings Company (FFH) and its subsidiaries for cross-selling business. The collaboration arrangements include sharing of office spaces, manpower, and business support. Cost allocation and payments are made according to the related rules concerning cross-selling and the contractual agreements with FFH and its subsidiary.
Please refer to Note 41 for revenues and expenses related to cross-selling for years ended December 31, 2013 and 2012.
46. FINANCIAL INSTRUMENTS
a. Fair value information
1) Fair value of financial instruments
December 31, 2013 December 31, 2012 January 1, 2012 Carrying Carrying Carrying Amount Fair Value Amount Fair Value Amount Fair Value
Financial assets
Loans and receivables Cash and cash equivalents $ 74,257,224 $ 74,257,224 $ 31,820,002 $ 31,820,002 $ 27,224,781 $ 27,224,781 Due from the Central Bank of China and other banks 91,888,019 91,888,019 70,851,850 70,851,850 73,099,143 73,099,143 Securities purchased under agreements to resell 20,179,897 20,179,897 16,343,491 16,343,491 200,000 200,000 Receivables 88,146,920 88,634,659 59,647,287 59,694,209 66,137,039 66,248,451 Discounts and loans 1,102,747,108 1,109,101,844 1,026,535,634 1,029,813,440 952,718,962 955,529,617 Other financial assets (except for financial assets carried at cost) 12,329,035 12,342,646 1,557,307 1,604,302 2,133,420 2,207,829 Financial assets carried at fair value Financial assets at fair value through profit and loss 73,231,661 73,231,661 84,693,492 84,693,492 59,641,819 59,641,819 Hedging derivative financial assets 285,784 285,784 478,744 478,744 693,488 693,488 Available-for-sale financial assets Available-for-sale financial assets 69,228,489 69,228,489 67,271,936 67,271,936 50,346,936 50,346,936 Other financial assets - financial assets carried at cost 4,010,787 4,010,787 647,541 647,541 653,604 653,604 Held-to-maturity financial assets 209,762,227 210,192,483 227,013,136 227,758,569 256,826,642 256,761,765 (Continued)
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December 31, 2013 December 31, 2012 January 1, 2012 Carrying Carrying Carrying Amount Fair Value Amount Fair Value Amount Fair Value
Financial liabilities
Financial liabilities carried at amortized cost Due to the Central Bank of China and other banks $ 83,355,116 $ 83,355,116 $ 69,753,342 $ 69,753,342 $ 56,759,776 $ 56,759,776 Securities sold under agreements to repurchase 27,945,876 27,945,876 26,360,932 26,360,932 28,503,088 28,503,088 Payables 28,795,930 28,795,930 33,007,120 33,007,120 28,503,723 28,503,723 Deposit and remittance 1,351,974,078 1,351,974,078 1,247,741,397 1,247,741,397 1,183,392,509 1,183,392,509 Bank debentures 65,271,143 65,979,493 66,929,382 67,381,007 62,143,488 62,480,622 Other financial liabilities 37,850,450 37,850,450 27,644,584 27,644,584 25,502,063 25,502,063 Financial liabilities carried at fair value Financial liabilities at fair value through profit and loss 28,000,514 28,000,514 19,612,456 19,612,456 22,747,531 22,747,531 Hedging derivative financial liabilities 852,396 852,396 352,920 352,920 428,152 428,152 (Concluded) b. Fair value of financial instruments not carried at fair value
Methods and assumptions applied in estimating the fair values of financial instruments not carried at fair value are as follows:
1) The carrying amounts of financial instruments such as cash and cash equivalents, due from the Central Bank of China and other banks, securities purchased under agreements to resell, due to the Central Bank of China and other banks, securities sold under agreements to repurchase, payables, and funds obtained from the government - intended for specific types of loans, approximate to their fair values because of the short maturities of these instruments.
2) The fair values of discounts and loans, account receivable, bills purchased and nonperforming loans are measured based on the amounts after adjusting unamortized discounts or premiums and estimated impairment loss.
3) Deposits and principals of structured products are interest bearing financial liabilities; therefore, the carrying amounts are approximate to their fair values.
4) Held-to-maturity financial assets, debt instruments with no active market and bank debentures are based on their quoted prices in an active market. For those instruments with no quoted market prices, their fair values are determined using valuation techniques incorporating estimates and assumptions consistent with those generally used by other market participants to price financial instruments, which is readily available to the Bank.
5) The fair value of equity investment accounted for financial assets carried at cost have no quoted prices in an active market, and the variability in the range of fair value measurements is significant or the probabilities of the various estimates within the range can not be reasonably assessed, hence, the carrying amounts are considered as the fair value. c. The financial instruments measured at fair value
The financial assets should be measured by marking-to-market on a daily basis whenever possible, then by marking-to-model only if marking-to-market is infeasible in practice.
1) Marking-to-market
This method should be employed at the first place. Following are the principals when using marking-to-market:
a) Ensure the consistency and integrity of market data.
b) The source of market data should be transparent, easy to access, and can be referred to independent resources.
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c) Listed securities with tradable prices should be valued at closing prices.
d) Evaluating unlisted securities which lack tradable closing prices should use quoted prices from independent brokers;
e) Follow the guidelines required by regulatory authorities.
2) Marking-to-model
The methodology of „marking-to-model‟ is suggested if marking-to-market is infeasible. This valuation methodology is based upon the model inputs to derive the value of the trading positions. Senior managers should acknowledges the scope, uncertainties and the effects regarding the valuation models. In addition to complying with the Banks‟ regulations regarding model valuation, the Bank should consider the following:
a) The consistency and completeness of model inputs.
b) Valuation models should be made based on proper assumptions. The Bank should also consider the internal control system, market risk management framework and mathematical expertise to calculate. Moreover, the model validation should be implemented by a quantitative team which is independent of the market risk-taking unit.
c) Construct the standard procedure for model alteration and the backup system, and test the valuation results by historical backup data periodically. d. Three-level fair value hierarchy
1) The definitions of the hierarchy is listed below:
a) Level 1
Level 1 financial instruments are traded in an active market and have the identical price for the same goods. “Active market” should fit the following characteristics:
i. All financial instruments in the market are homogeneous;
ii. Willing buyers and sellers exist in the market all the time;
iii. The public can access the price information easily.
The products categorized in this level usually have high liquidity or are traded in futures market or exchanges, such as the spot foreign exchange, listed stocks and Taiwan treasury benchmark index bond.
b) Level 2
The products categorized in this level have the prices that can be inferred from either direct or indirect observable inputs other than active market‟s prices. Examples of these inputs are:
i. Quoted prices from the similar products in the active market. This means the fair value can be derived from the current trading prices of similar products. It is also noted that whether they are similar products should be judged on the characteristics and trading rules. The fair price valuation in this circumstance may make some adjustment due to time lags, trading rule‟s differences, interested parties‟ prices, and the correlation of price between itself and the similar goods;
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ii. Quoted prices for identical or similar financial instruments in inactive markets;
iii. When marking-to-model, the input of model in this level should be observable (such as interest rates, yield curves and volatilities). The observable inputs mean that they can be attained from market and can reflect the expectation of market participants;
iv. Inputs which can be derived from other observable prices or whose correlation can be verified through other observable market data.
The products categorized in this level are simple model or valuation model generally accepted by the market. For example, forward contracts, cross-currency swap, simple interest bearing bonds and simple foreign exchange options.
c) Level 3
The fair prices of the products in this level are based on the inputs other than the direct market data. For example, historical volatility used in valuing options is an unobservable input, because it can not represent the entire market participants‟ expectation for future volatility.
The products categorized in this level are complex derivate financial instruments or products which prices are provided by brokers. For example, complex foreign exchange options, commodity option and complex interest rate options. e. The fair value hierarchies of the Bank and its subsidiary‟s financial instruments as of December 31, 2013, December 31, 2012 and January 1, 2012 were as follows:
December 31, 2013 Item Total Level 1 Level 2 Level 3
Nonderivative financial instruments
Assets Financial assets at fair value through profit or loss Held-for-trading financial assets Investment in bonds $ 20,304,206 $ 957,070 $ 19,347,136 $ - Others 12,790,055 389,444 12,400,611 - Financial assets designated as at fair value through profit or loss 12,845,342 10,022,679 227,125 2,595,538 Available-for-sale financial assets Investment in stocks 8,871,382 8,871,382 - - Investment in bonds 35,043,030 18,516,147 16,196,621 330,262 Others 25,314,077 1,057,145 24,256,932 - Liabilities Financial assets at fair value through profit or loss 99,980 - 99,980 -
Derivative financial instruments
Assets Financial assets at fair value through profit or loss 27,292,058 109,627 22,975,243 4,207,188 Hedging derivative financial assets 285,784 - 285,784 - Liabilities Financial liabilities at fair value through profit or loss 27,900,534 - 24,147,048 3,753,486 Hedging derivative financial liabilities 852,396 - 852,396 -
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December 31, 2012 Item Total Level 1 Level 2 Level 3
Nonderivative financial instruments
Assets Financial assets at fair value through profit or loss Held-for-trading financial assets Investment in bonds $ 35,621,277 $ 548,123 $ 35,073,154 $ - Others 23,074,295 675,300 22,398,995 - Financial assets designated as at fair value through profit or loss 6,053,561 - 3,825,331 2,228,230 Available-for-sale financial assets Investment in stocks 10,371,675 10,371,675 - - Investment in bonds 24,729,588 524,646 24,204,942 - Others 32,170,673 1,011,606 31,159,067 -
Derivative financial instruments
Assets Financial assets at fair value through profit or loss 19,944,359 170,564 17,938,445 1,835,350 Hedging derivative financial assets 478,744 - 446,856 31,888 Liabilities Financial liabilities at fair value through profit or loss 19,612,456 - 17,937,975 1,674,481 Hedging derivative financial liabilities 352,920 - 352,920 -
January 1, 2012 Item Total Level 1 Level 2 Level 3
Nonderivative financial instruments
Assets Financial assets at fair value through profit or loss Held-for-trading financial assets Investment in bonds $ 18,615,809 $ 3,927,530 $ 14,688,279 $ - Others 14,543,211 563,127 13,980,084 - Financial assets designated as at fair value through profit or loss 2,738,223 - 299,480 2,438,743 Available-for-sale financial assets Investment in stocks 9,751,980 9,751,980 - - Investment in bonds 36,349,270 - 36,349,270 - Others 4,245,686 898,476 3,347,210 -
Derivative financial instruments
Assets Financial assets at fair value through profit or loss 23,744,576 56,924 22,313,856 1,373,796 Hedging derivative financial assets 693,488 - 625,707 67,781 Liabilities Financial liabilities at fair value through profit or loss 22,747,531 - 21,385,375 1,362,156 Hedging derivative financial liabilities 428,152 - 428,152 -
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f. Reconciliation of Level 3 items of financial instruments
1) Reconciliation of Level 3 items of financial assets
For the Year Ended December 31, 2013 (In Thousands of New Taiwan Dollars)
Gains (Losses) on Valuation Increase Decrease Beginning Other Name Purchase/ Transfer to Disposed/ Transfer Out of Ending Balance Balance Profit and Loss Comprehensive Issued Level 3 Sold Level 3 Income
Financial assets at fair value through profit or loss Held-for-trading financial assets $ 1,835,350 $ 843,221 $ - $ 6,353,813 $ - $ 4,796,357 $ 28,839 $ 4,207,188 Financial assets designated as at fair value through profit or loss 2,228,230 70,942 - 300,777 295,435 299,846 - 2,595,538 Available-for-sale financial assets - - - 330,262 297,954 297,954 - 330,262 Hedging derivative financial assets 31,888 (28,475 ) - - - 3,413 - -
Note: Transfers to Level 3 were due to lack of observable valuation inputs for certain Financial assets designated as at fair value through profit or loss and available-for sale financial assets. Transfers out of Level 3 were due to valuation inputs for certain derivative products becoming observable.
For the Year Ended December 31, 2012 (In Thousands of New Taiwan Dollars)
Gains (Losses) on Valuation Increase Decrease Beginning Other Name Purchase/ Transfer to Disposed/ Transfer Out of Ending Balance Balance Profit and Loss Comprehensive Issued Level 3 Sold Level 3 Income
Financial assets at fair value through profit or loss Held-for-trading financial assets $ 1,373,796 $ (316,959 ) $ - $ 2,412,028 $ 249,374 $ 1,813,020 $ 69,869 $ 1,835,350 Financial assets designated as at fair value through profit or loss 2,438,743 81,895 - - - 292,408 - 2,228,230 Hedging derivative financial assets 67,781 (113,872 ) - - 77,979 - - 31,888
Note: Transfers to Level 3 were due to lack of observable valuation inputs for certain derivative products. Transfers out of Level 3 were due to valuation inputs for certain derivative products becoming observable.
As of December 31, 2013 and 2012, the valuation gains and losses included in profit and loss for assets still held were $509,820 thousand and $20,180 thousand, respectively.
2) Reconciliation of Level 3 items of financial liabilities
For the Year Ended December 31, 2013 (In Thousands of New Taiwan Dollars)
Valuation Increase Decrease Beginning Gain/Loss Name Purchase/ Transfer to Disposed/ Transfer Out of Ending Balance Balance Reflected on Issued Level 3 Sold Level 3 Profit or Loss
Financial liabilities at fair value through profit or loss Held-for-trading financial liabilities $ 1,674,481 $ 771,382 $ 5,597,573 $ - $ 4,261,111 $ 28,839 $ 3,753,486 Hedging derivative financial liabilities - 1,030 - - 1,030 - -
Note: Transfers out of Level 3 were due to valuation inputs for certain derivative products becoming observable.
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For the Year Ended December 31, 2012 (In Thousands of New Taiwan Dollars)
Valuation Increase Decrease Beginning Gain/Loss Name Purchase/ Transfer to Disposed/ Transfer Out of Ending Balance Balance Reflected on Issued Level 3 Sold Level 3 Profit or Loss
Financial liabilities at fair value through profit or loss Held-for-trading financial liabilities $ 1,362,156 $ (250,124 ) $ 2,019,650 $ 79,068 $ 1,466,400 $ 69,869 $ 1,674,481
Note: Transfers to Level 3 were due to lack of observable valuation inputs for certain derivative products. Transfers out of Level 3 were due to valuation inputs for certain derivative products becoming observable.
As of December 31, 2013 and 2012, the valuation losses and gains included in profit and loss for liabilities still held were $397,843 thousand and $65,038 thousand, respectively. g. Transfer between Level 1 and Level 2
The Bank and its subsidiary transferred part of the foreign-currency bonds from Level 2 to Level 1 to improve the valuation quality of the hierarchy and enhance quoting standards. Furthermore, the valuation standards changed due to the liquidity changes in NTD bond markets; thus, part of the NTD bonds were transferred from Level 1 to Level 2. h. Sensitivity analysis of Level 3 fair value if reasonably possible alternative assumptions used
Although the Bank and its subsidiary believe that their estimates of fair value are appropriate, the use of different methodology or assumptions could lead to different measurements of fair value. For fair value measurements in Level 3 of the fair value hierarchy, a 10% change in either direction of the quotes from respective counterparties would have the following effects:
December 31, 2013 Effect on Other Name Effect on Profit and Loss Comprehensive Income Favorable Unfavorable Favorable Unfavorable Assets
Financial assets at fair value through profit or loss Held-for-trading financial assets $ 420,719 $ (420,719) $ - $ - Financial assets designated as at fair value through profit or loss 259,554 (259,554) - - Available-for-sale financial assets - - 33,026 (33,026)
Liabilities
Financial liabilities at fair value through profit or loss Held-for-trading financial liabilities 375,349 (375,349) - -
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December 31, 2012 Effect on Other Name Effect on Profit and Loss Comprehensive Income Favorable Unfavorable Favorable Unfavorable Assets
Financial assets at fair value through profit or loss Held for trading financial assets $ 183,535 $ (183,535) $ - $ - Financial assets designated as at fair value through profit or loss 222,823 (222,823) - - Hedging derivative financial assets 3,189 (3,189) - -
Liabilities
Financial liabilities at fair value through profit or loss Held for trading financial liabilities 167,448 (167,448) - -
47. FINANCIAL RISK MANAGEMENT
a. Overview
The Bank and its subsidiary have been fully devoted in establishing a robust risk management culture and environment, improving the comprehensive risk management system, pursuing the optimization of risks and rewards, formulating faultless risk management procedures and related business hedging strategies, complying with the risk management requirements of the Basel Accord framework, continually elevating professional level in risk management, assisting business sustainable growth, and optimizing stockholder‟s value.
The major risks faced by the Bank and its subsidiary on and off balance sheet include credit risk, market risk (including interest rate risk, foreign exchange risk, equity risk and commodity risk) and liquidity risk.
The Bank and its subsidiary have duly established risk management policies, principles, rules and regulations approved by the Board of Directors, to ensure consistent compliance with the comprehensive risk management systems, and to identify, measure, monitor, transfer, and mitigate the Bank and its subsidiary‟s credit risk, market risk, and liquidity risk.
b. Risk management framework
The Bank adopts the international best practice of three lines of defense in its risk management framework to ensure operating effectiveness of risk management system. Business, operation, and management units each undertake the first line of defense role to ensure compliance with risk management requirements and implementation of the risk control procedures while performing their job functions. Risk management units assume an independent role in enacting the second line of defense, responsible for designing risk management system, monitoring risk exposures and submitting risk reports. Audit department conducts the third defense line by independently examining the compliance of various risk management system and requirements.
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The Board of Directors oversees the establishment of the Bank‟s effective risk management system and mechanism, approves the risk management policies, principles, regulations and rules, and reviews important risk management reports. The Bank has established Assets/Liability Management Committee under the Chairman in charge of the Bank‟s business strategy, managing assets and liabilities and capital adequacy, and to sustain liquidity and enhance managing the sources and utilization of capital in order to pursuit the Bank‟s best interests under acceptable risks. The Committee is chaired by the Bank‟s Chairman and composed of Vice Chairman, President and senior managers of relevant departments. The Committee meetings are held monthly and anytime per business needs.
To strengthen risk management functions, Credit Risk Management Committee, Market Risk Management Committee, and Operational Risk Management Committee have been established under the Bank‟s Chairman. The members of the committees include the President and senior managers of relevant departments. The committees are chaired by the Bank President. The committees meetings are held monthly and anytime per business needs to review the mechanism for credit, market and operational risk management, review credit risk and country risk exposures, changes in positions and assets quality, monitor market risk limits and exposures, and inspect operational losses event and relevant remedial courses of action.
Furthermore, the Bank has established the Risk Management Division independent of business units, responsible for monitoring and managing relevant risks and submitting risk management reports to the Board periodically. c. Credit risk
1) Credit risk definitions and sources
Credit risk refers to the risk of losses caused by borrowers, debtors, or counterparties‟ failure to fulfill their contractual obligations due to deteriorating financial position or other factors. It arises principally from business like discount, loan, credit card, due from or call loan to banks, debt investment and derivatives etc., but also from off-balance sheet products such as guarantee, acceptance, letter of credit and commitment.
2) Strategy/objectives/policies and procedures
The Bank has established solid credit risk policies and procedures. A robust credit risk strategy taking into account of economic environment, industry sector and financial sector as well as corporate business plan is in place. The Bank pursues the optimization of risks and rewards. Comprehensive credit risk management systems and tools have been deployed effectively to identify, evaluate, monitor and report credit risks including default risk, counter-party risk and concentration risk.
3) Credit risk management framework
a) To strengthen risk management function, under the supervision of the Board of Directors, the Bank has established the Credit Risk Management Committee which is composed of senior management and chaired by the President to monitor the bank‟s credit risk and country risk control, risk acceptance and management strategy in respect of credit business, securities investment and transaction and derivatives.
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b) To enhance the independency of credit risk management, the Bank has established Risk Management Division, under which, there are two credit risk management departments, i.e. Institutional Credit Risk Management Department and Consumer Credit Risk Management Department, responsible for measuring the Bank‟s risk exposures, monitoring risk limits, reporting, coordinating to develop the mechanism for managing credit risk and validating risk models.
c) In business lines, the Bank has business units undertake the role ensuring to comply with control requirements while performing daily business operation.
d) Furthermore, the Bank has established Institutional Credit Review Committee, and Retail Credit Review Committee respectively to review credit above a certain limit to strengthen control on large amount credit cases.
e) Audit department, which is under the supervision of the Board of Directors, conducts the third defense line examining the effectiveness of internal control functions independently.
4) Credit risk measurement, control and reporting
a) The Bank has established credit risk measurements and control procedures including underwriting, risk rating, limit control, account maintenance, pre-settlement limit control and collection management systems, which enable the Bank to manage limit controls on country risk, single legal entity and group exposure risk and industry concentration risk effectively. Other than aforementioned control procedure, the Bank has established vigorous review and early warning mechanism to ensure the Bank to undertake proper courses of actions on credit risk management.
b) The Bank regularly performs the credit risk stress testing based on the guideline issued by Financial Supervisory Commission, and continues to develop scenario analysis and stress testing to provide senior management with an assessment of risk tolerance, as well as to provide the reference of credit portfolio management.
c) The Bank has completed several Basel Accord credit risk management projects including risk data warehousing system, internal risk rating system and risk-weighted assets calculation system. The development and revision of score card and rating models are validated independently by Risk Management Division to monitor the model performance and stability.
5) Credit risk mitigation
The Bank has established sophisticated limits in controlling concentration risks on credit, investment and counter-parties exposures. Risk rating is assessed for each borrower based on stringent evaluation of obligor risk and facility risk. Furthermore, the Bank has set centralized approval process with documented guidelines and dual authorizations. Appropriate collaterals are required based on borrowers‟ financials and debt service capabilities to mitigate credit risk.
6) The regulatory capital requirement
The Bank presently adopts the standardized approach for credit risk capital charge.
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7) Maximum exposure to credit risk
The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet without taking into consideration any collateral held or other credit enhancements. The maximum credit exposures of the off-balance sheet financial instruments (before taking account of any collateral held or other credit enhancements) are summarized as follows:
Maximum Exposure Amount Off-Balance Sheet Item December 31, December 31, January 1, 2012 2013 2012 Irrevocable loan commitments $ 53,885,168 $ 45,008,084 $ 50,882,470 Standby letters of credit 10,095,464 8,447,155 10,291,019 Financial guarantees 46,561,501 61,052,693 75,732,813 Unused credit card facility 213,219,858 198,844,737 193,747,817 Total $ 323,761,991 $ 313,352,669 $ 330,654,119
8) Concentrations of credit risk exposure
Concentrations of credit risk arise when a number of counterparties or exposure have comparable economic characteristics, or such counterparties are engaged in similar activities, or operate in the same geographical areas or industry sectors, so that their collective ability to meet contractual obligations is uniformly affected by changes in economic or other conditions.
Credit risk concentrations can arise in a bank‟s assets, liabilities, or off-balance sheet items, through the execution or processing of transactions (either product or service), or through a combination of exposures across these broad categories. It includes credit, loan and deposits, call loan to banks, investment, receivables and derivatives. The Bank maintains a diversified portfolio, limits its exposure to any one geographic region, country or individual creditor and monitors the exposure on a continuous basis. The Bank‟s most significant concentrations of credit risk are summarized as follows:
a) By industry
December 31, 2013 December 31, 2012 January 1, 2012
Amount % Amount % Amount % Private enterprise $ 443,620,068 38.05 $ 384,349,893 34.94 $ 369,992,490 35.56 Public enterprise 76,713,090 6.58 94,394,809 8.58 109,869,944 10.56 Government organization 158,983,921 13.64 167,395,120 15.22 137,118,135 13.18 Non-profit organization 455,704 0.04 798,077 0.07 829,834 0.08 Private organization 450,071,691 38.61 413,300,014 37.58 384,765,157 36.98 Financial Institution 35,960,224 3.08 39,700,551 3.61 37,810,869 3.64 Total 1,165,804,698 100.00 1,099,938,464 100.00 1,040,386,429 100.00
b) By geographical area
The Bank and is subsidiary‟s operations are mainly in Taiwan.
c) By collaterals
December 31, 2013 December 31, 2012 January 1, 2012
Amount % Amount % Amount % Unsecured $ 506,662,777 43.46 $ 487,854,053 44.35 $ 444,984,372 42.77 Secured 659,141,921 56.54 612,084,411 55.65 595,402,057 57.23 Financial instruments 28,169,752 2.42 26,149,873 2.38 27,575,311 2.65 Accounts receivable 102,809 0.01 267,728 0.02 414,183 0.04 Properties 492,595,817 42.25 449,929,784 40.91 426,828,301 41.03 Guarantees 82,315,758 7.06 77,124,879 7.01 80,245,875 7.71 Others 55,957,785 4.80 58,612,147 5.33 60,338,387 5.80 Total 1,165,804,698 100.00 1,099,938,464 100.00 1,040,386,429 100.00
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9) Credit quality and impairment assessment
Some financial assets like cash and cash equivalents, due from Central Bank and call loan to banks, financial asset at fair value through profit or loss, repos and debt securities, refundable deposits, guaranty bond and clearing and settlement fund are regarded as very low credit risk owing to the good credit rating of counterparties.
Besides the aforementioned financial assets, the credit quality of discounts, loans, receivables and investments are divided into three classifications.
The three credit quality classifications defined below each encompass a range of more granular, internal credit rating grades assigned to wholesale and retail lending business, as well as the external ratings attributed by external agencies to investment.
Quality classification definitions:
a) Good: Exposures demonstrate a good capacity to meet financial commitments, with low default risk and/or low levels of expected loss.
b) Moderate: Exposures require closer monitoring and demonstrate an average to fair capacity to meet financial commitments, with moderate default risk.
c) Substandard: Exposures require varying degrees of special attention and default risk is of greater concern.
i. Credit analysis for receivables and discounts and loans
Neither Past Due Nor Impaired Amount Loss Recognized (D) Overdue But With No Net Total December 31, Impaired Total With Objective Not Yet Objective (A)+(B)+ 2013 Good Moderate Substandard Subtotal (A) Amount (C) (A)+(B)+(C) Evidence of Impaired (B) Evidence of (C)- (D) Impairment Impairment Receivables $ 63,348,981 $ 23,229,382 $ 985,341 $ 87,563,704 $ 186,345 $ 1,263,602 $ 89,013,651 $ 185,862 $ 680,869 $ 88,146,920 Credit card business 17,226,908 5,089,476 446,586 22,762,970 168,916 1,202,325 24,134,211 169,373 126,632 23,838,206 Account receivable - factoring 9,053,504 10,250,789 470,337 19,774,630 - 2,807 19,777,437 2,807 201,209 19,573,421 Account receivable - forfaiting 27,584,960 4,826,149 - 32,411,109 - - 32,411,109 - 324,111 32,086,998 Acceptances 415,320 2,397,534 11,676 2,824,530 - 11,676 2,836,206 238 28,241 2,807,727 Others 9,068,289 665,434 56,742 9,790,465 17,429 46,794 9,854,688 13,444 676 9,840,568 Bill purchased 136 10,518 - 10,654 - - 10,654 - 107 10,547 Nonperforming loans transferred from other than loans - - - - - 58,820 58,820 54,917 - 3,903 Discounts and loans 606,629,596 459,044,730 25,570,198 1,091,244,524 2,637,120 22,525,347 1,116,406,991 3,836,101 9,381,487 1,103,189,403 Consumer finance 355,274,274 26,602,385 20,500,272 402,376,931 1,736,547 2,184,619 406,298,097 70,239 4,085,541 402,142,317 Corporate banking 251,355,322 432,442,345 5,069,926 688,867,593 900,573 20,340,728 710,108,894 3,765,862 5,295,946 701,047,086
Note: Total loan is the original amount without the adjustments of premium or discounts $442,295 thousand.
Neither Past Due Nor Impaired Amount Loss Recognized (D) Overdue But With No Net Total December 31, Impaired Total With Objective Not Yet Objective (A)+(B)+ 2012 Good Moderate Substandard Subtotal (A) Amount (C) (A)+(B)+(C) Evidence of Impaired (B) Evidence of (C)-(D) Impairment Impairment Receivables $ 41,078,135 $ 16,913,540 $ 579,949 $ 58,571,624 $ 173,316 $ 1,626,950 $ 60,371,890 $ 435,757 $ 288,846 $ 59,647,287 Credit card business 14,521,151 5,157,354 442,999 20,121,504 155,309 1,446,403 21,723,216 300,237 139,249 21,283,730 Account receivable - factoring 14,408,330 6,491,508 67,744 20,967,582 - 2,719 20,970,301 2,719 104,968 20,862,614 Account receivable - forfaiting 4,062,490 1,733,506 - 5,795,996 - - 5,795,996 - 28,980 5,767,016 Acceptances 113,241 2,912,026 - 3,025,267 - - 3,025,267 - 15,126 3,010,141 Others 7,972,923 619,146 69,206 8,661,275 18,007 177,828 8,857,110 132,801 523 8,723,786 Bill purchased 31 3,737 - 3,768 - - 3,768 - 19 3,749 Nonperforming loans transferred from other than loans - - - - - 21,992 21,992 20,492 - 1,500 Discounts and loans 577,834,059 399,937,029 30,582,700 1,008,353,788 1,863,298 25,643,418 1,035,860,504 3,660,893 5,263,382 1,026,936,229 Consumer finance 323,810,223 27,227,420 27,447,532 378,485,175 1,768,382 2,429,224 382,682,781 64,586 2,487,226 380,130,969 Corporate banking 254,023,836 372,709,609 3,135,168 629,868,613 94,916 23,214,194 653,177,723 3,596,307 2,776,156 646,805,260
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Note: Total loan is the original amount without the adjustments of premium or discounts $400,595 thousand.
Neither Past Due Nor Impaired Amount Loss Recognized (D) Overdue But With No Net Total Impaired Total With Objective January 1, 2012 Not Yet Objective (A)+(B)+ Good Moderate Substandard Subtotal (A) Amount (C) (A)+(B)+(C) Evidence of Impaired (B) Evidence of (C)-(D) Impairment Impairment Receivables $ 42,850,941 $ 20,121,293 $ 1,654,926 $ 64,627,160 $ 112,383 $ 2,309,326 $ 67,048,869 $ 605,651 $ 306,179 $ 66,137,039 Credit card business 14,204,425 4,820,948 1,590,879 20,616,252 104,468 1,777,252 22,497,972 456,446 116,180 21,925,346 Account receivable - factoring 12,813,594 11,359,952 37,476 24,211,022 - - 24,211,022 - 123,881 24,087,141 Account receivable - forfaiting 8,919,250 7,269 - 8,926,519 - - 8,926,519 - 44,632 8,881,887 Acceptances 64,979 3,265,526 - 3,330,505 - - 3,330,505 - 16,720 3,313,785 Others 6,848,693 667,598 26,571 7,542,862 7,915 532,074 8,082,851 149,205 4,766 7,928,880 Bill purchased 161 2,419 - 2,580 - - 2,580 - 12 2,568 Nonperforming loans transferred from other than loans - - - - - 24,553 24,553 23,540 - 1,013 Discounts and loans 516,816,771 402,156,694 25,935,150 944,908,615 1,699,661 14,709,231 961,317,507 3,888,222 4,488,725 952,940,560 Consumer finance 302,693,057 26,958,352 22,038,324 351,689,733 1,694,039 2,820,020 356,203,792 75,375 2,211,607 353,916,810 Corporate banking 214,123,714 375,198,342 3,896,826 593,218,882 5,622 11,889,211 605,113,715 3,812,847 2,277,118 599,023,750
Note: Total loan is the original amount without the adjustments of premium or discounts $221,598 thousand. ii. Credit analysis for neither past due nor impaired discounts and loans according to internal rating standards are as follows:
Neither Past Due Nor Impaired Amount December 31, 2013 Good Moderate Substandard Total Consumer finance Mortgage $ 327,310,495 $ 19,576,655 $ 8,473,147 $ 355,360,297 Cash card - - 1,165 1,165 Micro credit - 6,508,287 12,025,338 18,533,625 Others 27,963,779 517,443 622 28,481,844 Corporate banking Secured 44,203,288 159,196,959 2,198,378 205,598,625 Unsecured 207,152,034 273,245,386 2,871,548 483,268,968 Total 606,629,596 459,044,730 25,570,198 1,091,244,524
Neither Past Due Nor Impaired Amount December 31, 2012 Good Moderate Substandard Total Consumer finance Mortgage $ 296,869,798 $ 20,441,783 $ 16,322,711 $ 333,634,292 Cash card - - 2,262 2,262 Micro credit - 6,447,625 11,122,134 17,569,759 Others 26,940,425 338,012 425 27,278,862 Corporate banking Secured 48,878,259 142,860,698 1,893,484 193,632,441 Unsecured 205,145,577 229,848,911 1,241,684 436,236,172 Total 577,834,059 399,937,029 30,582,700 1,008,353,788
Neither Past Due Nor Impaired Amount January 1, 2012 Good Moderate Substandard Total Consumer finance Mortgage $ 277,045,125 $ 21,185,866 $ 13,636,640 $ 311,867,631 Cash card - - 3,716 3,716 Micro credit - 5,606,954 8,397,453 14,004,407 Others 25,647,932 165,532 515 25,813,979 Corporate banking Secured 55,034,636 152,107,662 2,279,420 209,421,718 Unsecured 159,089,078 223,090,680 1,617,406 383,797,164 Total 516,816,771 402,156,694 25,935,150 944,908,615
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iii Credit analysis for marketable securities
(In Thousands of New Taiwan Dollars)
Neither Past Due Nor Impaired Amount Overdue But Net Total Impaired Total Impaired Loss December 31, 2013 Non-impaired (A)+(B)+ Good Moderate Substandard Subtotal (A) Amount (C) (A)+(B)+(C) Recognized (D) Amount (B) (C)-(D) Available-for-sale financial assets Investment in bonds $ 25,673,799 $ 9,369,231 $ - $ 35,043,030 $ - $ - $ 35,043,030 $ - $ 35,043,030 Others 12,107,117 12,149,815 - 24,256,932 - - 24,256,932 - 24,256,932 Held-to-maturity financial assets Investment in bonds 21,442,431 8,773,264 - 30,215,695 - - 30,215,695 - 30,215,695 Others 179,101,607 444,925 - 179,546,532 - - 179,546,532 - 179,546,532 Other financial assets Investment in bonds - 272,219 - 272,219 - - 272,219 - 272,219 Total 238,324,954 31,009,454 - 269,334,408 - - 269,334,408 - 269,334,408
Note 1: Available-for-sale financial assets did not include equity investments and beneficiary securities, and related information: Original cost of $7,198,851 thousand, valuation amounting to $3,065,270 thousand and cumulative impairment amounting to $335,594 thousand.
Note 2: Other financial assets did not include equity investment of financial assets carried at cost, original cost was $4,050,408 thousand and accumulated impairment amounted to $39,621 thousand.
(In Thousands of New Taiwan Dollars)
Neither Past Due Nor Impaired Amount Overdue But Net Total Impaired Total Impaired Loss December 31, 2012 Non-impaired (A)+(B)+ Good Moderate Substandard Subtotal (A) Amount (C) (A)+(B)+(C) Recognized (D) Amount (B) (C)-(D) Available-for-sale financial assets Investment in bonds $ 22,422,761 $ 2,306,827 $ - $ 24,729,588 $ - $ - $ 24,729,588 $ - $ 24,729,588 Others 15,481,303 15,677,764 - 31,159,067 - - 31,159,067 - 31,159,067 Held-to-maturity financial assets Investment in bonds 16,628,877 10,565,738 - 27,194,615 - - 27,194,615 - 27,194,615 Others 199,818,521 - - 199,818,521 - - 199,818,521 - 199,818,521 Other financial assets Investment in bonds 1,287,245 264,813 - 1,552,058 - 91,705 1,643,763 91,705 1,552,058 Total 255,638,707 28,815,142 - 284,453,849 - 91,705 284,545,554 91,705 284,453,849
Note 1: Available-for-sale financial assets did not include equity investments and beneficiary securities, and related information: Original cost of $7,380,183 thousand, valuation amounting to $4,338,692 thousand and cumulative impairment amounting to $335,594 thousand.
Note 2: Other financial assets did not include equity investment of financial assets carried at cost, original cost was $685,740 thousand and accumulated impairment amounted to $38,199 thousand.
(In Thousands of New Taiwan Dollars)
Neither Past Due Nor Impaired Amount Overdue But Net Total Impaired Total Impaired Loss January 1, 2012 Non-impaired (A)+(B)+ Good Moderate Substandard Subtotal (A) Amount (C) (A)+(B)+(C) Recognized (D) Amount (B) (C)-(D) Available-for-sale financial assets Investment in bonds $ 28,203,465 $ 8,145,805 $ - $ 36,349,270 $ - $ - $ 36,349,270 $ - $ 36,349,270 Others 3,347,210 - - 3,347,210 - - 3,347,210 - 3,347,210 Held-to-maturity financial assets Investment in bonds 8,816,169 7,898,836 - 16,715,005 - - 16,715,005 - 16,715,005 Others 240,111,637 - - 240,111,637 - - 240,111,637 - 240,111,637 Other financial assets Investment in bonds 1,854,538 275,301 - 2,129,839 - 107,895 2,237,734 107,895 2,129,839 Total 282,333,019 16,319,942 - 298,652,961 - 107,895 298,760,856 107,895 298,652,961
Note 1: Available-for-sale financial assets did not include equity investments and beneficiary securities, and related information: Original cost of $7,404,606 thousand, valuation amounting to $3,581,444 thousand and cumulative impairment amounting to $335,594 thousand.
Note 2: Other financial assets did not include equity investment of financial assets carried at cost, original cost was $688,207 thousand and accumulated impairment amounted to $34,603 thousand.
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10) Aging analysis for overdue but not yet impaired financial assets
Delays in processing payments by borrowers and other administrative reasons could result in financial assets overdue but not yet impaired. According to the Bank and its subsidiary‟s internal risk management policies, financial assets overdue within 90 days are not considered impairment loss, unless other evidences provided.
Aging analysis for overdue but not yet impaired financial assets was as follows:
December 31, 2013 Overdue Less Overdue One Overdue Over
Than One to Three Three to Six Total Month Months Months Accounts receivable Credit card $ 112,925 $ 55,991 $ - $ 168,916 Others 13,405 4,024 - 17,429 Discounts and loans Consumer finance 1,618,318 118,229 - 1,736,547 Corporate banking 900,573 - - 900,573
December 31, 2012 Overdue Less Overdue One Overdue Over
Than One to Three Three to Six Total Month Months Months Accounts receivable Credit card $ 105,394 $ 49,915 $ - $ 155,309 Others 14,964 2,999 44 18,007 Discounts and loans Consumer finance 1,668,740 99,642 - 1,768,382 Corporate banking 91,376 1,048 2,492 94,916
January 1, 2012 Overdue Less Overdue One Overdue Over
Than One to Three Three to Six Total Month Months Months Accounts receivable Credit card $ 70,148 $ 34,320 $ - $ 104,468 Others 6,817 1,098 - 7,915 Discounts and loans Consumer finance 1,601,975 92,064 - 1,694,039 Corporate banking 3,441 2,181 - 5,622
11) Analysis of impairment for financial assets
Part of the Bank and its subsidiary‟s investments included in available-for-sale financial assets or financial assets carried at cost and investments in bonds included in debt instruments with no active market were considered impaired because there were some objective evidences of impairment loss provided by investee companies. Please refer to Notes 13 and 16.
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The Bank and its subsidiary have assessed whether loans and receivables have objective evident of impairment. The assessment on December 31, 2013, December 31, 2012 and January 1, 2012, are as follows:
Discounts and loans
Discounts and Loans Allowance for Credit Losses Type of Impairment Assessment December 31, 2013 December 31, 2012 January 1, 2012 December 31, 2013 December 31, 2012 January 1, 2012 Individually assessed for $ 20,340,728 $ 23,214,194 $ 11,889,211 $ 3,765,862 $ 3,596,307 $ 3,812,847 With objective evidence of impairment impairment Collectively assessed for 2,184,619 2,429,224 2,820,020 70,239 64,586 75,375 impairment Collectively With no objective evidence assessed for 1,093,881,644 1,010,217,086 946,608,276 9,381,487 5,263,382 4,488,725 of impairment impairment
Receivables
Discounts and Loans Allowance for Credit Losses Type of Impairment Assessment December 31, December 31, December 31, December 31, January 1, 2012 January 1, 2012 2013 2012 2013 2012 Individually assessed for $ 46,091 $ 114,525 $ 104,995 $ 9,822 $ 87,792 $ 93,955 With objective evidence impairment of impairment Collectively assessed for 1,276,331 1,534,417 2,228,884 230,957 368,457 535,236 impairment With no objective Collectively evidence of assessed for 87,760,703 58,748,708 64,742,123 680,976 288,865 306,191 impairment impairment
Note 1: The receivables are those originated by the Bank and its subsidiary, and not net of the allowance for credit losses and adjustments for discount (premium).
Note 2: The above receivables and allowances include nonperforming loans reclassified from other than loans and bills purchased.
12) Collateral and other credit enhancements held
On the basis of the result of the credit evaluation, the Bank may require collaterals before drawings are made on the credit facilities. Appropriate collaterals are required based on borrowers‟ financials and debt service capabilities to mitigate credit risk. All guarantees and appraisal procedures follow the relative regulations of the authorities and internal rules of the bank. The internal rules of the bank include the acceptable types of collaterals, appraisal methods, appraisal process, and post-approval collateral management, which require closely monitoring on the value of collaterals in order to ensure repayment security. The main collateral types are summarized as follows:
a) Real estate b) Other property c) Securities/stock d) Certificate of deposits/deposit e) Guaranteed by credit guarantee fund or government d. Liquidity risk
1) Source and definition of liquidity risk
Liquidity risk means banks can not provide sufficient funding for asset size growth and obligation of matured liabilities, using late-payment to counterparties or emergency funding raise to cover funding gaps.
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2) Liquidity risk management strategy and principles
a) The Bank‟s strategy is to lower liquidity risk by acquiring stable, low interest-rate, sufficient funding to cover asset size growth and obligation of matured liabilities, and escape funding gaps from overrun in funding usage and demand.
b) The principle is to harmony with the Bank‟s deposit, loan and financial transaction growth. The Bank adjust funding strategy depending on market fund change and the central bank‟s policies to increase fund utilization and lower liquidity risk; not only pay attention to period adjustment of long-term and short-term securities to match the timing of large amount loan drawdown and repayment, but also analyze stability and percentages of various type of deposits to manage funding liquidity.
Funding liquidity management indicators, analyses, and explanations are reported in the Asset/Liability and Risk Management Committee for discussion and reported to Board of Directors (Managing Directors) for reference.
3) Qualitative explanation
The Bank‟s management policy is to match maturities and interest rates of assets and liabilities, and control un-matched gap. Because of uncertainties of terms and conditions or types, the maturities and interest rates of assets and liabilities usually do not match perfectly, resulting in potential gain or loss. To maintain proper liquidity, the Bank uses appropriate ways to group assets and liabilities to evaluate liquidity and monitors the ratios of short-term negative funding gap to total asset in main currencies.
4) Quantitative explanation
The analysis of cash inflow and outflow in assets and liabilities held for liquidity risk was by the remaining periods which were from reporting date to contractual maturity dates. The maturity analysis of financial assets and liabilities, derivatives assets and liabilities, and off balance sheet items in main currencies was as follows (except for non-deliverable derivatives, all were non-discounted contractual cash flow):
a) The maturity analysis of financial assets and liabilities - NTD
December 31, 2013 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total Assets
Cash, call loans and deposits due from/to other banks $ 28,662,099 $ 4,027,229 $ 3,399,384 $ 5,675,476 $ 15,950,413 $ 57,714,601 Investment in marketable securities (Note) 174,236,148 21,552,743 17,715,004 25,030,341 31,945,082 270,479,318 Securities purchased under agreements to resell 15,779,517 4,400,380 - - - 20,179,897 Loans (included overdue loans) 114,589,673 73,304,003 64,935,068 97,827,021 544,010,835 894,666,600 Deliverable derivative assets 133,381,808 128,423,765 67,852,205 69,555,079 43,206,376 442,419,233 Non-deliverable derivative assets 4,849,682 - - - 236,195 5,085,877 Other capital inflow on maturity 12,604,868 3,746,871 6,253,065 7,349,212 36,129,348 66,083,364 Subtotal 484,103,795 235,454,991 160,154,726 205,437,129 671,478,249 1,756,628,890
Liabilities
Due to the Central Bank of China and other banks 15,485,564 1,261,750 1,734,252 83,587 90,000 18,655,153 Deposits and remittances 140,637,888 134,291,900 113,383,939 189,301,314 426,948,324 1,004,563,365 Securities sold under agreements to repurchase 1,921,197 51,041 50,525 - - 2,022,763 Payables 419,700 425,848 380,498 385,825 732,048 2,343,919 Bank debentures - 4,250,000 - 35,000 61,152,894 65,437,894 Deliverable derivative liabilities 136,063,951 155,408,234 83,879,428 56,305,168 53,181,249 484,838,030 Non-deliverable derivative liabilities 5,235,203 - - - 115,051 5,350,254 Other capital outflow on maturity 14,450,842 1,583,909 5,640,992 1,158,288 13,706,747 36,540,778 Subtotal 314,214,345 297,272,682 205,069,634 247,269,182 555,926,313 1,619,752,156
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December 31, 2012 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total Assets
Cash, call loans and deposits due from/to other banks $ 30,991,522 $ 4,274,515 $ 3,020,950 $ 6,307,345 $ 11,880,823 $ 56,475,155 Investment in marketable securities (Note) 213,051,729 29,944,346 24,191,465 20,101,507 27,426,213 314,715,260 Securities purchased under agreements to resell 16,343,491 - - - - 16,343,491 Loans (included overdue loans) 104,527,829 59,682,365 71,210,407 88,455,799 540,788,476 864,664,876 Deliverable derivative assets 92,137,626 82,126,734 55,466,686 37,115,685 38,675,250 305,521,981 Non-deliverable derivative assets 5,975,253 - - 31,888 446,856 6,453,997 Other capital inflow on maturity 13,977,272 3,116,015 5,571,641 6,363,171 18,674,479 47,702,578 Subtotal 477,004,722 179,143,975 159,461,149 158,375,395 637,892,097 1,611,877,338
Liabilities
Due to the Central Bank of China and other banks 17,864,544 1,914,513 3,202,221 527,797 264,675 23,773,750 Deposits and remittances 122,761,280 145,247,143 102,675,283 214,372,451 403,462,516 988,518,673 Securities sold under agreements to repurchase 6,367,622 223,570 - - - 6,591,192 Payables 10,322,547 1,416,518 3,328,198 714,843 846,776 16,628,882 Bank debentures - - 550,000 5,077,547 61,701,835 67,329,382 Deliverable derivative liabilities 87,815,931 121,486,687 63,785,069 48,198,452 42,604,992 363,891,131 Non-deliverable derivative liabilities 6,282,413 - - - - 6,282,413 Other capital outflow on maturity 9,898,818 2,916,930 318,252 1,016,194 19,116,716 33,266,910 Subtotal 261,313,155 273,205,361 173,859,023 269,907,284 527,997,510 1,506,282,333
January 1, 2012 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total Assets
Cash, call loans and deposits due from/to other banks $ 34,234,659 $ 3,943,900 $ 3,491,336 $ 4,947,292 $ 11,553,796 $ 58,170,983 Investment in marketable securities (Note) 172,668,112 62,332,563 14,700,000 24,304,908 30,977,256 304,982,839 Securities purchased under agreements to resell 200,000 - - - - 200,000 Loans (included overdue loans) 86,966,717 75,493,123 50,779,842 80,543,473 521,995,300 815,778,455 Deliverable derivative assets 86,352,476 117,697,602 51,898,238 23,344,742 11,764,860 291,057,918 Non-deliverable derivative assets 10,012,307 - - - 693,488 10,705,795 Other capital inflow on maturity 26,399,385 6,755,193 7,327,770 2,769,225 38,492,271 81,743,844 Subtotal 416,833,656 266,222,381 128,197,186 135,909,640 615,476,971 1,562,639,834
Liabilities
Due to the Central Bank of China and other banks 2,655,743 1,512,879 3,147,858 640,700 288,823 8,246,003 Deposits and remittances 128,363,725 125,624,014 120,430,463 170,652,323 398,192,722 943,263,247 Securities sold under agreements to repurchase 10,566,959 3,380,494 67,995 - - 14,015,448 Payables 21,617,000 1,128,604 832,673 500,464 807,949 24,886,690 Bank debentures - - 30,000 1,045,500 61,693,488 62,768,988 Deliverable derivative liabilities 105,357,545 139,377,027 70,410,926 33,538,666 11,378,277 360,062,441 Non-deliverable derivative liabilities 10,348,491 - - - - 10,348,491 Other capital outflow on maturity 4,914,036 2,993,933 3,585,776 1,218,538 28,900,340 41,612,623 Subtotal 283,823,499 274,016,951 198,505,691 207,596,191 501,261,599 1,465,203,931
Note: Investment in marketable securities include financial assets at fair value through profit or loss, available-for-sale financial assets, and held-to-maturity financial assets. b) The maturity analysis of financial assets and liabilities - USD
December 31, 2013 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total Assets
Cash, call loans and deposits due from/to other banks $ 1,572,910 $ 249,537 $ 60,000 $ 152,698 $ - $ 2,035,145 Investment in marketable securities (Note) 41,119 25,052 94,610 66,531 1,066,814 1,294,126 Loans (included overdue loans) 1,415,478 824,089 596,939 518,861 1,238,284 4,593,651 Deliverable derivative assets 6,748,303 6,335,605 3,217,576 2,328,396 1,823,041 20,452,921 Non-deliverable derivative assets 134,038 - - - 1,656 135,694 Other capital inflow on maturity 908,016 233,310 118,756 180,183 126,957 1,567,222 Subtotal 10,819,864 7,667,593 4,087,881 3,246,669 4,256,752 30,078,759
Liabilities
Due to the Central Bank of China and other banks 613,510 442,000 - - - 1,055,510 Deposits and remittances 1,982,934 792,640 553,764 844,541 2,379,697 6,553,576 Securities sold under agreements to repurchase 29,121 4,613 43,216 27,084 508,698 612,732 Payables 4,211 2,515 1,559 370 372 9,027 Deliverable derivative liabilities 7,326,422 5,736,196 2,764,539 2,703,702 1,500,632 20,031,491 Non-deliverable derivative liabilities 153,367 19 232 267 22,361 176,246 Other capital outflow on maturity 1,041,204 121,909 76,115 22,163 255,311 1,516,702 Subtotal 11,150,769 7,099,892 3,439,425 3,598,127 4,667,071 29,955,284
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December 31, 2012 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total Assets
Cash, call loans and deposits due from/to other banks $ 748,281 $ 65,830 $ - $ - $ - $ 814,111 Investment in marketable securities (Note) - 15,068 32,470 42,340 968,244 1,058,122 Loans (included overdue loans) 1,784,142 1,013,824 603,269 413,846 1,455,581 5,270,662 Deliverable derivative assets 4,134,732 5,101,905 2,587,756 1,853,303 1,455,424 15,133,120 Non-deliverable derivative assets 62,052 - - - - 62,052 Other capital inflow on maturity 12,226,754 6,488,002 3,837,237 1,824,710 170,959 24,547,662 Subtotal 18,955,961 12,684,629 7,060,732 4,134,199 4,050,208 46,885,729
Liabilities
Due to the Central Bank of China and other banks 1,217,380 190,910 - - - 1,408,290 Deposits and remittances 2,631,417 650,576 749,597 1,145,366 1,522,041 6,698,997 Securities sold under agreements to repurchase - - 13,982 9,259 329,248 352,489 Payables 3,963 1,625 504 107 77 6,276 Deliverable derivative liabilities 4,765,269 4,328,781 2,307,944 1,375,450 1,359,902 14,137,346 Non-deliverable derivative liabilities 67,594 - 139 68 9,977 77,778 Other capital outflow on maturity 11,689,674 6,392,837 3,893,795 1,710,121 301,602 23,988,029 Subtotal 20,375,297 11,564,729 6,965,961 4,240,371 3,522,847 46,669,205
January 1, 2012 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total Assets
Cash, call loans and deposits due from/to other banks $ 869,409 $ 261,000 $ 20,000 $ - $ - $ 1,150,409 Investment in marketable securities (Note) 9,989 19,920 20,960 41,248 760,528 852,645 Loans (included overdue loans) 1,161,349 821,662 630,175 390,708 1,248,546 4,252,440 Deliverable derivative assets 4,415,420 5,259,303 2,555,770 1,264,313 363,061 13,857,867 Non-deliverable derivative assets 78,621 - - - - 78,621 Other capital inflow on maturity 6,598,556 5,042,000 4,165,838 3,630,323 78,624 19,515,341 Subtotal 13,133,344 11,403,885 7,392,743 5,326,592 2,450,759 39,707,323
Liabilities
Due to the Central Bank of China and other banks 1,030,495 642,770 - - - 1,673,265 Deposits and remittances 2,274,896 1,080,422 762,702 957,344 1,457,295 6,532,659 Securities sold under agreements to repurchase 293,810 - - - - 293,810 Payables 865,564 1,967 449 112 3,405 871,497 Deliverable derivative liabilities 3,949,498 4,721,083 1,981,634 942,599 376,254 11,971,068 Non-deliverable derivative liabilities 81,835 38 79 - 10,464 92,416 Other capital outflow on maturity 5,298,456 4,768,893 4,014,419 3,595,467 216,067 17,893,302 Subtotal 13,794,554 11,215,173 6,759,283 5,495,522 2,063,485 39,328,017
Note: Investment in marketable securities include financial assets at fair value through profit or loss, available-for-sale financial assets, and held-to-maturity financial assets. c) The maturity analysis of derivatives assets and liabilities - NTD
December 31, 2013 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total Assets
Deliverable derivative assets Forward contracts $ 2,051,852 $ 223,429 $ 200,923 $ 38,133 $ 27,757 $ 2,542,094 Currency exchange 122,435,501 100,897,901 60,932,549 42,468,508 3,633,420 330,367,879 Cross-currency swap 8,894,455 27,302,435 6,718,733 27,048,438 39,545,199 109,509,260 Subtotal 133,381,808 128,423,765 67,852,205 69,555,079 43,206,376 442,419,233 Non-deliverable derivative assets Foreign exchange derivative instrument 186,476 - - - - 186,476 Interest rate derivative instrument - hedging - - - - 236,195 236,195 Interest rate derivative instrument - non-hedging 3,812,920 - - - - 3,812,920 Equity derivative instrument 834,945 - - - - 834,945 Product derivative instruments 15,341 - - - - 15,341 Subtotal 4,849,682 - - - 236,195 5,085,877
Liabilities
Deliverable derivative liabilities Forward contracts 2,113,319 638,257 238,515 410,921 - 3,401,012 Currency exchange 131,995,198 129,237,436 75,620,640 52,099,364 11,235,090 400,187,728 Cross-currency swap 1,955,434 25,532,541 8,020,273 3,794,883 41,946,159 81,249,290 Subtotal 136,063,951 155,408,234 83,879,428 56,305,168 53,181,249 484,838,030 Non-deliverable derivative liabilities Foreign exchange derivative instrument 133,363 - - - - 133,363 Interest rate derivative instrument - hedging - - - - 115,051 115,051 Interest rate derivative instrument - non-hedging 4,251,554 - - - - 4,251,554 Equity derivative instrument 834,945 - - - - 834,945 Product derivative instruments 15,341 - - - - 15,341 Subtotal 5,235,203 - - - 115,051 5,350,254
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December 31, 2012 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total Assets
Deliverable derivative assets Forward contracts $ 101,611 $ 203,044 $ 205,747 $ 297,958 $ 217,723 $ 1,026,083 Currency exchange 92,022,514 74,538,742 47,206,508 28,296,357 91,762 242,155,883 Cross-currency swap 13,501 7,384,948 8,054,431 8,521,370 38,365,765 62,340,015 Subtotal 92,137,626 82,126,734 55,466,686 37,115,685 38,675,250 305,521,981 Non-deliverable derivative assets Foreign exchange derivative instrument 82,246 - - - - 82,246 Interest rate derivative instrument - hedging - - - 31,888 446,856 478,744 Interest rate derivative instrument - non-hedging 5,878,609 - - - - 5,878,609 Equity derivative instrument 11,513 - - - - 11,513 Product derivative instruments 2,885 - - - - 2,885 Subtotal 5,975,253 - - 31,888 446,856 6,453,997
Liabilities
Deliverable derivative liabilities Forward contracts 3,642,687 3,772,804 319,371 93,360 - 7,828,222 Currency exchange 81,384,823 115,771,578 62,413,569 42,284,015 4,621,420 306,475,405 Cross-currency swap 2,788,421 1,942,305 1,052,129 5,821,077 37,983,572 49,587,504 Subtotal 87,815,931 121,486,687 63,785,069 48,198,452 42,604,992 363,891,131 Non-deliverable derivative liabilities Foreign exchange derivative instrument 68,219 - - - - 68,219 Interest rate derivative instrument - hedging 6,199,796 - - - - 6,199,796 Equity derivative instrument 11,513 - - - - 11,513 Product derivative instruments 2,885 - - - - 2,885 Subtotal 6,282,413 - - - - 6,282,413
January 1, 2012 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total Assets
Deliverable derivative assets Forward contracts $ 432,491 $ 737,858 $ 698,578 $ 495,633 $ 458,734 $ 2,823,294 Currency exchange 84,017,082 111,273,529 44,351,456 17,397,655 389,069 257,428,791 Cross-currency swap 1,902,903 5,686,215 6,848,204 5,451,454 10,917,057 30,805,833 Subtotal 86,352,476 117,697,602 51,898,238 23,344,742 11,764,860 291,057,918 Non-deliverable derivative assets Foreign exchange derivative instrument 11,869 - - - - 11,869 Interest rate derivative instrument - hedging - - - - 693,488 693,488 Interest rate derivative instrument - non-hedging 9,967,560 - - - - 9,967,560 Equity derivative instrument 72 - - - - 72 Product derivative instruments 32,806 - - - - 32,806 Subtotal 10,012,307 - - - 693,488 10,705,795
Liabilities
Deliverable derivative liabilities Forward contracts 1,979,901 2,767,696 671,927 12,238 - 5,431,762 Currency exchange 101,363,673 132,574,496 63,157,521 24,345,889 1,198,000 322,639,579 Cross-currency swap 2,013,971 4,034,835 6,581,478 9,180,539 10,180,277 31,991,100 Subtotal 105,357,545 139,377,027 70,410,926 33,538,666 11,378,277 360,062,441 Non-deliverable derivative liabilities Foreign exchange derivative instrument (1,940 ) - - - - (1,940 ) Interest rate derivative instrument - non-hedging 10,319,429 - - - - 10,319,429 Equity derivative instrument 72 - - - - 72 Product derivative instruments 30,930 - - - - 30,930 Subtotal 10,348,491 - - - - 10,348,491 d) The maturity analysis of derivatives assets and liabilities - USD
December 31, 2013 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total Assets
Deliverable derivative assets Forward contracts $ 447,525 $ 216,944 $ 162,923 $ 261,182 $ 3,000 $ 1,091,574 Currency exchange 6,233,978 5,255,247 2,780,843 1,869,346 409,741 16,549,155 Cross-currency swap 66,800 863,414 273,810 197,868 1,410,300 2,812,192 Subtotal 6,748,303 6,335,605 3,217,576 2,328,396 1,823,041 20,452,921 Non-deliverable derivative assets Foreign exchange derivative instrument 91,320 - - - - 91,320 Interest rate derivative instrument - hedging - - - 1,656 1,656 Interest rate derivative - non-hedging 41,764 - - - - 41,764 Equity derivative instrument 723 - - - - 723 Product derivative instrument 231 - - - - 231 Subtotal 134,038 - - - 1,656 135,694 (Continued)
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December 31, 2013 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total Liabilities
Deliverable derivative liabilities Forward contracts $ 1,072,413 $ 635,130 $ 260,562 $ 168,493 $ - $ 2,136,598 Currency exchange 5,957,209 4,182,824 2,278,071 1,621,448 168,988 14,208,540 Cross-currency swap 296,800 918,242 225,906 913,761 1,331,644 3,686,353 Subtotal 7,326,422 5,736,196 2,764,539 2,703,702 1,500,632 20,031,491 Non-deliverable derivative liabilities Foreign exchange derivative instrument 93,691 - - - - 93,691 Interest rate derivative instrument - hedging 76 19 232 267 22,361 22,955 Interest rate derivative - non-hedging 58,647 - - - - 58,647 Equity derivative instruments 723 - - - - 723 Product derivative instrument 230 - - - - 230 Subtotal 153,367 19 232 267 22,361 176,246 (Concluded)
December 31, 2012 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total Assets
Deliverable derivative assets Forward contracts $ 249,142 $ 313,856 $ 133,856 $ 90,665 $ 200 $ 787,719 Currency exchange 3,791,590 4,695,049 2,418,839 1,566,152 176,500 12,648,130 Cross-currency swap 94,000 93,000 35,061 196,486 1,278,724 1,697,271 Subtotal 4,134,732 5,101,905 2,587,756 1,853,303 1,455,424 15,133,120 Non-deliverable derivative assets Foreign exchange derivative instrument 25,658 - - - - 25,658 Interest rate derivative instrument 35,377 - - - - 35,377 Equity derivative instruments 78 - - - - 78 Product derivative instrument 939 - - - - 939 Subtotal 62,052 - - - - 62,052
Liabilities
Deliverable derivative liabilities Forward contracts 613,496 554,172 265,525 79,060 31,118 1,543,371 Currency exchange 4,151,323 3,530,881 1,770,574 1,003,562 43,035 10,499,375 Cross-currency swap 450 243,728 271,845 292,828 1,285,749 2,094,600 Subtotal 4,765,269 4,328,781 2,307,944 1,375,450 1,359,902 14,137,346 Non-deliverable derivative liabilities Foreign exchange derivative instrument 26,338 - - - - 26,338 Interest rate derivative instrument - hedging - - 139 68 9,977 10,184 Interest rate derivative - non-hedging 40,249 - - - - 40,249 Equity derivative instruments $ 78 $ - $ - $ - $ - $ 78 Product derivative instrument 929 - - - - 929 Subtotal 67,594 - 139 68 9,977 77,778
January 1, 2012 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total Assets
Deliverable derivative assets Forward contracts $ 145,180 $ 246,971 $ 101,610 $ 84,133 $ - $ 577,894 Currency exchange 4,205,281 4,883,332 2,214,467 875,361 40,000 12,218,441 Cross-currency swap 64,959 129,000 239,693 304,819 323,061 1,061,532 Subtotal 4,415,420 5,259,303 2,555,770 1,264,313 363,061 13,857,867 Non-deliverable derivative assets Foreign exchange derivative instrument 47,559 - - - - 47,559 Interest rate derivative instrument 29,931 - - - - 29,931 Product derivative instruments 1,021 - - - - 1,021 Credit derivative instrument 110 - - - - 110 Subtotal 78,621 - - - - 78,621
Liabilities
Deliverable derivative liabilities Forward contracts 412,851 480,321 200,882 128,943 9,362 1,232,359 Currency exchange 3,474,268 4,057,030 1,557,432 629,208 21,484 9,739,422 Cross-currency swap 62,379 183,732 223,320 184,448 345,408 999,287 Subtotal 3,949,498 4,721,083 1,981,634 942,599 376,254 11,971,068 Non-deliverable derivative liabilities Foreign exchange derivative instrument 51,167 - - - - 51,167 Interest rate derivative instrument - hedging 10 38 79 - 10,464 10,591 Interest rate derivative - non-hedging 29,576 - - - - 29,576 Product derivative instruments 1,065 - - - - 1,065 Credit derivative instrument 17 - - - - 17 Subtotal 81,835 38 79 - 10,464 92,416
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e) The maturity analysis of off-balance sheet items
The maturity analysis of off-balance sheet items shows the remaining balance from the balance sheet date to the maturity date. For the sent financial guarantee contracts, the maximum amounts are possibly asked for settlement in the earliest period. The amounts in the table below were on cash flow basis; therefore, some disclosed amounts will not match with the consolidated balance sheet.
December 31, 2013 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total Standby and irrevocable loan commitment $ 53,885,168 $ - $ - $ - $ - $ 53,885,168 Unused letters of credit 10,095,464 - - - - 10,095,464 Other guarantee amounts 8,171,212 126,479 1,316,915 4,240,575 32,706,320 46,561,501 Total 72,151,844 126,479 1,316,915 4,240,575 32,706,320 110,542,133
December 31, 2012 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total Standby and irrevocable loan commitment $ 45,008,084 $ - $ - $ - $ - $ 45,008,084 Unused letters of credit 8,447,155 - - - - 8,447,155 Other guarantee amounts 7,915,551 155,698 4,464,743 2,982,172 45,534,529 61,052,693 Total 61,370,790 155,698 4,464,743 2,982,172 45,534,529 114,507,932
January 1, 2012 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Total Standby and irrevocable loan commitment $ 50,882,470 $ - $ - $ - $ - $ 50,882,470 Unused letters of credit 10,291,019 - - - - 10,291,019 Other guarantee amounts 10,576,444 891,628 199,698 10,201,293 53,863,750 75,732,813 Total 71,749,933 891,628 199,698 10,201,293 53,863,750 136,906,302 e. Market risk
1) Market risk definition and classifications
Market risk refers to unfavorable changes in the market (such as changes in interest rates, exchange rates, stock prices and commodity prices), which may cause a potential loss on or off the balance sheet. Based on the Bank‟s policies on risk measurement and management, financial instruments are recorded in either the trading book or the banking book, and the Bank performs risk measurement and management accordingly.
Trading book positions follow the definitions below:
a) Positions held for earning profits from changes in bid-ask spread or changes in price and interest rate;
b) Positions held for the brokerage business or proprietary trading;
c) Positions held for full or partial offsetting risk from other positions; and
d) Positions held for trading within approved market risk limits.
Trading book positions should not be under any restrictive trading contract and should be completely hedged against risks. Positions that do not qualify for recording in the trading book are recorded in the banking book.
2) Market risk strategy and procedures
The Bank has comprehensive policies on market risk management and has a systematic mechanism for deal execution, clearing and settlement. The trading book instruments, which are exposed to risk factors, are as follows: Interest rate-related instruments, exchange rate-related instruments, securities and commodities. The risk management systems apply the Bank‟s management policies and market risk limits to identify, measure, monitor and control market risks.
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3) Market risk management framework
Under the supervision of the Board of Directors, the Bank has established the Market Risk Management Committee, which is composed of senior management and chaired by the President to monitor the Bank‟s market risk control, risk acceptance and management strategies for the trading business, securities investments and transactions, and derivatives.
The Market Risk Management Department under the Risk Management Division is responsible for formulating policies on and procedures for market risk management, enforcing market risk limits, reporting market risk events timely and validating valuation models independently. The independent audit department under the Board of Directors is an added support for the market risk management framework.
4) Market risk measurement, control and reporting
The Market Risk Management Department is responsible for monitoring compliance with the daily market risk limit (including the analysis of risk sensitivity factors such as Delta, Vega, DV01, and VaR) and loss control. The Bank has established a market risk management system and related market risk management procedures to be able to observe the VaR limit. In addition, the Bank does backtesting to check the effectiveness of the VaR calculation module and updates the on-line risk control management and trading system. The valuation and VaR models are evaluated independently by the Market Risk Management Department to ensure their stability and effectiveness.
5) Measurement of trading book market risk
The Bank‟s measurement of trading book market risk includes methods for determining degrees (known as the “Greeks”) of sensitivity to risk and measures (such as VaR and stress testing) of the risk of loss on specific portfolios of financial assets. These measures provide consistent and comparable measurement of various types of risks across different trading desks.
a) VaR (Value at Risk)
VaR is a tool that measures “the worst expected loss over a given time horizon under normal market conditions at a given level of confidence.” The Bank adopts various risk models to evaluate the worst loss on current net positions within one day, with a 99% confidence level. Some of the methods for VaR calculation are the (a) historical simulation, which is used to calculate common VaR and stressed VaR; and (b) Monte Carlo simulation, which also involves the GED (generalized error distribution) model, which strengthens the predictability of this model. This model has the advantage of backward-looking (i.e., based on experience) and forward-looking (i.e., based on a cognitive map of action-outcome linkages) assessment risk measurement and is able to cover most market risk scenarios.
To ensure the accuracy of VaR measures, the Bank does statistical hypothesis testing and backtesting periodically. In addition to carrying out Bernoulli trials, the Bank does two statistical tests suggested by the Basel Committee on Banking Supervision after the 2007-2008 financial crisis: (a) the unconditional coverage test, which is used to check if a VaR calculation reasonably reflects actual conditions; and (b) the conditional coverage test, which is used to examine whether a VaR model can help the Bank forecast portfolio returns on the basis of certain information. Both tests help the Bank determine if its risk models are effective tools for forecasting and responding to different risk scenarios.
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Trading book VaR information is shown below:
For the Year Ended December 31, 2013 End of Common VaR Highest Lowest Mean Period
Equity $ 7,895 $ - $ 5,225 $ - Interest Rate 75,329 20,833 34,721 31,885 Exchange Rate 11,433 1,058 5,386 1,058 Volatility 9,748 3,164 6,448 3,164 Diversification Effect - - (19,065) (5,471)
Common VaR of trading book $ 75,735 $ 14,717 $ 32,715 $ 30,636
For the Year Ended December 31, 2012 Beginning End of Common VaR of Period Highest Lowest Mean Period
Equity $ 7,948 $ 52,899 $ 9,250 $ 13,929 $ 9,744 Interest Rate 38,009 35,237 19,212 26,477 23,978 Exchange Rate 2,472 4,837 649 2,541 1,978 Volatility 7,036 11,623 3,346 6,804 3,935 Diversification Effect (13,487) - - (18,477) (16,589)
Common VaR of trading book $ 41,978 $ 57,182 $ 19,355 $ 31,274 $ 23,046
The above VaRs are calculated on the basis of changes in risk factors. If one product includes several risk factors, it will be classified under different risk factors. For example, forward contracts are exposed to interest rate risk and exchange rate risk; foreign exchange option is exposed to exchange rate risk and volatility risk. (Note: The highest and lowest VaRs may occur on different dates; the related diversification effects were not disclosed in the above table because it has no significant meaning.)
b) Stress testing
As described earlier, VaR is the worst loss likely to occur over a holding period with a given confidence level during normal fluctuation. However, VaR cannot be used to predict the loss when an extreme event or systematic risk occurs. Thus, stress testing is introduced to capture the above risk by measuring the potential impact on trading book portfolio during the abnormal market period, compensating the insufficiency of common VaR.
6) Measurement of banking book market risk
a) Interest rate risk
Interest rate risk refers to the possible loss on investment portfolio value due to interest rate changes. The interest rate-sensitive assets/liabilities include banking book debt securities. The characteristics of banking book debt securities differ from those of trading book securities, which are for short-term trading. The valuation basis of banking book debt securities includes fair value and accrued interest.
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Banking book interest rate risk refers to possible loss due to unfavorable changes in interest rates for the banking book portfolio. One of the methods used to determine exposure to interest rate risks is earnings analysis, which focuses on the effects interest rate changes on the earnings of the banking book portfolio, especially earnings in the short term. Had the interest rate increased/decreased 100bps (basis points) as of December 31, 2013, December 31, 2012 and January 1, 2012 and all other factors been held constant, the earnings would have decreased/increased by $2,209 million, $2,118 million and $1,807 million, respectively.
b) Exchange rate risk
Banking book exchange rate risk refers to the risk of loss due to unfavorable changes in exchange rates for the Bank‟s foreign currency operating funds to be used for the launch of a foreign exchange business or the establishment of overseas branches. These exchange rate differences are reflected under either the statement of comprehensive income or “exchange differences on translating foreign operations in equity.
The Bank has a foreign exchange business and overseas branches. The percentage of the foreign currency operating funds used for the foreign exchange business operations is low when compared with the Bank‟s entire foreign currency position. For the operating funds of overseas branches, the Bank considers the ratio of exchange differences on translating foreign operations to net assets immaterial.
c) Equity risk
The Bank‟s equity instruments as shown in the banking book have two groups. The first consists of investments in accordance with Article 74 of the Banking Act. The second group refers to investments in promising companies with a higher cash dividend payout ratio. For the second group, even though changes in equity prices may influence the stockholder‟s equity, the Bank holds these investments for a long term and has strict regulations on buying or selling these investments.
The sensitivity analysis for the second equity positions group is listed below:
December 31, 2013 December 31, 2012 January 1, 2012 The Influence The Influence The Influence The Influence The Influence The Influence on the Income on the Balance on the Income on the Balance on the Income on the Balance Statement Sheet Statement Sheet Statement Sheet
Stock prices increased by 10% $ - $ 1,031,797 $ 40,973 $ 1,042,753 $ - $ 994,358 Stock prices decreased by 10% - (1,031,797 ) (40,973 ) (1,042,753 ) - (994,358 )
7) Foreign currency rate risk information
The table below shows the foreign currency risk information for financial assets and liabilities denominated in foreign currency at carrying value as of December 31, 2013, December 31, 2012 and January 1, 2012. December 31, 2013 Foreign Exchange New Taiwan Currencies Rate Dollars Financial assets
Currency item USD 11,999,142 29.9506 $ 359,381,490 CNY 17,171,320 4.9435 84,886,421 (Continued)
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December 31, 2013 Foreign Exchange New Taiwan Currencies Rate Dollars
JPY $ 59,108,975 0.2849 $ 16,840,147 HKD 5,919,884 3.8628 22,867,329 AUD 413,294 26.7294 11,047,107 EUR 282,725 41.2616 11,665,680
Financial liabilities
Currency item USD 12,198,629 29.9506 365,356,259 CNY 13,563,841 4.9435 67,052,847 AUD 1,159,487 26.7294 30,992,390 JPY 71,405,810 0.2849 20,343,515 EUR 597,539 41.2616 24,655,423 HKD 3,347,049 3.8628 12,928,982 (Concluded)
December 31, 2012 Foreign Exchange New Taiwan Currencies Rate Dollars
Financial assets
Currency item USD 6,829,977 29.1358 $ 198,996,858 CNY 4,554,990 4.6808 21,320,999 JPY 57,503,593 0.3378 19,424,714 HKD 2,889,738 3.7585 10,861,079 AUD 340,534 30.2662 10,306,669 EUR 284,841 38.5349 10,976,320 Noncurrency item USD 32,803 29.1358 955,749
Financial liabilities
Currency item USD 8,117,689 29.1358 236,515,359 CNY 5,425,644 4.6808 25,396,355 AUD 748,395 30.2662 22,651,068 JPY 55,112,396 0.3378 18,616,967 EUR 326,396 38.5349 12,577,628 HKD 2,725,717 3.7585 10,244,609
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January 1, 2012 Foreign Exchange New Taiwan Currencies Rate Dollars
Financial assets
Currency item USD 7,320,542 30.2897 $ 221,737,018 CNY 2,012,486 4.8151 9,690,321 JPY 53,915,798 0.3901 21,032,553 EUR 273,666 39.1243 10,706,986 AUD 291,691 30.7632 8,973,359 HKD 2,126,490 3.8993 8,291,824 Noncurrency item USD 23,337 30.2897 706,874
Financial liabilities
Currency item USD 8,954,477 30.2897 271,228,127 AUD 750,880 30.7632 23,099,467 CNY 2,096,110 4.8151 10,092,980 EUR 369,698 39.1243 14,464,158 JPY 18,942,854 0.3901 7,389,607 HKD 2,009,877 3.8993 7,837,113
48. CAPITAL MANAGEMENT
a. Overview
Under the “Regulation Governing the Capital Adequacy and Capital Category of Banks” implementing Article 44 of the Banking Act for minimum requirements on the eligible capital and risk-weighted assets (capital adequacy ratio), the Bank‟s eligible capital and consolidated eligible capital should be higher than the statutory requirement. This is the fundamental principle of capital management.
For sound operations, the Bank has established internal control policies to ensure its capital adequacy ratio meets the minimum regulatory requirement.
b. Capital management procedures
The Bank‟s capital is managed by the planning department in the administrative division. Eligible capital is calculated according to “Regulations Governing the Capital Adequacy and Capital Category of Banks,” and reported to the authority quarterly. Eligible capital is classified into net Tier 1 Capital (the aggregate amount of net common equity Tier 1 and net additional Tier 1 Capital) and net Tier 2 Capital.
1) Net Tier 1 capital
a) Net common equity Tier 1: Common equity mainly includes common shares, capital surplus, retained earnings and other equity, with the total less the following items: Intangible assets, the deferred tax assets due to losses from the previous year, unrealized gains on available-for-sale financial assets, the revaluation surplus of real estate, and 50% of the amount of investments related to financial industry booked in banking book.
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b) Net additional Tier 1 Capital: There was no balance.
2) Net Tier 2 capital
This capital base comprises the total amount of long-term subordinated bank debentures, the increase in retained earnings resulting from using fair value or revaluation as the deemed cost of the real estate on the translation date of IFRSs, and 45% of the amount of unrealized gain on available-for-sale financial assets, operating reserves and loan loss provision allowance (the amount is determined when the expected loss based on the historical experience is more than allowance the Bank recognized) less 50% of the amount of investments related to financial industry booked in banking book.
The Bank perform the evaluation of capital adequacy quarterly, and also evaluate the demand of capital in the future, and raise the capital if needed to maintain capital adequacy.
c. Statement of capital adequacy
As of December 31, 2013, the Bank had met the authorities‟ minimum requirements for capital adequacy ratio.
49. RECLASSIFICATIONS
On January 1, 2012, the Bank reclassified its financial assets. The fair values at the reclassification date were as follows:
Before After Reclassification Reclassification
Available-for-sale financial assets $ 12,052,604 $ - Held-to-maturity financial assets - 12,052,604
$ 12,052,604 $ 12,052,604
The effective interest rates for the available-for-sale financial assets that have been reclassified to held-to-maturity financial assets ranged from 0.52% to 9.95%. The estimated recoverable cash flows amounted to $13,966,953 thousand.
The carrying amounts and fair values of the reclassified financial assets (excluding those that had been derecognized) as of December 31, 2013 and 2012 were as follows:
For the Year Ended December 31 2013 2012
Held-to-maturity financial assets
Carrying amounts $ 4,910,374 $ 8,330,944 Fair value 5,045,856 8,564,177
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The gains or losses recorded for the reclassified financial assets (excluding those that had been derecognized before December 31, 2013 and 2012) for the years ended December 31, 2013 and 2012 and the pro forma adjustments recognized in other equity assuming no reclassifications had been made were as follows:
For the Year Ended December 31 2013 2012 Held-to-maturity financial assets
Gains recognized $ 203,248 $ 384,004 Pro forma adjustments recognized in other equity 291,286 361,419
50. BUSINESS COMBINATIONS
a. Subsidiaries acquired
Proportion of Voting Equity Interests Consideration Principal Activity Date of Acquisition Acquired (%) Transferred
First Sino Bank Banking industry January 7, 2014 51% $ 17,705,238
The Bank acquired 10% interest in First Sino Bank on December 31, 2013 and acquired an additional 41% interest on January 7, 2014, increasing its interest to 51%.
The purpose of the acquisition of interest in First Sino Bank is to gain majority control over the bank in Mainland China for more growth potential and profitability. That is, the Bank‟s business development in Mainland China, Taiwan and Hong Kong will further expand and the Bank‟s profitability will be enhanced.
b. Considerations transferred
Acquisition-related costs were excluded from the consideration transferred and recognized as an expense in the current year.
c. Assets acquired and liabilities assumed at the date of acquisition
First Sino Bank
Assets Cash and cash equivalents $ 13,720,123 Due from the Central Bank of China and other banks 37,702,764 Financial assets at fair value through profit or loss 262,663 Securities purchased under agreements to resell 1,010,990 Receivables, net 4,173,683 Discounts and loans, net 149,788,605 Available-for-sale financial assets 6,215,285 Held-to-maturity financial assets, net 22,398,276 Property and equipment, net 7,902,304 Intangible assets 14,116,802 Deferred tax assets 738,113 Other assets, net 74,750 (Continued)
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First Sino Bank
Liabilities Due to the Central Bank of China and other banks $ (3,532,267) Call loans (603,254) Financial liabilities at fair value through profit or loss (231,464) Payables (5,757,706) Current tax liabilities (14,289) Deposits and remittances (216,771,710) Other liabilities (476,914)
$ 30,716,754 (Concluded)
The initial accounting for the acquisition of First Sino Bank had only been provisionally determined at the end of the reporting period. The discount and loans acquired in these transactions had a fair value of 149,788,605 thousand, and gross contractual amounts of 153,639,642 thousand, respectively. The best estimate of the contractual cash flows not expected to be collected as at the acquisition date are 3,850,437 thousand.
d. Non-controlling interests
The non-controlling interest (49% ownership interest in First Sino Bank) recognized at the acquisition date was measured by reference to the non-controlling interest‟s proportionate share of the acquiree‟s net identifiable assets
e. Goodwill arising on acquisition
First Sino Bank
Consideration transferred $ 17,705,238 Plus: Non-controlling interests 15,051,209 Less: Fair value of identifiable net assets acquired (30,716,754)
Goodwill arising on acquisition $ 2,039,693
Goodwill arose in the acquisition of First Sino Bank because the cost of the combination included a control premium. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth, and future market development.
At the date of finalization of these consolidated financial statements, the necessary market valuations and other calculations had not been finalized and they have therefore only been provisionally determined based on management‟s best estimate.
51. ASSET QUALITY, CONCENTRATION OF CREDIT EXTENSIONS, INTEREST RATE SENSITIVITY, PROFITABILITY AND MATURITY ANALYSIS OF ASSETS AND LIABILITIES
The information showed below only includes the Bank.
a. Asset quality
See Table 1.
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b. Concentration of credit extensions
December 31, 2013
(In Thousands of New Taiwan Dollars, %)
Credit % of Net Rank Extensions Asset Group Name (Note 2) (Note 1) Balance Value (Note 3) (Note 4) 1 A Group (LCD and its component manufacturing industry) $ 11,197,824 8.40 2 B Group (iron and steel smelting industry) 10,130,817 7.60 3 C Group (LCD and its component manufacturing industry) 9,720,720 7.30 4 D Group (wire and cable manufacturing industry) 6,401,663 4.80 5 E Group (real estate industry) 6,296,303 4.73 6 F Group (real estate industry) 5,919,173 4.44 7 G Group (computer and its peripheral devices and software 5,815,184 4.36 wholesale industry) 8 H Group (petrochemical raw material manufacturing 5,653,787 4.24 industry) 9 I Group (real estate industry) 5,500,312 4.13 10 J Group (ocean transport industry) 5,252,689 3.94
December 31, 2012
(In Thousands of New Taiwan Dollars, %)
Credit % of Net Rank Extensions Asset Group Name (Note 2) (Note 1) Balance Value (Note 3) (Note 4) 1 A Group (LCD and its component manufacturing industry) $ 12,362,933 11.58 2 B Group (iron and steel smelting industry) 12,176,822 11.41 3 C Group (LCD and its component manufacturing industry) 11,407,350 10.69 4 D Group (unclassified other electronic component industry) 8,021,559 7.52 5 E Group (real estate industry) 6,942,000 6.50 6 F Group (artificial fiber manufacturing industry) 6,481,182 6.07 7 G Group (wire and cable manufacturing industry) 6,031,928 5.65 8 H Group (Electronic component manufacturing industry) 5,795,046 5.43 9 I Group (Textile industry) 5,658,850 5.30 10 J Group (petrochemical raw material manufacturing industry) 5,646,400 5.29
Note 1: The list shows ranking by total amounts of credit, endorsement or other transactions (excluding those of government-owned or state-run enterprises). If the borrower is a member of a group enterprise, the total amount of credit, endorsement or other transactions of the entire group enterprise must be listed and disclosed by code and line of industry. The industry of the group enterprise should be presented as the industry of the member firm with the highest risk exposure. The lines of industry should be described in accordance with the Standard Industrial Classification System of the Republic of China published by the Directorate-General of Budget, Accounting and Statistics under the Executive Yuan.
Note 2: Groups enterprise refers to a group of corporate entities as defined by Article 6 of the Supplementary Provisions to the Taiwan Stock Exchange Corporation Criteria for Review of Securities Listings.
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Note 3: The total amount of credits, endorsements or other transactions is the sum of various loans (including import and export negotiations, discounted, overdrafts, unsecured and secured short-term loans, margin loans receivable, unsecured and secured medium-term loans, unsecured and secured long-term loans and overdue loans), exchange bills negotiated, accounts receivable factored without recourse, acceptances and guarantees.
Note 4: Net asset value is based on each of period. c. Interest rate sensitivity information
Interest Rate Sensitivity (New Taiwan Dollars) December 31, 2013
(In Thousands of New Taiwan Dollars, %)
181 Days to Items 1 to 90 Days 91 to 180 Days Over One Year Total One Year Interest rate-sensitive assets $ 1,068,471,159 $ 70,041,731 $ 40,002,242 $ 32,356,566 $ 1,210,871,698 Interest rate-sensitive liabilities 404,124,091 542,227,919 63,260,364 78,474,337 1,088,086,711 Interest rate sensitivity gap 664,347,068 (472,186,188 ) (23,258,122 ) (46,117,771 ) 122,784,987 Net worth 122,610,587 Ratio of interest rate-sensitive assets to liabilities 111.28% Ratio of the interest rate sensitivity gap to net worth 100.14%
Note 1: The above amounts included only New Taiwan dollar amounts held by the Bank, and exclude contingent assets and contingent liabilities.
Note 2: Interest-rate sensitive assets and liabilities mean the revenues or costs of interest-earnings assets and interest-bearing liabilities affected by interest-rate changes.
Note 3: Interest rate sensitivity gap = Interest rate-sensitive assets - Interest rate-sensitive liabilities.
Note 4: Ratio of interest-rate sensitive assets to liabilities = Interest-rate sensitive assets/Interest-rate sensitive liabilities (New Taiwan dollars).
Interest Rate Sensitivity (New Taiwan Dollars) December 31, 2012
(In Thousands of New Taiwan Dollars, %)
181 Days to Items 1 to 90 Days 91 to 180 Days Over One Year Total One Year Interest rate-sensitive assets $ 1,032,445,032 $ 85,738,834 42,979,644 $ 61,690,192 $ 1,222,853,702 Interest rate-sensitive liabilities 396,600,808 504,042,331 103,978,232 82,535,155 1,087,156,526 Interest rate sensitivity gap 635,844,224 (418,303,497 ) (60,998,588 ) (20,844,963 ) 135,697,176 Net worth 98,821,821 Ratio of interest rate-sensitive assets to liabilities 112.48% Ratio of the interest rate sensitivity gap to net worth 137.31%
Note 1: The above amounts included only New Taiwan dollar amounts held by the onshore branches of the Bank (i.e., excluding foreign currency). In compliance with Central Bank‟s supervision policies, the above data is prepared for off-site monitoring by 15th of next month.
Note 2: Interest-rate sensitive assets and liabilities mean the revenues or costs of interest-earnings assets and interest-bearing liabilities affected by interest-rate changes.
Note 3: Interest rate sensitivity gap = Interest rate-sensitive assets - Interest rate-sensitive liabilities.
Note 4: Ratio of interest-rate sensitive assets to liabilities = Interest-rate sensitive assets/Interest-rate sensitive liabilities (New Taiwan dollars).
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Interest Rate Sensitivity (U.S. Dollars) December 31, 2013 (In Thousands of U.S. Dollars, %)
181 Days to Items 1 to 90 Days 91 to 180 Days Over One Year Total One Year Interest rate-sensitive assets $ 8,000,996 $ 718,393 $ 912,070 $ 528,821 $ 10,160,280 Interest rate-sensitive liabilities 9,515,632 526,345 811,685 225,044 11,078,706 Interest rate sensitivity gap (1,514,636 ) 192,048 100,385 303,777 (918,426 ) Net worth 312,930 Ratio of interest rate-sensitive assets to liabilities 91.71% Ratio of the interest rate sensitivity gap to net worth (293.49% )
Note 1: The above amounts include only USD amounts held by the Bank, and exclude contingent assets and contingent liabilities.
Note 2: Interest-rate sensitive assets and liabilities mean the revenues or costs of interest-earnings assets and interest-bearing liabilities affected by interest-rate changes.
Note 3: Interest-rate sensitive gap = Interest-rate sensitive assets - Interest-rate sensitive liabilities.
Note 4: Ratio of interest-rate sensitive assets to liabilities = Interest-rate sensitive assets/Interest-rate sensitive liabilities (U.S. dollars).
Interest Rate Sensitivity (U.S. Dollars) December 31, 2012
(In Thousands of U.S. Dollars, %)
181 Days to Items 1 to 90 Days 91 to 180 Days Over One Year Total One Year Interest rate-sensitive assets $ 5,613,964 $ 462,836 $ 368,224 $ 285,534 $ 6,730,558 Interest rate-sensitive liabilities 7,575,522 400,245 598,548 120,119 8,694,434 Interest rate sensitivity gap (1,961,558 ) 62,591 (230,324 ) 165,415 (1,963,876 ) Net worth 200,575 Ratio of interest rate-sensitive assets to liabilities 77.41% Ratio of the interest rate sensitivity gap to net worth (979.12% )
Note 1: The above amounts include only USD amounts held by the onshore branches, OBU and offshore branches of the Bank, and exclude contingent assets and contingent liabilities. In compliance with Central Bank‟s supervision policies, the above data is prepared for off-site monitoring by 15th of next month.
Note 2: Interest-rate sensitive assets and liabilities mean the revenues or costs of interest-earnings assets and interest-bearing liabilities affected by interest-rate changes.
Note 3: Interest-rate sensitive gap = Interest-rate sensitive assets - Interest-rate sensitive liabilities.
Note 4: Ratio of interest-rate sensitive assets to liabilities = Interest-rate sensitive assets/Interest-rate sensitive liabilities (U.S. dollars). d. Profitability (%)
For the Year Ended Item December 31 2013 2012 Before income tax 0.84 0.97 Return on total assets After income tax 0.72 0.83 Before income tax 11.84 15.10 Return on net worth After income tax 10.10 13.03 Profit margin 35.99 44.37
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Note 1: Return on total assets = Income before (after) income tax/Average total assets.
Note 2: Return on net worth = Income before (after) income tax/Average net worth.
Note 3: Profit margin = Income after income tax/Total operating revenues.
Note 4: Income before (after) income tax represents income for the years ended December 31, 2013 and 2012. e. Maturity analysis of assets and liabilities
Maturity Analysis of Assets and Liabilities (New Taiwan Dollars) December 31, 2013
(In Thousands of New Taiwan Dollars)
The Amount for the Remaining Period to Maturity Total 1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Main capital inflow on maturity $ 1,756,568,229 $ 484,047,077 $ 235,454,991 $ 160,154,723 $ 205,437,129 $ 671,474,309 Main capital outflow on maturity 2,040,466,311 334,849,391 338,544,195 266,976,904 371,081,907 729,013,914 Gap (283,898,082 ) 149,197,686 (103,089,204 ) (106,822,181 ) (165,644,778 ) (57,539,605 )
Maturity Analysis of Assets and Liabilities (New Taiwan Dollars) December 31, 2012
(In Thousands of New Taiwan Dollars)
The Amount for the Remaining Period to Maturity Total 1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Main capital inflow on maturity $ 1,611,809,768 $ 471,011,544 $ 179,256,536 $ 159,655,075 $ 158,864,445 $ 643,022,168 Main capital outflow on maturity 1,835,187,420 276,934,997 304,449,853 220,725,760 363,639,327 669,437,483 Gap (223,377,652 ) 194,076,547 (125,193,317 ) (61,070,685 ) (204,774,882 ) (26,415,315 )
Note: The above amounts included only New Taiwan dollar amounts held in the onshore branches of the Bank (i.e., excluding foreign currency).
Maturity Analysis of Assets and Liabilities (U.S. Dollars) December 31, 2013
(In Thousands of U.S. Dollars)
The Amount for the Remaining Period to Maturity Total 1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Capital inflow on maturity $ 50,312,522 $ 20,025,772 $ 11,828,654 $ 7,496,475 $ 5,538,826 $ 5,422,795 Capital outflow on maturity 52,668,781 21,072,255 11,822,837 7,505,376 6,478,050 5,790,263 Gap (2,356,259 ) (1,046,483 ) 5,817 (8,901 ) (939,224 ) (367,468 )
Note 1: The above amounts are book value held by the Bank in U.S. dollars.
Note 2: If the overseas assets are at least 10% of the total assets, there should be additional disclosures.
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Maturity Analysis of Assets and Liabilities (U.S. Dollars) December 31, 2012
(In Thousands of U.S. Dollars)
The Amount for the Remaining Period to Maturity Total 1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Capital inflow on maturity $ 21,755,389 $ 6,892,800 $ 6,097,215 $ 3,177,972 $ 2,224,960 $ 3,362,442 Capital outflow on maturity 22,120,635 7,836,811 4,995,649 3,083,640 2,488,032 3,716,503 Gap (365,246 ) (944,011 ) 1,101,566 94,332 (263,072 ) (354,061 )
Note 1: The above amounts are book value held by the onshore branches and offshore banking unit of the Bank in U.S. dollars, without off-balance amounts (for example, the issuance of negotiable certificate of deposits, bonds or stocks).
Note 2: If the overseas assets are at least 10% of the total assets, there should be additional disclosures.
52. STATEMENT OF CAPITAL ADEQUACY
Statement of Capital Adequacy
(In Thousands of New Taiwan Dollars, %)
Year (Note 2) December 31, 2013 Analysis Consolidation Standalone Common equity $ 121,454,300 $ 121,424,790 Other Tier 1 capital - - Eligible capital Tier 2 capital 35,956,655 35,927,146 Eligible capital 157,410,955 157,351,936 Standardized approach 1,055,186,491 1,055,183,284 Credit risk Internal rating - based approach - - Securitization 3,067,937 3,067,937 Basic indicator approach - - Standardized approach/alternative standardized Risk-weighted assets Operational risk 51,694,800 51,688,963 approach Advanced measurement approach - - Standardized approach 60,012,813 60,012,813 Market risk Internal models approach - - Total risk-weighted assets 1,169,962,041 1,169,952,997 Capital adequacy rate 13.45% 13.45% Common equity - based capital ratio 10.38% 10.38% Tier 1 risk - based capital ratio 10.38% 10.38% Leverage ratio 5.11% 5.11%
Note 1: The above table was prepared in accordance with the “Regulations Governing the Capital Adequacy Ratio of Banks” and related calculation tables.
Note 2: The formula:
1) Eligible capital = Common equity + Other Tier 1 capital + Tier 2 capital.
2) Total risk-weighted asset = Risk-weighted assets for credit risk + (Capital requirements for operational risk + Capital requirement for market risk) × 12.5.
3) Ratio of capital adequacy = Eligible capital/Total risk-weighted assets.
4) Common equity-based capital ratio = Common equity/Total risk-weighted assets.
5) Tier 1 risk-based capital ratio = (Common equity + Other Tier 1 capital)/Total risk-weighted assets.
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6) Leverage ratio = Tier 1 capital/Total exposure.
Statement of Capital Adequacy
(In Thousands of New Taiwan Dollars, %)
Year (Note 2) December 31, 2012 Analysis Consolidation Standalone Tier 1 capital $ 99,531,072 $ 99,498,204 Tier 2 capital 40,309,498 40,276,630 Eligible capital Tier 3 capital - - Eligible capital 139,840,570 139,774,834 Standardized approach 892,026,552 892,021,138 Credit risk Internal rating - based approach - - Securitization 3,121,321 3,121,321 Basic indicator approach - - Standardized approach/alternative standardized Risk-weighted assets Operational risk 46,832,138 46,836,188 approach Advanced measurement approach - - Standardized approach 63,593,913 63,593,913 Market risk Internal models approach - - Total risk-weighted assets 1,005,573,924 1,005,572,560 Capital adequacy rate 13.91% 13.90% Tier 1 risk - based capital ratio 9.90% 9.89% Tier 2 risk - based capital ratio 4.01% 4.01% Tier 3 risk - based capital ratio - - Ratios of common stockholders‟ equity to total assets 3.58% 3.58% Leverage ratio 6.41% 6.41%
Note 1: The above table was prepared in accordance with the “Regulations Governing the Capital Adequacy Ratio of Banks” and related calculation tables.
Note 2: The formula:
1) Eligible capital = Tier 1 capital + Tier 2 capital + Tier 3 capital.
2) Total risk-weighted asset = Risk-weighted assets for credit risk + (Capital requirements for operational risk + Capital requirement for market risk) × 12.5.
3) Ratio of capital adequacy = Eligible capital/Total risk-weighted assets.
4) Tier 1 risk-based capital ratio = Tier 1 capital/Total risk-weighted assets.
5) Tier 2 risk-based capital ratio = Tier 2 capital/Total risk-weighted assets.
6) Tier 3 risk-based capital ratio = Tier 3 capital/Total risk-weighted assets.
7) Ratios of common stockholder‟s equity to total assets = Common stock/Total assets.
8) Leverage ratio = Tier 1 capital/Adjusted average assets (Average assets minus goodwill, unamortized losses on sale of nonperforming loans and the amount deducted from Tier 1 capital according to “Regulations Governing the Capital Adequacy Ratio of Banks”)
53. SEGMENT INFORMATION
The segment information reported to chief operating decision maker for assessment of segment performance focuses on the nature of business operations and pretax profit or loss.
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The accounting standards and policies aforementioned in Note 4 to the consolidated financial statements apply to all the business segments. Under IFRS 8 “Operating Segments,” the Bank and its subsidiary report the following: a. Personal finance group: Responsible for wealth management and trust business, consumer finance and lottery operations, etc. b. Corporate banking group: Responsible for corporate and investment banking, financial markets, loan management and public treasury, etc.
The reportable segments have changed in November 2013 due to internal reorganization; consequently, the Bank and its subsidiary have restated prior period segment data to reflect the newly reportable segment. Information on segment revenue and operating results is as follows: a. Segment revenue and operating result
Year ended December 31, 2013
(In Thousands of New Taiwan Dollars)
Segment Retail Institutional Others Total Item Banking Banking Net interest $ 6,684,944 $ 9,269,542 $ (179,352) $ 15,775,134 External net interest 3,815,411 11,993,601 (33,878) 15,775,134 Internal net interest 2,869,533 (2,724,059) (145,474) - Other noninterest net revenues 9,225,268 7,516,243 1,112,526 17,854,037 Net revenues 15,910,212 16,785,785 933,174 33,629,171 Reversal of allowance (allowance) for bad debts 333,159 (490,264) (3,700,000) (3,857,105) Operating expense (8,520,665) (4,728,058) (2,333,351) (15,582,074) Income before income tax 7,722,706 11,567,463 (5,100,177) 14,189,992
Year ended December 31, 2012
(In Thousands of New Taiwan Dollars)
Segment Retail Institutional Others Total Item Banking Banking Net interest $ 6,637,865 $ 7,845,487 $ 146,882 $ 14,630,234 External net interest 3,605,926 10,603,953 420,355 14,630,234 Internal net interest 3,031,939 (2,758,466) (273,473) - Other noninterest net revenues 7,817,891 5,274,804 1,518,590 14,611,285 Net revenues 14,455,756 13,120,291 1,665,472 29,241,519 Reversal of allowance (allowance) for bad debts 567,475 (25,158) - 542,317 Operating expense (8,264,506) (4,361,201) (2,117,704) (14,743,411) Income before income tax 6,758,725 8,733,932 (452,232) 15,040,425
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b. Geographical information
The Bank and its subsidiary‟s net revenue from external customers by location of operations are as below:
For the Year Ended December 31 2013 2012
Taiwan $ 30,671,382 $ 26,910,083 Asia 2,618,953 2,006,774 Others 338,836 324,662
$ 33,629,171 $ 29,241,519
54. FIRST-TIME ADOPTION OF IFRSs
a. Basis of the preparation for financial information under IFRSs
The Bank and its subsidiary‟s consolidated financial statements for the year ended December 31, 2013 were the first IFRS interim financial statements. The Bank and its subsidiary not only follow the significant accounting policies stated in Note 4 but also apply the requirements under IFRS 1 “First-time Adoption of IFRS” approved by the FSC as the basis for the preparation.
b. Effects on transition to IFRSs
After transition to IFRSs, the effect on the Bank and its subsidiary‟s consolidated balance sheets and consolidated statements of comprehensive income is stated as follows:
1) Reconciliation of the consolidated balance sheet as of January 1, 2012
Recognition and Presentation Measurement R.O.C. GAAP Differences Difference IFRSs Item Amount Amount Amount Amount Item Note
Assets Assets
Cash and cash equivalents $ 27,224,781 $ - $ - $ 27,224,781 Cash and cash equivalents Due from the Central Bank of 73,099,143 - - 73,099,143 Due from the Central Bank of China and other banks China and other banks Financial assets at fair value 59,148,103 - 493,716 59,641,819 Financial assets at fair value 5) b) through profit or loss through profit or loss Securities purchased under 200,000 - - 200,000 Securities purchased under agreements to resell agreements to resell Receivables, net 66,839,403 (1,161,175 ) 458,811 66,137,039 Receivables, net 5) b), 5) d), 5) k) - 1,258,173 - 1,258,173 Current tax assets 5) k) Discounts and loans, net 952,718,962 - - 952,718,962 Discounts and loans, net Available-for-sale financial 49,387,099 - 959,837 50,346,936 Available-for-sale financial 5) a) assets assets Held-to-maturity financial 256,826,642 - - 256,826,642 Held-to-maturity financial assets assets Investments accounted for by 96,239 - - 96,239 Investments accounted for by the equity method the equity method Other financial assets 5,107,109 (1,962,739 ) (357,346 ) 2,787,024 Other financial assets 5) a), 5) k) - 693,488 - 693,488 Hedging derivative financial 5) k) assets Properties, net 11,222,754 - 55,401 11,278,155 Property and equipment, net; 5) i) Intangible assets 1,753,629 - - 1,753,629 Intangible assets Other assets, net 2,356,598 (708,091 ) (47,261 ) 1,601,246 Other assets, net 5) d), 5) k) - 1,734,175 - 1,734,175 Investment properties, net 5) c) - 193,640 141,677 335,317 Deferred income tax assets 5) d), 5) e), 5) f), 5) g), 5) i), 5) k)
Total $ 1,505,980,462 $ 47,471 $ 1,704,835 $ 1,507,732,768 Total
Liabilities Liabilities
Due to the Central Bank of $ 56,759,776 $ - $ - $ 56,759,776 Due to the Central Bank of China and other banks China and other banks Financial liabilities at fair value 22,747,531 - - 22,747,531 Financial liabilities at fair value through profit or loss through profit or loss (Continued)
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Recognition and Presentation Measurement R.O.C. GAAP Differences Difference IFRSs Item Amount Amount Amount Amount Item Note
Securities sold under $ 28,503,088 $ - $ - $ 28,503,088 Securities sold under agreements to repurchase agreements to repurchase Payables 28,935,835 (1,005,497 ) 573,385 28,503,723 Payables 5) b), 5) f), 5) h), 5) k) - 993,236 - 993,236 Current tax liabilities 5) k) Deposits and remittances 1,183,392,509 - - 1,183,392,509 Deposits and remittances Bank debentures 62,143,488 - - 62,143,488 Bank debentures Other financial liabilities 26,702,456 (1,200,393 ) - 25,502,063 Other financial liabilities 5) k) - 428,152 - 428,152 Hedging derivative financial 5) k) liabilities Other liabilities 3,842,637 (106,312 ) 512,608 4,248,933 Other liabilities 5) h), 5) k) - 524,632 754,407 1,279,039 Provisions 5) d), 5) e), 5) g), 5) i), 5) k) - 413,653 87,369 501,022 Deferred income tax liabilities 5) a), 5) k) Total liabilities 1,413,027,320 47,471 1,927,769 1,415,002,560 Total liabilities
Stockholder‟s equity Equity
Capital stock 51,092,871 - - 51,092,871 Capital stock Capital surplus 13,613,508 - - 13,613,508 Capital surplus Retained earnings 24,796,778 - 126,525 24,923,303 Retained earnings 5) j) Other items on stockholder‟s 3,449,985 - (349,459 ) 3,100,526 Other items on equity 5) a), 5) j) equity Total stockholder‟s equity 92,953,142 - (222,934 ) 92,730,208 Total equity
Total $ 1,505,980,462 $ 47,471 $ 1,704,835 $ 1,507,732,768 Total (Concluded)
2) Reconciliation of the consolidated balance sheet as of December 31, 2012
Recognition and Presentation Measurement R.O.C. GAAP Differences Difference IFRSs Item Amount Amount Amount Amount Item Note
Assets Assets
Cash and cash equivalents $ 31,820,002 $ - $ - $ 31,820,002 Cash and cash equivalents Due from the Central Bank of 70,851,850 - - 70,851,850 Due from the Central Bank of China and other banks China and other banks Financial assets at fair value 84,436,201 - 257,291 84,693,492 Financial assets at fair value 5) b) through profit or loss through profit or loss Securities purchased under 16,343,491 - - 16,343,491 Securities purchased under agreements to resell agreements to resell Receivables, net 60,074,694 (527,711 ) 100,304 59,647,287 Receivables, net 5) b), 5) d), 5) k) - 532,680 - 532,680 Current tax assets 5) k) Discounts and loans, net 1,026,535,634 - - 1,026,535,634 Discounts and loans, net Available-for-sale financial 66,010,253 - 1,261,683 67,271,936 Available-for-sale financial 5) a), 5) b) assets assets Held-to-maturity financial 227,013,136 - - 227,013,136 Held-to-maturity financial assets assets Investments accounted for by 118,951 - - 118,951 Investments accounted for by the equity method the equity method Other financial assets 5,124,432 (2,562,238 ) (357,346 ) 2,204,848 Other financial assets 5) a), 5) k) - 478,744 - 478,744 Hedging derivative financial 5) k) assets Properties, net 11,213,627 - 49,019 11,262,646 Property and equipment, net; 5) i) Intangible assets 1,585,803 - - 1,585,803 Intangible assets Other assets, net 2,257,199 204,126 - 2,461,325 Other assets, net 5) k) - 1,775,982 - 1,775,982 Investment properties, net 5) c) - 144,373 200,915 345,288 Deferred income tax assets 5) d), 5) e), 5) f), 5) g), 5) i), 5) k)
Total $ 1,603,385,273 $ 45,956 $ 1,511,866 $ 1,604,943,095 Total
Liabilities Liabilities
Due to the Central Bank of $ 69,753,342 $ - $ - $ 69,753,342 Due to the Central Bank of China and other banks China and other banks Financial liabilities at fair value 19,612,456 - - 19,612,456 Financial liabilities at fair value through profit or loss through profit or loss Securities sold under 26,360,932 - - 26,360,932 Securities sold under agreements to repurchase agreements to repurchase Payables 34,401,302 (1,518,608 ) 124,426 33,007,120 Payables 5) b), 5) f), 5) h), 5) k) - 1,508,732 - 1,508,732 Current tax liabilities 5) k) Deposits and remittances 1,247,741,397 - - 1,247,741,397 Deposits and remittances Bank debentures 66,929,382 - - 66,929,382 Bank debentures Other financial liabilities 28,695,549 (1,050,965 ) - 27,644,584 Other financial liabilities 5) k) - 352,920 - 352,920 Hedging derivative financial 5) k) liabilities Other liabilities 3,152,685 (116,030 ) 456,367 3,493,022 Other liabilities 5) h), 5) k) - 407,094 1,106,700 1,513,794 Provisions 5) d), 5) e), 5) g), 5) i), 5) k) - 462,813 129,678 592,491 Deferred income tax liabilities 5) a), 5) k) Total liabilities 1,496,647,045 45,956 1,817,171 1,498,510,172 Total liabilities (Continued)
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Recognition and Presentation Measurement R.O.C. GAAP Differences Difference IFRSs Item Amount Amount Amount Amount Item Note
Stockholder‟s equity Equity
Capital stock $ 57,430,769 $ - $ - $ 57,430,769 Capital stock Capital surplus 13,613,508 - - 13,613,508 Capital surplus Retained earnings 31,453,084 - (162,919 ) 31,290,165 Retained earnings 5) j) Other items on stockholder‟s 4,240,867 - (142,386 ) 4,098,481 Other items on equity 5) a), 5) j) equity Total stockholder‟s equity 106,738,228 - (305,305 ) 106,432,923 Total equity
Total $ 1,603,385,273 $ 45,956 $ 1,511,866 $ 1,604,943,095 Total (Concluded)
3) Reconciliation of the consolidated statement of comprehensive income for the year ended December 31, 2012
Recognition and Presentation Measurement R.O.C. GAAP Differences Difference IFRSs Item Amount Amount Amount Amount Item Note
Interest revenues $ 26,888,311 ($ 589,099 ) $ - $ 26,299,212 Interest revenues 5) k) Interest expenses (11,762,352 ) - 93,374 (11,668,978 ) Interest expenses 5) e), 5) i) Net interest 15,125,959 (589,099 ) 93,374 14,630,234 Net interest Commission and fee revenues, 8,274,956 - - 8,274,956 Commission and fee revenues, net net Gains on financial assets and 3,439,061 589,099 - 4,028,160 Gains on financial assets and 5) k) liabilities at fair value liabilities at fair value through profit or loss through profit or loss Realized gains on 744,332 - - 744,332 Realized gains on available-for-sale financial available-for-sale financial assets assets Investment income recognized 7,157 - - 7,157 Share of the profit of the under the equity method, net associate Foreign exchange gains, net 1,139,902 - - 1,139,902 Foreign exchange gains, net Reversal of impairment loss on 49,055 - - 49,055 Reversal of impairment loss on assets assets Losses due to shortfall of (395,589 ) - - (395,589 ) Losses due to shortfall of guaranteed sports lottery guaranteed sports lottery earnings earnings Other noninterest net revenues 772,628 (9,091 ) (225 ) 763,312 Other noninterest net revenues 5) c), 5) k) Total net revenues other than 14,031,502 580,008 (225 ) 14,611,285 Total net revenues other than interest interest Total net revenues 29,157,461 (9,091 ) 93,149 29,241,519 Total net revenues Reversal of allowance for bad 542,317 - - 542,317 Reversal of allowance for bad debts debts and reserve for losses on guarantees Operating expenses (14,634,206 ) 9,091 (118,296 ) (14,743,411 ) Operating expenses 5) d), 5) e), 5) f), 5) g), 5) i), 5) k) Income before tax from 15,065,572 - (25,147 ) 15,040,425 Income before tax from continuing operations continuing operations Income tax expense (2,071,368 ) - 4,237 (2,067,131 ) Income tax expense 5) d), 5) e), 5) f), 5) g), 5) i) Consolidated net income $ 12,994,204 $ - $ (20,910 ) 12,973,294 Consolidated net income Other comprehensive income (223,631 ) Exchange differences on translating foreign operations 1,281,665 Unrealized gain on available-for-sale financial assets 15,555 Share of the other comprehensive income of the associate (323,535 ) Actuarial loss on defined 5) d), 5) e) benefit plans (20,633 ) Income tax relating to the components of other comprehensive income 729,421 Other comprehensive income (net of tax)
$ 13,702,715 Total comprehensive income
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4) Exemptions under IFRS 1
IFRS 1 “First-time Adoption of International Financial Reporting Standards” states the procedures that an entity must follow when it adopts IFRSs for the first time. Under IFRS 1, the Bank and its subsidiary should establish the accounting policies under IFRSs, which should be applied retrospectively to the opening balance sheet at the date of transition to IFRSs (i.e., January 1, 2012). The IFRS 1 grants several exemptions for the adoption. The main exemptions and retrospective applications the Bank and its subsidiary applied are summarized as follows:
Business combinations
The Bank and its subsidiary had elected not to apply IFRS 3 “Business Combination” retrospectively for business combinations that occurred before the date of transition to IFRSs. Thus, in the opening balance sheet on January 1, 2012, the amounts of goodwill generated from past business combinations and the related assets and liabilities and non controlling interest in the balance sheet remain the same as those as of December 31, 2011 under ROC GAAP.
The above exemptions also applied to the Bank and its subsidiary‟s investment in their associates before the IFRS transition date.
Decommissioning liabilities included in the cost of property and equipment
The Bank and its subsidiary elected to measure decommissioning liabilities as at the date of transition IFRSs in accordance with International Accounting Standards (IAS) 37 “Provisions, Contingent Liabilities and Contingent Assets”, estimated the amount that would have been included in the cost of the related asset when the liability first arose by discounting the liability to the date, and calculated the accumulated depreciation on that amount, as at the date of transition to IFRSs.
Employee benefits
On the IFRS transition date, the Bank and its subsidiary recognized in retained earnings all unrecognized cumulative actuarial gain and loss related to employee benefit plans.
Designation of the recognized financial assets and liabilities
The Bank and its subsidiary designated some of equity investments carried at cost as available-for-sale financial assets on the IFRS transition date.
Designated as Available-for- sale Financial Assets
Fair value (deemed cost under IFRSs) $ 959,837 Carrying amount (in accordance with ROC GAAP) 357,346
Adjusted amount to assets $ 602,491
With adjustments to: Deferred tax liabilities $ 87,369 Other equity: Investments revaluation reserve 515,122
$ 602,491
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Deemed cost
The Bank and its subsidiary elected to use ROC GAAP revaluations of the certain landholdings as deemed cost on the transition date of IFRSs. For other property and equipment, investment property, and intangible assets, the cost model was applied retrospectively.
Cumulative translation differences
The Bank and its subsidiary‟s translation differences of foreign operations were applied retrospectively according to the related regulations at the date of transition to IFRSs.
5) Reconciliations on transition to IFRSs
The Bank and its subsidiary identified significant differences between the accounting policy under ROC GAAP and IFRS, which are summarized as follows:
a) Financial assets carried at cost under IFRSs
Under the amended Regulations Governing the Preparation of Financial Reports by Public Banks, a financial asset is considered as measured at cost if it meets the following two conditions: (i) It is an investment in an equity instrument with no quoted price in an active market or in a derivative instrument that is linked to this equity instrument, and the investment transaction is settled by the delivery of the financial instrument. (ii) It is a financial asset with a fair value that cannot be reliably measured.
As of December 31, 2012 and January 1, 2012, the financial assets originally carried at cost (included in other financial assets) but not meeting the above conditions in the amount of $357,346 thousand and were reclassified to available-for-sale financial assets at the fair values of $1,209,219 thousand and $959,837 thousand, respectively. In connection with this reclassification, deferred income tax liabilities of $129,678 thousand and $87,369 thousand, respectively, and unrealized gains of $722,195 thousand and $515,122 thousand were recognized as of December 31, 2012 and January 1, 2012, respectively (net of tax, included in other items under stockholder‟s equity) on financial instruments.
b) Regular way transactions
Under ROC GAAP, the Bank and its subsidiary uses settlement date accounting for bond transactions. Under IFRSs, bond transactions should be recorded using trade date accounting. Under IAS 39 “Financial Instruments: Recognition and Measurement,” as of December 31, 2012, financial assets at fair value through profit or loss and available-for-sale financial assets increased by $257,291 thousand and $52,464 thousand, respectively, and receivables, and payables increased by $99,610 thousand and $409,365 thousand, respectively. Under IAS No. 39, as of January 1, 2012, financial assets at fair value through profit or loss, receivables, and payables increased by $493,716 thousand, $457,891 thousand, and $951,607 thousand, respectively.
c) Investment properties
Under ROC GAAP, rental assets are recognized as other assets. Under IFRSs, assets held for earning rental income, or for capital appreciation, or for both purposes, are reclassified to investment properties. Thus, assets with the above purposes will be reclassified to investment properties.
Under IAS 40 “Investment Property,” the Bank and its subsidiary reclassified the assets as of December 31, 2012 and January 1, 2012, which amounted to $1,775,982 thousand and $1,734,175 thousand, respectively, from other assets to investment properties.
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d) Employment benefit - actuarial gain and loss of defined benefit plan
Under ROC GAAP, actuarial gains and losses are recognized under the corridor approach. These actuarial gains and losses are amortized on a straight line basis over average service years of the participating employees. However, under IAS No. 19 “Employee Benefits,” the Bank and its subsidiary elected to recognize actuarial gains and losses on defined benefit obligations immediately as other comprehensive income. The subsequent reclassification to earnings is not permitted.
The Bank and its subsidiary applied IAS 19 to reevaluate its defined benefit plan. The Bank and its subsidiary also adjusted the related accounts as of December 31, 2012 and January 1, 2012 in accordance with IFRS 1, which resulted in increases of $421,359 thousand and $213,680 thousand, respectively, in employee benefit liabilities, increases of $694 thousand and $919 thousand, respectively, in account receivables, increases of $63,597 thousand and $36,326 thousand, respectively, in deferred tax assets, and decreases of $0 thousand and $47,261 thousand, respectively, in other assets. In addition, for the year ended December 31, 2012, employee benefit expense decreased $2,104 thousand; income tax expense increased $358 thousand, and for the year ended December 31, 2012, other income decreased $225 thousand. In addition, other comprehensive income for 2012 decreased $134,894 thousand due to actuarial valuation loss. e) Employment benefit - preferential interest on employees‟ deposits
Based on Article 28 of the amended Regulations Governing the Preparation of Financial Reports by Public Banks (the “Regulations”), if the preferential deposit interest rate that the Bank has offered to employees as stated in the employment contract exceeds the market interest rate, the excess will be subject to IAS 19 “Employee Benefits” upon the employees‟ retirement.
As of December 31, 2012 and January 1, 2012, the Bank and its subsidiary applied actuarial valuation to preferential interest on retired employees‟ deposits in conformity with IAS 19 and the Regulations, and the employee benefits liability was thus adjusted for increases of $548,328 thousand and $396,377 thousand, respectively. Deferred tax assets was adjusted for increases of $93,216 thousand and $67,384 thousand, respectively. For the year ended December 31, 2012, employment benefit expense was adjusted for decreases of $9,061 thousand, and income tax expense was adjusted for increases of $1,540 thousand. In addition, interest expense of $94,527 thousand for employees‟ deposits (including active and retired employees) was reclassified to employment benefit expense. Also, comprehensive income for 2012 decreased by $133,640 thousand because of actuarial valuation loss. f) Employee benefits - short-term cumulative compensated absences
There is no clear accounting treatment under ROC GAAP for short-term cumulative compensated absences. The obligations on these absences are usually recognized when employees actually take their leaves. Under IFRSs, the Bank and its subsidiary should recognize the expected cost of compensated absences as the employees render services that increase their entitlement to these compensated absences.
As of December 31, 2012 and January 1, 2012, payables due to short-term cumulative compensated absences was adjusted for increases of $171,428 thousand and $134,386 thousand, respectively, and deferred tax assets was adjusted for increases of $29,143 thousand and $22,846 thousand, respectively. For the year ended December 31, 2012, the employee benefit expense increased by $37,042 thousand, and income tax expense decreased by $6,297 thousand.
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g) Employee benefits - consolation payment
There are no provisions for consolation payment under ROC GAAP. Under IAS 19, the Bank should use actuarial reports to recognize employee benefits expense and liability.
As of December 31, 2012 and January 1, 2012, the liability due to consolation payment was adjusted for increases of $60,345 thousand and $69,398 thousand, respectively, and deferred tax assets was adjusted for increases of $10,259 thousand and $11,798 thousand, respectively. For the year ended December 31, 2012, the employee benefits expense decreased by $9,053 thousand, and income tax expense increased by $1,539 thousand. h) Customer loyalty programs
The Bank and its subsidiary have a reward points program for credit card users. Under ROC GAAP, the liability from the bonus points earned by customers on the use of credit cards is estimated and then recorded as selling expenses as bonus points are granted. Under IFRIC (International Financial Reporting Interpretations Committee) 13 “Customer Loyalty Programmes,” the commission and fee revenues on the reward points in transaction should be deferred, and the deferred amounts should recognized as income when the reward points are actually exchanged or expire.
As of December 31, 2012 and January 1, 2012, the liabilities arising from the reward points (included in payables), which amounted to $456,367 thousand and $512,608 thousand, respectively, were reclassified to deferred income (included in other liabilities). i) Decommissioning costs and liabilities
The Bank and its subsidiary recognized decommissioning costs and liabilities according to IFRSs endorsed by the FSC.
As of December 31, 2012 and January 1, 2012, due to the recognition of decommissioning costs and liabilities, properties and equipment were adjusted for increases of $49,019 thousand and $55,401 thousand, respectively; provisions were adjusted for increases of $76,668 thousand and $74,952 thousand respectively; and deferred tax asset were adjusted for increases of $4,700 thousand and $3,323 thousand, respectively. In addition, for the year ended December 31, 2012, depreciation were adjusted for increases of $6,945 thousand; interest expense were adjusted for increases of $1,153 thousand and income tax expense was adjusted for decreases of $1,377 thousand. j) Reconciliation of retained earnings
The differences as of January 1, 2012 between the retained earnings under ROC GAAP and those under IFRSs are mostly due to the adoption of IFRS 1, which requires the making of certain adjustments on the IFRS transition date. Thus, retained earnings were adjusted for (a) an increase of $864,581 thousand due to unrealized revaluation increment of land, (b) a decrease of $610,288 thousand due to the effects of preferential interest on retired employees‟ deposits, defined benefit plan, and consolation payment, (c) a decrease of $111,540 thousand due to the effect of accrued compensated absence expenses based on the Labor Standards Law, and (d) an decrease of $16,228 thousand due to the effect of decommissioning costs and liabilities. k) Presentation differences
Other presentation differences on consolidated balance sheet and consolidated statement of comprehensive income were adjusted in line with items under IFRSs.
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6) Reconciliation on equity
December 31, 2012 January 1, 2012
Equity under ROC GAAP $ 106,738,228 $ 92,953,142 Adjustments: Defined benefit plan (357,069) (223,695) Preferential interest on employees‟ deposits (455,112) (328,993) Short-term cumulative compensated absences (142,285) (111,540) Consolation payment (50,086) (57,600) Decommissioning liabilities (22,948) (16,228) Financial assets carried at cost designated as available-for-sale financial assets 722,195 515,122
Equity under IFRSs approved by the FSC $ 106,432,923 $ 92,730,208
7) Explanations of significant adjustments in the statement of cash flows
According to ROC GAAP, interest and tax paid and received and dividends received are classified as operating activities while dividends paid are classified as financing activities. Additional disclosure is required for interest and tax paid when reporting cash flow using indirect method. However, under IAS 7” Statement of Cash Flow”, cash flows from interest, tax and dividends received and paid shall each be disclosed separately. Each shall be classified in a consistent manner from period to period as operating, investing or financing activities. Therefore, for the year ended December 31, 2012, interest received of $25,558,104 thousand, interest paid of $11,407,597 thousand, income tax paid of $765,277 thousand and dividends received of $660,008 thousand were presented separately.
55. ADDITIONAL DISCLOSURES
a. Significant transactions information
1) Acquired and disposed of investee investment at costs or prices of at least NT$300 million or 10% of the issued capital: Table 2
2) Acquisition of individual real estates at costs of at least NT$300 million or 10% of the issued capital: None
3) Disposal of individual real estates at prices of at least NT$300 million or 10% of the issued capital: None
4) Allowance for service fee to related parties amounting to at least NT$5 million: None
5) Receivables from related parties amounting to at least NT$300 million or 10% of the issued capital: Table 3 (attached)
6) Sale of non-performing loans: None
7) Financial asset securitization: None
8) Inter-company transactions: Table 4 (attached)
9) Other significant transactions which may affect the decisions of users of financial reports: None
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b. Financing provided, endorsements/guarantees provided, marketable securities held, acquisition and disposal of marketable securities at costs or prices of at least NT$300 million or 10% of the issued capital, and derivative transactions of the Subsidiary: None c. The related information and proportionate share in investees: Table 5 d. Information on investment in Mainland China: Table 6
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TABLE 1
TAIPEI FUBON COMMERCIAL BANK CO., LTD.
OVERDUE LOANS AND RECEIVABLE DECEMBER 31, 2013 AND 2012 (In Thousands of New Taiwan Dollars, %)
December 31, 2013 December 31, 2012 Nonperforming Loan Loss Nonperforming Loan Loss NPL Ratio Coverage Ratio NPL Ratio Coverage Ratio Item Loan (NPL) Total Loans Reserves Loan (NPL) Total Loans Reserves (Note 2) (Note 3) (Note 2) (Note 3) (Note 1) (LLR) (Note 1) (LLR) Secured $ 595,273 $ 220,200,500 0.27% $ 4,517,499 758.90% $ 721,657 $ 210,663,361 0.34% $ 3,537,604 490.21% Corporate loan Unsecured 537,352 489,908,394 0.11% 4,544,309 845.69% 387,306 442,514,363 0.09% 2,834,859 731.94% Mortgage (Note 4) 80,559 357,855,828 0.02% 3,633,549 4,510.42% 106,568 336,467,164 0.03% 2,243,673 2,105.39% Cash card 124 17,205 0.72% 344 277.42% 13 25,571 0.05% 482 3,707.69% Consumer finance Micro credit (Note 5) 61,134 19,632,879 0.31% 220,689 360.99% 23,353 18,614,445 0.13% 124,127 531.52% Secure - 310,816 - 3,124 0.00% 93 270,837 0.03% 1,452 1,561.29% Other (Note 6) Unsecured 82,658 28,481,369 0.29% 298,074 360.61% 43,270 27,304,763 0.16% 182,078 420.80% Total 1,357,100 1,116,406,991 0.12% 13,217,588 973.96% 1,282,260 1,035,860,504 0.12% 8,924,275 695.98% December 31, 2013 December 31, 2012 Nonperforming Loan Loss Nonperforming Loan Loss NPL Ratio Coverage Ratio NPL Ratio Coverage Ratio Loan (NPL) Total Loans Reserves Loan (NPL) Total Loans Reserves (Note 2) (Note 3) (Note 2) (Note 3) (Note 1) (LLR) (Note 1) (LLR) Credit card 55,114 24,490,650 0.23% 349,265 633.71% 21,284 21,835,640 0.10% 459,978 2,161.14% Accounts receivable - factoring with no recourse - 19,777,437 - 204,016 - - 20,970,301 - 107,687 - (Note 7) Excluded NPL as a result of debt consultation and 412,440 591,963 loan agreements (Note 8) Excluded overdue receivables as a result of debt 485,131 663,038 consultation and loan agreements (Note 8) Excluded NPL as a result of consumer debt clearance 274,694 204,624 (Note 9) Excluded overdue receivables as a result of consumer 616,057 643,085 debt clearance (Note 9)
Note 1: For loans, overdue loans represent the amounts of reported overdue loans as defined in the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/Nonaccrual Loans” issued by the Ministry of Finance. For credit cards, overdue receivables are under the Banking Bureau‟s regulations dated July 6, 2005 (Ref. No. 0944000378).
Note 2: For loan, NPL ratio = NPL/Total loans. For credit cards, delinquency ratio = Overdue receivable/Account receivable.
Note 3: For loans, coverage ratio = LLR/NPL For credit cards, coverage ratio = Allowance for credit losses/Overdue receivables.
Note 4: Household mortgage refers to loans granted for the purchase, construction or repair of the residence owned by the borrower or the borrower‟s spouse or children and the residence is used to secure the loan fully.
Note 5: Micro credits are under the Banking Bureau‟s regulations dated December 19, 2005 (Ref. No. 09440010950). (Continued)
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Note 6: Other consumer loans refer to secured or unsecured loans excluding mortgages, cash cards, micro credits, and credit cards.
Note 7: Under the Banking Bureau‟s requirements in its letter dated July 19, 2005 (Ref. No. 094000494), an allowance for bad debts should be recognized once no compensation is obtained from a factoring or insurance company for accounts receivable-factoring with no recourse.
Note 8: The disclosure of excluded NPLs and excluded overdue receivables resulting from debt consultation and loan agreement is based on the Banking Bureau‟s requirement dated April 25, 2006 (Ref. No. 09510001270).
Note 9: The disclosure of excluded NPLs and excluded overdue receivables resulting from consumer debt clearance is based on the Banking Bureau‟s requirement dated September 15, 2008 (Ref. No. 09700318940).
(Concluded)
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TABLE 2
TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY
ACQUIRED AND DISPOSED OF INVESTEE INVESTMENT AT COST OR PRICE OF AT LEAST NT$300 MILLION OR 10% OF THE ISSUED CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2013 (In Thousands of New Taiwan Dollars)
Type and Name Financial Beginning Balance Acquisition Disposal Ending Balance Company Name of Marketable Statement Counterparty Relationship Carrying Gain (Loss) Shares Amount Shares Amount Shares Amount Shares Amount Securities Account Amount on Disposal
Taipei Fubon First Sino Bank Financial assets Shanghai Pudong - - $ - - $ 3,455,948 - $ - $ - $ - - $ 3,455,948 Commercial carried at cost Development Bank Co., Ltd. Bank
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TABLE 3
TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY
RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$300 MILLION OR 10% OF THE ISSUED CAPITAL DECEMBER 31, 2013 (In Thousands of New Taiwan Dollars)
Overdue Amounts Received Receivable Allowance for Company Name Related Party Relationship Turnover Rate in Subsequent Ending Balance Amount Action Taken Bad Debts Period
Taipei Fubon Commercial Bank Co., Ltd. Fubon Financial Holdings Co., Ltd. Parent company $ 385,912 Not applicable None Not applicable None None (FFH) (Note) Taiwan Sport Lottery Co., Ltd. Subsidiary of FHH 2,570,942 Not applicable None Not applicable None None Fubon Life Insurance Co., Ltd. Subsidiary of FHH 465,095 Not applicable None Not applicable None None
Note: The receivable resulted from linked-tax receivable (included in current tax assets).
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TABLE 4
TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY
RELATED-PARTY TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 2013 (In Thousands of New Taiwan Dollars)
For the year ended December 31, 2013
Description of Transactions Nature of Percentage of No. Transaction Company Counter-party Relationship Transaction Transaction Financial Statement Account Consolidated (Note 1) Amount Item Revenue/Assets
0 Taipei Fubon Commercial Bank Co., Ltd. Taipeifubon Bank Life Insurance Agency Co., Ltd. 1 Deposits and remittances $ 55,919 Note 2 - Taipeifubon Bank Life Insurance Agency Co., Ltd. 1 Commission and fee revenues 14 Note 2 - Taipeifubon Bank Life Insurance Agency Co., Ltd. 1 Interest expense 91 Note 2 - Taipeifubon Bank Life Insurance Agency Co., Ltd. 1 Net revenues other than interest 1,338 Note 2 - Taipeifubon Bank Life Insurance Agency Co., Ltd. 1 Other liabilities 52 Note 2 - Taipeifubon Bank Life Insurance Agency Co., Ltd. 1 Receivables 338 Note 2 - Taipeifubon Bank Life Insurance Agency Co., Ltd. 1 Payables 3 Note 2 -
1 Taipeifubon Bank Life Insurance Agency Co., Ltd. Taipei Fubon Commercial Bank Co., Ltd. 2 Cash and cash equivalents 55,919 Note 2 - Taipei Fubon Commercial Bank Co., Ltd. 2 Commissions and fee expenses 14 Note 2 - Taipei Fubon Commercial Bank Co., Ltd. 2 Interest revenue 91 Note 2 - Taipei Fubon Commercial Bank Co., Ltd. 2 Other operating expenses 1,338 Note 2 - Taipei Fubon Commercial Bank Co., Ltd. 2 Other assets 52 Note 2 - Taipei Fubon Commercial Bank Co., Ltd. 2 Receivables 3 Note 2 - Taipei Fubon Commercial Bank Co., Ltd. 2 Payables 338 Note 2 -
Note 1: Types of transactions with related parties were classified as follows:
1. Parent company to subsidiaries. 2. Subsidiaries to parent company. 3. Subsidiaries to subsidiaries.
Note 2: For the transactions between the Company and related parties, the terms are similar to those transacted with unrelated parties.
Note 3: The transactions and balance above had been eliminated when preparing consolidated financial statement.
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TABLE 5
TAIPEI FUBON COMMERCIAL BANK CO., LTD.
INFORMATION ON INVESTEES DECEMBER 31, 2013 (In Thousands of New Taiwan Dollars)
Consolidated Investment Investment as of December 31, 2013 Investment Gain Total Investor Company Investee Company Location Main Businesses and Products Shares Imitated Note Shares Percentage of Carrying (Loss) Shares Percentage of (Thousand) Shares (Thousand) Ownership Amount (Thousand) Ownership
TAIPEI FUBON Financial-related COMMERCIAL Taipei Fubon Bank Life Insurance Agent Taipei Life insurance agency 2,000 100.00 $ 59,020 $ 7,383 2,000 - 2,000 100.00 Note 1 BANK Co., Ltd. Co., Ltd. Taipei Foreign Exchange Inc. Taipei Foreign exchange market maker 780 3.94 7,800 2,496 780 - 780 3.94 Note 2 Taiwan Futures Exchange Corporation Taipei Futures exchange and settlement 3,588 1.26 25,250 6,858 8,035 - 8,035 2.83 Note 2 Taiwan Asset Management Corporation Taipei Evaluating, auctioning, and managing for financial 22,500 1.70 225,000 20,270 22,500 - 22,500 1.70 Note 2 institutions‟ loan Taiwan Financial Asset Service Co., Ltd. Taipei Auction 10,000 5.88 100,000 1,000 10,000 - 10,000 5.88 Note 2 Financial Information Service Co., Ltd. Taipei Planning and developing the information system of 10,238 2.28 91,000 26,618 10,238 - 10,238 2.28 Note 2 across banking institution and managing the information web system Sunny Asset Management Corporation Taipei Purchasing for financial institutions‟ loan assets 503 8.39 5,031 657 503 - 503 8.39 Note 2 First Sino Bank China Banking - 10.00 3,455,948 - - - - 13.89
Non-financial related Fubon Real Estate Management Co., Ltd. Taipei Investigation, consultation, management and real estate 6,964 30.00 135,557 8,719 6,964 - 6,964 30.00 Note 1 evaluation of construction plans Taipei Rapid Transit Corporation Taipei Public transportation 13 - 100 9 13 - 13 - Note 2 Taiwan Power Company Taipei Management of power facilities 374 - 1,830 (1,422) 374 - 374 - Note 3 Easy Card Investment Holding Co., Ltd. Taipei Issue and research of IC card 3,927 4.91 47,500 7,110 3,927 - 3,927 4.91 Note 2 Taiwan Aerospace Corp. Taipei Aerospace industry 1,700 1.25 17,000 1,020 3,400 - 3,400 2.50 Note 2 Ascentek Venture Capital Corp. Kaohsiung Venture capital investment 1,568 4.28 15,680 1,030 1,568 - 1,568 4.28 Note 2 P.K. Venture Capital Investment Corp. Taipei Venture capital investment 3,500 5.00 9,736 480 3,500 - 3,500 5.00 Note 2 Apex Venture Capital Co., Ltd. Taipei Venture capital investment 2,009 4.67 7,159 - 4,019 - 4,019 9.35 Pacific Venture Capital Co., Ltd. Taipei Venture capital investment 131 5.12 1,753 134 262 - 262 10.24 Note 2 Information Technology Total Service Taipei International trade and sales business 34 0.17 - 34 34 - 34 0.17 Note 2
Note 1: The investment gain (loss) was based on the investee‟s audited financial statements for the year ended December 31, 2013.
Note 2: The investment gain (loss) was the cash dividends recognized for the year ended December 31, 2013.
Note 3: The investment gain (loss) was an impairment loss recognized for the year ended December 31, 2013.
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TABLE 6
TAIPEI FUBON COMMERCIAL BANK CO., LTD. AND SUBSIDIARY
INFORMATION ON INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2013 (In Thousands of New Taiwan Dollars, and foreign currency except for additional referring)
Accumulated Remittance of Funds Accumulated Accumulated Outward Outward % Ownership of Carrying Repatriation of Remittance for Remittance for Net Income Main Businesses and Method of Direct or Investment Amount as of Investment Investee Company Paid-in Capital Investment Investment (Loss) of the Note Products Investment Outward Inward Indirect Gain (Loss) December 31, Income as of from Taiwan as from Taiwan as Investee Investment 2013 December 31, of of December 31, 2013 January 1, 2013 2013
First Sino Bank Banking CNY 1,100,000 Investment in $ - $ 3,455,948 $ - $ 3,455,948 CNY 276,897 10 $ - $ 3,455,948 $ - ($ 5,437,850) Mainland ($ 1,368,839) China directly
Accumulated Outward Remittance for Upper Limit on the Amount of Investment Investment Amounts Authorized by Investment in Mainland China as of Stipulated by Investment Commission, Investment Commission, MOEA December 31, 2013 MOEA
$3,455,948 CNY 4,093,113 $79,941,206 ($ 20,233,746)
Note 1: According to the rule No. 10200030250 approved by Investment commission, MOEA on April 23, 2013, the authorized investment amounts is USD743,500 thousand (CNY4,093,113 thousand).
Note 2: The foreign currency is converted into New Taiwan Dollars by the exchange rate at the end of reporting period.
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