Stock Code: 5880 TAIWAN COOPERATIVE FINANCIAL HOLDING CO.,LTD. TAIWAN COOPERATIVE FINANCIAL HOLDING CO.,LTD.
ANNUAL REPORT 2012
Proactive．Agile．Innovative ANNUAL REPORT 2012 Proactive．Agile．Innovative
TAIWAN COOPERATIVE FINANCIAL HOLDING CO.,LTD.
77, Guan Qian Road, Taipei, Taiwan R.O.C. Tel: +886-2-2311-8811 Fax: +886-2-2311-3699
This annual report is available at our website: http://www.tcfhc.com.tw Printed on April 23, 2013 Spokesperson Chung-Dea Hsieh, Executive Vice President BNP Paribas Assurance TCB Life Insurance Co., Ltd. ： Tel +886-2-2311-8811 Address：10F., No.325, Sec. 4, Zhongxiao E. Rd., ： Email [email protected] Da'an Dist., Taipei City 106, Taiwan, R.O.C. Tel：+886-2-2772-6772 Deputy Spokesperson Website：http://www.tcb-life.com.tw/ Hong-Chen Lin, Executive Vice President Tel：+886-2-2311-8811 BNP Paribas TCB Asset Management Co., Ltd. Address：13F., No.85, Sec. 2, Nanjing E. Rd., Email：[email protected] Zhongshan Dist., Taipei City 104, Taiwan, R.O.C. ： Headquarters Tel +886-2-2181-5999 Website：http://www.tcb-am.com.tw/ Taiwan Cooperative Financial Holding Co., Ltd. Stock Transfer Agent Address：No.77, Guan Qian Road, Zhongzheng Dist., Grand Cathay Securities Corporation Taipei City 100,Taiwan,R.O.C. Address：5F., No.2, Sec. 1, Chongqing S. Rd., Tel：+886-2-2311-8811 Zhongzheng Dist., Taipei City 100, Taiwan ,R.O.C. Website：http://www.tcfhc.com.tw/ Tel：+886-2-2389-2999 Website：www.gcsc.com.tw Subsidiaries Auditors Taiwan Cooperative Bank, Ltd. Deloitte & Touche Address：No.77, Guan Qian Road, Zhongzheng Dist., Address：12F., No.156, Sec. 3, Minsheng E. Rd., Taipei City 100,Taiwan,R.O.C. Songshan Dist., Taipei City 105, Taiwan ,R.O.C. Tel：+886-2-2311-8811 Tel：+886-2-2545-9988 Website：http://www.tcb-bank.com.tw/ Website：www.deloitte.com.tw Taiwan Cooperative Bills Finance Corporation Ltd. Credit Rating Agency ： Address 14F., No.85,87, Sec. 2, Nanjing E. Rd., Taiwan Ratings Corp. Zhongshan Dist., Taipei City 104, Taiwan ,R.O.C. Address：49th Floor Taipei 101 Tower No. 7, Xinyi ： Tel +886-2-2522-1656 Road, Section 5, Taipei 110,Taiwan, R.O.C. Website：http://www.tcb-bills.com.tw/ Tel：+886-2-8722-5800 Taiwan Cooperative Securities Co., Ltd. Standard & Poor's Ratings Services Address：2, 6F., No.325, Sec. 4, Zhongxiao E. Rd., Address：Unit 1, Level 69, International Commerce Da'an Dist., Taipei City 106, Taiwan, R.O.C. Centre, 1 Austin Road West, Kowloon, Hong Kong Tel：+886-2-2731-9987 Tel：+852-2533-3500 Website：http://www.tcfhc-sec.com.tw/ Notice to readers Co-operative Asset Management Co., Ltd. This English version annual report is a summary translation of the Address：7F., No.325, Sec. 4, Zhongxiao E. Rd., Da'an Chinese version and is not an official document of the shareholders’ Dist., Taipei City 106, Taiwan, R.O.C. meeting. If there is any discrepancy between the English version and ： Tel +886-2-8772-0868 Chinese version, the Chinese version shall prevail. Website：http://www.coamc.com.tw/
CONTENTS
02 1. Letter to Shareholders
08 2. Company Profile
10 3. Report of Corporate Governance
18 4. Capital Overview
22 5. Operational Highlights
29 6. Financial Information
154 7. Financial Status and Risk Management 02 Letter to Shareholders
1. Letter to Shareholders
03 1.1 Review of Business Operations in 2012
06 1.2 Business Plan for 2012
07 1.3 Credit Ratings 2012 ANNUAL REPORT
1. 1. Letter to Shareholders
1.1 Review of Business Operations in 2012
1.1.1 Global and Domestic Financial Environment The momentum for economic recovery in Taiwan weakened in 2012 under the impact of the lingering European debt crisis, the economic slowdown in the United States, Japan, and mainland China, and other adverse factors. According to data from Global Insight, worldwide economic growth slipped to 2.6% in 2012, down from 3.0% the year before. The Directorate General of Budget, Accounting and Statistics fixes Taiwan’s growth rate for the year at 1.26%.
Taiwan Cooperative Financial Holding Co., Ltd. was established on Dec. 1, 2011 with a capitalization of NT$65.968 billion. To conform to Basel III rules and reinforce the capital structure of its subsidiaries, the Company completed a cash capital increase by issuing 1.2 billion ordinary shares in 2012, raising NT$17.72 billion; all of the proceeds were injected into our banking subsidiary, bringing its capital adequacy ratio and Tier 1 capital ratio at the end of the year to 12.63% and 7.60%, respectively. With strenuous business promotion efforts by the staff of all subsidiaries, the Company’s after-tax net profit in 2012 reached NT$7.561 billion, yielding earnings per share (EPS) of NT$1.07. Our banking, bills finance, and asset management subsidiaries all maintained stable profitability; the other three subsidiaries, life insurance, trust investment and securities were still making losses because of the short establishment period and high start-up costs amortization. However, the size of their losses was already shrinking.
With the domestic economy expected to strengthen in 2013, the Company will continue promoting cooperation and joint marketing among its subsidiaries through the strategic financial holding platform and will speed up the pace of deployment in mainland China and abroad while deepening relations with strategic partners. Under the financial holding company framework, we will work to realize the group spirit of mutual assistance and cooperation, create new opportunities, and enhance operating synergies in our ongoing march toward becoming a top financial group in the Asia-Pacific region.
03 04 Letter to Shareholders
1.1.2 Organization Integration
Taiwan Cooperative Financial Holding Co., Ltd. (TCFHC) was established on Dec. 1, 2011 through share swap with Taiwan Cooperative Bank, Ltd., Taiwan Cooperative Bills Finance Corporation Ltd., and Co- operative Assets Management Co., Ltd. after the approval from the Financial Supervisory Commission on Sep. 22, 2011. The Company's subsidiaries include Taiwan Cooperative Bank, Ltd., Taiwan Cooperative Bills Finance Corporation Ltd., Taiwan Cooperative Securities Co., Ltd., Co-operative Assets Management Co., Ltd., BNP Paribas Assurance TCB Life Insurance Co., Ltd. and BNP Paribas TCB Asset Management Co., Ltd.
1.1.3 Business Operations in 2012
Our areas of business encompass banking, bills finance, securities, asset management, life insurance, and securities trust investment. The operation results of the subsidiaries were as follows: the volume of banking deposits and loans experienced stable growth and maintained a leading position in the banking industry; the bills finance business vigorously pursued expansion and recorded substantial growth in guarantees and bills purchasing; the securities business was constrained by the weak stock market and did not perform as well as expected; the volume of the asset management business declined compared with the previous year, but profit on the disposal of debt still met our budget target; the life insurance business generated growth in some products while decline in others, but total premium income nevertheless increased nearly 30%; and the trust investment business experienced substantial growth in both fund scale and management fee income, but the business has not yet attained economic scale and continued efforts are still needed.
In 2012 the Company’s profit amounted to NT$7.878 billion; expenses and losses were NT$324 million, leaving a before-tax net income of NT$7.554 billion and after-tax net income of NT$7.561 billion. This was 106.12% of the budget target of NT$7.125 billion. The budgets and results of the different subsidiaries were as follows:
l Taiwan Cooperative Bank, Ltd. (TCB) Net income NT$32.997 billion, amounting to 96.99% of the budget target of NT$34.02 billion; after- tax net profit NT$7.533 billion, amounting to 105.17% of the budget target of NT$7.163 billion.
l Taiwan Cooperative Bills Finance Corporation Ltd. (TCBF) Net income NT$234 million, amounting to 71.56% of the budget target of NT$327 million; after-tax net profit NT$182 million, amounting to 102.82% of the budget target of NT$177 million.
l Taiwan Cooperative Securities Co., Ltd. (TCS) Income NT$325 million, amounting to 62.86% of the budget target of NT$517 million; after-tax loss of NT$67 million, or -73.33% of the after-tax profit budget target of NT$90 million. 2012 ANNUAL REPORT
l Co-operative Assets Management Co., Ltd. (CAM) Revenue and income NT$604 million, achieving 175.58% of the budget target of NT$344 million; after-tax net profit NT$160 million, amounting to 378.57% of the budget target of NT$42 million. l BNP Paribas Assurance TCB Life Insurance Co., Ltd. Operating revenue NT$35.502 billion, amounting to 247.90% of the budget target of NT$14.321 billion; after-tax loss NT$149 million, or 118.13% of budget target loss of NT$182 million. l BNP Paribas TCB Asset Management Co. Ltd. Operating revenue NT$92 million, amounting to 48.42% of the budget target of NT$190 million; after- tax loss NT$88 million, achieving 116.19% of the budget target of NT$105 million.
1.1.4 Budget Implementation and Financial Results The Company Units：NT$million, except EPS in NT$ Item 2012-Actual 2012-Budget Achievement (%)
Revenues 7,878 7,382 106.72
Expenses and losses (324) (257) 73.93
Net Income before tax from continuing operations 7,554 7,125 106.02
Income tax gain 7 0 --
Net Income 7,561 7,125 106.02
Basic earnings per share 1.07 1.07 100.00
Diluted earnings per share 1.07 1.07 100.00
The Company’s Subsidiaries Units: NT$million Subsidiaries Net income before tax-actual Net income before tax-budget Achievement (%)
Taiwan Cooperative Bank, Ltd. 8,913 8,630 103.28
Taiwan Cooperative Bills Finance Corporation Ltd. 191 187 102.14
Taiwan Cooperative Securities Co., Ltd. (66) 108 --
Co-operative Assets Management Co., Ltd. 192 50 384.00
BNP Paribas Assurance TCB Life Insurance Co., Ltd. (149) (182) --
BNP Paribas TCB Asset Management Co., Ltd. (88) (105) --
05 06 Letter to Shareholders
Financial Results The year 2012 was the first full year of operation following the Company’s reorganization into a financial holding company. Before-tax net profit for the entire year reached NT$7.554 billion and after- tax net profit amounted to NT$7.561 billion, yielding an EPS of NT$1.07. The main source of profit was the banking subsidiary, which earned NT$7.533 billion. The profit contributions of the bills finance and asset management subsidiaries amounted to NT$182 million and NT$160 million, respectively, while the life insurance, securities, and trust investment subsidiaries, which are new start-ups and are vigorously pursuing an economic scale of revenue, have relatively high ratios of amortization to operating revenues and in 2012 recorded losses of NT$149 million, NT$67 million, and NT$88 million, respectively. However, their performance is showing improvement. The Company’s consolidated return on total assets ratio was 0.26% in 2012 and return on equity was 5.52%, indicating a need for continued effort. Units: NT$ million; except EPS in NT$ Net Income Net Income Earnings Per Net Income Return on Total Return on Company Before Tax After Tax Share Ratio (%) Assets (%) Equity (%)
TCFHC and Its Subsidiaries 8,970 7,536 1.07 21.33 0.26 5.52
TCFHC (Unconsolidated) 7,554 7,561 1.07 97.43 5.54 5.61
Taiwan Cooperative Bank, Ltd. 8,913 7,533 1.22 22.83 0.27 6.07
Taiwan Cooperative Bills Finance Corporation Ltd. 191 182 0.71 77.60 0.74 5.75
Taiwan Cooperative Securities Co., Ltd. (66) (67) (0.22) (24.02) (1.74) (2.23)
Co-operative Assets Management Co. Ltd. 192 160 0.46 27.05 2.69 3.75
BNP Paribas Assurance TCB Life Insurance Co., Ltd. (149) (149) (0.33) (56.22) (0.19) (3.45)
BNP Paribas TCB Asset Management Co., Ltd. (88) (88) (4.12) (92.49) (27.39) (29.78)
Note: 1. Net income ratio=Income after income tax ÷Total net revenue. 2. Return on total assets=Income after income tax ÷Average total assets. 3. Return on equity=Income after income tax ÷Average stockholders’ equity. 1.2 Business Plan for 2012 1.2.1 Operating Strategies for 2012 Integration of group resources to realize operating synergies Effective allocation of capital to enhance operating performance Reinforcement of risk control to assure legal compliance Upgrade of operating efficiency to optimize financial performance Vigorous overseas deployment to expand international businesses Molding of a corporate image to create brand benefit 2012 ANNUAL REPORT
1.2.2 Business Objectives for 2012 Units: NT$ million Name of Subsidiary Item 2013 Budget
Deposits 2,244,000
Taiwan Cooperative Bank, Ltd. Loans 1,892,000
Foreign exchange (US$ million) 90,000
Underwriting and purchase of bills 166,600
Guaranteed issued of commercial paper (face value) 145,000
Taiwan Cooperative Bills Finance Corporation Ltd. Dealing in bills 931,400
Dealing in bonds 709,700
Guaranteed issues of commercial paper outstanding 14,500
Taiwan Cooperative Securities Co., Ltd. Securities brokerage 285,000
Co-operative Assets Management Co., Ltd. Debt Collection 1,068
BNP Paribas Assurance TCB Life Insurance Co., Ltd. Annual total premiums 35,079
BNP Paribas TCB Asset Management Co., Ltd. Total fund size 15,720
1.3 Credit Ratings
Global Rating Company Rating Agency Outlook Release Date Long-Term Short-Term
Taiwan Cooperative Financial S&P BBB- A-3 Stable Feb.07,2013 Holding Co., Ltd. TRC twA+ twA-1 Stable Feb.07,2013
S&P A- A-2 Stable Feb.26,2013
TRC twAA twA-1+ Stable Feb.26,2013 Taiwan Cooperative Bank, Ltd. A- F2 Stable Jan.24,2013 Fitch AA(twn) F1+(twn) Stable Jan.24,2013
Taiwan Cooperative Bills Finance Fitch AA(twn) F1+(twn) Stable Jul.03,2012 Corporation Ltd.
Taiwan Cooperative Securities Fitch AA(twn) F1+(twn) Stable Aug.06,2012 Co., Ltd.
07 08 Company Profile
2. Company Profile
09 2.1 Date of Incorporation
09 2.2 Company History 2012 ANNUAL REPORT
2. Company Profile
2.1 Date of Incorporation: Dec. 1, 2011
2.2 Company History
Taiwan Cooperative Financial Holding Co., Ltd. was established on Dec. 1, 2011 through a share swap with Taiwan Cooperative Bank, Ltd. (TCB), Co-operative Assets Management Co., Ltd. and Taiwan Cooperative Bills Finance Corporation Ltd. and was listed on the Taiwan Stock Exchange under the new TWSE code: 5880.
Aiming to achieve synergies, TCB spun off its securities department to pave the way for setting up Taiwan Cooperative Securities Co., Ltd. on Dec, 2, 2011. In addition, the 51% shares of BNP Paribas Assurance TCB Life Insurance Co., Ltd. and BNP Paribas TCB Asset Management Co., Ltd. held by TCB were transferred to Taiwan Cooperative Financial Holdings on April 3, 2012, forging a financial conglomerate with businesses across banking, insurance, securities, bills finance, trust, and asset management.
President
09 10 Report of Corporate Governance
3. Report of Corporate Governance
12 3.1 Organization 14 3.2 Board Structure and Composition 16 3.3 Corporate Governance Execution Status and Deviations from "Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies" 2012 ANNUAL REPORT
Ling-Long Shen, Chairperson；Jiin-Tarng Yue, President (from left to right) Hong-Chen Lin, Executive Vice President； Chung-Dea Hsieh, Executive Vice President； Wu-Lieh Tsai, E.V.P. & General Auditor (from left to right) 11 12 Report of Corporate Governance
3. Corporate Governance Report
3.1 Organization
3.1.1 Organization Chart
General Meeting of Shareholders
Board of Directors Supervisor Chairperson Directors Remuneration Committee Executive Committee
Risk Management President Committee
S.V.P & General Executive Vice President Executive Vice President Auditor
Business Auditing Treasury Development Department Department Department
Risk Legal Affairs Management Department Department
Human Resource Administration Department Department
Information Technology Department 2012 ANNUAL REPORT
3.1.2 Major Corporate Functions
Department Functions Auditing administration, handling of inspection by documentary and financial inspection agencies, auditing of the Audit Department business of Company subsidiaries, effectiveness evaluation of the internal auditing operations of subsidiaries, follow-up review of auditing deficiencies. Organizational development, operating policies, strategic alliances, capital planning, investment and M&A planning, Business Development corporate governance, integrated product planning and marketing, and other matters concerning the development Department of subsidiaries of the financial holding company, and supervision and assistance for matters within the scope of subsidiaries’ operations. Raising and utilization of capital, account management, compilation of financial statements, tax matters, accounting, Treasury Department and other financial matters of the financial holding company and its subsidiaries, and supervision and assistance for matters within the scope of subsidiaries’ operations. Risk management systems, capital adequacy calculation and evaluation, emergency response planning, and other Risk Management matters relating to risk management by the financial holding company and its subsidiaries, and supervision and Department assistance for matters within the scope of subsidiaries’ operations. Legal compliance, handling of litigation and non-litigation cases, review of contracts and regulations, and other law- Legal Affairs related matters concerning the financial holding company and its subsidiaries, and supervision and assistance for Department matters within the scope of subsidiaries’ operations. Information policy planning by the financial holding company and its subsidiaries; integration, establishment, and Information Technology security management of holding company and subsidiary information systems, and other information-related matters Department for the financial holding company and its subsidiaries; and supervision and assistance for matters within the scope of subsidiaries’ operations. Human resources management and policy formulation, planning of training, and other matters related to human Human Resource resources management of the financial holding company and its subsidiaries, and supervision and assistance for matters Department within the scope of subsidiaries’ operations. Financial holding company and subsidiary investor relations, disclosure of information, external public relations matters Administration and general affairs, procurement, stock affairs, and other matters related to administrative management, and supervision Department and assistance for matters within the scope of subsidiaries’ operations.
3.1.3 Group Structure As of Dec.31, 2012 Taiwan Cooperative Financial Holding Co., Ltd.
2.67％ owned 90.02％ owned United Taiwan Bank 100％ owned Taiwan Cooperative Bank, Ltd.
100％ owned Cooperative Insurance 100％ owned Brokers Co., Ltd Taiwan Cooperative Bills Finance Corporation Ltd.
100％ owned Taiwan Cooperative Securities Co., Ltd.
％ 100％ owned 100 owned Co-operative Assets Cooperative-I Asset Management Co., Ltd. Management Corporation
51％ owned BNP Paribas Assurance TCB Life Insurance Co., Ltd.
％ 51 owned BNP Paribas TCB Asset Management Co., Ltd. 13 14 Report of Corporate Governance
3.2 Board Structure and Composition 3.2.1 Board of Directors, Supervisors and Executives Officers As of April,23,2013 Board of Directors Supervisors
Title Name Title Name
Chairperson Ling-Long Shen Chung-Fern Wu
President & Director Jiin-Tarng Yue Len-E Chen
Yung-Cheng Chang Supervisors E-Dawn Chen
Shen-Gang Mai Ting-Hui Huang
Chang-Ruey Shiau Jui-Tsan Chou
Kuo-Tay Chen
Tsuen-Hua Shih
Ting-Jeng Chan
Directors Hsin-Huei Wang
Gow-Ning Yuan
Kuo-Yang Chen
Mu-Chin Cheng
Ching-Tien Hsiao
Cheng-Jen Wu
Han-Chun Hsiao
As of April,23,2013 Executive Officers
Title Name
President Jiin-Tarng Yue
Chung-Dea Hsieh Executive Vice President Hong-Chen Lin
E.V.P.& General Auditor Wu-Lieh Tsai
S.V.P. &General Manager Auditing Department Ching-Hsin,Lien
S.V.P. &Chief Secretary Chih-Cheng Peng
S.V.P. &General Manager Administration Department Ming-Cheng Lee
S.V.P. &General Manager Human Resource Department Chwan-Jau Lii
S.V.P. &General Manager Treasury Department Chen-Tsai Chou
S.V.P. &General Manager Legal Affairs Department Kuei-Fen Huang
S.V.P. &General Manager Information Technology Department Yu-Mei Hwang
S.V.P. &General Manager Risk Management Department Shiaw-Yen Lun
S.V.P. &General Manager Business Development Department Sue-Chuan Wang 2012 ANNUAL REPORT
3.2.2 Professional qualifications and independence analysis of Directors and Supervisors Meet One of the Following Professional Qualification Requirements, Independence Together with at Least Five Years Work Experience Criteria(Note) AAn Instructor or A Judge, Public Have Work Number of Criteria Higher Position in Prosecutor, Attorney, Experience in Other Public a Department of Certified Public the Areas of Companies Commerce, Law, Accountant, or Other Commerce, in Which the Finance, Accounting, Professional or Technical Law, Finance, Individual is or Other Academic Specialist Who has Passed or Accounting, 1 2 3 4 5 6 7 8 9 10 Concurrently Department Related to a National Examination or Otherwise Serving as an Name the Business Needs of the and been Awarded a Necessary for the Independent Company in a Public or Certificate in a Profession Business of the Director Private Junior College, Necessary for the Business Company College or University of the Company
Chairperson p p p p p p p Ling-Long Shen –
Director p p p p p p Jiin-Tarng Yue –
Director p p p p p p p Yung-Cheng Chang –
Director p p p p p p p Shen-Gang Mai –
Director p p p p p p p Chang-Ruey Shiau –
Director p p p p p p p Kuo-Tay Chen –
Director p p p p p p p p p p Tsuen-Hua Shih –
Director p p p p p p p Ting-Jeng Chan –
Director p p p p p p p Hsin-Huei Wang –
Director p p p p p p p p p Gow-Ning Yuan –
Director p p p p p p p p p Kuo-Yang Chen –
Director p p p p p p p p p Mu-Chin Cheng –
Director p p p p p p p p Ching-Tien Hsiao –
Director p p p p p p p p p p Cheng-Jen Wu –
Director p p p p p p p p p p Han-Chun Hsiao –
Supervisor p p p p p p p Chung-Fern Wu 1
Supervisor p p p p p p p Len-E Chen –
Supervisor p p p p p p p E-Dawn Chen –
Supervisor p p p p p p p p p p Ting-Hui Huang –
Supervisor p p p p p p p Jui-Tsan Chou –
Note: Please tick the corresponding boxes if directors or supervisors have been any of the following during the two years prior to being elected or during the term of office. 1. Not an employee of the Company or any of its affiliates. 2. Not a director or supervisor of the Company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares. 3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings. 4. Not a spouse, relative within the second degree of kinship, or lineal relative within the fifth degree of kinship, of any of the persons in the preceding three subparagraphs. 5. Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds shares ranking in the top five in holdings. 6. Not a director, supervisor, officer, or shareholder holding 5% or more of the share, of a specified company or institution that has a financial or business relationship with the Company. 7. Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof. 15 8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company. 9. Not been a person of any conditions defined in Article 30 of the Company Law. 10. Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law. 16 Report of Corporate Governance
3.3 Corporate Governance Execution Status and Deviations from "Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies"
Deviations from “Corporate Governance Item Implementation Status Best-Practice Principles for TWSE/GTSM Listed Companies” and reasons
1. Shareholding Structure & Shareholders’ Rights (1) Method of handling shareholder (1) The Company has a unit specifically charged with handling (1) None suggestions or complaints shareholder suggestions and disputes, and such issues are dealt with appropriately by specially appointed personnel. The relevant liaison methods are disclosed on the “Investor Page,” “Stock Affairs Page,” and “Shareholder Q&A Page” of the Company website.
(2) The Company’s possession of a (2) The Company maintains a grasp of shareholder holdings in (2) None list of major shareholders and a list accordance with the stock transfer books following the stop- of ultimate owners of these major transfer date as well as shareholders’ reporting of equity changes shareholders in accordance with the stipulations of Article 25 of the Securities Exchange Act and Article 16 of the Financial Holding Company Act. The provisions of Articles 4, 5, and 16 of the Financial Holding Company Act are publicized on the “Reporting of Shareholdings” section of the “Statutory Public Disclosure Items” page of the Company website, with related application forms available for downloading.
(3) Risk management mechanism and (3) (3) None “firewall” between the Company and The Company has an independent risk management unit charged its affiliates with risk control in the financial holding group, and has also set up a Risk Management Committee to monitor the various types of risk and operating procedures of the Company and its subsidiaries. The Company has established “Criteria for Loans to and Transactions with Materially Interested Parties by the Taiwan Cooperative Financial Holding Co., Ltd. and its Subsidiaries,” setting forth clear rules for loans to and other transactions with materially interested parties by the Company and its subsidiaries.
2. Composition and Responsibilities of the Board of Directors (1) Independent Directors (1) The Company was established on Dec.1,2011;following (1) None communication with the competent authority the first term of the Board of Directors has been exempted from the need to establish independent directors, but independent directors must be established in the second term. (2) Regular evaluation of CPAs’ (2) The Company appoints a CPA on an annual basis, and carries out (2) None independence assessment of the independence of the CPA on a regular basis.
3. Communication channel with The different units carry out liaison in regard to the different items of None stakeholders business. 2012 ANNUAL REPORT
Deviations from “Corporate Governance Item Implementation Status Best-Practice Principles for TWSE/GTSM Listed Companies” and reasons 4. Information Disclosure (1) Establishment of a corporate website (1) The Company announces information regarding its finance business, (1)None to disclose information regarding the corporate governance, and other important matters in a timely Company’s financials, business and fashion on the Company website and the Market Observation Post corporate governance status System, and updates the information regularly. (2) Other information disclosure (2) (2) None channels (e.g., maintaining The Company has established a Chinese/English website with an English-language website, contents provided by personnel from the different units who are appointing responsible people assigned to collect and disclose information within their area of to handle information collection responsibility. and disclosure, appointing The Company handles all important information in accordance spokespersons, webcasting investors with its “Operating Procedures for Important Internal Information.” conference) The spokesperson system is implemented; the President designates a Vice President to act as spokesperson and make public pronouncements as instructed by the Chairman of the Board of Directors or the President, with the contents of such pronouncements being limited to the scope authorized by the Company. The Company has also established “Guidelines for News Announcements” to provide for the publication of information about the Company’s major policies and activities in the mass media. Press releases are also published on the “News Center” section of the Company’s website. The Company has not yet held an investor presentation.
5. Operations of the Company’s The Company has established a “Remuneration Committee Charter” None Nomination Committee, Compensation and set up a Remuneration Committee in accordance with its Committee, or other committees of the stipulations. Four independent directors of the Taiwan Cooperative Board of Directors Bank serve as members of the committee, which meets once every six month and is charged with reviewing the performance evaluations of directors, supervisors, and managers, as well as remuneration policies, systems, standards, and structures, on a scheduled basis. It also regularly assesses and establishes remuneration for directors, supervisors, and managers. The Company has also established an Executive Committee, in accordance with the provisions of the “Regulations for the Establishment of an Executive Committee,” which convenes once a month for the purpose of administering and integrating the resources and businesses of subsidiaries and realizing operational synergies.
6. If the Company has established corporate governance principles based on “Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies”, please describe any discrepancy between the principles and their implementation:The Company carries out the work of corporate governance in accordance with the “Corporate Governance Regulations for Financial Holding Companies,” with no divergences from those Regulations to date.
7. If the Company has implemented a self corporate governance evaluation or has authorized any other professional organization to conduct such an evaluation, the evaluation results, major deficiencies or suggestions, and improvements are stated as follows: None
17 18 Capital Overview
4. Capital Overview
19 4.1 Capital and Shares
21 4.2 Financing Plans and Implementation 2012 ANNUAL REPORT
4. Capital Overview 4.1 Capital and Shares 4.1.1 Source of Capital As of April 23, 2013 Authorized Capital Paid-in Capital Month/Year ParValue (NTD) Shares (In Thousands Amount (In Thousands Shares (In Thousands Amount (In Thousands of Shares) of NTD) of Shares) of NTD) 100.12 10 12,000,000 120,000,000 6,596,825 65,968,254 101.08 10 12,000,000 120,000,000 6,926,666 69,266,667 101.09 10 12,000,000 120,000,000 8,126,666 81,266,667
4.1.2 Type of Stock As of April 23, 2013 Authorized Capital Share Type Remarks Issued Shares Un-issued Shares Total Shares
Common Stock 8,126,666,703 3,873,333,297 12,000,000,000 (Note)
Note: All issued shares are listed on the Taiwan Stock Exchange.
4.1.3 Status of Shareholders As of April 23, 2013 Government Financial Other Juridical Domestic Natural Foreign Institutions Item Total Agencies Institutions Person Persons & Natural Persons Number of Shareholders 19 16 862 151,072 438 152,407 Shareholding (shares) 2,963,856,987 195,378,804 1,607,111,212 2,275,210,456 1,085,109,244 8,126,666,703 Percentage(%) 36.47 2.40 19.78 28.00 13.35 100.00
4.1.4 Shareholding Distribution Status A. Common Shares (The par value for each share is NT$10) As of April 23, 2013 Class of Shareholding (Unit : Share) Number of Shareholders Shareholding (Shares) Percentage(%) 1 ~ 999 39,918 11,616,208 0.14 1,000 ~ 5,000 56,919 136,561,761 1.68 5,001 ~ 10,000 19,517 138,085,906 1.70 10,001 ~ 15,000 9,866 121,031,689 1.49 15,001 ~ 20,000 4,693 82,491,303 1.02 20,001 ~ 30,000 6,500 158,995,309 1.96 30,001 ~ 50,000 5,215 202,738,975 2.49 50,001 ~ 100,000 4,522 314,844,165 3.87 100,001 ~ 200,000 2,850 396,241,335 4.88 200,001 ~ 400,000 1,399 380,290,779 4.68 400,001 ~ 600,000 265 129,735,312 1.60 600,001 ~ 800,000 131 91,999,529 1.13 800,001 ~ 1,000,000 86 77,288,213 0.95 1,000,001 or over 526 5,884,746,219 72.40 Total 152,407 8,126,666,703 100.00 B. Preferred Shares: None 19 20 Capital Overview
4.1.4 List of Major Shareholders As of April 23, 2013 Shareholding Shareholder's Name Shares Percentage(%) Ministry of Finance, R.O.C. 2,469,424,498 30.39 Taiwan Cooperative Bank, Ltd. 217,076,242 2.67 Taiwan Tobacco and Liquor Corp 200,000,000 2.46 Chunghwa Post Co., Ltd. 150,163,884 1.85 National Farmers' Association, R.O.C. 110,192,769 1.36 Vanguard Emerging Markets Stock Index Fund, A Series of 104,815,743 1.29 Vanguard International Equity Index Funds Dimensional Emerging Markets Value Fund 79,569,819 0.98 Management Board Public Service Pension Fund 67,674,607 0.83 JPMorgan Chase Bank N.A. Taipei Branch in custody for 60,849,022 0.75 Norges Bank China Life Co., Ltd. 55,881,824 0.69
4.1.5 Market Price, Net Worth, Earnings, and Dividends per Share Unit: NT$ 2012 2011 01/01/2013-03/31/2013 Market Price per Share Highest Market Price 19.45 19.35 17.60 Lowest Market Price 15.00 16.80 16.20 Average Market Price 17.22 18.11 16.86 Net Worth per Share Before Distribution 18.54 19.24 18.12 After Distribution -- 18.72 -- Earnings per Share Weighted Average Shares (thousand shares) 7,034,180 6,390,086 7,909,590 Diluted Earnings Per Share 1.07 0.04 0.30 Adjusted Diluted Earnings Per Share 1.01 0.04 -- Dividends per Share Cash Dividends 0.4 0.5 -- Stock Dividends Dividends from Retained Earnings 0.4 -- -- Dividends from Capital Surplus 0.2 0.5 -- Accumulated Undistributed Dividends ------Return on Investment Price / Earnings Ratio (Note 1) 16.09 452.75 -- Price / Dividend Ratio (Note 2) 43.05 36.22 -- Cash Dividend Yield Rate (Note 3) 2.32 2.76 -- Note 1: Price / Earnings Ratio = Average Market Price / Earnings per Share Note 2: Price / Dividend Ratio = Average Market Price / Cash Dividends per Share Note 3: Cash Dividend Yield Rate = Cash Dividends per Share / Average Market Price 2012 ANNUAL REPORT
4.1.6 Dividend Policy and Implementation Status A. Dividend Policy If the Company’s final annual budget shows a surplus, it should be used first to make up for the losses of past years and then allocated for the legal reserve. In accordance with legal regulations and business needs, it may also be allocated for a special reserve; the balance may be allocated for employee bonuses at a rate of 0.02% to 0.16%, and for directors’ and supervisors’ remuneration up to a ceiling of 1%. The Board of Directors formulates a profit distribution proposal for any remaining surplus together with undistributed profit from previous years and asks the Shareholders’ Meeting to pass a resolution for its distribution as stock dividends, bonuses, or retained earnings. In the distribution of stock dividends and bonuses as mentioned in the previous section, cash dividends shall not be less that 50% in principle, and the remainder shall be stock dividends. Should the cash dividend be under NT$0.1 per share, it shall not be distributed unless otherwise decided by the shareholders’ meeting. B. Proposed Distribution of Dividend The proposal of the current Annual General Meeting of Shareholders for the distribution of cash dividends is NT$0.4 per share, for a total distribution of NT$3,250,666,681. The ratio of stock distribution for the capital increase from earnings was 4% (that is, 40 shares per 1,000 shares), for a total distribution of NT$3,250,666,680; in the distribution of stock dividends for the capital increase out of capital reserves, the distribution ratio was 2% (that is, 20 shares per 1,000 shares), for a total distribution of NT$1,625,333,340. 4.2 Financing Plans and Implementation The Company’s 2012 plan for a cash capital increase through the issuance of shares was completed in the third quarter of 2012, its effects already apparent. The contents and execution of the plan are described below: 4.2.1 Finance Plans A. The Company’s 2012 cash capital increase was carried out through the issuance of 1.2 billion common shares with a face value of NT$10 each and became effective via Financial Supervisory Commission Jin Guan Zheng Document No. 1010029584 dated July 11, 2012. Collection of the stock capital of NT$17.772 billion was completed on Sep. 24, 2012. B. The objective of the capital increase was to meet the needs of the subsidiary Taiwan Cooperative Bank, Ltd. for added capital to heighten its capital adequacy ratio and expand its domestic and overseas financial business capabilities, and to upgrade the Group’s capital adequacy ratio and reinforce its financial structure. 4.2.2 Implementation The effects of the capital increase are as follows: The Group’s capital adequacy ratio was increased from 116.40% at the end of 2011 to 130.02% at the end of 2012. The working capital of the reinvested subsidiary, Taiwan Cooperative Bank, Ltd. was increased; following the capital increase, the Bank’s capital adequacy ratio was raised from 10.23% at the end of 2011 to 12.63% at the end of 2012 and its Tier 1 capital adequacy ratio rose from 6.06% at the end of 2011 to 7.60% at the end of 2012. 21 22 Capital Overview
5. Operational Highlights
23 5.1 Business Overview
24 5.2 Operating Policies in 2013
25 5.3 Corporate Social Responsibilities 2012 ANNUAL REPORT
5. Operational Highlights
5.1 Business Overview
● Taiwan Cooperative Financial Holding Co., Ltd. A. Main areas of business operations According to Taiwan’s Financial Holding Company Act, the business of a financial holding company shall be limited to investment in, and management of, its invested enterprise(s). B. Revenue distribution Unit: NT$ thousand Year 2012 2011 Item Amount % Amount % Investment income from equity investments accounted for by the 7,873,976 99.94 222,488 98.01 equity method Other operating revenue 4,564 0.06 4,513 1.99 Total 7,878,540 100.00 227,001 100.00 Note: Taiwan Cooperative Financial Holding Co., Ltd. was establisned on Dec. 1, 2011.
● The business overview of the subsidiaries are shown in the table below: 1. Taiwan Cooperative Bank, Ltd. Unit: NT$ thousand 2012 2011 Item Change (%) Amount % Amount % Net interest income 25,299,415 76.67 24,688,950 73.56 2.47 Net fee income 3,727,993 11.30 4,356,573 12.98 (14.43) Gains on financial assets and liabilities at fair value 10.21 (1,248,135) (3.72) 369.86 through profit or loss 3,368,240
Realized gain on available-for sale financial assets 425,283 1.29 257,924 0.77 64.89
Investment income recognized by the equity method 80,103 0.24 50,151 0.15 59.72 Foreign exchange gain (1,966,766) (5.96) 2,531,234 7.54 (177.70) Asset impairment reversals 140,505 0.43 23,343 0.07 501.91 Gain on financial assets carried at cost 285,944 0.87 249,886 0.74 14.43 Interests of property transactions 69,285 0.21 39,731 0.12 74.39 Recovery of bad debts and overdue accounts 1,176,274 3.56 2,238,406 6.67 (47.45) Other non-interest income-net 390,696 1.18 375,169 1.12 4.14 Total 32,996,972 100.00 33,563,232 100.00 (1.69)
2. Taiwan Cooperative Bills Financial Corporation Ltd. Unit: NT$ thousand
Year 2012 2011 Item Amount % Amount % Bills revenue 226,168 57.09 194,583 51.30 Bond proceeds 138,279 34.90 107,824 28.43 Other non interest income 31,725 8.01 76,868 20.27 Total 396,172 100.00 379,275 100.00 23 24 Operational Highlights
3. Taiwan Cooperative Securities Co., Ltd. Unit: NT$ thousand
Year 2012 2011 Item Amount % Amount % Brokerage fee income 187,108 63 11,086 54 Underwriting income 8,654 3 811 4 Gain on sale of operating securities-underwriting 13,318 4 472 2 Gain on sale of operating securities-dealing (11,051) (4) 0 0 Interest income 79,892 27 7,276 35 Dividend income 467 0 0 0 Net income-securities held for operations 7,959 3 (16) 0 Future commission income 2,477 1 135 1 Net income- derivatives (3,930) (1) 0 0 Other operating income 508 0 152 1 Other revenues and gains 12,515 4 715 3 Total 297,917 100 20,631 100 Note：Taiwan Cooperative Securities Co., Ltd. was established on Dec. 2, 2011.
4. Co-operative Assets Management Co., Ltd. Unit: NT$ thousand Year 2012(Consolidated) 2011(Consolidated) Item Amount % Amount % Operating income 610,638 99 1,195,141 99 Gain on disposal of assets-not for operating 3,175 -- 7,341 1 Interest income 3,529 1 957 -- Other operating income 66 -- 908 -- Total 617,408 100 1,204,348 100
5. BNP Paribas Assurance TCB Life Insurance Co., Ltd. Unit: NT$ million Year 2012 2011 Item Amount % Amount % Total premiums 40,668 100 33,576 100
6. BNP Paribas TCB Asset Management Co., Ltd. Unit: NT$ thousand Year 2012 2011 Item Amount % Amount % Total management fee 92,489 100 42,643 100
5.2 Operating Policies in 2013 Taiwan Cooperative Financial Holdings was established in 2011 via the reorganization of Taiwan’s largest private bank into a financial holding company, and in 2012 smoothly completed a cash capital increase and organizational readjustment which strengthened the group’s capital structure and operating system. In this new year, Taiwan Cooperative Financial Holdings will continue to guide and promote joint marketing and business cooperation by subsidiaries within the group framework 2012 ANNUAL REPORT
and take advantage of the sharing of resources and the upgrade of operating performance. In addition, TCFHC will plan and execute the optimal capital scale of the group and its subsidiaries to promote efficient capital utilization and reinforce core capital. The concrete methods to be used are as follows:
1. Integration of group resources to realize operating synergies We will utilize the advantages of the different subsidiaries in the cooperative development of business in various areas, realizing the synergies of joint marketing and effectively boosting profitability; a unified management platform will integrate group resources and products, strengthen cooperation among subsidiaries and realize the benefits of resource sharing.
2. Effective allocation of capital to enhance operating performance We will strengthen core capital and devise the optimal capital scale for the group and each of its subsidiaries so as to promote optimization of capital efficiency.
3. Reinforcement of risk control to assure legal compliance Our group will enforce risk management and monitoring each of its subsidiaries, with risk warnings being issued as necessary to strengthen the operating system and reinforce the compliance publicities and implementation system.
4. Upgrade of operating efficiency to optimize financial performance The group’s subsidiaries will reinforce their advantageous niches and develop profit sources to upgrade financial performance and create the greatest shareholder value.
5. Vigorous overseas deployment to expand international businesses We will grasp opportunities presented by the opening of cross-straits finance and pursue overseas development in line with government policy; overseas business markets will be continuously cultivated in order to upgrade profitability.
6. Crafting of a corporate image to create brand value We will expand multi-level customer groups in response to technological development to create brand value, and the group’s team will participate in community services and care for the underprivileged to fulfill the group’s corporate social responsibility and create a quality corporate image.
5.3 Corporate Social Responsibilities 1. The Company adheres firmly to the principle of stable operation and conforms to the regulations of the competent authority and the rules of social responsibility, establishing a good corporate governance mechanism and corporate culture to create maximum value for our shareholders.
25 26 Operational Highlights
2. Environmental protection
The Company complies with the government’s policy of energy conservation and carbon reduction, and strives to promote the concept of environmental protection. The General Affairs Division of the Administrative Management Department is the unit charged exclusively with environmental management; air-conditioning temperature in office premises is controlled, and LED and other energy- saving lighting equipment are used to reduce the use of electricity. Water-conservation devices are added to water-supply equipment to reduce water use. Environmental-protection posters are installed and the concepts of power and water conservation are propagated to employees. We are increasing our efforts to reuse resources in the operating environment and office premises, and we are increasing our resource recycling.
An electronic document management system has been installed and paperless documentation is promoted. Double-sided printing is used and paper is recycled to reduce the waste of paper, and suppliers of consumables are asked to help with the recycling of used printer cartridges.
In its procurement the Company gives priority to equipment that conforms to environmental protection and energy conservation labels, and in building decoration uses products bearing the Green Building label.
3. Consumer rights
The Company has instituted “Customer Data Protection Measures” to protect the rights of consumers, and has announced them on its official website. The Company and its different subsidiaries all have official websites that provide information on products and services, and have installed customer- service telephones or e-mail boxes as a channel for customer complaints and communication.
4. Employee care, human rights, and safety and health
All of the Company’s human resources management systems comply with the labor laws and relevant regulations announced by the competent authority, and the employee retirement system is handled in accordance with the Labor Standards Act, Labor Pension Act, the Company’s own Regulations for Employment Pensions and Severance, and other relevant regulations. Retirement pension funds are remitted into the individual retirement accounts of the Bureau of Labor Insurance in accordance with the new labor retirement pension provided in the Labor Pension Act.
The Company has established work rules and has set up a corporate union to serve as a mechanism for two-way communication between labor and management. An “employee opinion mailbox” is included in the corporate portal site to provide employees with a feedback channel.
The Company has established Guidelines for Preventive Measures and Complaints, Disposition, and Punishments for Sexual Harassment in the Workplace, and strictly prohibits employees from any kind of sexual harassment in the workplace. Violators are dealt with in accordance with the severity of the 2012 ANNUAL REPORT
case. “No Sexual Harassment” ads are posted and a complaint channel has been put in place to provide an environment in which employees can work without fear of sexual harassment.
5. The Company bases its operating principles on the fulfillment of corporate social responsibility. In 2012, the contributions of its subsidiaries to society include public- benefit activities, social services, and community participation as follows:
The Company holds to the corporate spirit of caring for society, and with its banking subsidiary organizes “Caring for kids campaigns” activities. In 2012, we brought students from remote schools in Taoyuan County to Taipei for lively extracurricular learning activities, providing exhibitions sponsored by the Taiwan Cooperative Bank and visited the Taipei International Flora Expo’s Pavilion of Dreams and Pavilion of Future to give the students an experience of the beauties of art and nature. The students were also presented practical backpacks. For the New Hope Foundation’s “Cloud Charity Festival – 2012 Christmas Express to Taitung” activity, the Company donated 200 bicycles to the students of three remote primary schools in Taitung, helping realize the students’ Christmas dreams.
To encourage the public's health and fitness, and to express care through the donation of invoices, the Company and its banking subsidiary organized the “Ministry of Finance 2012 Unified Invoice Cup Yilan Road Race” jointly with the National Taxation Bureau of the Northern Area. The event collected 125,000 invoices, all of which were donated to the Lan-chui Social Welfare Foundation, Yilan Educational and Nursing Institute. Taiwan Cooperative Financial Holding Group employees joined in enthusiastically and donated more than 50,000 invoices.
To give back to society and involve itself in public welfare, the banking subsidiary held a “Taiwan Cooperative Bank 66th Anniversary Public Benefit Garden Party” at the Kaohsiung Municipal Sanmin Home Economic and Commerce Vocational High School in 2012; more than 7,000 family members participated, and the day’s after-tax earnings were donated to the Children Are Us Foundation to help children with mental disabilities.
To express our concern for children and fulfill corporate social responsibility, the banking subsidiary cooperated with the Child Welfare League Foundation in issuing the “Care Card” to encourage all sectors to care for disadvantaged children in remote areas. The amount of money donated through this program has topped NT$1.5 million, providing substantial support for the care of disadvantaged children. A “Children's Heart Disease Card” was issued in cooperation with the Cardiac Children’s Foundation Taiwan, with the banking subsidiary allocating a set percentage of consumption using the card for donation to the foundation to help children with heart diseases. The amount donated in this way so far has exceeded NT$1.5 million.
We donated to disadvantaged and charity groups, including the Foundation for Autistic Children and Adults in Taiwan, Teacher Chang Foundation, and Hualien Women Association to pay back society and fulfill corporate social responsibility. Gift boxes were also procured from institutions and groups
27 28 Operational Highlights
for the physically and mentally disabled in order to help the disadvantaged.
To promote national sports and arouse the interest of children in ball sports, the banking subsidiary used three teams—baseball, badminton, and table tennis—to organize winter and summer children’s camps as well as “Taiwan Cooperative Bank Cup” table tennis, badminton, and slow pitch softball tournaments. It organized the 2012 Taiwan Cooperative Financial Holdings and Maxxis Cup national table tennis tournament and provided sponsorship for the Yonex Open Chinese Taipei 2012 badminton tournament, 2012 Chinese Taipei Junior and Cadet Open table tennis tournament, 2012 World Junior Championships badminton tournament, and 2012 LGPA Taiwan Championship, thereby strengthening the popularity of sports in Taiwan and paying back to society. The banking subsidiary recorded an outstanding performance in assisting the development of ball sports, and in recognition of this performance won the “Sports Propeller Prize” in both the sponsorship and promotion categories from the Sports Cornmission, Executive Yuan for four years in a row.
To upgrade the artistic and cultural standards of Taiwan, the banking subsidiary has sponsored numerous international-class exhibitions in recent years to expand the cultural vision of the island’s people. In 2012 it sponsored the Taiwan International Festival of Arts, Quest for Immortality exhibition, Moving of the Riverside Scene at Chingming Festival exhibition, The Art of the Brick exhibition, and Petit Louvre exhibition. The subsidiary also held other public benefit shows, inviting public benefit groups and students from remote areas to participate and gain an experience of the beauty of art.
To enhance Taiwan’s international visibility and promote domestic financial academic development, the banking subsidiary vigorously sponsors international academic forums. In 2012 it sponsored the “Connecting to the Past, Envisioning the Future – Evolutions in Finance for Asia” conference, inviting financial scholars, experts, and government representatives from around the world to participate. It cooperated with the United Daily News, Chung-hua Institution for Economic Research, and Asia University in organizing a “Masters’ Forum” with Christopher Sims, winner of the Nobel Prize in economics in 2011, to present a speech and serve as panelist. This event effectively upgraded the international financial vision of the people of Taiwan.
To encourage university and graduate students to engage in financial and economic research, the banking subsidiary has established “Regulations Governing the Establishment of Research Grants”; the grants were awarded to 18 outstanding students in 2012, bringing the total number of grantees to 679 and making a substantial contribution to the upgrading of financial and economic academic research in Taiwan. 2012 ANNUAL REPORT
6.Financial Information
29 30 Financial Information
6 . Financial Information
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Taiwan Cooperative Financial Holding Co., Ltd.
We have audited the accompanying consolidated balance sheets of Taiwan Cooperative Financial Holding Co., Ltd. and subsidiaries (collectively, the "Company") as of December 31, 2012 and 2011, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the year ended December 31, 2012 and period from December 1, 2011 (date of establishment) to December 31, 2011. These consolidated financial statements are the responsibility of the Company'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, the Rules Governing the Audit of Financial Statements 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 in the first paragraph present fairly, in all material respects, the financial position of Taiwan Cooperative Financial Holding Co., Ltd. and subsidiaries as of December 31, 2012 and 2011 and the results of their operations and their cash flows for the year ended December 31, 2012 and period from December 1, 2011 (date of establishment) to December 31, 2011, in conformity with the Guidelines Governing the Preparation of Financial Reports by Financial Holding Companies, Guidelines Governing the Preparation of Financial Reports by Public 2012 ANNUAL REPORT
Banks, Guidelines Governing the Preparation of Financial Reports by Securities Firms, Guidelines Governing the Preparation of Financial Reports by Insurance Enterprises, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China.
March 25, 2013
Notice to Readers
The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China.
For the convenience of readers, the 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 auditors’ report and consolidated financial statements shall prevail. 31 32 Financial Information
TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Par Value) Percentage 2012 2011 Increase (Decrease) ASSETS Amount Amount % CASH AND CASH EQUIVALENTS (Notes 2, 4 and 33) $ 59,384,522 $ 52,877,576 12 DUE FROM THE CENTRAL BANK AND CALL LOANS TO OTHER BANKS 683,262,154 574,368,770 19 (Notes 5, 33 and 34) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 2, 68,153,168 29,683,803 130 6 and 33) SECURITIES PURCHASED UNDER RESELL AGREEMENTS (Notes 2 and 7) 2,067,432 - - RECEIVABLES, NET (Notes 2, 8, 33 and 34) 26,610,993 26,711,626 - DISCOUNTS AND LOANS, NET (Notes 2, 9, 33 and 34) 1,867,116,105 1,943,392,930 ( 4 ) AVAILABLE-FOR-SALE FINANCIAL ASSETS (Notes 2, 10 and 34) 110,605,494 55,865,511 98 HELD-TO-MATURITY FINANCIAL ASSETS (Notes 2, 11 and 34) 14,462,544 8,716,618 66 EQUITY INVESTMENTS UNDER THE EQUITY METHOD (Notes 2, 12 and 99,556 1,572,078 ( 94 ) 40) OTHER FINANCIAL ASSETS, NET (Notes 2, 13 and 28) 104,572,208 49,326,551 112 PROPERTIES, NET (Notes 2 and 14) 37,167,520 35,457,864 5 INTANGIBLE ASSETS (Notes 2 and 15) 3,788,452 3,859,007 ( 2 ) OTHER ASSETS, NET (Notes 2, 16, 27 and 34) 6,301,015 5,933,086 6
TOTAL $ 2,983,591,163 $ 2,787,765,420 7
The accompanying notes are an integral part of the consolidated financial statements. 2012 ANNUAL REPORT
Percentage 2012 2011 Increase (Decrease) LIABILITIES AND STOCKHOLDERS’ EQUITY Amount Amount % DUE TO THE CENTRAL BANK AND OTHER BANKS (Notes 17 and 33) $ 236,448,850 $ 228,380,002 4 COMMERCIAL PAPER ISSUED, NET (Note 18) 1,821,456 879,696 107 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS 3,592,769 4,218,801 ( 15 ) (Notes 2, 6, 22 and 33) SECURITIES SOLD UNDER REPURCHASE AGREEMENTS (Notes 2, 6, 10, 51,380,691 61,834,898 ( 17 ) 13, 19 and 33) PAYABLES (Notes 2, 20 and 33) 47,447,331 43,360,504 9 DEPOSITS AND REMITTANCES (Notes 21 and 33) 2,273,480,798 2,212,922,547 3 BONDS PAYABLE (Notes 2 and 22) 110,080,000 90,080,000 22 OTHER BORROWINGS (Notes 18 and 23) 3,783,000 970,000 290 ACCRUED PENSION COST (Notes 2 and 27) 2,683,081 2,391,743 12 OTHER FINANCIAL LIABILITIES (Notes 2, 24, 28 and 33) 42,077,539 12,947,680 225 RESERVES FOR OPERATIONS AND LIABILITIES (Notes 2, 3 and 25) 56,002,619 1,633,693 3,328 OTHER LIABILITIES (Notes 2, 14, 26 and 30) 4,896,654 5,052,214 ( 3 ) Total liabilities 2,833,694,788 2,664,671,778 6 STOCKHOLDERS' EQUITY OF PARENT COMPANY Capital stock Common stock at par value of NT$10.00; authorized - 12,000,000 thousand shares; issued and outstanding - 2012: 8,126,666 thousand 81,266,667 65,968,254 23 shares; 2011: 6,596,825 thousand shares Capital surplus Additional paid-in capital from share issuance in excess of par value 57,750,557 58,051,217 ( 1 ) Treasury stock transactions 103,370 - - Total capital surplus 57,853,927 58,051,217 - Retained earnings 7,587,747 262,533 2,790 Other equity Unrealized revaluation increments 6,062,145 5,434,727 12 Cumulative translation adjustments ( 69,790 ) 57,313 ( 222 ) Unrealized gain on financial instruments 1,059,104 287,047 269 Treasury stock - 2012: 217,076 thousand shares; 2011: 206,739 ( 7,136,010 ) ( 7,136,010 ) - thousand shares Total other equity ( 84,551 ) ( 1,356,923 ) ( 94 ) Total stockholders' equity of parent company 146,623,790 122,925,081 19 MINORITY INTEREST 3,272,585 168,561 1,841 Total stockholders' equity 149,896,375 123,093,642 22 CONTINGENCIES AND COMMITMENTS (Notes 2 and 35) TOTAL $ 2,983,591,163 $ 2,787,765,420 7 33 34 Financial Information
TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM DECEMBER 1, 2011 TO DECEMBER 31, 2011 (Note 1) (In Thousands of New Taiwan Dollars, Except Per Share Amounts) 2012 2011 Percentage Increase (Decrease) Amount Amount % INTEREST REVENUE (Notes 2, 33 and 36) $ 49,172,852 $ 4,088,789 1,103 INTEREST EXPENSE (Notes 2, 33 and 36) ( 22,872,504 ) ( 1,913,083 ) 1,096 NET INTEREST 26,300,348 2,175,706 1,109 NET REVENUES AND GAINS OTHER THAN INTEREST Service fee and commission income, net (Notes 2, 33 and 36) 3,417,842 435,544 685 Premium income, net (Notes 2 and 28) 989,998 - - Gains on financial assets and liabilities at fair value through profit or loss (Notes 2, 33 and 36) 3,417,748 158,971 2,050 Realized gains (losses) on available-for-sale financial assets 913,258 ( 15,051 ) 6,168 (Notes 2 and 36) Losses from equity investments under the equity method, net ( 75,170 ) ( 64,341 ) 17 (Notes 2, 12 and 40) Foreign exchange losses, net (Note 2) ( 2,206,944 ) ( 15,430 ) 14,203 Reversal of impairment losses (impairment losses) on assets (Notes 2, 11, 13 and 16) 140,505 ( 1,223 ) 11,589 Gains on financial assets carried at cost (Note 2) 286,723 - - Gains on the sale of nonperforming loans, net (Note 2) 585,990 15,659 3,642 Recovery of bad debts written off and overdue accounts 1,176,274 205,561 472 Other noninterest gains, net (Notes 2 and 33) 553,098 39,438 1,302 Total net revenue and gain other than interest 9,199,322 759,128 1,112 TOTAL NET REVENUES 35,499,670 2,934,834 1,110 BAD-DEBT EXPENSES (Notes 2 and 9) ( 4,634,193 ) ( 492,154 ) 842 OPERATING EXPENSES (Notes 2, 27 and 29) Personnel ( 14,156,442 ) ( 1,184,345 ) 1,095 Depreciation and amortization ( 1,230,498 ) ( 99,791 ) 1,133 General and administrative ( 5,504,899 ) ( 899,082 ) 512 Total operating expenses ( 20,891,839 ) ( 2,183,218 ) 857 NET CHANGE IN RESERVES FOR LIABILITIES ( 1,003,607 ) - - CONSOLIDATED INCOME BEFORE INCOME TAX 8,970,031 259,462 3,357 INCOME TAX EXPENSE (Notes 2 and 30) ( 1,434,021 ) ( 70,202 ) 1,943 CONSOLIDATED NET INCOME BEFORE EXTRAORDINARY GAIN 7,536,010 189,260 3,882 EXTRAORDINARY GAIN (Notes 1 and 2) - 71,588 ( 100 ) CONSOLIDATED NET INCOME $ 7,536,010 $ 260,848 2,789 ATTRIBUTABLE TO: Parent company $ 7,561,380 $ 262,533 2,780 Minority interest ( 25,370 ) ( 1,685 ) 1,406 $ 7,536,010 $ 260,848 2,789
2012 2011 Before Income Tax After Income Tax Before Income Tax After Income Tax BASIC EARNINGS PER SHARE (Note 31) Net income before extraordinary gain $ 1.07 $ 1.07 $ 0.03 $ 0.03 Extraordinary gain - - 0.01 0.01 Net income $ 1.07 $ 1.07 $ 0.04 $ 0.04 DILUTED EARNINGS PER SHARE (Note 31) Net income before extraordinary gain $ 1.07 $ 1.07 $ 0.03 $ 0.03 Extraordinary gain - - 0.01 0.01 Net income $ 1.07 $ 1.07 $ 0.04 $ 0.04 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM DECEMBER 1, 2011 TO DECEMBER 31, 2011 (Note 1) (In Thousands of New Taiwan Dollars)
Stockholders’ Equity of Parent Company
Equity Adjustments
Issued and Outstanding Unrealized Unrealized Retained Earnings Cumulative Capital Stock (Notes 2 and 32) Revaluation Gain on Total Translation Treasury Stock Increments Financial Minority Interest Stockholders' Adjustments (Notes 2 and 32) Shares Capital Surplus Unappropriated (Notes 2, 14, 16 Instruments Equity Common Stock Legal Reserve (Note 2) (In Thousands) (Notes 2 and 32) Earnings and 32) (Note 2)
BALANCE, DECEMBER 1, 2011 6,596,825 $ 65,968,254 $ 58,051,217 $ - $ - $ 4,325,873 $ 146,348 $ 24,657 $( 7,136,010 ) $ 175,535 $ 121,555,874
Consolidated net income for the period from December - - - - 262,533 - - - - ( 1,685 ) 260,848 1, 2011 to December 31, 2011
Change in cumulative translation adjustments ------( 89,035 ) - - ( 5,289 ) ( 94,324 )
Change in unrealized gain on financial instruments ------262,390 - - 262,390
Change in unrealized revaluation increments - - - - - 1,108,854 - - - - 1,108,854
BALANCE, DECEMBER 31, 2011 6,596,825 65,968,254 58,051,217 - 262,533 5,434,727 57,313 287,047 ( 7,136,010 ) 168,561 123,093,642
Appropriation of prior year's earnings (Note)
Legal reserve - - - 26,253 ( 26,253 ) ------
Dividend - cash - - - - ( 236,166 ) - - - - - ( 236,166 )
Balance after appropriation 6,596,825 65,968,254 58,051,217 26,253 114 5,434,727 57,313 287,047 ( 7,136,010 ) 168,561 122,857,476
Capital surplus transferred to capital stock and cash 329,841 3,298,413 ( 6,360,660 ) ------( 3,062,247 ) dividend
Consolidated net income in 2012 - - - - 7,561,380 - - - - ( 25,370 ) 7,536,010
Capital increase in September 2012 1,200,000 12,000,000 5,772,000 ------17,772,000
Share-based payment for the employees' subscription - - 288,000 ------288,000 for new shares
Cash dividends from Taiwan Cooperative Financial Holding Co., Ltd. received by Taiwan Cooperative - - 103,370 ------103,370 2012 ANNUAL REPORT Bank, Ltd. as a result of a share swap
Change in unrealized revaluation increments - - - - - 627,418 - - - - 627,418
Change in cumulative translation adjustments ------( 127,103 ) - - ( 3,213 ) ( 130,316 )
Change in unrealized gain on financial instruments ------772,057 - 276,080 1,048,137
Change in minority interest ------2,856,527 2,856,527
BALANCE, DECEMBER 31, 2012 8,126,666 $ 81,266,667 $ 57,853,927 $ 26,253 $ 7,561,494 $ 6,062,145 $ ( 69,790 ) $ 1,059,104 $ ( 7,136,010 ) $ 3,272,585 $ 149,896,375
Note: For the period from December 1, 2011 to December 31, 2011, the remunerations to directors of $2,363 thousand and bonuses to employees of $378 thousand were deducted from the income statements. The accompanying notes are an integral part of the consolidated financial statements. 35
36 Financial Information
TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM DECEMBER 1, 2011 TO DECEMBER 31, 2011 (Note 1) (In Thousands of New Taiwan Dollars)
2012 2011 CASH FLOWS FROM OPERATING ACTIVITIES Consolidated net income $ 7,536,010 $ 260,848 Adjustments to reconcile consolidated net income to net cash provided by (used in) operating activities Extraordinary gain - ( 71,588 ) Loss on valuation of financial instruments 250,394 36,540 Loss (gain) on the sale of available-for-sale financial assets ( 616,682 ) 15,053 Amortization of premium or discount on bonds 548,718 39,599 Loss from equity investments under the equity method, net of cash dividends received 79,727 64,341 Gain on the sale of debt instruments with no active market ( 90,707 ) ( 2,277 ) Impairment loss (reversal of impairment loss) on assets ( 140,505 ) 1,223 Loss (gain) on the sale of properties, nonoperating assets and collaterals assumed, net ( 212,913 ) 1,122 Depreciation and amortization expenses 1,230,498 99,791 Bad-debt expenses 4,634,193 492,154 Provision for pension costs 291,372 18,899 Salary expenses on share-based payment 288,000 - Deferred income tax ( 314,823 ) ( 1,618 ) Reserves for liabilities, net 1,003,607 - Others 62,298 1,107 Net changes in operating assets and liabilities Held-for-trading financial assets ( 35,361,511 ) 1,002,774 Receivables 522,058 21,285 Other assets 205,510 135,365 Held-for-trading financial liabilities ( 4,987,265 ) 2,251 Payables 3,782,349 8,230,420 Reserve for insurance contract with financial instrument features 3,235,743 - Other liabilities ( 800,688 ) 786,057
Net cash provided by (used in) operating activities ( 18,854,617 ) 11,133,346
CASH FLOWS FROM INVESTING ACTIVITIES Increase in due from the Central Bank and call loans to other banks ( 108,893,384 ) ( 17,179,832 ) Decrease in securities purchased under resell agreements 2,115,588 - Increase in financial assets designated as at fair value through profit or loss ( 50,000 ) - Proceeds of the sale of financial assets designated as at fair value through profit or loss 925,000 - Decrease (increase) in discounts and loans 71,897,423 ( 9,021,798 ) Acquisition of available-for-sale financial assets ( 41,251,734 ) ( 1,702,223 ) Proceeds of the sale of available-for-sale financial assets 31,614,058 525,228
(Continued) 2012 ANNUAL REPORT
TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM DECEMBER 1, 2011 TO DECEMBER 31, 2011 (Note 1) (In Thousands of New Taiwan Dollars)
2012 2011 Acquisition of held-to-maturity financial assets $ ( 7,777,038 ) $ ( 3,788 ) Return of principal on held-to-maturity financial assets 1,755,220 682,815 Acquisition of debt instruments with no active market ( 34,672,299 ) ( 499,155 ) Proceeds of the sale of and return of principal on debt instruments with no active market 12,475,234 601,645 Decrease (increase) in other financial assets ( 136,859 ) 52,955 Acquisition of properties, intangible assets and nonoperating assets ( 1,437,040 ) ( 133,730 ) Proceeds of the sale of properties, nonoperating assets and collaterals assumed 404,570 12,056 Decrease (increase) in other assets ( 103,471 ) 61,773
Net cash used in investing activities ( 73,134,732 ) ( 26,604,054 )
CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in due to the Central Bank and other banks 8,068,848 ( 14,146,976 ) Increase in commercial paper issued 941,760 6,995 Increase (decrease) in securities sold under repurchase agreements ( 10,454,207 ) 4,351,101 Increase in deposits and remittances 60,558,251 42,021,305 Issuance of bank debentures 20,000,000 - Increase in other borrowings 2,813,000 8,000 Decrease in other financial liabilities ( 4,338,981 ) ( 342,779 ) Increase (decrease) other liabilities ( 29,545 ) 8,064 Cash dividends ( 3,195,043 ) - Capital increase 17,772,000 - Changes in minority interest 1,127,000 -
Net cash provided by financing activities 93,263,083 31,905,710
EFFECTS OF EXCHANGE RATE CHANGES 1,184,426 ( 47,378 )
EFFECT OF CHANGE IN CONSOLIDATED SUBSIDIARIES 4,048,786 -
INCREASE IN CASH AND CASH EQUIVALENTS 6,506,946 16,387,624
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR/PERIOD 52,877,576 36,489,952
CASH AND CASH EQUIVALENTS, END OF YEAR/PERIOD $ 59,384,522 $ 52,877,576
SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 22,572,579 $ 2,851,169 Income tax paid $ 1,262,955 $ 395,196 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) 37 38 Financial Information
TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2012 AND ONE MONTH ENDED DECEMBER 31, 2011 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
1. ORGANIZATION AND OPERATIONS Taiwan Cooperative Financial Holding Co., Ltd. (TCFHC) was established by Taiwan Cooperative Bank, Ltd. (TCB), Taiwan Cooperative Bills Finance Corporation Ltd. (TCBF) and Co-operative Assets Management Co., Ltd. (CAM) through a share swap on December 1, 2011 under the Financial Holding Companies Act and related regulations in the Republic of China (ROC). The TCFHC’s shares have been listed on the Taiwan Stock Exchange (TSC) since December 1, 2011. After the share swap, TCB, TCBF and CAM became wholly owned subsidiaries of TCFHC. TCFHC obtained 13,346 thousand shares of TCBF held by a minority stockholder. The acquired net asset values of respective investees in excess of the initial investment costs were allocated proportionately and applied as a reduction to the book values of identifiable noncurrent assets, and the excess of $71,588 thousand after this allocation was credited to extraordinary gain in December 2011. TCFHC invests in and manages financial institutions. TCB engages in (a) all commercial banking operations allowed under the Banking Law; (b) international banking operations; (c) overseas branch operations as authorized by the respective foreign governments; and (d) other operations as authorized by the central authority-in-charge. TCB has its Head Office in Taipei. It had a Business, International Banking, Finance and Trust Departments as well as 290 domestic branches, an offshore banking unit (OBU), 6 overseas branches and 1 representative office as of December 31, 2012. The operations of TCB’s Trust Department are (1) planning, managing and operating the trust business and (2) custodianship of nondiscretionary trust funds in domestic and overseas securities and mutual funds. These operations are regulated under the Banking Law and Trust Law of the ROC. TCB merged with the Farmers Bank of China (FBC) on May 1, 2006, with TCB as the survivor entity. On December 2, 2011, TCB spun off its Security Department for the establishment of Taiwan Cooperative Securities Co., Ltd. (TCS). TCS issued new common shares to TCFHC and became its 100% subsidiary. TCS primarily (a) brokers securities; (b) deals securities; (c) underwrites securities; (d) provides pecuniary and securities financing facilities for the trading of listed securities; (e) trading of futures introducing broker business; (f) does other business as approved by the authorities. The details of assets and abilities transferred to TCS were as follows: Amount Cash and cash equivalents $ 428,986 Financial assets at fair value through profit or loss - current 157,450 Margin loans receivable, net 2,049,200 Receivables 186 Prepaid expenses 6,406 Other receivables, net 47,027 Properties, net 34,047 Intangible assets 17,348 Operating deposits 373,489 Settlement funds 73,176 Refundable deposits 877 (Continued) 2012 ANNUAL REPORT
Amount Cash and cash equivalents - collection from underwriting securities 1,370 Securities brokerage accounts, net ( 24,909 ) Deposits on short-sale transactions ( 59,752 ) Payables for short-sale transactions ( 69,288 ) Collection payables ( 3,269 ) Other payables ( 18,733 ) Collection from underwriting securities ( 1,370 ) Unrealized gain on financial instruments ( 12,241 ) $ 3,000,000
(Concluded)
TCBF, established on May 13, 1998, has a head office in Taipei and a branch in Kaohsiung. TCBF engages in (a) brokering and dealing short-term bills; (b) underwriting commercial paper; (c) acting as registrar of commercial paper; (d) providing guarantees on or endorsements of commercial paper and bank acceptance; (e) brokering call loans between financial institutions; (f) providing consulting services on corporate financial matters; (g) brokering and dealing government bonds; (h) underwriting, brokering and dealing bank debentures; (i) dealing corporate bonds; (j) investment related equity instruments; (k) other operations approved by the authorities. CAM was established on October 18, 2005; its main businesses are the purchase, appraisal, auction and management of financial institutions’ creditors’ rights as well as the purchase of accounts receivable and management of overdue receivables. Cooperative Insurance Brokers Co., Ltd. (CIB) was established on November 25, 2005; it engages in life and property insurance brokering. TCB set up the United Taiwan Bank S.A. (UTB) in Belgium through raising funds with Bank of Taiwan, Land Bank of Taiwan and Taiwan Business Bank. UTB started its operation on December 23, 1992; it is TCB’s subsidiary and its main business is in general deposits and loans. For organizational restructuring purpose, TCB’s board of directors resolved to reduce TCB’s capital of $1,524,390 thousand and transferred TCB’s long-term equity investments in BNP Paribas Assurance TCB Life Insurance Co., Ltd. (BPATLI) and BNP Paribas TCB Asset Management Co., Ltd. (BPTAM) to TCFHC on December 1, 2011. The effective date of the capital reduction was set on April 3, 2012. After this capital reduction, BPATLI and BPTAM both became 51% subsidiaries of TCFHC. The business of BPATLI was approved in March 2010. BPATLI provides insurance: Life, personal injury, health and annuity. The business of BPTAM was approved in April 2011. BPTAM engages in the Securities investment trust business. As of December 31, 2012, the funds managed by BPTAM were as follows:
Fund Name Type When Established BNP Paribas TCB Elite Taiwan Fund Open-end fund June 21, 2011 BNP Paribas TCB Elite Sustainability Emerging Asia Equity Open-end fund December 23, 2011 Fund BNP Paribas TCB Elite Global Investment Grade Bond Fund Open-end fund May 28, 2012 BNP Paribas TCB Elite Global High Yield Bond Fund Open-end fund September 13, 2012
The above consolidated entities are hereinafter referred to collectively as the Company. Please see Table 1 (attached) for more information on the consolidated entities. As of December 31, 2012 and 2011, TCFHC and its subsidiaries (the “Company”) had 9,112 and 8,991 employees, respectively. 39 40 Financial Information
2. SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Financial Holding Companies, Guidelines Governing the Preparation of Financial Reports by Public Banks, Guidelines Governing the Preparation of Financial Reports by Securities Firms, Guidelines Governing the Preparation of Financial Reports by Insurance Enterprises, Business Accounting Law, Guidelines Governing Business Accounting and accounting principles generally accepted in the ROC. For the convenience of readers, the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the ROC. 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 consolidated financial statements shall prevail. The Company’s significant accounting policies are summarized as follows:
Basis of Presentation of Consolidated Financial Statements The Company’s consolidated financial statements as of December 31, 2011 and for the period from December 1, 2011 to December 31, 2011 included the accounts of TCFHC, TCB and its subsidiaries, CAM and its subsidiary, TCBF and TCS. The Company’s consolidated financial statements as of and for the year ended December 31, 2012 included the accounts of TCFHC, TCB and its subsidiaries, CAM and its subsidiary, TCBF, TCS, BPATLI and BPTAM. All significant intercompany transactions and balances have been eliminated for consolidation purposes. The accompanying consolidated financial statements also include accounts of TCB’s Head Office, OBU, all domestic and overseas operating departments, branches and representative offices. All interoffice account balances and transactions have been eliminated.
Foreign-currency Transactions The Taiwan Cooperative Bank, Ltd. (TCB) records foreign-currency transactions (except derivative transactions) in the respective currencies in which these are denominated. Every month-end, foreign-currency income and expenses are translated into New Taiwan dollars at the prevailing exchange rates. Except for TCB, the Company records foreign-currency transactions (except derivative transactions) in New Taiwan dollars at the rates of exchange in effect when the transactions occur. On the balance sheet date, monetary financial assets and liabilities are translated into New Taiwan dollars at the prevailing exchange rates, and exchange differences are recognized in the income statement. Unrealized exchange differences on nonmonetary financial assets (investments in equity instruments) are a component of the change in their entire fair value. For nonmonetary financial assets and liabilities classified as financial instruments measured at fair value through profit or loss, unrealized exchange differences are recognized in the income statement. For nonmonetary financial instruments that are classified as available- for-sale, unrealized exchange differences are recorded directly under stockholders’ equity until the asset is sold or becomes impaired. Nonmonetary financial instruments that are classified as carried at cost are recognized at the prevailing exchange rates on the transaction dates. TCB translates overseas branches’ and the equity- method investees’ financial statements at the following rates: Assets and liabilities - the prevailing exchange rates on the balance sheet date; and income and expenses - the average exchange rate in the year. Translation differences net of income tax are recorded as “cumulative translation adjustments” under stockholders’ equity and will be recognized as gain or loss if overseas branches and equity-method investments are sold or liquidated.
Accounting Estimates In preparing consolidated financial statements in conformity with these guidelines and principles, the Company is required to make certain estimates and assumptions that could affect the allowance for credit losses, reserves for operations and liabilities, depreciation of properties and nonoperating assets, amortization of intangible assets, pension costs, impairment loss on assets, valuation of financial instruments, bonus to 2012 ANNUAL REPORT
employees, remuneration to directors and supervisors, income tax, accrued litigation loss, etc. Actual results may differ from these estimates.
Current and Noncurrent Assets and Liabilities The operating cycle in the financial holding and banking industries cannot be reasonably identified; thus the accounts included in the financial statements of Taiwan Cooperative Financial Holding Co., Ltd., Taiwan Cooperative Bank, Ltd., United Taiwan Bank S.A., Taiwan Cooperative Bills Finance Corporation Ltd. and BNP Paribas Assurance TCB Life Insurance Co., Ltd. are not classified as current or noncurrent. Other subsidiaries’ assets and liabilities are classified as follows: Cash and cash equivalents and those assets to be converted and those consumed within a year are classified as current. Obligations to be liquidated or settled within a year are classified as current. All other assets and liabilities are classified as noncurrent. The consolidated financial statements, however, do not show the classification of current or noncurrent assets/ liabilities because the banking industry accounts for the majority of the consolidated accounts. Thus, accounts in the consolidated financial statements are instead categorized by nature and sequenced by their liquidity. Please refer to Note 36 for the maturity analysis of assets and liabilities.
Regular Way Purchase or Sale of a Financial Asset The Company uses settlement date accounting when recording transactions, except those on beneficial certificates, for which trade date accounting is used. The Company recognizes gain or loss on the sale of financial assets on the settlement date. The changes in fair values between the trade date and the settlement date for purchase of financial assets are recognized by the following methods: (a) financial assets at fair value through profit or loss - credited or charged to current income; (b) available-for-sale financial assets - credited or charged to stockholders’ equity.
Basis of Fair Value Fair values are determined as follows: (a) short-term bills - at reference prices published by the Taiwan Bills Index Rate (TAIBIR) or Reuters; (b) listed securities and GreTai Securities Market (GTSM) securities - at closing prices as of the balance sheet date; (c) beneficial certificates (open-end funds) - at net asset values as of the balance sheet date; (d) bonds - domestic - at period-end reference prices published by the GTSM; (e) securities that are not listed or not traded in the GTSM but have quoted market prices or trading records - at quoted market prices or trading prices; and (f) financial instruments with no active markets - at fair value estimates based on valuation techniques.
Cash and Cash Equivalents Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash and have values whose changes are not exposed to significant risk.
Financial Instruments at Fair Value through Profit or Loss Financial instruments at fair value through profit or loss (FVTPL) are financial assets or liabilities that are designated as at fair value through profit or loss on initial recognition and those classified as held for trading. These instruments are initially measured at fair value and are remeasured at fair value on the balance sheet date, with changes in fair value recognized directly in profit or loss in the year in which they arise. Financial instruments used in derivative transactions that do not qualify for hedge accounting is classified as financial assets or liabilities held for trading. If the fair value of a derivative is a positive number, the derivative is recognized as a financial asset; otherwise, the derivative is recognized as a financial liability. Applying the fair value option eliminates accounting measurement mismatch for items that naturally offset each other or eliminates the burden of separating embedded derivatives that are not considered to be closely related to the host contract pertaining to a hybrid instrument. The company did not adopt hedge accounting in 2012 and 2011. If the hedged items are not designated as financial assets or liabilities at FVTPL, accounting measurement mismatches on these items will occur as a result of differences in measurement attributes. Thus, the Company designated debt instruments and bank debentures issued as financial assets and liabilities at 41 42 Financial Information
FVTPL.
Available-for-sale Financial Assets Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the asset acquisition. Any difference between the initial carrying amount of a debt security and its amount on maturity is amortized using the effective interest method. However, the straight-line method is used for amortization if there is only a minor difference between the result of using the effective interest method and that of the straight-line method. When assets are subsequently measured at fair value, the changes in fair value are excluded from earnings and reported as a separate component of stockholders’ equity. The accumulated gains or losses are recognized as earnings when the financial asset is de-recognized from the balance sheet. Cash dividends received on earnings generated before investment acquisition are recognized as a reduction of the original investment cost and are subsequently recognized as investment income up on the stockholders’ resolution. Stock dividends received are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated on the basis of the new number of shares held. If an available-for-sale financial asset is determined to be impaired, a loss is recognized. If the impairment loss on equity securities decreases, this loss is reversed to the extent of the decrease and recorded as an adjustment to stockholders’ equity; for debt instruments, this loss is reversed and recognized as earnings.
Held-to-maturity Financial Assets Held-to-maturity financial assets are carried at amortized cost using the effective interest method. However, the straight-line method is used for amortization if there is only a minor difference between the result of using the effective interest method and that of the straight-line method. These financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the asset acquisition. Gains or losses are recognized at the time of derecognition, impairment or amortization. If a held-to-maturity financial asset is determined to be impaired, a loss is recognized. If the impairment loss decreases, the previously recognized impairment loss is reversed. However, the reversal should not result in the carrying amount of financial assets exceeding the carrying amount that would have been determined had no impairment loss been recognized.
Other Financial Assets Financial assets carried at cost are those investments in equity instruments (including unlisted stocks and emerging stocks) with no quoted market prices in an active market and with fair values that cannot be reliably measured. The accounting treatment of dividends is the same as that for dividends on available-for-sale financial assets. If there is objective evidence that a financial asset carried at cost is impaired, an impairment loss is recognized. However, impairment loss reversal is prohibited. Debt instruments with no active market are those with no quoted market prices in an active market and with predetermined amounts. The accounting treatment for these debt instruments is the same as that for held-to- maturity financial assets, except for the absence of restriction on the timing of the disposal of held-to-maturity financial assets.
Acquired Loans For nonperforming loans purchased from financial institutions, the initial cost of acquired loans is the purchase price. The cost recovery method is used to recognize gain or loss on acquired loans. Upon the recovery of an acquired loan, any surplus obtained from the consideration received on recovery against the consideration paid on acquisition of the loan will be recognized as income from recoveries of acquired loans. The agreement purchase price and all necessary handling charges on acquisition are the total cost of the acquired loans, and the fair value of each individual loan is used as the basis for cost allocation. All marketing and related operating expenses, including bidding fees and legal payments, are expensed when incurred. 2012 ANNUAL REPORT
Marketing and handling expenses for the acquired loans are expensed as they are incurred from the acquisition date to the resale date. If the debtor fails to repay the debt, the related expenses incurred for the provisional seizure or provisional disposition executed by the court - including the expenses for applying for auction permission, the judge expenses for collateral auction, and appraisal expenses - are accounted for as operating expenses.
Overdue Loans Loans and other credits (including accrued interest) that are overdue for at least six months are classified as overdue loans in accordance with the guideline issued by the Financial Supervisory Commission (FSC). Overdue loans (except other credits) are classified as discounts and loans, and the remaining are classified as other financial assets.
Allowance for Credit Losses and Reserve for Losses on Guarantees In determining the allowance for credit losses and reserve for losses on guarantees, the Company evaluates the losses on particular loans and overall credit portfolio, considering the balances of bills, discounts, loans, receivables, and overdue loans as well as guarantees as of the balance sheet date. Loans and receivables are assessed for impairment at the end of each reporting period and considered impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the loans and receivables, the estimated future cash flows of the asset have been affected. Objective evidence of impairment could include: Significant financial difficulty of the debtor; The loans and receivables becoming overdue; ⦁ Probability that the debtor will enter into bankruptcy or undergo financial reorganization. ⦁ Loans⦁ and receivables that are individually assessed as not impaired are further assessed collectively for impairment. Objective evidence of impairment for a portfolio of loans and receivables could include the Company’s past difficulty in collecting payments and an increase in the number of delayed payments, as well as observable changes in national or local economic conditions that correlate with defaults on loans and receivables. The impairment loss recognized is the difference between the asset carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rates of the loans and receivables, after taking into account the related collateral and guarantees. The carrying amount of the loans and receivables is reduced through the use of an allowance account. Under the Financial Supervisory Commission’s (FSC) guidelines, the Taiwan Cooperative Bank, Ltd. (TCB) should classify credit assets as sound credit assets or unsound credit assets, with the unsound assets further categorized as special mention, substandard, with collectibility highly doubtful and uncollectible, on the basis of the customers’ financial position, valuation of collaterals and the length of time the principal repayments or interest payments have become overdue. TCB made 100%, 50%, 10%, 2% and 0.5% provisions for credits deemed uncollectible, with collectibility highly doubtful, substandard, special mention and the outstanding balance of sound credit assets (excluding assets that represent claims against an ROC government agency), respectively, as minimum provisions for possible losses on credit assets. Under “The Regulations Governing the Procedures for Bills Finance Companies to Evaluate Assets, Set Aside Loss Reserves, and Handle Nonperforming Credits, Nonaccrual Loans, and Bad Debts” issued by the FSC, TCBF makes the following minimum provisions for losses on credits for these categories: Uncollectible - 100%; with doubtful collectibility - 50%; substandard - 10%; “special mention” - 2%; and collectible - 1%. Under the “Regulations Governing the Procedures for Insurance Institutions to Evaluate Assets and Deal with Nonperforming/Nonaccrual Loans” issued by the Insurance Bureau, BNP Paribas Assurance TCB Life Insurance Co., Ltd. made 100%, 50%, 10%, 2% and 0.5% provisions for credits deemed uncollectible, with 43 44 Financial Information
collectibility highly doubtful, substandard, special mention and the outstanding balance of sound credit assets (excluding assets that represent claims against an ROC government agency, policy loans and premium loans), respectively, as minimum provisions for possible losses on credit assets. Under FSC guidelines, write-offs of specific loans are offset against the recorded allowance for loan losses, as approved by the board of directors.
Purchase on Margin and Short Sale The Taiwan Cooperative Securities Co., Ltd. (TCS) recognizes margin loans as loans to customers for purchases on margin while providing financing to investors who buy stocks. Margin loans made by TCS are generally collateralized by securities in the client’s account. These collateralized securities are not entered in TCS’ books but are recorded using memorandum entries. After the security investors settle the margin loan, these pledged securities are returned to investors. TCS requires a deposit from security investors for short sale services while providing short sale services to investors. This deposit is recorded as deposits on short-sale transactions. The amount collected from selling short sale securities (net of securities transaction tax, brokerage fee and handling fee) is kept by TCS as collateral and recorded as payable for short-sale transactions. The securities lent to clients as short sale are recorded using memorandum entries. The deposits on short-sale transactions and payables for short sale are returned to security investors after investors settle the short-sale transactions. The margin deposited by securities firms to securities finance companies is recorded as loan from refinanced margin. The refinancing securities delivered to TCS are recorded through memorandum entries as refinancing stock loans. A portion of the proceeds of the short-sale of securities borrowed from securities finance companies is retained by the securities finance companies as collateral and is recorded as refinancing deposit receivable.
Securities Purchased/Sold Under Resale/Repurchase Agreements Securities purchased under resell agreements and securities sold under repurchase agreements are generally treated as collateralized financing transactions. Interest earned on resell agreements or interest incurred on repurchase agreements is recognized as interest revenue or interest expense over the life of each agreement.
Brokerage Accounts, Net Under the Guidelines Governing the Preparation of Financial Reports by Securities Firms, the brokerage accounts, net are recorded as brokerage accounts - debit (including cash and cash equivalents - settlement account, brokerage securities receivable, exchange clearance, credit transactions and settlements receivable) and brokerage accounts - credit (including brokerage securities payable, exchange clearances, credit transactions and settlements payable). As a result, brokerage accounts - debits are offset against brokerage accounts - credit and recorded as brokerage accounts, net.
Asset Impairment The Company tests assets (mainly properties, nonoperating assets, goodwill and computer software) and cash-generating units (CGUs) for impairment on each balance sheet date. If impairment is determined, the Company estimates the recoverable amounts of assets or CGUs. An impairment loss should be recognized whenever the recoverable amount of the asset or the CGU is below the carrying amount. If asset impairment loss (excluding goodwill) is reversed, the increase in the carrying amount resulting from reversal is credited to current income. However, loss reversal should not be more than the carrying amount (net of depreciation or amortization) had the impairment loss not been recognized. For the unrealized revaluation increments recognized upon revaluation required by law, the impairment loss is recognized as a reduction of the reported revaluation increments. If the impairment loss exceeds the reported revaluation increments, the excess is recognized as current loss. If this impairment loss is reversed, this reversal is recognized as current income to the extent of the loss previously recognized, and any reversal exceeding the amount of previously recognized loss is reported as unrealized revaluation increments. 2012 ANNUAL REPORT
Goodwill is tested for impairment annually or more frequently if events indicate goodwill impairment. An impairment loss is recorded if the book value exceeds value in use. No recording of a subsequent recovery of fair value of goodwill is allowed.
Equity Investments under the Equity Method Investments in shares of companies in which the Company exercises significant influence on their operating and financial policy decisions are accounted for by the equity method. Under the equity method, the investments are carried at cost on the acquisition date and subsequently adjusted for the Company’s proportionate share in the net income or loss and net assets of the investees. The proportionate share in the net income or loss is recognized as current income or loss, and any cash dividends received are reflected as a reduction of the carrying values of the investments. When the Company subscribes for its investee’s newly issued shares at a percentage different from its current percentage of ownership in the investee, the Company records the change in its equity in the investee’s net assets as an adjustment to investments, with a corresponding amount credited or charged to capital surplus. When the adjustment should be debited to capital surplus, but the capital surplus arising from long-term investments is insufficient, the shortage is debited to retained earnings. The acquisition cost is allocated to the assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition, and the acquisition cost in excess of the fair value of the identifiable net assets acquired is recognized as goodwill. Goodwill is not being amortized. The fair value of the net identifiable assets acquired in excess of the acquisition cost is used to reduce the fair value of each of the noncurrent assets acquired (except for financial assets other than equity investments accounted for under the equity method, noncurrent assets held for sale, deferred income tax assets, prepaid pension or other postretirement benefit) in proportion to the respective fair values of the noncurrent assets, with any excess recognized as an extraordinary gain. When the Company’s share in losses of an investee over which the Company has significant influence equals its investment in that investee plus any advances made to the investee, the Company discontinues applying the equity method. The Company continues to recognize its share in losses of the investee if (a) the Company commits to provide further financial support to the investee or (b) the losses of the investee are considered temporary and sufficient evidence shows imminent return to profitability. If the Company has investments that it jointly controls with one or more entities, the investments are accounted for under the equity method. Stock dividends received are recognized only as increases in the number of shares held and not as income. Cost of equity investments sold is determined by the weighted-average method. If there is objective evidence that an equity-method investment is impaired, an impairment loss is recognized. The Company tests equity investments on which the Company has significant influence but over which the Company has no control on the basis of the individual carrying amounts of the investments.
Properties and Nonoperating Assets Properties and nonoperating assets (part of other assets) are stated at cost, or cost plus revaluation increments and less accumulated depreciation and accumulated impairment. Major renewals, additions and improvements are capitalized; while costs of repairs and maintenance are expensed as incurred. Depreciation of properties and nonoperating assets is computed on the straight-line basis over useful lives estimated as follows: buildings, 5 to 50 years; machinery and equipment, 3 to 10 years; transportation equipment, 3 to 10 years; other equipment, 2 to 20 years; and leasehold improvements, 1 to 10 years. Assets still being used after they have reached their full depreciation value are depreciated over newly estimated service lives. Upon retirement or disposal of properties and nonoperating assets, their cost (including revaluation increments), related accumulated depreciation, accumulated impairment and any unrealized revaluation increments of an item of property and nonoperating asset are removed from the accounts. Any resulting gain 45 46 Financial Information
or loss is credited or charged to current income.
Intangible Assets Goodwill is stated at cost less accumulated impairment. Computer software is recorded at acquisition cost and amortized by the straight-line method over three to five years.
Collaterals Assumed Collaterals assumed (part of other assets) are recorded at cost and revalued at the lower of cost or net fair value as of the balance sheet date. If cost exceeds net fair value, an impairment loss is recognized. If the impairment loss is reversed, this reversal is recognized as current income. If collaterals assumed are not disposed of within the statutory period, relevant regulations require that the Company should either apply for the extension of the disposal period or increase their provision for possible losses.
Operating Deposits Under the regulations, the Company should place in government-designated banks guarantee deposits based on their respective type of business operations after registration (part of other assets).
Settlement Fund Under the regulations, the Company that broker marketable securities and trade securities for their own purposes should deposit settlement funds to the Taiwan Stock Exchange and the GreTai Securities Market before and after the start of business operation (part of other assets).
Reinsurance To limit possible losses from some risk events, the Company enters into reinsurance agreements with reinsurers in accordance with its business needs and the related regulations. If the reinsurers cannot meet their obligations, the Company remains liable to its policyholders for the amount pertaining to the reinsurers’ inability to meet their obligations. Thus, allowances are made for reinsurance contract receivables that are deemed uncollectible. The Company’s rights to the reinsurers, including reinsurance assets, claims recovered from reinsurers, and net due from reinsurers and ceding companies, should be tested regularly for impairment. An impairment loss is recognized when there is objective evidence that after initial recognition, there is an event making the Company unable to collect receivables as stated in the contracts and the irrecoverable amount can be reliably measured. The difference between the recoverable amount and the book value of the foregoing rights is recognized as impairment loss.
The accounting treatment for reinsurance contracts depends on whether or not the Company transfers significant insurance risk to the reinsurers. If significant insurance risk is not transferred, deposit accounting is applied to the contracts. If a reinsurance contract involves the transfer of significant insurance risk and if the Company can evaluate the deposit components individually, the insurance component and the deposit component are separately recognized. That is, the difference between the contract amount the Company receives or pays and the amount of the insurance component is recognized as a financial liability or asset chargeable to revenues or expenses. The financial liability or asset is recognized and measured at fair value, which is based on the discounted value of future cash flows.
Investment-linked Products The Company sells investment-linked products. Based on agreements, the insurance premiums paid by policyholders are offset against various expenses incurred by the Company and are invested in separate 2012 ANNUAL REPORT
accounts at allocation ratios agreed on with or set by the policyholders. The value of the separate-account assets is accounted for at the market value on the date of the start of the transaction, and their net worth is computed in accordance with the related regulations and accounting principles generally accepted in the ROC. The assets, liabilities, revenues and expenses of separate accounts represent the rights and obligations of the policyholders and are recorded, pursuant to the accounting principles governing investment-linked products, in the Company’s “Assets on insurance products - separate account” (part of other financial assets), “Liabilities on insurance products - separate account” (part of other financial liabilities), “Income on insurance products - separate account” and “Disbursements on insurance products - separate account” (part of premium income).
Operating Reserves The reserves of insurance contracts are recognized in accordance with the “Regulations Governing the Reserves by Insurance Enterprises” and should be attested by an actuary with accreditation from the Financial Supervisory Commission. The provision basis of various reserves is as follows:
Reserve for life insurance liability The reserve for the life insurance liability of an insurance product is calculated in accordance with the Regulations Governing the Reserves by Insurance Enterprises and other rulings promulgated by regulators. The calculation is based on a mortality table and projected interest rate at the time of the Insurance Bureau’s approval of the insurance product.
Reserve for unearned premiums Unearned premiums of effective policies with a term of less than one year and the term of injury insurance exceeding one year are computed by policy type in accordance with the actual risk.
Special reserve for life insurance For insurance products with a term of less than one year, the Company provides special reserves for certain exigencies in the following order: a. Special reserve for catastrophes Special reserves for catastrophes are provided by policy type and at rates set by the regulatory authorities. This reserve is used to offset the portion of net indemnities exceeding $30 million. The amount should cover a period of more than 15 years. Any amount of this reserve remaining at the end of 15 years should be measured by an actuary and then reported to the Insurance Bureau, after which the amount will be recognized as gain. Before January 1, 2011, the special reserve for catastrophes was recognized under liability. From January 1, 2011, the incremental provision for catastrophe special reserve, net of tax defined in Statement of Financial Accounting Standards No. 22 - “Income Taxes,” is recognized as special reserve under stockholders’ equity. The offset or recovered amounts are debited the special reserve under liabilities first, and if this reserve is not sufficient, the special reserve under equities is used for debiting. b. Special reserve for contingent claim For each type of insurance products, if the actual claim offset against the special reserve for catastrophe is less than the projected claim, 15% of the difference should be provided as special reserve for contingent claim. Otherwise, the entire difference may be offset against the special reserve for contingent claim. If the special reserve cannot cover the difference, the reserve for contingent claim of another insurance product may be used for the offset. The insurance products and the amount offset should be in accordance with regulations and should be reported to the Insurance Bureau. When the accumulated amount of special reserve for the contingent claim for each type of insurance products exceeds 30% of the gross amount of net earned premium, the excess is treated as income. The above offset or recovered amounts are debited to the special reserve for contingent claim under the reserve for operations and liabilities. If this special reserve is insufficient, the shortage, net of the tax SFAS No. 22, should be debited to the special reserve for contingent claims under stockholder’s equity. 47 48 Financial Information
The provision of the special reserve for life insurance should also be net of the tax defined in SFAS No. 22 and should be recognized as special reserve under stockholders’ equity. For the Company, the special reserve for contingent claims, net of tax, recovered from the reserve for operations and liabilities should be appropriated as special reserve under the shareholders’ approval given in the following year and should not be distributed as dividends or be used for any other purposes unless there is prior approval by the authorities.
Reserve for claim payments Reserve for claim payments is for claims that have been incurred but not yet reported (IBNR). An IBNR reserve is provided for new life insurance, health insurance and injury insurance on the basis of actual data case by case. BNP Paribas Assurance TCB Life Insurance Co., Ltd. (BPATLI) is in its early stage of operation and has insufficient claim experience to develop trend analysis as a basis to calculate claim reserve. Thus, under Article 23 of the “Regulations Governing the Reserves by Insurance Enterprises,” from January 1, 2010 to December 31, 2012, BPATLI accrued a provision for the IBNR reserve at 1% of the net earned premiums. However, from January 1, 2013, BPATLI will no longer use the 1% accrual in making the provision for the IBNR reserve and will instead use actual data and the loss triangle approach.
Reserve for insufficient premiums If the premiums issued for life insurance, health insurance, and annuity insurance contract with a coverage period of over year are less than the reserve for premiums required by relevant regulations, the deficiency of subsequent periods should be recognized as premium deficiency reserve. In addition, potential claims and expenses should be estimated for effective contracts yet to mature and injury insurance contracts with a coverage period of over one year. If the assessed amount is more than the unearned premium reserve and expected premium income, the excess should be recognized as premium deficiency reserve by product type.
Liability adequacy reserve Starting from January 1, 2011, based on SFAS No. 40 - “Insurance Contracts,” a liability adequacy reserve should be provided on the basis of the results of liability adequacy tests.
Reserve for exchange rate changes A reserve for exchange rate changes is provided in accordance with the “Regulations Governing the Reserves of Insurance Enterprises.” On the initial setup of this reserve, the regulation allows an entity to transfer up to half of the reserve for catastrophes and of the reserve for contingency claims to the reserve for exchange rate changes. However, BNP Paribas Assurance TCB Life Insurance Co., Ltd. believes it need not make this transfer. As of December 31, 2012, the balance of the reserve for exchange rate changes was $10,868 thousand.
Liability Adequacy Test Under the Actuarial Standards of Practice of SFAS No. 40 - “Classification of Contracts and Liability Adequacy Test” issued by the Actuarial Institute of the Republic of China, the Company subjects all its insurance contracts to liability adequacy tests at each balance sheet date. The test is made on the difference between the (a) net carrying amount of insurance liabilities minus deferred acquisition costs and (b) the related intangible assets and current estimates of future cash flows from insurance policies. If the net carrying amount is insufficient, the deficiency will be recognized in profit or loss.
Pension Costs The Company has two pension plans: defined benefit and defined contribution. Under the defined benefit plan, pension cost is determined actuarially. Under the defined contribution plan, the Company’s pension fund contributions are recognized as current expenses throughout the employees’ service periods. 2012 ANNUAL REPORT
Income Tax The inter-period and intra-period income tax allocation methods are used, by which tax effects of loss carryforwards, unused investment tax credits, deductible temporary differences and debits of stockholders’ equity adjustments are recognized as deferred income tax assets, and those of taxable temporary differences and credits of stockholders’ equity adjustments are recognized as deferred income tax liabilities. A valuation allowance is provided for deferred income tax assets that are not certain to be realized. Taiwan Cooperative Financial Holding Co., Ltd. (TCFHC) and its subsidiaries elected to file a consolidated tax return from 2012. The difference between consolidated income tax payable and the sum of income tax payable of the entities included in the consolidated tax return is considered as a tax consolidation adjustment, which is shown on TCFHC’s income tax expense or benefit. Any distribution of cash payments and receipts among the consolidated group members is recorded as receivable or payable. Any adjustments of prior years’ tax liabilities are included in the current year’s income tax expense. According to the Income Tax law, income taxes (10%) on undistributed earnings generated annually since 1998 are recorded as expenses in the year when the stockholders resolve to retain the earnings.
Stock-based Compensation The Company’s employees subscribed for the reserved shares of Taiwan Cooperative Financial Holding Co., Ltd. (TCFHC) in accordance with the Financial Holding Company Act, and the Company recognized the fair value of the stock options under salary expenses for share-based payment and under capital surplus on the grant date, i.e., the date when the Company and its employees made an agreement for the employees to subscribe for TCFHC’s shares.
Treasury Stock Issued shares reacquired as treasury stock are carried at cost and presented as a deduction to arrive at stockholders’ equity. When the treasury shares are reissued to the employees, the difference between the disposal price and acquisition cost will be credited or debited to “capital surplus - treasury stock.” If this capital surplus is not enough for debiting purposes, the shortfall is charged to unappropriated retained earnings. Under a directive issued by the Securities and Futures Bureau (SFB), if a financial institution (FI) repurchases its own capital stock pursuant to the Securities and Exchange Law and becomes a wholly owned subsidiary of a financial holding company (FHC), resulting in the conversion of the FI’s treasury stock to the FHC’s stock, the FHC’s shares held by the FI should be treated as treasury stock. The FHC should also present the shares it issued in exchange for FI’s capital stock as treasury stock. If shares of the FIs under the same FHC were held among each other before the share swap, the FHC should also state these shares as treasury stocks.
Interest Revenue and Service Fees Interest revenue on loans and financial instruments are recorded on the accrual basis. Interest revenue on loans and other credits extended by the Company that are classified as overdue loans is recognized only upon collection. Service fees are recorded as income upon receipt or upon substantial completion of the earnings process depending on the nature of the transaction.
Premium Income and Policy Acquisition Cost The initial premiums for the Company’s insurance contracts and investment contracts with a discretionary participation feature are recognized as revenue once the collection is made and the insurance approval procedures are completed. The subsequent premiums are recognized as revenue upon cash collection. The related expenses, e.g., commission expenses, are recognized as expenses once the contract takes effect. The service fees the Company charges for investment contracts with no investment-linked products and 49 50 Financial Information
with no discretionary participation feature are recognized as reserve for insurance contracts with financial instrument features. The related acquisition cost will be charged against reserve for insurance contracts with financial instrument features when the insurance contracts become effective. The service fees that the Company charges for the investment-linked product of insurance contracts and from which front-load fees or related investment management fees have been deducted, are recognized as investment-linked product liabilities. The policy-related expenses incurred by the investment management service, including commission and increased expenses associated with the new contracts, are recognized as “deferred acquisition costs”. These costs are depreciated using the straight-line method throughout the duration of service provision. The depreciation is recognized under “other operating costs.”
Classification of Contracts An insurance contract is one under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. The Company identifies insurance risk as significant only if the insured event would cause the Company to pay material additional benefits. The insurance contract with the nature of financial instruments is the contract that makes a contract issuer exposed to financial risk but not significant insurance risk. Financial risk is the risk that one or multiple interest rates, the price of financial instruments, commodity price, exchange rate, price index, insurance premium index, credit ratings, credit index or other variables (if the variable is nonfinancial it has to be non- specific to both parties) will change in the future. The policy that initially met the definition of insurance contract remains an insurance contract until all of the rights and obligations expire, even though the insurance risk has been significantly reduced through the duration of the insurance contract. However, if the significant insurance risk of the insurance contract with the nature of financial instruments is transferred to the Company, the contract should be reclassified to insurance contract. Insurance contracts may also be classified as with or without the discretionary participation feature (DPF). DPF is a contractual right to receive the following additional benefits: a. An amount that is equal to a significant portion of the total contractual benefits; b. Whose amount or timing is contractually at the discretion of the issuer; and c. That is contractually based on: 1) The performance of a specified pool of contracts or a specified type of contract; 2) Realized and/or unrealized investment returns on a specified pool of assets held by the issuer; or 3) The profit or loss of the Company, fund or other entity that issues the contract. Financial products and insurance contracts with the discretionary participation features follow the same accounting policy, while those without discretionary participation follow SFAS No. 33 - “Accounting for Transfers of Financial Assets and Extinguishments of Liabilities,” No. 34 - “Financial Instruments: Recognition and Measurement,” and No. 36 - “Financial Instruments: Disclosure and Presentation.” Financial products with service features follow SFAS No. 32 - “Revenue.”
Contingencies A loss is recognized when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. If loss is possible but cannot be reasonably estimated, information on the circumstances that might give rise to the possible loss is disclosed in the notes to the consolidated financial statements.
The Share Swap Taiwan Cooperative Financial Holding Co., Ltd. (TCFHC) was established as a financial holding company through a share swap, and the share swap for the affiliated companies should be treated as reorganization. Thus TCFHC should treat the investees’ net worth (any impairment loss on asset should be deducted 2012 ANNUAL REPORT
from its book value) as paid-in capital. The stock issued by TCFHC is accounted for as capital stock, the stockholders’ equity accounts of financial institutions related to assets and liabilities (such as cumulative translation adjustments and unrealized revaluation increments, etc.) are accounted for in original accounts, and the remaining balance is accounted for as capital surplus. TCFHC should apply Statement of Financial Accounting Standards No. 25 - “Business Combinations” to the share swap of investees’ minority stockholders. The fair value of the net identifiable assets acquired in excess of the acquisition cost is used to reduce the fair value of each of the noncurrent assets acquired (except for financial assets other than investments accounted for by the equity method, noncurrent assets held for sale, deferred income tax assets, prepaid pension or other postretirement benefit) in proportion to the respective fair values of the noncurrent assets, with any excess recognized as an extraordinary gain.
Reclassifications Certain accounts in the consolidated financial statements as of and for the year ended December 31, 2011 have been reclassified to conform to the presentation of the consolidated financial statements as of and for the year ended December 31, 2012.
3. EFFECTS OF CHANGE IN ACCOUNTING PRINCIPLES
Reserve for Foreign Exchange Variation Effective March 1, 2012, the Company provides a reserve for exchange rate changes in accordance with the newly amended “Regulations Governing the Reserves of Insurance Enterprises.” Based on these regulations, this reserve is for the Company’s investment portfolio assets denominated in foreign currencies. The initial setup of the reserve liability for foreign exchange valuation may include transfers from the special reserve account. After the initial setup of the reserve account, provision to or release from the reserve account should be made monthly in accordance with the “Notifications to the Life Insurance Industry for the Maintenance of Reserve for Exchange Rate Changes.” Please see Note 25 for the impact on the Company of this reserve. 4. CASH AND CASH EQUIVALENTS 2012 2011 Cash on hand $ 21,265,264 $ 21,506,058 Notes and checks in clearing 25,025,281 22,976,933 Due from banks 13,093,977 8,394,585 $ 59,384,522 $ 52,877,576
5. DUE FROM THE CENTRAL BANK AND CALL LOANS TO OTHER BANKS 2012 2011 Reserves for deposits - account A $ 27,411,042 $ 23,517,685 Reserves for deposits - account B 59,877,974 57,495,186 Reserves for deposits - community financial institutions 44,101,453 41,674,475 Reserves for deposits - foreign-currency deposits 213,157 223,421 Deposits in the Central Bank 39,200,000 39,200,000 Time deposits in the Central Bank 1,600,000 1,400,000 Negotiable certificates of deposit in the Central Bank 455,875,000 334,300,000 Due from the Central Bank - transferred accounts 3,532,481 1,529,037 Due from the Central Bank - central government agencies’ deposits 1,040,877 1,399,827 Call loans to banks 50,410,170 73,629,139 $ 683,262,154 $ 574,368,770 51 52 Financial Information
The deposit reserves are determined monthly at prescribed rates based on the average balances of various types of deposit accounts held by the Company. The deposit reserves are subject to withdrawal restrictions, but deposit reserve - account A and foreign-currency deposit reserves may be withdrawn anytime. Under the guideline issued by the Central Bank of the Republic of China (CBC), Taiwan Cooperative Bank Ltd. should deposit 60 percent of the deposits of central government agencies in the CBC, and the deposits are subject to withdrawal restrictions. 6. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS 2012 2011 Held-for-trading financial assets
Commercial paper $ 62,204,357 $ 24,487,892 Government bonds 2,091,793 101 Negotiable certificates of deposit 400,079 112,003 Convertible bonds 331,750 146,703 Listed stocks - domestic 264,392 28,768 Beneficial certificates 184 200,000 Currency swap contracts 1,120,781 2,486,492 Forward contracts 539,939 342,762 Cross-currency swap contracts 302,236 63,485 Futures exchange margins 49,983 5,086 Currency option contracts - buy 29,496 34,904 Interest rate swap contracts 22,910 61,352 Foreign-currency margin contracts 16,877 45,474 TAIEX option contracts 398 - Non-deliverable forward contracts 133 2,042 67,375,308 28,017,064 Financial assets designated as at fair value through profit or loss
Bank debentures 582,591 897,027 Government bonds 145,233 769,712 Convertible bond asset swap contracts 50,036 - 777,860 1,666,739 $ 68,153,168 $ 29,683,803
Held-for-trading financial liabilities
Currency swap contracts $ 893,800 $ 1,846,871 Forward contracts 497,919 189,010 Cross-currency swap contracts 326,892 227,892 Interest rate swap contracts 34,059 85,246 Currency option contracts - sell 31,791 36,038 Non-deliverable forward contracts 105 1,847 Foreign-currency margin contracts - 4,380 1,784,566 2,391,284 Financial liabilities designated as at fair value through profit or loss
Bank debentures (Note 22) 1,808,203 1,827,517
$ 3,592,769 $ 4,218,801 (Concluded) 2012 ANNUAL REPORT
As of December 31, 2012 and 2011, some securities, with face values of $18,616,900 thousand and $21,853,200 thousand, respectively, had been sold under repurchase agreements. TCB enters into derivative transactions mainly to accommodate customers’ needs and to manage its exposure to adverse changes in exchange rates and interest rates. TCB’s strategy for hedging against risk is to avoid most of the market price risk or cash flow risk. As of December 31, 2012 and 2011, the contract (notional) amounts of derivative transactions of TCB were as follows: 2012 2011 Currency swap contracts $ 254,303,390 $ 318,546,096 Forward contracts 33,990,416 28,867,794 Cross-currency swap contracts 29,853,292 9,045,552 Currency option contracts - sell 8,482,047 13,507,086 Currency option contracts - buy 7,768,509 12,750,211 Interest rate swap contracts 4,877,455 6,299,075 Foreign-currency margin contracts 486,607 1,220,940 Non-deliverable forward contracts 69,684 490,499
7. SECURITIES PURCHASED UNDER RESELL AGREEMENTS Securities acquired for $2,067,432 thousand under resell agreements as of December 31, 2012, will be sold for $2,068,374 thousand by January 22, 2013.
8. RECEIVABLES, NET 2012 2011 Acquired loans $ 5,352,053 $ 6,339,276 Accrued interest 5,313,447 5,007,560 Accounts receivable factored without recourse 5,190,967 5,783,390 Margin loans receivable 3,133,615 1,917,531 Acceptances 2,820,282 3,217,811 Credit cards 2,332,027 2,385,791 Tax refundable 1,373,807 1,714,310 Accounts receivable 840,813 365,762 Receivables on merchant accounts in the credit card business 634,933 587,151 Credits receivable 503,024 503,024 Refundable deposits receivable in leasehold agreements 467,993 467,993 Receivables on overdue bonds 9,635 456,227 Others 437,874 358,751 28,410,470 29,104,577 Less: Allowance for credit losses 1,799,477 2,392,951
$ 26,610,993 $ 26,711,626
Credits receivable due to the merger with the Farmers Bank of China on May 1, 2006 were recognized at the fair value of credits written off by the Farmers Bank of China in the past. The fair values were evaluated by PricewaterhouseCoopers Financial Advisory Service Co., Ltd. The allowances for possible losses on receivables (except tax refundable and spot exchange receivable - foreign currencies, which amounted to $1,374,861 thousand and $1,716,211 thousand, respectively) assessed for impairment as of December 31, 2012 and 2011 were as follows: 53 54 Financial Information
2012 2011 Items Allowance for Allowance for Receivables Receivables Possible Losses Possible Losses Assessment of individual $ 4,160,210 $ 1,059,734 $ 6,510,784 $ 1,608,365 With objective evidence impairment of impairment Assessment of collective 199,369 75,961 210,111 99,132 impairment With no objective Assessment of collective 22,676,030 663,782 20,667,471 685,454 evidence of impairment impairment Total 27,035,609 1,799,477 27,388,366 2,392,951
The changes in allowance for possible losses are summarized below: 2012 2011 Balance, January 1/December 1 $ 2,392,951 $ 2,944,731 Provision for possible losses 183,590 2,711 Write-offs ( 1,431,431 ) ( 575,327 ) Recovery of written-off receivables 53,193 370 Reclassification 610,107 - Effects of exchange rate changes and other changes ( 8,933 ) 20,466 Balance, December 31 $ 1,799,477 $ 2,392,951
9. DISCOUNTS AND LOANS, NET 2012 2011 Bills discounted $ 2,290,263 $ 1,935,244 Overdraft Unsecured 655,075 581,123 Secured 1,841,794 1,080,997 Import and export negotiations 531,155 676,235 Short-term loans Unsecured 244,405,568 317,221,027 Accounts receivable financing 1,062,011 848,379 Secured 124,233,795 116,734,451 Medium-term loans Unsecured 307,850,665 290,464,620 Secured 277,488,559 295,197,803 Long-term loans Unsecured 48,479,342 52,381,944 Secured 864,602,108 873,247,969 Overdue loans 13,632,743 12,433,710 Life insurance loan 138,507 - Temporary insurance paid 118 - 1,887,211,703 1,962,803,502 Less: Allowance for credit losses 19,753,074 19,202,415 Less: Adjustment of discount 342,524 208,157
$ 1,867,116,105 $ 1,943,392,930 2012 ANNUAL REPORT
Accrual of interest on the above overdue loans had stopped. Thus, the unrecognized interest revenue was $336,928 thousand in 2012 and $20,722 thousand in December 2011 based on the average loan interest rate for the year. In 2012 and 2011, the Company had written off credits only after completing the required legal procedures. The allowances for possible losses on discounts and loans assessed for impairment as of December 31, 2012 and 2011 were as follows: 2012 2011 Items Allowance for Allowance for Discounts and Loans Discounts and Loans Possible Losses Possible Losses Assessment of individual $ 38,861,381 $ 10,215,158 $ 27,055,855 $ 7,669,800 With objective evidence impairment of impairment Assessment of collective 11,417,355 2,809,460 13,563,852 3,407,593 impairment With no objective Assessment of collective 1,836,932,967 6,728,456 1,922,183,795 8,125,022 evidence of impairment impairment Total 1,887,211,703 19,753,074 1,962,803,502 19,202,415
The changes in allowance for possible losses are summarized below: 2012 2011 Balance, January 1/December 1 $ 19,202,415 $ 18,771,062 Provision for possible losses 4,488,172 451,387 Write-offs ( 3,848,903 ) - Recovery of written-off credits 5,647 356 Effects of exchange rate changes and other changes ( 94,257 ) ( 20,390 )
Balance, December 31 $ 19,753,074 $ 19,202,415
The details of the bad-debt expenses in 2012 and December 2011 were as follows: 2012 2011 Provision for possible losses on discounts and loans $ 4,488,172 $ 451,387 Provision for possible losses on receivables 183,590 2,711 Reversal of provision for possible losses on overdue receivables ( 6,142 ) ( 3,658 ) Provision (reversal of provision ) for possible losses on guarantees ( 31,427 ) 41,714
$ 4,634,193 $ 492,154
10. AVAILABLE-FOR-SALE FINANCIAL ASSETS
2012 2011 Government bonds $ 76,520,329 $ 43,717,559 Corporate bonds 18,310,037 3,283,618 Beneficial certificates 7,165,061 457,627 Bank debentures 5,311,454 5,278,650 Listed stocks 3,298,613 3,128,057
$ 110,605,494 $ 55,865,511
As of December 31, 2012 and 2011, available-for-sale financial assets with face value of $30,151,500 thousand and $34,629,400 thousand, respectively, had been sold under repurchase agreements. 55 56 Financial Information
11. HELD-TO-MATURITY FINANCIAL ASSETS
2012 2011 Bank debentures $ 5,853,651 $ 5,493,870 Treasury bills 5,462,664 - Preferred stocks 2,000,000 2,000,000 Corporate bonds 580,582 790,373 Certificates of deposit (Note 34) 409,394 275,503 Government bonds 156,253 156,872
$ 14,462,544 $ 8,716,618
The Company evaluated its held-to-maturity financial assets and recognized an impairment loss of $5,302 thousand on some overseas bonds because of the fall in credit ratings of the bond issuers in 2012. 12. EQUITY INVESTMENTS UNDER THE EQUITY METHOD Equity investments under the equity method are summarized as follows:
2012 2011 Amount % of Ownership Amount % of Ownership United Real Estate Management Co., Ltd. $ 99,556 30.00 $ 95,216 30.00 BNP Paribas Assurance TCB Life Insurance Co., Ltd. (Note 40) - - 1,380,130 51.00 BNP Paribas TCB Asset Management Co., Ltd. (Note 40) - - 96,732 51.00
$ 99,556 $ 1,572,078
On these investments, there were a loss of $75,170 thousand in 2012 and a net loss of $64,341 thousand in December 2011. 13. OTHER FINANCIAL ASSETS, NET
2012 2011 Overdue receivables $ 415,469 $ 296,989 Less: Allowance for credit losses 265,742 282,869 Overdue receivables, net 149,727 14,120 Debt instruments with no active market, net 66,717,062 45,080,654 Separate-account assets 33,468,840 - Financial assets carried at cost, net 4,236,579 4,231,777 $ 104,572,208 $ 49,326,551
Debt instruments with no active market are summarized as follows: 2012 2011 Corporate bonds $ 47,959,831 $ 28,853,692 Bank debentures 18,757,231 15,922,463 Government bonds - overseas - 156,641 Beneficial securities under securitization - 147,858
$ 66,717,062 $ 45,080,654
As of December 31, 2012, debt instruments with no active market and with a face value of $2,123,800 thousand had been sold under repurchase agreements. 2012 ANNUAL REPORT
Some issuers of bonds with no active market had filed for bankruptcy or faced financial difficulties. After the Company’s evaluation of the possibility of recovery of losses on these bonds, the Company recognized impairment losses of $2,957 thousand in 2012 and $12,249 thousand in December 2011. Financial assets carried at cost are summarized as follows:
2012 2011 Amount % of Ownership Amount % of Ownership Taiwan Asset Management Co., Ltd. $ 3,120,934 17.03 $ 3,120,934 17.03 Taiwan Power Company 631,153 0.24 631,153 0.24 Financial Information Service Co., Ltd. 135,405 2.89 135,405 2.89 Taiwan Financial Asset Service Co., Ltd. 101,125 5.88 101,125 5.88 Others 247,962 243,160
$ 4,236,579 $ 4,231,777
The above equity investments, which had no quoted prices in an active market and had fair values that could not be reliably measured, were carried at cost. 14. PROPERTIES
2012 2011 Cost Land - cost $ 17,067,725 $ 16,713,162 Land - revaluation increments 8,289,910 7,424,006 Buildings 13,851,307 13,659,602 Machinery and equipment 5,775,197 5,625,197 Transportation equipment 695,753 684,618 Other equipment 1,269,588 1,330,336 Leasehold improvements 867,267 840,710 47,816,747 46,277,631 Accumulated depreciation Buildings 5,017,071 4,655,243 Machinery and equipment 4,520,941 4,438,161 Transportation equipment 566,740 567,808 Other equipment 1,088,956 1,145,949 Leasehold improvements 650,241 630,261 11,843,949 11,437,422 Accumulated impairment Land 6,574 6,574 Construction in progress 910,887 571,905 Prepayment for equipment 290,409 52,324
$ 37,167,520 $ 35,457,864 (Concluded)
TCB revalued its properties four times in 1979, 1998, 2007, 2011 and 2012. As of December 31, 2012, the revaluation increments on properties and nonoperating assets amounted to $8,524,801 thousand and the reserve for land revaluation increment tax (part of other liabilities) was $2,816,216 thousand (including $133,588 thousand for properties obtained from community financial institutions taken over by TCB and from the Farmers’ Bank of China (FBC) on FBC’s merger with TCB). The revaluation increments net of tax were included in other stockholders’ equity - unrealized revaluation increments. 57 58 Financial Information
In testing assets for impairment, TCB defined each operating unit or operating segment as a cash- generating unit (CGU). The recoverable amount of a CGU was determined at its value in use. The discount rates for the CGUs’ value in use were 10.44% and 11.08% as of December 31, 2012 and 2011, respectively. 15. INTANGIBLE ASSETS
2012 2011 Goodwill $ 3,170,005 $ 3,170,005 Computer software 618,447 689,002
$ 3,788,452 $ 3,859,007
Goodwill resulting from merger of Taiwan Cooperative Bank, Ltd. with the Farmers Bank of China was allocated to operating units or operating segment (cash-generating units with allocated goodwill). There was no impairment loss on goodwill as of December 31, 2012 and 2011. 16. OTHER ASSETS, NET
2012 2011 Nonoperating assets, net $ 3,896,132 $ 4,403,475 Refundable deposits 1,319,984 495,195 Operating deposits and settlement funds 625,855 657,486 Prepaid expenses 297,707 244,276 Collaterals assumed, net 137,788 115,393 Others 23,549 17,261
$ 6,301,015 $ 5,933,086
Nonoperating assets as of December 31, 2012 and 2011 were as follows:
2012 2011 Land Cost $ 2,536,083 $ 2,909,507 Revaluation increments 234,891 219,477 2,770,974 3,128,984 Buildings - cost 1,545,759 1,676,099 Total cost and revaluation increments 4,316,733 4,805,083 Less: Accumulated depreciation 411,998 393,005 Less: Accumulated impairment 8,603 8,603
$ 3,896,132 $ 4,403,475
Part of the buildings and the land included in nonoperating assets had been leased to third parties. If there are no indications that the value in use of nonoperating assets significantly exceeded net fair value, the net fair value should be used as the recoverable amount. Thus, to determine the fair value of its nonoperating assets, the Company designated real estate appraisers to valuate these assets. On the basis of the guidelines of the Financial Supervisory Commission and the Company’s evaluation of the possibilities of recovery, the Company recognized $148,764 thousand and $11,026 thousand in reversal of impairment losses on collaterals assumed in 2012 and December 2011, respectively. 2012 ANNUAL REPORT
17. DUE TO THE CENTRAL BANK AND OTHER BANKS
2012 2011 Call loans from banks $ 112,099,262 $ 104,348,794 Due to banks 95,145,306 92,229,717 Deposits from Chunghwa Post Co., Ltd. 28,210,034 30,927,392 Bank overdraft 692,146 558,019 Due to the Central Bank 302,102 316,080
$ 236,448,850 $ 228,380,002
18. COMMERCIAL PAPER ISSUED, NET The face values of commercial paper issued were $1,822,000 thousand and $880,000 thousand and the annual discount rates were from 0.790% to 1.038% and from 0.958% to 0.978% as of December 31, 2012 and 2011, respectively, and the commercial paper will mature by January 28, 2013 and February 20, 2012, respectively. The foregoing commercial paper was accepted and guaranteed by financial institutions. As of December 31, 2012, Co-operative Assets Management Co., Ltd. and its subsidiaries, Taiwan Cooperative Financial Holding Co., Ltd., and Taiwan Cooperative Securities Co., Ltd. had not used the amount of $10,995,000 thousand, the sum of the amount of the commercial paper issued and the credit. 19. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS Securities sold for $51,380,691 thousand and $61,834,898 thousand, under repurchase agreements as of December 31, 2012 and 2011, respectively, would be purchased for $51,412,783 thousand and $61,865,875 thousand by August 21, 2013 and October 19, 2012, respectively. 20. PAYABLES
2012 2011 Checks for clearing $ 25,025,281 $ 22,976,933 Collections payable 6,242,163 4,151,859 Accrued interest 4,381,913 4,081,862 Accrued expenses 3,728,924 3,556,555 Acceptances 2,840,103 3,247,054 Tax payable 1,000,224 326,448 Collections of notes and checks for various financial institutions in other cities 832,687 1,880,942 Payables on notes and checks collected for others 675,824 638,380 Dividend payable 211,393 203,992 Factored accounts payable 188,959 221,026 Payables for short-sale transactions 179,858 82,982 Deposits on short-sale transactions 160,083 72,017 Others 1,979,919 1,920,454
$ 47,447,331 $ 43,360,504
59 60 Financial Information
21. DEPOSITS AND REMITTANCES
2012 2011 Deposits Checking $ 44,641,275 $ 42,974,437 Demand 361,213,880 343,546,870 Savings - demand 618,546,601 593,211,312 Time 461,320,312 454,364,047 Negotiable certificates of deposit 2,266,600 2,137,100 Savings - time 715,939,867 705,292,669 Treasury 69,224,834 71,132,189 Remittances 327,429 263,923
$ 2,273,480,798 $ 2,212,922,547
22. BONDS PAYABLE Details of bank debentures issued by Taiwan Cooperative Bank, Ltd. (TCB) are as follows:
2012 2011 First subordinated bonds in 2006: TCB’s floating interest rate for 1-year time deposit plus 0.25% amounting to $15,000,000 thousand, and fixed rate of 2.24% amounting to $3,200,000 $ 18,200,000 $ 18,200,000 thousand; maturity - April 24, 2013 Second subordinated bonds in 2006: Reuters’ fixed rate for 90 days’ New Taiwan dollar 7,000,000 7,000,000 commercial paper plus 0.235%; maturity - December 8, 2013 First cumulative subordinated bonds in 2007: Reuters’ fixed rate for 90 days’ New Taiwan dollar commercial paper plus 0.7% in first five years; Reuters’ fixed rate for 90 days’ New 13,000,000 13,000,000 Taiwan dollar commercial paper plus 1.7% if TCB fails to redeem the bank debenture after five years from the issuance date; no maturity Second subordinated bonds in 2007, Type A: Reuters’ fixed rate for 90 days’ New Taiwan 1,360,000 1,360,000 dollar commercial paper plus 0.34%; maturity - September 28, 2014 Second cumulative subordinated bonds in 2007, Type B: Reuters’ fixed rate for 90 days’ New Taiwan dollar commercial paper plus 0.85% in first five years; Reuters’ fixed rate for 5,810,000 5,810,000 90 days’ New Taiwan dollar commercial paper plus 1.85% if TCB fails to redeem the bank debenture after five years from the issuance date; no maturity First subordinated bonds in 2008, Type A: Reuters’ fixing rate for 90 days’ New Taiwan 1,000,000 1,000,000 dollar commercial paper plus 0.43%; maturity - May 28, 2015 First subordinated bonds in 2008, Type B: Fixed rate of 3.0%; maturity - May 28, 2015 4,500,000 4,500,000 First cumulative subordinated bonds in 2008, Type C: Reuters’ fixed rate for 90 days’ New Taiwan dollar commercial paper plus 0.95% in first six years; Reuters’ fixing rate for 90 4,500,000 4,500,000 days’ New Taiwan dollar commercial paper plus 1.95% if TCB fails to redeem the bank debenture after six years from the issuance date; no maturity First subordinated bonds in 2009: Fixed rate of 2.25%; maturity - November 25, 2014 4,100,000 4,100,000 Second subordinated bonds in 2009: Fixed rate of 2.10%; maturity - March 28, 2015 4,000,000 4,000,000 First subordinated bonds in 2010: TCB’s floating interest rate for 1-year time deposit plus 8,000,000 8,000,000 0.25%; maturity - June 21, 2017 Second subordinated bonds in 2010, Type A: Reuters’ fixed rate for 90 day’s New Taiwan 3,000,000 3,000,000 dollar commercial paper plus 0.15%; maturity - October 25, 2017 Second subordinated bonds in 2010, Type B: Fixed rate of 1.45%; maturity - October 25, 1,000,000 1,000,000 2017 First subordinated bonds in 2011, Type A: Reuters’ fixed rate for 90 day’s New Taiwan 7,300,000 7,300,000 dollar commercial paper plus 0.15%; maturity - May 25, 2018 First subordinated bonds in 2011, Type B: Fixed rate of 1.65%; maturity - May 25, 2018 2,700,000 2,700,000 (Continued) 2012 ANNUAL REPORT
2012 2011 Second subordinated bonds in 2011, Type A: Reuters’ fixed rate for 90 day’s New Taiwan 1,200,000 1,200,000 dollar commercial paper plus 0.25%; maturity - July 28, 2018 Second subordinated bonds in 2011, Type B: Fixed rate of 1.7%; maturity - July 28, 2018 3,410,000 3,410,000 First subordinated bonds in 2012: Fixed rate of 1.65%; maturity - June 28, 2022 11,650,000 - Second subordinated bonds in 2012, Type A: Fixed rate of 1.43%; maturity - December 25, 1,000,000 - 2019 Second subordinated bonds in 2012, Type B: Fixed rate of 1.55%; maturity - December 25, 7,350,000 - 2022
$ 110,080,000 $ 90,080,000
(Concluded)
The details of bank debentures designated as at fair value through profit or loss are summarized below:
2012 2011 First subordinated bonds in 2006: Fixed rate of 2.24%, maturity - April 24, 2013 $ 1,800,000 $ 1,800,000 Valuation adjustment 8,203 27,517
$ 1,808,203 $ 1,827,517
To increase its capital adequacy ratio, TCB proposed the issuance of domestic unsecured subordinated bank debentures with an aggregate face value of $13,000,000 thousand. The proposal was approved by the FSC on March 1, 2013. As of March 25, 2013, the bank debentures had not yet been issued. 23. OTHER BORROWINGS
2012 2011 Amount Rate (%) Amount Rate (%) Short-term borrowings (Note 18) $ 3,783,000 1.045-1.277 $ 970,000 0.930-0.959
24. OTHER FINANCIAL LIABILITIES
2012 2011 Separate-account liabilities $ 33,468,840 $ - Structured products - host contracts 6,362,824 9,937,568 Appropriation for loans 1,165,464 1,901,254 Guarantee deposits received 1,080,411 1,108,858
$ 42,077,539 $ 12,947,680
25. RESERVES FOR OPERATIONS AND LIABILITIES
2012 2011 Reserve for life insurance liabilities $ 44,977,073 $ - Reserve for insurance contracts with financial instrument features 9,567,641 - Reserve for losses on guarantees 1,416,410 1,633,693 Others 41,495 - $ 56,002,619 $ 1,633,693 61 62 Financial Information
Details of reserve for life insurance liabilities were as follows:
December 31, 2012 Financial Products Insurance with Discretionary Total Contract Participation Features Life insurance $ 3,243,857 $ 15,552,319 $ 18,796,176 Health insurance 6,683 - 6,683 Annuity insurance - 26,152,229 26,152,229 Investment insurance 21,985 - 21,985 3,272,525 41,704,548 44,977,073 Less: Ceded life insurance liability reserve - - - $ 3,272,525 $ 41,704,548 $ 44,977,073
The changes in the reserve for life insurance liabilities are summarized below:
2012 Financial Products Insurance with Discretionary Total Contract Participation Features Balance, January 1 $ 1,195,152 $ 40,890,068 $ 42,085,220 Provision 2,120,537 6,020,538 8,141,075 Recovery ( 43,164 ) ( 5,206,058 ) ( 5,249,222 ) Ending balance 3,272,525 41,704,548 44,977,073 Less: Ceded life insurance liability reserve - - -
Balance, December 31 $ 3,272,525 $ 41,704,548 $ 44,977,073
Details of liability adequacy reserves are as follows:
December 31, 2012 Insurance Contract and Financial Products with Discretionary Participation Features Life insurance liability reserve $ 44,977,073 Unearned premium reserve 14,068 Claims reserve 1,656 Premium deficiency reserve 14,656 Special reserve 247
Book value of insurance reserve $ 45,007,700
Present value of discounted cash flows $ 44,563,104 Balance of liability adequacy reserve $ -
BNP Paribas Assurance TCB Life Insurance Co., Ltd. (BPATLI) had no business combination in 2012. Thus, with respect to insurance liabilities assumed and insurance assets acquired in the current year, there was no deduction of intangible assets arising from business combination and BPATLI need not make liability adequacy tests on its insurance liabilities. As of December 31, 2012, the Company’s reserves for insurance contracts passed the liability adequacy tests. 2012 ANNUAL REPORT
The liability adequacy test method, scope and assumptions were as follows:
December 31, 2012 Test method Total premium measurement method Tested group All insurance contracts as a whole Assumptions The discount rate assumption for every year was based on the best estimate scenario as well as the rate of return on investment with current information
Reserve for insurance contracts with financial instrument features were as follows:
2012 Life insurance $ 9,567,641
The changes in the reserve for insurance contracts with financial instrument features are summarized below:
2012 Balance, January 1 $ 4,854,494 Premiums received for the year 4,467,732 Insurance claim payments for the year ( 7,530 ) Reserve for insurance contract with financial instrument features 252,945
Balance, December 31 $ 9,567,641
Explanations for the reserve of foreign exchange variation are as follows: a. Hedging strategy and foreign exchange exposure To ensure the effectiveness and appropriateness of hedge for overseas investment, BPATLI uses cross- currency swap and currency swap to hedge exchange rate risks. BPATLI maintains the hedging ratio at over 95%. b. Reconciliation of the reserve of foreign exchange variation
2012 Balance, March 1 $ - Provisions Compulsory provision 63,929 Additional provisions - 63,929 Recovery ( 53,061 )
Balance, December 31 $ 10,868
c. Impact of the reserve of foreign exchange variation
Amount Without Items Amount With Reserve Effect Reserve Net income after tax $ 7,546,878 $ 7,536,010 $ 10,868 Earnings per share 1.07 1.07 - Reserve of foreign exchange variation - 10,868 10,868 Stockholders’ equity 149,907,243 149,896,375 10,868 63 64 Financial Information
The changes in reserves for operations and liabilities are summarized below:
2012 Reserve for life insurance liabilities, net $ 762,133 Reserve for insurance contract with financial instrument features, net 210,875 Others, net 30,599
$ 1,003,607
26. OTHER LIABILITIES
2012 2011 Reserve for land revaluation increment tax $ 2,816,216 $ 2,562,372 Advance receipts 1,716,646 1,948,561 Deferred income tax liabilities 344,480 480,928 Others 19,312 60,353
$ 4,896,654 $ 5,052,214
27. PENSION PLANS The pension plan under the Labor Pension Act (the “Act”) is a defined contribution plan. Based on the Act, the rate of the Company’s monthly contributions to individual pension accounts of employees covered by the defined contribution plan is at 6% of monthly salaries and wages. The funds are deposited in individual labor pension accounts at the Bureau of Labor Insurance. These contributions, recognized as pension costs, were $125,425 thousand in 2012 and $3,200 thousand in December 2011. Other regular Company employees are covered by the defined benefit pension plan. Upon retirement, an employee will receive an amount calculated on the basis of service years and the average salary or wage of the six months before the date of approval for retirement. Under this plan, TCB make monthly contributions equal to 15% of salaries and wages. The fund is deposited in TCB of Taiwan. The Company recognizes pension expenses based on actuarial calculations. Other information in 2012 and 2011 on the defined benefit plan is as follows: a. Net pension cost
2012 2011 Service cost $ 1,048,761 $ 81,331 Interest cost 142,128 11,935 Actual return on plan assets ( 51,362 ) ( 4,601 ) Amortization 1,496 ( 3,269 )
Net pension cost $ 1,141,023 $ 85,396 2012 ANNUAL REPORT
b. The reconciliation of plan funded status to balance sheet amounts
2012 2011 Benefit obligation: Vested benefit obligation $ 6,441,366 $ 5,617,318 Non-vested benefit obligation 1,369,298 1,359,253 Accumulated benefit obligation 7,810,664 6,976,571 Additional benefits based on future salaries 1,995,469 1,825,180 Projected benefit obligation 9,806,133 8,801,751 Fair value of plan assets ( 5,612,115 ) ( 5,115,424 ) Funded status 4,194,018 3,686,327 Unrecognized transitional net benefit obligation ( 560 ) ( 641 ) Unamortized prior service cost ( 4,288 ) ( 5,360 ) Unamortized net pension gains or losses ( 1,510,855 ) ( 1,293,383 ) Prepaid pension (part of other assets - prepaid expense) 4,766 4,800
Accrued pension cost $ 2,683,081 $ 2,391,743
Vested benefits $ 7,450,040 $ 6,601,543
c. Actuarial assumptions 2012 2011 Discount rate 1.50% 1.65%-1.75% Rate of increase in compensation 2.00% 2.00% Expected long-term rate of return on plan assets 1.50% 1.65%-1.75%
The changes in the pension fund are summarized below: 2012 2011 Balance, January 1 $ 5,115,424 $ 4,428,437 Contributions 738,610 744,742 Interest income 51,362 55,214 Benefits paid ( 293,281 ) ( 112,969 )
Balance, December 31 $ 5,612,115 $ 5,115,424
28. INVESTMENT-LINKED PRODUCTS - SEPARATE ACCOUNT The status of the Company’s investment-linked products - separate account as of December 31, 2012, is summarized as follows: 2012 Fund assets for investment-linked products (part of other financial assets) Cash $ 506,568 Beneficial certificates 32,005,495 Other accounts receivable 956,777
$ 33,468,840
Fund liabilities for investment-linked products (part of other financial liabilities) Reserve for investment-linked products $ 33,285,408 Accounts payables 183,432
$ 33,468,840 65 66 Financial Information
Period from April 3, 2012 to December 31, 2012 Income on investment-linked products Premium income $ 20,846,557 Unrealized gain on financial instruments 797,908 Loss on disposal of financial instruments 18,561 Other revenue 17,538
$ 21,680,564
Expense for investment-linked products Net investment-linked product provision of insurance reserves $ 16,779,712 Insurance claims and surrender 4,596,673 Loss on foreign exchange 250,512 Service charge and maintenance fee 27,652 Insurance fee 26,015
$ 21,680,564
Income from and expense for investment-linked products were recognized under premium income, net. 29. PERSONNEL, DEPRECIATION AND AMORTIZATION EXPENSES
2012 2011 Personnel expenses Salaries $ 7,778,661 $ 593,787 Incentives 2,729,160 303,539 Pension and compensation 1,458,613 93,536 Overtime 762,862 68,193 Others 1,427,146 125,290 Depreciation and amortization expenses 1,230,498 99,791
30. INCOME TAX Under Article 49 of the Financial Holding Company Act, a financial holding company (FHC) can elect to file consolidated income tax returns for the regular corporate income tax as well as the 10% income tax on undistributed earnings of FHC and its subsidiaries if the FHC holds more than 90% of the subsidiaries’ outstanding shares for the entire tax year. Taiwan Cooperative Financial Holding Co., Ltd. and its subsidiaries started to file consolidated tax returns in 2012. Reconciliation of income tax (statutory rate) on pretax income to income tax expense is as follows:
2012 2011 Tax on pretax income at statutory rate (17%) $ 1,524,905 $ 56,279 Tax-exempt income ( 369,464 ) ( 458 ) Permanent differences 148,837 13,419 Temporary differences 63,263 3,185 Income tax expenses - current 1,367,541 72,425 Change in deferred income tax ( 314,823 ) ( 1,618 ) Tax on unappropriated earnings 10% 358,026 -
(Continued) 2012 ANNUAL REPORT
2012 2011 Tax adjustment from previous years 30,217 ( 605 ) Tax effect on consolidated tax returns ( 6,940 ) -
Income tax expense $ 1,434,021 $ 70,202
(Concluded) Deferred income tax liabilities (part of other liabilities) as of December 31, 2012 and 2011 are summarized as follows:
2012 2011 Deferred income tax assets Loss carryforwards $ 577,689 $ 350,150 Pension 371,967 322,440 Allowance for possible losses on loans, receivables and guarantees 243,086 277,249 Unrealized foreign exchange loss 68,601 - Loss from equity investments under the equity method 68,284 80,278 Provision for losses on unrealized asset impairment and market price decline 45,837 93,481 Cumulative translation adjustments 14,191 - Valuation adjustment on available-for-sale financial assets - 69,125 Other 32,500 23,142 1,422,155 1,215,865 Less: Allowance for valuation of deferred income tax assets 1,075,228 1,028,417 346,927 187,448 Deferred income tax liabilities Goodwill ( 538,901 ) ( 538,901 ) Valuation adjustment on available-for-sale financial assets ( 134,137 ) - Cumulative translation adjustments - ( 11,862 ) Unrealized gain on financial instruments ( 18,369 ) ( 117,613 ) ( 691,407 ) ( 668,376 )
Net deferred income tax liabilities $ ( 344,480 ) $ ( 480,928 )
The loss carryforwards not yet expired as of December 31, 2012 were as follows:
Expiry Year Amount 2018 $ 183,035 2019 1,836,958 2020 561,930 2021 568,427 2022 247,818
67 68 Financial Information
Imputed tax credits are summarized as follows:
TCFHC TCB TCS CAM CIB TCBF BPATLI BPTAM Balances of stockholders’ imputed tax credit 2012 $ 458,135 $ 1,700,164 $ 353 $ 251,332 $ 9,463 $ 83,626 $ 14,625 $ - 2011 - 2,582,634 - 295,281 9,012 99,962 4,646 - Estimated creditable tax ratio for distributing the 2012 10.60% 11.57% - 36.84% 20.65% 18.25% - - earnings Actual creditable tax ratio for 3.81% 22.84% - 38.67% 20.75% 29.71% - - distributing the 2011 earnings
The actual creditable tax ratio may differ from the estimated creditable tax ratio since this ratio is computed on the date the dividend is actually paid or distributed. Under the Income Tax Law, the unappropriated retained earnings of $19,985 thousand generated by Taiwan Cooperative Bank, Ltd. (TCB) until December 31, 1997 were included in the unappropriated retained earnings as of December 31, 2012 and 2011. Taiwan Cooperative Financial Holding Co., Ltd. (TCFHC), Taiwan Cooperative Securities Co., Ltd. (TCS), Co-operative Assets Management Co., Ltd. (CAM), Cooperative Insurance Brokers Co., Ltd. (CIB), BNP Paribas Assurance TCB Life Insurance Co., Ltd. (BPATLI), BNP Paribas TCB Asset Management Co., Ltd. (BPTAM), and Taiwan Cooperative Bills Finance Corporation Ltd. (TCBF) had no retained earnings generated until December 31, 1997. TCS was established in 2011. The years for which TCFHC and other subsidiaries’ income tax returns had been examined by tax authorities were as follows:
TCFHC TCB CIB CAM TCBF BPATLI BPTAM 2011 2010 2010 2010 2010 2009 2011
For the TCB’s income tax returns from 2006 to 2010, the Taipei National Tax Administration (TNTA) claimed that the appraisal of goodwill was not reasonable and that there were no unrecognized losses on the sale of nonperforming loans in TCB’s records on the date of the merger with the Farmers Bank of China (FBC). Thus, TNTA denied the expenses for the goodwill amortization of $2,958,671 thousand and the deferred loss amortization of $3,015,522 thousand on the sale of nonperforming loans. TCB disagreed with the TNTA’s decision and initiated an administrative litigation. Under an interpretation of the TNAT in 2007, TCB added $787,981 thousand to its stockholders’ imputed tax credit account as shown in its 2006 return because of its merger with the FBC. However, the TNAT disallowed this addition because it still had unsettled questions on FBC’s accumulated unappropriated retained earnings generated before FBC’s merger with TCB. Thus, the TNAT assessed that TCB made an over- distribution of the stockholders’ imputed tax credit in 2008 and 2009 by a total of $542,373 thousand. TCB disagreed with the TNAT’s assessment and initiated an administrative litigation. After reexamining TCB’s 2006, 2008 and 2009 stockholders’ imputed tax credit return, the TNAT cleared the foregoing addition. In addition, the TNAT declared there was no over-distribution of the stockholders’ imputed tax credit on 2008 and 2009. 2012 ANNUAL REPORT
31. EARNINGS PER SHARE The numerators and denominators used in computing earnings per share (EPS) are summarized as follows:
EPS (NT$) Amount (Numerator) Shares Before After Before After (Denominator Income Income Income Tax Income Tax in Thousands) Tax Tax 2012 Basic EPS $ 7,554,451 $ 7,561,380 7,034,180 $ 1.07 $ 1.07 Effect of dilutive common stock: Bonus to employees - - 197
Diluted EPS $ 7,554,451 $ 7,561,380 7,034,377 $ 1.07 $ 1.07
2011 Basic EPS Net income before extraordinary gain $ 190,945 $ 190,945 $ 0.03 $ 0.03 Extraordinary gain 71,588 71,588 0.01 0.01 Net income 262,533 262,533 6,709,590 $ 0.04 $ 0.04 Effect of dilutive common stock: Bonus to employees - - 21
Diluted EPS $ 262,533 $ 262,533 6,709,611 $ 0.04 $ 0.04
The weighted average number of shares outstanding for EPS calculation has been retroactively adjusted to reflect the effects of the stock dividends distributed in the year following earning appropriation. If Taiwan Cooperative Financial Holding Co., Ltd. (TCFHC) decides to settle the bonus to employees by cash or shares, TCFHC should presume that the entire amount of the bonus will be settled in shares. If the resulting potential shares have a dilutive effect, these shares should be included in the weighted average number of shares outstanding used in the calculation of diluted EPS. The number of shares is estimated by dividing the entire amount of the bonus by the closing price of the shares at the balance sheet date. The dilutive effect of the potential shares should be included in the calculation of diluted EPS until the stockholders resolve the number of shares to be distributed to employees at their meeting in the following year. 32. STOCKHOLDERS’ EQUITY a. Capital stock On December 1, 2011, Taiwan Cooperative Financial Holding Co., Ltd. (TCFHC) was incorporated through a share swap. TCFHC issued 6,596,825 thousand shares with a par value of NT$10.00. On June 22, 2012, the stockholders of TCFHC resolved to issue 329,841 thousand shares, amounting to $3,298,413 thousand, from capital surplus. This issuance was approved by the Financial Supervisory Commission (FSC) and the Ministry of Economic Affairs (MOEA). On May 21, 2012, the board of directors of TCFHC resolved to increase its capital by issuing 1,200,000 thousand shares with a par value of NT$10.00. TCFHC issued the shares at NT$14.81 per share. This issuance was approved by the FSC and MOEA. As of December 31, 2012, TCFHC’s authorized capital stock amounted to $120,000,000 thousand, and issued and outstanding capital stock amounted to $81,266,667 thousand. 69 70 Financial Information
On March 25, 2013, the board of directors of TCFHC resolved to issue 487,600 thousand shares, which included the unappropriated earnings from 2012 of $3,250,667 thousand and the capital surplus of $1,625,333 thousand. This issuance will be presented to the shareholders for their approval. b. Capital surplus Under related regulations, capital surplus may be used to offset a deficit. Capital surplus from the issuance of shares in excess of par value (including additional paid-in capital from the issuance of common shares and capital surplus from mergers and treasury stock transactions) and donations may be capitalized only once a year within a certain percentage of TCFHC’s paid-in capital. Based on the Company Law revised on January 4, 2012, the foregoing capital surplus may also be distributed as cash dividends. Under related regulations, the capital surplus from equity investments under the equity method cannot be distributed for any purpose. Under the Financial Holding Company Law and related directives issued by the Securities and Futures Bureau (SFB), the distribution of the ex-conversion unappropriated earnings that are generated by financial institutions (the subsidiaries) and become part of capital surplus of the financial holding company through a share swap is exempted from the appropriation restriction of the Securities and Exchange Law. These unappropriated earnings should be net of the appropriation of legal reserve or special reserve. The subsidiaries’ unappropriated retained earnings before stock conversion were $10,410,804 thousand, which were recognized as TCFHC’s capital surplus as of its establishment date. On May 21, 2012, the board of directors of TCFHC resolved to increase its capital by issuing common shares. Under related regulations, the Company’s employees subscribed for the reserved 15% shares of TCFHC, and the Company recognized the stock option fair value of $288,000 thousand under salary expenses for share- based payment and under capital surplus on the grant date in 2012. The capital surplus as of December 31, 2012 came from the issuance of shares in excess of par value and treasury stock transactions. Capital surplus sources and uses were as follows:
Sources
From subsidiaries Capital surplus (mainly additional paid-in capital from share issuance in excess of par value) $ 27,783,766 Legal reserve 15,799,245 Special reserve 195,968 Unappropriated earnings 10,410,804 54,189,783 Additional paid-in capital from TCFHC’s share issuance in excess of par value 3,861,434 Cash dividends from TCFHC received by subsidiaries 103,370 Additional paid-in capital from TCFHC’s share issuance in excess of par value 5,772,000 Share-based payment for the subscription for TCFHC’s new shares by the employees of TCFHC and its subsidiaries 288,000 64,214,587 Uses Issuance of TCFHC’s stock and cash dividends in 2012 ( 6,360,660 )
$ 57,853,927 2012 ANNUAL REPORT
c. Equity adjustments To adopt the International Financial Reporting Standards, the board of directors of Taiwan Cooperative Bank, Ltd. (TCB) decided on December 1, 2011 and March 15, 2012 to revalue TCB’s landholdings, and the revaluation amounts of $1,108,854 thousand and $647,363 thousand, respectively, were credited to equity as unrealized revaluation increments. d. Treasury stock
Reason for Redemption Beginning of Period Increase Decrease End of Period TCB holds TCFHC’s shares as result of a share swap 2012 206,739 10,337 - 217,076 2011 206,739 - - 206,739
Note: Shares in thousands. On December 1, 2011, TCFHC’s shares held by TCB as treasury stock amounted to $7,136,000 thousand, which was the carrying value of the equity investment under the equity method. Under the Financial Holding Company Act, when a financial institution (a subsidiary) holds the shares of a financial holding company (FHC) as a result of a share swap, those shares should be sold to FHC or the subsidiary’s employees or be exchanged for other purposes - even be sold on the Taiwan Stock Exchange or over-the-counter exchange - within three years from the swap date. Otherwise, the shares will be regarded as FHC’s unissued capital, and the FHC may change the amount of its registered capital. As of March 25, 2013, the board of directors of TCFHC had not decided how the TCFHC shares held by TCB should be used. Under the Securities and Exchange Law, TCFHC is not allowed to buy more than 10% of its issued capital stock. In addition, TCFHC may not spend more than the sum of retained earnings, additional paid-in capital in excess of par value, capital surplus which are realized. Further, TCFHC may not pledge or hypothecate any purchased capital stock. TCFHC’s capital stock held by subsidiaries is treated as treasury stock. However, the subsidiaries cannot exercise stockholders’ rights attached to the treasury stock if the shares had been bought by subsidiaries before TCFHC’s establishment. Under SFC regulations, to maintain the stability of TCFHC’s financial structure and protect stockholders, TCFHC appropriated a special reserve from retained earnings at an amount equal to the carrying value of the treasury stock held by subsidiaries in excess of the market value at balance sheet date. The special reserve may be reversed if the market value of treasury stock is higher than the carrying value at the year-end. e. Appropriation of earnings When TCFHC appropriates its earnings, legal reserve should be appropriated from the annual net income less any accumulated deficit. A special reserve may then be appropriated depending on regulations and operating needs. Any remainder should be appropriated as follows: 1) 0.02% to 0.16% as bonus to employees; 2) 1% or less as remuneration to directors and supervisors; 3) Dividends, determined annually by the board of directors. Unless otherwise restricted by related regulations, TCFHC’s policy indicates that cash dividends must be 50% or above of the total dividends and bonus distributed. If the cash dividend per share is less than 71 72 Financial Information
NT$0.1, the cash dividend will not be distributed unless the distribution is resolved in the stockholders’ meetings. In 2012 and December 2011, the estimates of the bonus to employees were $3,062 thousand and $378 thousand, respectively, and the remuneration to directors and supervisors were $54,442 thousand and $2,363 thousand, respectively, respectively. If the bonus and remuneration approved by the TCFHC’s board of directors change materially, the change should be included in the expenses of the current year. If the bonus and remuneration approved by the TCFHC’s stockholders differ from the board of directors’ proposal, this change should be treated as a revision of the accounting estimate, and the related accrued expenses should be adjusted in the year of the stockholders’ approval of the bonus and remuneration. If bonus shares are resolved to be distributed to employees, the number of shares is determined by dividing the amount of bonus by the closing price (after considering the effect of cash and stock dividends) of the eve of the stockholders’ meeting. Under the Company Law, legal reserve should be appropriated until the reserve equals TCFHC’s paid- in capital. This reserve may be used to offset a deficit. Under the Company Law revised on January 4, 2012, when the reserve exceeds 25% of TCFHC’s paid-in capital, the excess may be distributed as capital or cash dividends. Under an SFB directive, a special reserve is appropriated from the balance of the retained earnings at an amount that is equal to the debit balance of accounts in the stockholders’ equity section (such as unrealized gain or loss on financial instruments and cumulative translation adjustments, except treasury stocks). The balance of the special reserve is adjusted to reflect any changes in the debit balance of the related accounts. The appropriations from the earnings of 2011 were approved in the stockholders’ meeting on June 22, 2012. The appropriations were as follows: Appropriation of Earnings Dividends Per Share (NT$) Legal reserve $ 26,253 Cash dividends 236,166 $ 0.0358
The bonus to employees and the remuneration to directors for 2011, which were approved in the stockholders’ meeting on June 22, 2012, were as follows:
2011 Bonus to employees - cash $ 378 Remuneration to directors - cash 2,363
On the bonus to employees and the remuneration to directors, there was no difference between the approved amounts and the accrued amounts recognized in the financial statements for 2011. The appropriations from the 2012 earnings were approved in the board of directors’ meetings on March 25, 2013. The appropriations and dividends are as follows:
Appropriation of Earnings Dividends Per Share (NT$) Legal reserve $ 756,138 Cash dividends 3,250,667 $ 0.4 Stock dividends 3,250,667 0.4
Information on the appropriation of earnings or deficit offsetting can be accessed through the website of the Taiwan Stock Exchange (http://emops.tse.com.tw). 2012 ANNUAL REPORT
Under the integrated income tax system, certain stockholders are allowed tax credits for the income tax paid by the Company. 33. RELATED-PARTY TRANSACTIONS In addition to those mentioned in other notes, the related-party transactions are summarized as follows: a. Related parties
Related Party Relationship with the Bank United Real Estate Management Co., Ltd. Equity-method investee BNP Paribas Assurance TCB Life Insurance Co., Ltd. (BPATLI) Equity-method investee till April 3, 2012 BNP Paribas TCB Asset Management Co., Ltd. (BPTAM) Equity-method investee till April 3, 2012 BNP Paribas TCB Elite Taiwan Fund Fund managed by BNP Paribas TCB Asset Management Co., Ltd. BNP Paribas TCB Elite Sustainability Emerging Asia Equity Fund Fund managed by BNP Paribas TCB Asset Management Co., Ltd. BNP Paribas TCB Elite Global Investment Grade Bond Fund Fund managed by BNP Paribas TCB Asset Management Co., Ltd. BNP Paribas TCB Elite Global High Yield Bond Fund Fund managed by BNP Paribas TCB Asset Management Co., Ltd. Taiwan Provincial Farmers’ Association Institutional directors of TCFHC Land Bank Institutional supervisors of TCFHC Taiwan Cooperative Bank Global Income Collective Management Trust Collective trust funds managed by TCB. Account Directors, supervisors, managers, relatives up to the second degree Others of consanguinity of the TCFHC’s chairman and president
(Concluded) b. Significant transactions between the Company and related parties:
2012 2011 Amount % to Total Amount % to Total 1) Due from banks (part of cash and cash equivalents) $ 22,003 - $ 22 -
2) Call loans to banks
Highest Ending % to Interest Interest Rate Balance Balance Total Revenue (%) 2012 $ 11,056,528 $ 1,451,750 - $ 38,912 0.160-2.060 2011 $ 10,074,405 $ 9,440,060 2 $ 10,862 0.130-7.600
2012 2011 Amount % to Total Interest Expense Amount % to Total Interest Expense 3) Due to banks $ 2,322,810 1 $ 20,453 $ 3,158,327 1 $ 2,717
4) Call loans from banks
Highest Ending % to Interest Interest Rate Balance Balance Total Expense (%) 2012 $ 3,629,375 $ 435,525 - $ 1,229 0.050-1.850 2011 $ 2,323,133 $ 151,375 - $ 361 0.140-5.250 73 74 Financial Information
5) Loans
Highest Ending % to Interest Interest Rate Balance Balance Total Revenue (%) 2012 $ 169,648 $ 103,269 - $ 1,971 1.525-2.520 2011 $ 126,736 $ 125,919 - $ 176 1.525-2.520
Under the Banking Law, except for customer loans and government loans, credits extended by Taiwan Cooperative Bank, Ltd. to any related party should be 100% secured, and the terms of credits extended to related parties should be similar to those for third parties. 6) Securities sold under repurchase agreements
Ending % to Interest Interest Balance Total Expense Rate (%) 2012 $ - - $ 812 0.720-0.800 2011 $ 50,000 - $ 4 0.400-0.700
7) Deposits
Ending % to Interest Interest Balance Total Expense Rate (%) 2012 $ 631,408 - $ 11,402 0-13 2011 $ 4,434,043 - $ 3,510 0-13
2012 2011 Amount % to Total Amount % to Total 8) Accrued income (part of receivables) $ 8,684 - $ 66,666 - 9) Accrued interest (part of receivables) $ 421 - $ 9,584 - 10) Accrued expense (part of payables) $ 30,061 - $ 33,900 - 11) Accrued interest (part of payables) $ 21 - $ 1,236 - 12) Guarantee deposits received (part of other financial liabilities) $ - - $ 2,665 - 13) Service fee (part of service fee and commission income, net) BPATLI $ 198,046 6 $ 66,323 15 Other 76,210 2 3,060 1 $ 274,256 8 $ 69,383 16 14) Service expense (part of service fee and commission income, net) $ 441,428 13 $ 33,900 8 15) Rental income (part of other noninterest gain, net) $ 2,665 - $ 889 2 16) Other income (part of other noninterest gain, net) $ 348 - $ 84 - 17) Donation (part of other noninterest gain, net) Taiwan Provincial Farmers’ Association $ 2,000 - $ 2,000 -
Terms of other transactions with related parties were similar to those for third parties, except for the more favorable interest rate for managers’ savings within a prescribed limit. 2012 ANNUAL REPORT
18) Purchases and sales of securities
2012 Sales Under Related Party Purchases Under Purchases Sales Repurchase Resell Agreements Agreements BNP Paribas TCB Elite Taiwan Fund $ - $ - $ 250,047 $ - BNP Paribas TCB Elite Sustainability Emerging Asia Equity Fund $ - $ - $ 985,174 $ - BNP Paribas TCB Elite Global Investment Grade Bond Fund $ - $ - $ 365,000 $ - BNP Paribas TCB Elite Global High Yield Bond Fund $ - $ - $ 2,155,512 $ - BNP Paribas Assurance TCB Life Insurance Co., Ltd. $ - $ - $ 507,865 $ - Land Bank $ - $ - $ 19,997 $ - Taiwan Cooperative Bank Global Income Collective Management Trust Account $ - $ - $ 219,306 $ -
2011 Sales Under Related Party Purchase Under Purchases Sales Repurchase Resell Agreements Agreements BNP Paribas TCB Elite Taiwan Fund $ - $ - $ 50,000 $ -
19) Derivatives
2012 Type of Contract Nominal Valuation Amount on the Balance Sheet Related Party Derivatives Period Amounts Loss Account Amount BNP Paribas TCB Elite Financial liabilities 2012.12.17- Global Investment Currency swap US$ 3,000 $( 196 ) at fair value through $( 196 ) 2013.01.17 Grade Bond Fund profit or loss BNP Paribas TCB Elite Financial liabilities 2012.12.19- Global High Yield Currency swap US$ 10,000 ( 654 ) at fair value through ( 654 ) 2013.01.22 Bond Fund profit or loss Financial liabilities 2012.12.19- Currency swap US$ 5,000 ( 327 ) at fair value through ( 327 ) 2013.01.22 profit or loss
2011 Type of Contract Nominal Valuation Amount on the Balance Sheet Related Party Derivatives Period Amounts Gain Account Amount Financial assets at Cross-currency 2010.11.17- BPATLI US$ 5,000 $ 664 fair value through $ 2,907 swap 2015.09.08 profit or loss Financial assets at Cross-currency 2010.11.24- US$ 5,000 554 fair value through 4,220 swap 2015.01.20 profit or loss Financial assets at Cross-currency 2010.12.10- US$ 5,000 671 fair value through 7,509 swap 2015.09.28 profit or loss
TCB recognized realized losses of $4,462 thousand from currency swap transactions with related parties in 2012. 75 76 Financial Information
20) Loans December 31, 2012
Differences Highest in Terms of Balance in the Transaction Year Ended Loan Classification Compared with Type Account Volume December 31, Ending Normal Loans Nonperforming Collaterals Those for or Name 2012 (Note) Balance Loans Unrelated Parties Consumer Land and 17 $ 69,474 $ 64,687 $ 64,687 $ - None loans buildings Self-used Land and housing 18 100,174 38,582 38,582 - None buildings mortgage loans
December 31, 2011
Differences Highest in Terms of Balance in the Transaction Year Ended Loan Classification Compared with Type Account Volume December 31, Ending Normal Loans Nonperforming Collaterals Those for or Name 2011 (Note) Balance Loans Unrelated Parties Consumer Land and 12 $ 26,043 $ 25,745 $ 25,745 $ - None loans buildings Self-used Land and housing 38 100,693 100,174 100,174 - None buildings mortgage loans Note: The highest balance is the largest sum in the year of all daily accounts for each type. c. Subsidiaries’ related-party transactions and balances that each amounted to more than $100,000 thousand as of and for the years ended December 31, 2012 and 2011 1) Taiwan Cooperative Bank, Ltd. a) Call loans to banks
Highest Ending % to Interest Interest Rate Balance Balance Total Revenue (%) 2012 $ 17,258,866 $ 7,078,948 1 $ 104,238 0.160-5.300 2011 $ 14,629,573 $ 13,934,623 2 $ 17,098 0.130-7.600
2012 2011 Interest Interest Amount % to Total Amount % to Total Expense Expense b) Due to banks $ 2,324,938 1 $ 20,453 $ 3,156,302 1 $ 2,717
c) Call loans from banks
Highest Ending % to Interest Interest Rate Balance Balance Total Expense (%) 2012 $ 4,015,226 $ 435,525 - $ 1,964 0.050-1.850 2011 $ 3,036,915 $ 531,809 - $ 719 0.140-5.250 2012 ANNUAL REPORT
d) Loans
Highest Ending % to Interest Interest Rate Balance Balance Total Revenue (%) 2012 $ 169,648 $ 103,269 - $ 1,971 1.525-2.520 2011 $ 126,736 $ 125,919 - $ 176 1.525-2.520
Under the Banking Law, except for customer loans and government loans, credits extended by TCB to any related party should be 100% secured, and the terms of credits extended to related parties should be similar to those to third parties. e) Deposits
Ending % to Interest Interest Balance Total Expense Rate (%) 2012 $ 5,980,161 - $ 35,857 0-13 2011 $ 5,064,545 - $ 3,658 0-13
f) Tax payable - consolidated tax return (part of payables)
2012 2011 Amount % to Total Amount % to Total TCHFC $ 716,051 2 $ - -
g) Service revenue (part of service fee income, net)
2012 2011 Amount % to Total Amount % to Total Cooperative Insurance Brokers Co., Ltd. $ 829,846 22 $ 60,296 15 Other 58,302 2 4,840 1
$ 888,148 24 $ 65,136 16
h) Purchases and sales of securities
2012 Sales Under Related Party Purchases Under Purchases Sales Repurchase Resell Agreements Agreements TCFHC $ - $ - $ 1,197,451 $ - BPATLI $ - $ - $ 714,640 $ - BNP Paribas TCB Elite Taiwan Fund $ - $ - $ 250,047 $ - BNP Paribas TCB Elite Sustainability Emerging Asia Equity Fund $ - $ - $ 665,066 $ - BNP Paribas TCB Elite Global Investment Grade Bond Fund $ - $ - $ 365,000 $ - BNP Paribas TCB Elite Global High Yield Bond Fund $ - $ - $ 2,070,512 $ - Taiwan Cooperative Bank Global Income Collective Management Trust Account $ - $ - $ 219,306 $ - 77 78 Financial Information
i) Derivatives
2012 Type of Contract Nominal Valuation Amounts in the Balance Sheet Related Party Derivatives Period Amounts Loss Account Amounts Financial liabilities Cross-currency 2010.11.17- BPATLI US$ 5,000 $ (5,238 ) at fair value through $ (2,331 ) swap 2015.09.08 profit or loss Financial liabilities Cross-currency 2010.11.24- US$ 5,000 (6,150 ) at fair value through (1,930 ) swap 2015.01.20 profit or loss Financial assets at fair Cross-currency 2010.12.10- US$ 5,000 (6,214 ) value through profit 1,295 swap 2015.09.28 or loss Financial liabilities 2012.11.13- Currency swap US$ 10,036 (2,045 ) at fair value through (2,045 ) 2013.02.19 profit or loss Financial liabilities 2012.11.13- Currency swap US$ 4,935 (1,006 ) at fair value through (1,006 ) 2013.02.19 profit or loss Financial liabilities 2012.11.15- Currency swap US$ 10,029 (519 ) at fair value through (519 ) 2013.02.19 profit or loss Financial liabilities 2012.11.15- Currency swap US$ 10,033 (519 ) at fair value through (519 ) 2013.02.19 profit or loss Financial liabilities 2012.11.19- Currency swap US$ 13,000 (1,258 ) at fair value through (1,258 ) 2013.02.20 profit or loss Financial liabilities 2012.11.06- Currency swap US$ 3,187 (778 ) at fair value through (778 ) 2013.02.06 profit or loss BNP Paribas Financial liabilities TCB Elite Global 2012.12.17- Currency swap US$ 3,000 (196 ) at fair value through (196 ) Investment Grade 2013.01.17 profit or loss Bond Fund BNP Paribas TCB Financial liabilities 2012.12.19- Elite Global High Currency swap US$ 10,000 (654 ) at fair value through (654 ) 2013.01.22 Yield Bond Fund profit or loss Financial liabilities 2012.02.19- Currency swap US$ 5,000 (327 ) at fair value through (327 ) 2013.01.22 profit or loss
2011 Type of Contract Nominal Valuation Amounts in the Balance Sheet Related Party Derivatives Period Amounts Gain Account Amounts Financial assets at Cross-currency 2010.11.17- BPATLI US$ 5,000 $ 664 fair value through $ 2,907 swap 2015.09.08 profit or loss Financial assets at fair Cross-currency 2010.11.24- US$ 5,000 554 value through profit 4,220 swap 2015.01.20 or loss Financial assets at fair Cross-currency 2010.12.10- US$ 5,000 671 value through profit 7,509 swap 2015.09.28 or loss
TCB recognized realized losses of $11,992 thousand from currency swap and cross-currency swap transactions with related parties in 2012. 2012 ANNUAL REPORT
2) Taiwan Cooperative Securities Co., Ltd.
2012 2011 Amount % to Total Amount % to Total a) Cash in bank (part of cash and cash equivalents)
TCB $ 88,732 99 $ 340,763 99
b) To settle securities transactions, TCS applied to TCB in March 2012 for a guarantee of $500,000 thousand for short-term loan and overdraft. As of December 31, 2012, there were no more borrowing and overdraft. 3) Taiwan Cooperative Bills Finance Corporation Ltd.
2012 2011 Ending Interest Interest Ending Interest Interest Balance Rate (%) Revenue Balance Rate (%) Revenue a) Cash in bank TCB $ 76,615 0.130-1.345 $ 16 $ 119,565 0.130-1.345 $ 2
b) Purchases and sales of securities
2012 Related Party Sales Under Repurchase Purchases Under Purchases Sales Agreements Resell Agreements TCFHC $ - $ - $ 1,099,110 $ - BPATLI $ - $ - $ 419,681 $ - BNP Paribas TCB Elite Sustainability Emerging Asia Equity Fund $ - $ - $ 320,108 $ - BNP Paribas TCB Elite Global Investment Grade Bond Fund $ - $ - $ 85,000 $ - Land Bank $ - $ - $ 19,997 $ -
4) Co-operative Assets Management Co., Ltd.
2012 2011 Amount % to Total Amount % to Total Cash in bank (part of cash) TCB $ 914,066 100 $ 14,950 96
5) BNP Paribas Assurance TCB Life Insurance Co., Ltd.
2012 Amount % to Total a) Cash in bank (part of cash and cash equivalents, refundable deposits and separate account assets) TCB $ 3,914,962 58 Land Bank 21,972 - $ 3,936,934 58 79 80 Financial Information
b) BPATLI entered into several insurance contracts with Cooperative Insurance Brokers Co., Ltd. (CIB). Based on the contracts, commissions and other incentive bonuses paid in 2012 were $914,856 thousand (part of operating cost - commission expenses and reserve for insurance contract with financial instrument features). c) Securities purchased under resell agreements
Securities Purchased under Resell Agreements Purchased December 31, Interest Rate Securities 2012 Income TCBF $ 419,681 $ - 0.750-0.770 $ 124 TCB 714,640 - 0.750 294
d) Derivatives
2012 December 31 Interest Revenue Contract Notional Valuation Balance Period Amounts Gain (Loss) Subject Amount Cross-currency swap contracts
Financial assets at fair value TCB 2010.11.15-2015.9.8 US$ 10,000 $ 11,389 $ 4,261 through profit or loss Financial liabilities at fair value 2010.12.8-2015.9.28 US$ 5,000 6,215 1,295 through profit or loss Banque Nationale De Financial assets at fair value 2010.10.15-2015.9.28 US$ 98,000 93,142 61,307 Paris, Taipei Branch through profit or loss Financial liabilities at fair value 2011.1.20-2016.4.18 US$ 30,000 31,284 48,523 through profit or loss
Currency swap contracts
Financial assets at fair value TCB 2012.11.2-2013.2.20 US$ 51,220 6,125 6,125 through profit or loss Banque Nationale De Financial assets at fair value 2012.10.12-2012.2.19 US$ 25,037 5,047 5,047 Paris, Taipei Branch through profit or loss
BPATLI engaged in cross-currency swap contracts with Banque Nationale De Paris. Under the contracts, both parties should pay or receive deposits depending on the value of the swaps. As of December 31, 2012, BPATLI had paid a deposit of $81,350 thousand (part of refundable deposit). 6) BNP Paribas TCB Asset Management Co., Ltd.
2012 Amount % to Total Cash in bank (part of cash) TCB $ 112,104 30 2012 ANNUAL REPORT
d. Compensation of directors, supervisors and management personnel
2012 2011 Salaries $ 85,308 $ 4,362 Incentives 25,840 1,077 Special compensation 981 - Bonus 57,162 4,541 $ 169,291 $ 9,980
34. PLEDGED ASSETS a. The face values of the pledged bonds and certificates of deposit as of December 31, 2012 and 2011 are summarized as follows:
2012 2011 Collaterals for handling the government treasury affairs $ 73,000,000 $ - Collaterals for call loans of foreign currency 40,000,000 40,000,000 Collaterals for day-term overdraft 30,200,000 30,700,000 Guarantee deposits for the insurance operation 900,000 - Guarantee deposits for provisional collateral seizure for loan defaults and others 623,900 666,200 Overseas branches’ capital adequate reserve (US$14,100 thousand in 2012 and US$9,100 thousand in 2011) 409,394 275,503 Guarantee deposits for securities operation 385,000 385,000 Guarantee deposits for the bills finance business 177,400 177,400 Guarantee deposits for the trust business compensation reserve 150,000 150,000 Collaterals for overdraft of domestic U.S. dollar settlement - 2,000,000 Others 29,400 29,400
$ 145,875,094 $ 74,383,503
To comply with the Central Bank of the Republic of China’s (CBC) clearing system for real-time gross settlement (RTGS), TCB provided certificates of deposit as collateral for day-term overdraft (part of due from the Central Bank and call loans to other banks). The pledged amount may be adjusted anytime, and the unused overdraft amount at the end of a day can also be treated as TCB’s liquidity reserve. b. To expand their capital sourcing and enhance their liquidity position, TCB’s Seattle Branch and Los Angeles Branch obtained access privileges at the Discount Window of the Federal Reserve Bank of San Francisco. For this access, the two branches pledged the following assets: (In Thousands of U.S. Dollars) Outstanding Balance Collateral Date Loan Bond Total Value December 31, 2012 $ 197,862 $ 98,400 $ 296,262 $ 241,429 December 31, 2011 $ 137,559 $ 81,900 $ 219,459 $ 170,084
81 82 Financial Information
35. COMMITMENTS AND CONTINGENT LIABILITIES In addition to those mentioned in other notes, the commitments and contingencies as of December 31, 2012 were as follows: a. Taiwan Cooperative Financial Holding Co., Ltd. TCFHC’s outstanding major construction and procurement contracts amounted to $15,695 thousand, of which $12,726 thousand was still unpaid. b. Taiwan Cooperative Bank, Ltd. 1) TCB has operating lease agreements covering its office premises being rented from third parties. As of December 31, 2012, refundable deposits on these leases amounted to $161,064 thousand. Minimum rentals payable in the next five years are as follows:
Year Amount 2013 $ 577,175 2014 414,851 2015 304,563 2016 197,211 2017 96,679
2) TCB’s outstanding major construction and procurement contracts amounted to $5,505,627 thousand, of which $4,612,377 thousand was still unpaid. c. United Taiwan Bank S.A. United Taiwan Bank S.A. has operating lease agreements with unrelated parties on its office premises. The rentals payable in the next five years are as follows:
Year Amount 2013 $ 2,966 2014 3,055 2015 3,146 2016 3,241 2017 3,338
d. Cooperative Insurance Brokers Co., Ltd. 1) CIB entered into insurance agent contracts with various insurance companies. The contracts are summarized as follows:
Insurance Company Contract Date Commission Contract Period Effective February 7, 2008; expiry on February 6, 2009; contract Billed and received under Taiwan Life Insurance Co., Ltd 2008.02.07 is automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective February 7, 2008; expiry on February 6, 2009; contract Billed and received under Cardif Assurance Vie 2008.02.07 is automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective June 27, 2008; expiry on June 26, 2009; contract is Billed and received under Fubon Life Assurance Co., Ltd. 2008.06.27 automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective August 21, 2008; expiry on August 20, 2009; contract Billed and received under Shin Kong Life Insurance Co., Ltd. 2008.08.21 is automatically extended for one year unless either party gives a contract terms notice declining contract renewal.
(Continued) 2012 ANNUAL REPORT
Insurance Company Contract Date Commission Contract Period Effective January 8, 2008; expiry on January 7, 2009; contract is Tokio Marine Newa Insurance Co., Billed and received under 2008.01.08 automatically extended for one year unless either party gives a Ltd. contract terms notice declining contract renewal. Effective January 8, 2008; expiry on January 7, 2009; contract is Shin Kong Fire & Marine Insurance Billed and received under 2008.01.08 automatically extended for one year unless either party gives a Co., Ltd. contract terms notice declining contract renewal. Effective January 8, 2008; expiry on January 7, 2009; contract is Billed and received under Charties Insurance Company 2008.01.08 automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective January 8, 2008; expiry on January 7, 2009; contract is Mingtai Fire & Marine Insurance Billed and received under 2008.01.08 automatically extended for one year unless either party gives a Co., Ltd. contract terms notice declining contract renewal. Effective January 8, 2008; expiry on January 7, 2009; contract is Billed and received under Fubon Insurance Co., Ltd. 2008.01.08 automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective January 8, 2008; expiry on January 7, 2009; contract is Taiwan Fire & Marine Insurance Billed and received under 2008.01.08 automatically extended for one year unless either party gives a Co., Ltd. contract terms notice declining contract renewal. Effective December 11, 2007; expiry on December 10, 2008; contract Billed and received under China Life Insurance Co., Ltd. 2007.12.11 is automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective December 27, 2007; expiry on December 26, 2008; Mass Mutual Mercuries Life Billed and received under 2007.12.27 contract is automatically extended for one year unless either Insurance Co., Ltd. contract terms party gives a notice declining contract renewal. Effective November 16, 2007; expiry on November 15, 2008; contract Billed and received under CIGNA Life Insurance Co., Ltd. 2007.11.16 is automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective February 14, 2008; expiry on February 13, 2009; Billed and received under Farglory Life Insurance Co., Ltd. 2008.02.14 contract is automatically extended for one year unless either contract terms party gives a notice declining contract renewal. Effective February 19, 2008; expiry on February 18, 2009; contract Billed and received under Chung Kuo Insurance Co., Ltd. 2008.02.19 is automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective February 19, 2008; expiry on February 18, 2009; Billed and received under The First Insurance Co., Ltd. 2008.02.19 contract is automatically extended for one year unless either contract terms party gives a notice declining contract renewal. Effective February 19, 2008; expiry on February 18, 2009; Billed and received under Zurich Insurance Co., Ltd. 2008.02.19 contract is automatically extended for one year unless either contract terms party gives a notice declining contract renewal. Effective February 19, 2008; expiry on February 18, 2009; Billed and received under Taian Insurance Co., Ltd. 2008.02.19 contract is automatically extended for one year unless either contract terms party gives a notice declining contract renewal. Effective February 19, 2008; expiry on February 18, 2009; Billed and received under Union Insurance Co., Ltd. 2008.02.19 contract is automatically extended for one year unless either contract terms party gives a notice declining contract renewal. Effective February 19, 2008; expiry on February 18, 2009; Billed and received under South China Insurance Co., Ltd. 2008.02.19 contract is automatically extended for one year unless either contract terms party gives a notice declining contract renewal. Effective June 18, 2008; expiry on June 17, 2009; contract is Billed and received under Cardif-Assurances Risques Divers 2008.06.18 automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective July 29, 2009; expiry on July 28, 2010; contract is Billed and received under Cathay Life Insurance Co., Ltd. 2009.07.29 automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective January 31, 2011; expiry on January 30, 2012; contract Billed and received under Cathay Life Insurance Co., Ltd. 2011.01.31 is automatically extended for one year unless either party gives a contract terms notice declining contract renewal.
(Continued) 83 84 Financial Information
Insurance Company Contract Date Commission Contract Period Effective January 27, 2011; expiry on January 26, 2012; contract Billed and received under Fubon Life Insurance Co., Ltd. 2011.01.27 is automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective January 27, 2011; expiry on January 26, 2012; contract Billed and received under Shin Kong Life Insurance Co., Ltd. 2011.01.27 is automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective March 1, 2011; expiry on February 29, 2012; contract Taiwan Fire & Marine Insurance Billed and received under 2011.03.01 is automatically extended for one year unless either party gives a Co., Ltd. contract terms notice declining contract renewal. Effective March 1, 2011; expiry on February 29, 2012; contract Billed and received under Chung Kuo Insurance Co., Ltd. 2011.03.01 is automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective March 1, 2011; expiry on February 29, 2012; contract Billed and received under The First Insurance Co., Ltd. 2011.03.01 is automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective March 1, 2011; expiry on February 29, 2012; contract Billed and received under South China Insurance Co., Ltd. 2011.03.01 is automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective March 1, 2011; expiry on February 29, 2012; contract Billed and received under Fubon Insurance Co., Ltd. 2011.03.01 is automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective March 1, 2011; expiry on February 29, 2012; contract Shin Kong Fire & Marine Insurance Billed and received under 2011.03.01 is automatically extended for one year unless either party gives a Co., Ltd. contract terms notice declining contract renewal. Effective January 27, 2011; expiry on January 26, 2012; contract Mass Mutual Mercuries Life Billed and received under 2011.01.27 is automatically extended for one year unless either party gives a Insurance Co., Ltd. contract terms notice declining contract renewal. Effective March 1, 2011; expiry on February 29, 2012; contract Billed and received under Taian Insurance Co., Ltd. 2011.03.01 is automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective March 1, 2011; expiry on February 29, 2012; contract Billed and received under Zurich Insurance Co., Ltd. 2011.03.01 is automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective March 1, 2011; expiry on February 29, 2012; contract Tokio Marine Newa Insurance Co., Billed and received under 2011.03.01 is automatically extended for one year unless either party gives a Ltd. contract terms notice declining contract renewal. Effective March 31, 2011; expiry on March 30, 2012; contract is Billed and received under Allianz Insurance Co., Ltd. 2011.03.31 automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective February 15, 2011; expiry on February 14, 2012; Billed and received under CIGNA Life Insurance Co., Ltd. 2011.02.15 contract is automatically extended for one year unless either contract terms party gives a notice declining contract renewal. Effective February 15, 2011; expiry on February 14, 2012; Billed and received under Taiwan Life Insurance Co., Ltd. 2011.02.15 contract is automatically extended for one year unless either contract terms party gives a notice declining contract renewal. Effective March 17, 2011; expiry on March 16, 2012; contract is Billed and received under Cardif-Assurances Risques Divers 2011.03.17 automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective March 17, 2011; expiry on March 16, 2012; contract is Billed and received under Cardif Assurance Vie 2011.03.17 automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective March 1, 2011; expiry on February 29, 2012; contract Mingtai Fire & Marine Insurance Billed and received under 2011.03.01 is automatically extended for one year unless either party gives a Co., Ltd. contract terms notice declining contract renewal. Effective March 1, 2011; expiry on February 29, 2012; contract Billed and received under Union Insurance Co., Ltd. 2011.03.01 is automatically extended for one year unless either party gives a contract terms notice declining contract renewal. Effective November 18, 2011; expiry on November 17, 2012; Bank Taiwan Life Insurance Co., Billed and received under 2011.11.18 contract is automatically extended for one year unless either Ltd. contract terms party gives a notice declining contract renewal.
(Concluded) 2012 ANNUAL REPORT
2) The Cooperative Insurance Brokers Co., Ltd. (CIB) and Land Bank signed a contract in January 2011. Under this contract, CIB should pay Land Bank at the following percentages of the commission revenue that CIB receives from insurance companies: (a) if the commission is $250,000 thousand or less - 90%; and (b) if the commission exceeds $250,000 thousand - 90% of $250,000 thousand plus 95% of the excess. In 2012, the unpaid amount to Land Bank was $29,136 thousand. 3) CIB and Tamsui Credit-Cooperative Association signed a contract in March 2012. Under this contract, CIB should pay Tamsui Credit-Cooperative Association at 90% of the commission revenue that CIB receives from insurance companies. In 2012, CIB should have paid Tamsui Credit-Cooperative Association $669 thousand. 4) CIB and Hsinchu Credit-Cooperative Association signed a contract in July 2012. Under this contract, CIB should pay Hsinchu Credit-Cooperative Association at 90% of the commission revenue that CIB receives from insurance companies. In 2012, CIB should have paid Hsinchu Credit-Cooperative Association $120 thousand. e. Taiwan Cooperative Bills Finance Cooperation Ltd. As of December 31, 2012, the commitments or contingencies were as follows: 2012 Guarantees of commercial paper $ 13,642,100 Purchase of fixed-rate commercial paper $ 2,750,000 Sale of fixed-rate commercial paper $ 200,000
f. Taiwan Cooperative Securities Co., Ltd. Agreements on the decoration of buildings and various purchases related to the improvements of existing premises occupied by its branches amounted to approximately $33,400 thousand, of which $19,000 thousand was still unpaid. g. BNP Paribas TCB Asset Management Co., Ltd. (BPTAM) 1) Lease agreements (including related-party transactions) on premises occupied by BPTAM will expire on various dates by September 2013. As of December 31, 2012, BPTAM had paid $347 thousand as refundable deposits. Future rentals are as follows: Period Amount Period from January 1, 2013 to April 9, 2013 $ 521
2) Agreements on various purchases related to the improvements of existing premises occupied by BPTAM amounted to $5,050 thousand. As of December 31, 2012, the remaining unpaid amount was $2,810 thousand. 36. FINANCIAL INSTRUMENTS a. Fair values of financial instruments 2012 2011 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Financial assets Financial assets - with fair value approximating carrying amounts Financial assets at fair value through profit or loss $ 68,153,168 $ 68,153,168 $ 29,683,803 $ 29,683,803 Available-for-sale financial assets 110,605,494 110,605,494 55,865,511 55,865,511 (Continued) 85 86 Financial Information
2012 2011 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Other short-term financial assets 769,951,294 769,951,294 652,243,662 652,243,662 Discounts and loans 1,867,116,105 1,867,116,105 1,943,392,930 1,943,392,930 Other financial assets - overdue receivables 149,727 149,727 14,120 14,120 Refundable deposits, operating deposits and 1,945,839 1,945,839 1,152,681 1,152,681 settlement funds Held-to-maturity financial assets 14,462,544 14,470,832 8,716,618 8,668,433 Other financial assets - debt instruments with no 66,717,062 67,113,715 45,080,654 45,022,008 active market Financial liabilities Financial liabilities - with fair value approximating carrying amounts Commercial paper issued 1,821,456 1,821,456 879,696 879,696 Financial liabilities at fair value through profit or 3,592,769 3,592,769 4,218,801 4,218,801 loss Other short-term financial liabilities 334,276,648 334,276,648 333,248,956 333,248,956 Deposits and remittances 2,273,480,798 2,273,480,798 2,212,922,547 2,212,922,547 Other borrowings 3,783,000 3,783,000 970,000 970,000 Other financial liabilities 8,608,699 8,608,699 12,947,680 12,947,680 Bonds Payable 110,080,000 110,483,151 90,800,000 90,774,667
(Concluded) b. Methods and assumptions applied in estimating the fair values of financial instruments are as follows: 1) For financial instruments at fair value through profit or loss, available-for-sale financial assets, and held-to-maturity financial assets, fair value is best determined on the basis of quoted market prices. However, in many instances where there are no quoted market prices for the Company’s various financial instruments, fair values are based on estimates using other financial data and appropriate valuation methodologies. Fair values of forward contracts, currency swap contracts, foreign-currency margin contracts, cross-currency swap contracts and interest rate swap contracts are calculated using the discounted cash flow method, unless the fair values are provided by counter- parties. Fair values of option contracts are based on estimates using the Black Scholes model. The Company estimates the fair value of each forward contract on the basis of the swap points quoted by Reuters on each settlement date. Fair values of interest rate swap contracts and cross- currency swap contracts are calculated using the Bloomberg information system, unless the fair values are provided by counter-parties. The calculation of the fair value of each option contract is based on the mid-price (the average of bid and ask prices) quoted by Reuters. 2) The carrying amounts of short-term financial instruments approximate their fair values because of the short maturities of these instruments. Short-term financial assets are cash and cash equivalents, due from the Central Bank and call loans to other banks, securities purchased under resell agreements and receivables (except tax refundable). Short-term financial liabilities are due to the Central Bank and other banks, securities sold under repurchase agreements and payables (except tax payable). 3) Discounts and loans, commercial paper issued, other borrowings and deposits are interest-earning assets and interest-bearing liabilities. Thus, their carrying amounts represent fair value. The fair value of overdue loans and overdue receivable is based on their carrying amount, net of allowance for credit losses. 2012 ANNUAL REPORT
4) For other financial assets, if there are theoretical prices from the GreTai Securities Market (GTSM, Taiwan’s over-the-counter securities exchange) on the balance sheet date, they are used as the basis for evaluating the fair value of debt instruments with no active market. Otherwise, the latest trade prices and quoted prices by major markets are used. 5) Other financial liabilities include structured products, appropriations for loans and guarantee deposits received. They are interest-bearing liabilities items that can be transferred to other banks at any time depending on the business situation or can be withdrawn by providers. The carrying amounts of these liabilities are their fair values. 6) The fair values of bonds payable are recorded as follows: (a) debentures with no maturity dates - at book values; (b) debentures with floating interest rates - at theoretical prices quoted by the GreTai Securities Market (Taiwan’s over-the-counter securities exchange); and (c) debentures with fixed interest rates - at estimates made using the discounted cash flow method. The discount rates used were between 0.907% and 1.275% as of December 31, 2012 and between 0.8% and 1.1% as of December 31, 2011 and were comparable with interest rates for loans with similar terms and characteristics. 7) If equity investments under the equity method and financial assets carried at cost consist of unlisted stocks, these investments have no quoted market prices in an active market and their fair value cannot be reliably measured. Thus, the Company does not disclose their fair value. 8) The fair values of refundable deposits, operating deposits and settlement funds are based on their carrying amounts because they do not have specific maturity dates. c. The fair value hierarchy of the Company’s financial instruments was as follows:
December, 31 2012 December 31, 2011 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Nonderivative financial instruments Assets
Financial assets at fair value through profit or loss (FVTPL) Held-for-trading financial assets Stocks $ 264,392 $ 264,392 $ - $ - $ 28,768 $ 28,768 $ - $ - Debt instruments 2,423,543 1,776,045 647,498 - 146,804 146,804 - - Others 62,604,620 184 62,604,436 - 24,799,895 200,000 24,599,895 - Designated as at FVTPL on 777,860 287,008 490,852 - 1,666,739 852,699 814,040 - initial recognition Available-for-sale financial assets Stocks 3,298,613 3,298,613 - - 3,128,057 3,128,057 - - Debt instruments 100,141,820 58,304,724 41,837,096 - 52,279,827 13,952,874 38,326,953 - Others 7,165,061 7,165,061 - - 457,627 457,627 - - Other financial assets Debt instruments with no active 67,113,715 - 67,113,715 - 45,022,008 - 45,022,008 - market
Liabilities Financial liabilities at FVTPL ( 1,808,203 ) - ( 1,808,203 ) - ( 1,827,517 ) - ( 1,827,517 ) -
Derivative financial instruments (Continued) 87 88 Financial Information
December, 31 2012 December 31, 2011 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Assets Financial assets at FVTPL 2,082,753 49,983 2,032,770 - 3,041,597 5,086 3,036,511 -
Liabilities Financial liabilities at FVTPL ( 1,784,566 ) - ( 1,784,566 ) - ( 2,391,284 ) - ( 2,391,284 ) -
(Concluded)
1) Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities. In accordance with the Statement of Financial Accounting Standards (SFAS) No. 34 - “Financial Instruments: Recognition and Measurement,” active markets are markets with all of the following conditions: (i) the products traded in the market are homogeneous, (ii) willing parties are available anytime in the market, and (iii) price information is available to the public. 2) Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (e.g., as prices) or indirectly (e.g., derived from prices). 3) Level 3 - inputs not based on observable market data (unobservable inputs). d. Current income and valuation adjustments 1) The net gains (losses) on financial instruments at fair value through profit or loss in 2012 and December 2011 are summarized as follows:
2012 Interest Revenue Gains (Losses) Gains (Losses) Cash Dividends Total (Expense) from Disposal from Valuation Held-for-trading financial assets $ 364,709 $ 10,967,553 $ 3,960,868 $ 2,005 $ 15,295,135 Financial assets designated as at fair 26,954 - 27,046 - 54,000 value through profit or loss Held-for-trading financial liabilities - ( 7,301,416 ) ( 4,257,622 ) - ( 11,559,038 ) Financial liabilities designated as at ( 40,396 ) - 19,314 - ( 21,082 ) fair value through profit or loss
$ 351,267 $ 3,666,137 $ ( 250,394 ) $ 2,005 $ 3,769,015
2011 Interest Revenue Gains (Losses) Gains (Losses) Cash Dividends Total (Expense) from Disposal from Valuation Held-for-trading financial assets $ 23,447 $ 1,185,524 $ (1,153,276 ) $ 10 $ 55,705 Financial assets designated as at fair 6,633 - ( 7,317 ) - ( 684 ) value through profit or loss Held-for-trading financial liabilities - ( 990,023 ) 1,122,820 - 132,797 Financial liabilities designated as at ( 3,415 ) - 1,233 - ( 2,182 ) fair value through profit or loss
$ 26,665 $ 195,501 $ (36,540 ) $ 10 $ 185,636
Financial instrument valuation resulted in net losses of $250,394 thousand and $36,540 thousand in 2012 and December 2011, respectively, of which the results of the valuation at estimated market prices were net losses of $254,714 thousand and $35,695 thousand, respectively. 2012 ANNUAL REPORT
2) In 2012 and December 2011, for the Company’s financial instruments not measured at fair value through profit or loss, the total interest revenue and the total interest expense were as follows:
2012 2011 Interest revenue $ 48,781,189 $ 4,058,709 Interest expense ( 22,832,108 ) ( 1,909,668 )
$ 25,949,081 $ 2,149,041
3) The adjustments of stockholders’ equity credited directly from available-for-sale financial assets amounted to $1,664,819 thousand in 2012 and $247,337 thousand in December 2011, respectively, and deducted from the adjustments of stockholders’ equity and minority interest were a gain of $616,682 thousand and a loss of $15,053 thousand, respectively. 4) The net service fee and commission incomes in 2012 and December 2011 were as follows:
2012 2011 Service fee and commission income $ 4,495,255 $ 519,415 Service charge and commission expenses ( 1,077,413 ) ( 83,871 )
$ 3,417,842 $ 435,544
e. Financial risk information 1) Risk control and hedge strategy Taiwan Cooperative Financial Holding Co., Ltd. (TCFHC) has set up a Risk Management Committee in charge of relevant policies, procedures, principles and standards. In addition, the committees coordinate and supervise the subsidiaries’ risk control tasks. TCFHC also requests each subsidiary to set up risk management procedures based on regulations, so that the Company can effectively identify, measure, manage, and monitor various types of risks and to achieve profit objectives under reasonable risk. Taiwan Cooperative Bank, Ltd. (TCB) has set up a Risk Management Committee in charge of bank-wide risk control tasks. Under this committee is a Risk Management Division devoted to carrying out resolutions adopted by the Committee and performing other duties with regard to risk management. Currently, TCB’s risk management operating procedures call for the business departments and offices in the Head Office to implement routine risk review and control in accordance with business management regulations and risk policies. The Risk Management Division regularly reports risk exposure items affecting liquidity, interest rates, industry, and securities to the Risk Management Committee and Board of Directors in accordance with risk limit regulations. TCB’s risk policy seeks to effectively identify, measure, manage, and monitor various types of risk and to incorporate risk factors in management decision-making, establishing risk limits, determining trading or authorization limits, regularly checking and assessing risk exposures, and establishing risk indicators and early warning mechanisms. In addition, to effectively control capital adequacy and ensure that TCB meets the minimum statutory requirements, TCB incorporates all risks within the scope of capital assessment work in accordance with the authorities’ capital adequacy management regulations. In consideration of overall risk exposure, the characteristics of equity capital and liabilities are taken into consideration in asset allocation. 89 90 Financial Information
2) Market risks TCFHC’s market risk management involves monitoring and controlling the market risk of TCFHC and subsidiaries and setting their risk limit depending on their business needs, including the VaR (value at risk) limit, position-limit and stop-loss limit. TCFHC also regularly submits to its board of directors a risk evaluation report, which covers the taking of risk exposure by each risk-based unit and the adequacy of the current risk management system. For securities investments, loans and related financial instruments held by the Company, their fair values will change because of interest rate and exchange rate fluctuations as of the balance sheet date. a) The foreign-currency financial assets and liabilities with significant effect on financial statements were as follows: (In Thousands) December 31 2012 2011 Foreign Exchange Rate New Taiwan Foreign Exchange Rate New Taiwan Currencies Dollars Currencies Dollars Financial assets
Monetary items USD $ 9,036,883 29.0350 $ 262,385,895 $ 8,989,259 30.2750 $ 272,149,803 AUD 458,270 30.1250 13,805,373 364,457 30.7450 11,205,228 JPY 35,195,218 0.3360 11,825,593 48,571,128 0.3897 18,928,168 HKD 1,732,562 3.7460 6,490,176 1,670,428 3.8970 6,509,656 RMB 1,171,546 4.6580 5,457,059 271,390 4.7970 1,301,859 EUR 133,036 38.4500 5,115,217 157,488 39.2200 6,176,668 NZD 15,393 23.8100 366,502 16,922 23.4100 396,145 CHF 6,820 31.8050 216,921 8,517 32.1850 274,124 ZAR 26,495 3.4300 90,876 14,598 3.7100 54,160 GBP 1,440 46.7800 67,348 46,020 46.6800 2,148,204 SGD 2,611 23.7400 61,996 4,148 23.3000 96,655 CAD 1,713 29.1900 50,002 20,273 29.6700 601,503 SEK 2,450 4.4700 10,952 2,315 4,.3900 10,165 THB 8,117 0.9526 7,732 7,753 0.9583 7,429 PHP 1,623 0.7063 1,146 2,407 0.6906 1,663 MYR 7 9.4850 67 7 9.5360 67 Financial liabilities
Monetary items USD 8,846,842 29.0350 256,868,057 8,429,826 30.2750 255,212,962 ZAR 2,744,256 3.4300 9,412,798 2,431,390 3.7100 9,020,458 EUR 210,785 38.4500 8,104,695 240,613 39.2200 9,436,826 AUD 259,707 30.1250 7,823,662 351,934 30.7450 10,820,223 JPY 18,564,802 0.3360 6,237,774 30,278,349 0.3897 11,799,473 HKD 1,105,916 3.7460 4,142,761 1,040,959 3.8970 4,056,616 RMB 519,134 4.6580 2,418,128 204,675 4.7970 981,826
(Continued) 2012 ANNUAL REPORT
December 31 2012 2011 Foreign Exchange Rate New Taiwan Foreign Exchange Rate New Taiwan Currencies Dollars Currencies Dollars GBP 41,759 46.7800 1,953,499 83,193 46.6800 3,883,451 NZD 73,656 23.8100 1,753,761 118,304 23.4100 2,769,506 CAD 51,248 29.1900 1,495,943 76,543 29.6700 2,271,043 CHF 4,812 31.8050 153,044 4,314 32.1850 138,835 SGD 4,439 23.7400 105,383 6,034 23.3000 140,583 SEK 4,696 4.4700 20,990 6,626 4.3900 29,090 THB 5,003 0.9526 4,765 8,882 0.9583 8,512 PHP 226 0.7063 160 364 0.6906 251 MYR - 9.4850 3 - 9.5360 3 (Concluded)
b) Average amount and average interest rate of interest-earning assets and interest-bearing liabilities Average balance is calculated by the daily average balances of interest-earning assets and interest-bearing liabilities. i. Taiwan Cooperative Bank, Ltd.
2012 2011 Average Rate Average Rate Average Balance Average Balance (%) (%) Interest-earning assets
Due from banks $ 7,835,320 1.94 $ 5,136,944 2.32 Due from the Central Bank 548,743,555 0.82 503,357,490 0.77 Call loans to banks 73,801,413 1.20 60,101,652 1.35 Held-for-trading financial assets 24,011,529 0.95 12,122,019 0.92 Financial assets designated as at fair value through 894,427 2.99 2,460,179 4.43 profit or loss Securities purchased under resell agreements 410 1.13 166,707 0.67 Discounts and loans 1,883,993,628 2.06 1,860,953,470 1.96 Available-for-sale financial assets 43,328,380 1.82 41,584,925 1.95 Held-to-maturity financial assets 9,572,987 1.67 9,088,953 1.52 Debt instruments with no active market 51,932,928 2.14 38,025,691 2.60 Interest-bearing liabilities
Due to the Central Bank and other banks 228,291,092 0.54 201,415,708 0.57 Financial liabilities designated as at fair value 1,800,000 2.24 1,800,000 2.24 through profit or loss Securities sold under repurchase agreements 41,239,308 0.62 42,777,199 0.46 Demand deposits 338,016,406 0.14 335,075,188 0.13 Savings - demand deposits 608,101,139 0.60 586,106,405 0.59
(Continued) 91 92 Financial Information
2012 2011 Average Rate Average Rate Average Balance Average Balance (%) (%) Time deposits 477,829,169 1.04 445,991,715 0.96 Time savings deposits 710,512,328 1.34 695,162,778 1.27 Treasury deposits 66,650,559 0.85 65,510,719 0.79 Negotiable certificates of deposit 2,243,389 0.41 2,415,446 0.27 Structured products 11,122,535 1.33 13,431,266 1.08 Bank debentures 96,192,022 1.76 83,507,726 1.59 (Concluded)
ii. United Taiwan Bank S.A.
2012 2011 Average Rate Average Rate Average Balance Average Balance (%) (%) Interest-earning assets
Due from banks $ 29,457 0.08 $ 92,278 1.25 Call loans to central bank 69,428 0.73 - - Call loans to banks 445,540 0.34 613,874 1.06 Discounts and loans 5,675,135 2.60 4,676,148 2.14 Debt instruments with no active market 1,683,066 1.99 1,927,956 1.29 Interest-bearing liabilities
Due to the Central Bank and other banks 5,658,401 1.21 4,846,496 0.96 Demand deposits 54,176 - 63,878 - Time deposits 116,770 0.97 115,859 0.80
iii. Taiwan Cooperative Bills Finance Corporation Ltd.
2012 2011 Average Rate Average Rate Average Balance Average Balance (%) (%) Interest-earning assets
Demand deposits and time deposits $ 1,464,983 0.89 $ 1,385,686 0.83 Call loans to banks 11,557 0.54 56,726 0.51 Financial assets at fair value through profit or loss - 12,838,405 1.05 10,761,501 0.90 bills Financial assets at fair value through profit or loss - 172,057 1.22 15,095 1.78 bonds Securities purchased under resell agreements 264,085 0.59 - - Available-for-sale financial assets - bonds 9,620,031 1.41 6,984,152 1.46 Interest-bearing liabilities
Call loans from banks 740,847 0.61 92,274 0.66 Securities sold under repurchase agreements - bills 11,980,644 0.81 9,998,014 0.68 Securities sold under repurchase agreements - bonds 7,716,113 0.79 5,309,109 0.67 2012 ANNUAL REPORT
c) Interest rate sensitivity information i. Taiwan Cooperative Bank, Ltd. Interest Rate Sensitivity 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 $ 2,143,040,517 $ 125,945,792 $ 43,524,855 $ 78,686,901 $ 2,391,198,065 Interest rate-sensitive liabilities 1,110,669,150 991,098,516 110,074,198 54,831,219 2,266,673,083 Interest rate sensitivity gap 1,032,371,367 (865,152,724 ) (66,549,343 ) 23,855,682 124,524,982 Net worth 129,484,157 Ratio of interest rate-sensitive assets to liabilities 105.49 Ratio of interest rate sensitivity gap to net worth 96.17 Interest Rate Sensitivity December 31, 2011 (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 $ 2,098,595,064 $ 113,340,697 $ 8,479,526 $ 56,601,685 $ 2,277,016,972 Interest rate-sensitive liabilities 1,157,662,317 926,436,710 73,087,785 34,592,209 2,191,779,021 Interest rate sensitivity gap 940,932,747 (813,096,013 ) (64,608,259 ) 22,009,476 85,237,951 Net worth 105,463,503 Ratio of interest rate-sensitive assets to liabilities 103.89 Ratio of interest rate sensitivity gap to net worth 80.82 Note 1: The above amounts included only New Taiwan dollar amounts held by TCB’s head office and branches (i.e., excluding foreign currency). Note 2: Interest rate-sensitive assets and liabilities refer to interest-earning assets and interest-bearing liabilities with revenues or costs that are 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 (in New Taiwan dollars)
Interest Rate Sensitivity 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 $ 8,986,584 $ 973,351 $ 148,804 $ 356,695 $ 10,465,434 Interest rate-sensitive liabilities 9,533,336 671,062 410,599 27,650 10,642,647 Interest rate sensitivity gap (546,752 ) 302,289 (261,795 ) 329,045 (177,213 ) Net worth 212,971 Ratio of interest rate-sensitive assets to liabilities 98.33 Ratio of interest rate sensitivity gap to net worth (83.21 )
93 94 Financial Information
Interest Rate Sensitivity December 31, 2011 (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 $ 9,854,237 $ 1,116,145 $ 288,449 $ 113,268 $ 11,372,099 Interest rate-sensitive liabilities 9,864,023 600,100 352,191 9,900 10,826,214 Interest rate sensitivity gap (9,786 ) 516,045 (63,742 ) 103,368 545,885 Net worth 236,799 Ratio of interest rate-sensitive assets to liabilities 105.04 Ratio of interest rate sensitivity gap to net worth 230.53 Note 1: The above amounts included only U.S. dollar amounts held by TCB’s head office, domestic branches, OBU and overseas branches and excluded contingent assets and contingent liabilities. Note 2: Interest rate-sensitive assets and liabilities refer to interest-earning assets and interest-bearing liabilities with revenues or costs that are 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 (in U.S. dollars)
ii. United Taiwan Bank S.A.
Interest Rate Sensitivity 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 $ 269,407 $ 22,821 $ - $ - $ 292,228 Interest rate-sensitive liabilities 172,637 51,087 - - 223,724 Interest rate sensitivity gap 96,770 (28,266 ) - - 68,504 Net worth 59,567 Ratio of interest rate-sensitive assets to liabilities 130.62 Ratio of interest rate sensitivity gap to net worth 115.00 Interest Rate Sensitivity December 31, 2011 (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 $ 206,455 $ 35,992 $ - $ 8,281 $ 250,728 Interest rate-sensitive liabilities 125,000 50,956 - - 175,956 Interest rate sensitivity gap 81,455 (14,964 ) - 8,281 74,772 Net worth 55,746 Ratio of interest rate-sensitive assets to liabilities 142.49 Ratio of interest rate sensitivity gap to net worth 134.13 Note 1: The above amounts included only overseas branches of United Taiwan Bank S.A. and excluded contingent assets and contingent liabilities. Note 2: Interest rate-sensitive assets and liabilities refer to interest-earning assets and interest-bearing liabilities with revenues or costs that are 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 (in U.S. dollars) 2012 ANNUAL REPORT
iii. Taiwan Cooperative Bills Finance Corporation Ltd. TCBF holds bonds, bills and related financial instruments, with fair values that are affected by changes in market interest rates. When the market interest ratio increases by 0.01%, the interest rate sensitivity analysis is as follows:
December 31, 2012 Due after One Due after Three Due after One Due in One Due After Seven Currency Month Up to Months Up to Year Up to Total Month Years Three Months One Year Seven Years New Taiwan Dollars $ 27 $ 108 $ 150 $ 2,138 $ 1,799 $ 4,222
December 31, 2011 Due after One Due after Three Due after One Due in One Due After Seven Currency Month Up to Months Up to Year Up to Total Month Years Three Months One Year Seven Years New Taiwan Dollars $ 20 $ 102 $ 82 $ 2,000 $ 729 $ 2,933
iv. BNP Paribas Assurance TCB Life Insurance Co., Ltd. (BPATLI) BPATLI has investments in and outside of Taiwan that are exposed to overseas market risks, which can be managed by using cross-currency swaps and having a diversified portfolio to decrease possible losses. BPATLI attempts to avoid any market fluctuation (including changes in market interest rate, exchange rate, stock price, etc.) that may cause BPATLI to suffer a loss by referring to the Quantitative Impact Study to approximate the adequate solvency capital and regularly monitoring the market for risks. Moreover, BPATLI makes simulation tests such as back-testing, stress test, etc. coupled with position limits and risk limits to control its exposure to market risks. BPATLI offers products with variable interest rates and is thus exposed to interest rate risk. The interest rate risk associated with products with variable interest rate originates from the spread between the declared rate and the current interest rate. For instance, if the current interest rate is lower than the declared rate, then BPATLI has a loss. Furthermore, retirement insurance is also exposed to interest rate risk. Since the predetermined interest rate has been locked in at the start of the insurance contract, a difference between the predetermined interest rate and the long-term interest rate may result in a loss for BPATLI. The Company reviews investment returns at every committee meeting. If there is a trend showing increasing losses over time, the Company will reconsider the components of its investments and replace fixed interest rates of products with variable interest rates in the subsequent year or revise the price of retirement insurance to reduce the risk of significant interest rate differences. 3) Credit risk Every major subsidiary of TCFHC has complete examination procedures to evaluate credit risks of clients or counterparties. To maintain good asset quality, TCFHC’s subsidiaries have set up not only fair credit approval processes but also management policy on and requirements for counterparties’ credit rating and determination of risk concentration in persons, groups, and affiliates. The Company is exposed to credit risk from counter-parties’ default on financial instruments. When providing loans, acceptances and guarantees, the Company conducts cautionary credit evaluations. As of December 31, 2012 and 2011, the securing of financial instruments by collaterals were as follows: (a) about 67% and 66% of TCB’s total loans, respectively; (b) 9.29% to 16.78% and 7.27% 95 96 Financial Information
to 16.92%, with an average of 15.23% and 14.76%, of TCB’s guarantees and letters of credit issued; and (c) about 45.87% and 47.37%, of TCBF’s total guarantees, respectively. Collaterals were mostly in the form of cash, inventory, liquid securities and other assets. If the customers break a contract, the Company will execute its right on the collaterals and decrease its credit risk. However, the Company discloses its maximum credit exposure without consideration of collateral fair value. The maximum credit exposure of financial assets is the carrying amount of financial assets on the balance sheet date; please refer to related notes to the consolidated financial statements for more information. The amounts of financial contracts with off-balance-sheet credit risks as of December 31, 2012 and 2011 were as follows: a) Taiwan Cooperative Bank, Ltd.
2012 2011 Credit card commitments $ 40,034,360 $ 38,501,980 Guarantees and letters of credit issued 103,181,371 107,976,164 Irrevocable loan commitments 98,802,356 61,816,331
b) United Taiwan Bank S.A.
2012 2011 Irrevocable loan commitments $ 267,268 $ 1,159,207
c) Taiwan Cooperative Bills Finance Corporation Ltd.
2012 2011 Guarantees of commercial paper $ 13,642,100 $ 11,829,300
The concentration of credit risk exists when counter-parties to financial transactions are individuals or groups engaged in similar activities or activities in the same region, which would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. TCB’s groups or industries with outstanding loans amounting to 10% or more of total outstanding loans were as follows:
2012 2011 Amount % Amount % Domestic Natural person $ 765,656,765 39 $ 807,266,540 39 Manufacturing 349,983,422 18 388,001,601 19 Government institutions 131,438,552 7 107,439,483 5
For Taiwan Cooperative Bills Finance Corporation Ltd., concentrations of credit risk were as follows:
2012 2011 Counter-party Maximum Credit Maximum Credit Amount Amount Exposure Exposure Private enterprise $ 13,642,100 $ 13,642,100 $ 11,829,300 $ 11,829,300 2012 ANNUAL REPORT
2012 2011 Industries Maximum Credit Maximum Credit Amount Amount Exposure Exposure Real estate $ 3,465,900 $ 3,465,900 $ 3,322,100 $ 3,322,100 Finance and insurance 4,402,900 4,402,900 3,890,700 3,890,700 Manufacturing 2,492,500 2,492,500 2,171,300 2,171,300 $ 10,361,300 $ 10,361,300 $ 9,384,100 $ 9,384,100
4) Liquidity risk TCFHC’s guidelines for managing liquidity risk are shown in “The Liquidity and Interest Risk Management Guideline of Taiwan Cooperative Financial Holding Company.” This guideline requires TCFHC and its subsidiaries to maintain appropriate liquidity, payment ability, and financial stability and to improve their ability to handle exigencies. TCFHC and subsidiaries also follow the requirements of authorities, adopt numeral management, and compile cash flow gap analysis reports regularly. Additionally, the Company uses a liquidity risk management index to monitor strictly its transactions. In December 2012 and 2011, TCB’s liquidity reserve ratios were 22.18% and 16.75%, respectively. TCB has sufficient equity capital and working capital to execute all contract obligations and thus has no liquidity risk. The possibility that futures contracts cannot be sold at reasonable prices is low; hence, the liquidity risk is insignificant. The Company manages the currency requirements for assets and liabilities that have various maturity dates. However, because of uncertainties as well as the great variety of transactions, exchange rates on asset and liability maturity dates can result in either gain or loss. To minimize its liquidity risk, TCB, Taiwan Cooperative Bills Finance Corporation Ltd. and United Taiwan Bank S.A. apply appropriate ways to group assets and liabilities by maturity. The maturity analysis of assets and liabilities is shown as follows: a) Maturity analysis of financial assets and liabilities i. Taiwan Cooperative Bank, Ltd.
December 31, 2012 Due after One Due after Three Due after Six Due in Due after Month up to Months up to Months up to Total One Month One Year Three Months Six Months One Year Assets
Cash and cash equivalents $ 57,444,085 $ - $ - $ - $ - $ 57,444,085 Due from the Central Bank and call loans to other 519,967,367 42,608,083 43,223,298 61,699,419 19,648,920 687,147,087 banks Financial assets at fair 54,063,952 87 357,049 147,449 276,082 54,844,619 value through profit or loss Receivables 11,403,800 2,500,260 1,267,268 1,878,638 1,629,153 18,679,119 Discounts and loans 61,627,832 107,649,937 156,608,406 250,522,614 1,304,358,993 1,880,767,782 Available-for-sale financial 1,801,107 3,272,038 203,303 1,423,449 40,838,623 47,538,520 assets Held-to-maturity financial - - 481,175 6,767,348 7,210,340 14,458,863 assets Other financial assets (excluding financial assets 504,459 2,034,442 1,267,976 3,640,298 57,381,601 64,828,776 carried at cost) $ 706,812,602 $ 158,064,847 $ 203,408,475 $ 326,079,215 $ 1,431,343,712 $ 2,825,708,851
(Continued) 97 98 Financial Information
December 31, 2012 Due after One Due after Three Due after Six Due in Due after Month up to Months up to Months up to Total One Month One Year Three Months Six Months One Year Liabilities
Due to the Central Bank $ 148,815,575 $ 52,759,078 $ 16,493,112 $ 15,428,051 $ 781,042 $ 234,276,858 and other banks Financial liabilities at fair 1,511,518 14,430 1,815,679 1,945 167,648 3,511,220 value through profit or loss Securities sold under 24,580,266 4,033,704 2,542,045 4,212 - 31,160,227 repurchase agreements Payables 31,288,896 1,397,718 5,486,686 5,316,258 3,001,934 46,491,492 Deposits and remittances 377,909,262 336,388,254 304,447,971 577,932,224 681,508,272 2,278,185,983 Bank debentures - - 18,200,000 7,000,000 84,880,000 110,080,000 Other financial liabilities 6,807,774 77,218 46,259 764,783 911,084 8,607,118 $ 590,913,291 $ 394,670,402 $ 349,031,752 $ 606,447,473 $ 771,249,980 $ 2,712,312,898
(Concluded)
December 31, 2011 Due after One Due after Three Due after Six Due in Due after Month up to Months up to Months up to Total One Month One Year Three Months Six Months One Year Assets
Cash and cash $ 52,772,714 $ - $ - $ - $ - $ 52,772,714 equivalents Due from the Central Bank and call loans to 274,658,219 155,422,074 55,256,710 33,687,542 58,207,390 577,231,935 other banks Financial assets at fair value through profit or 15,796,852 350,846 308,744 - 704,428 17,160,870 loss Receivables 12,464,642 2,326,871 1,104,824 2,496,858 2,150,049 20,543,244 Discounts and loans 92,406,425 147,666,670 121,694,422 204,741,222 1,391,140,580 1,957,649,319 Available-for-sale 717,799 5,000,738 776,372 3,768,821 36,757,595 47,021,325 financial assets Held-to-maturity 544,723 63,578 558,362 511,224 7,034,942 8,712,829 financial assets Other financial assets (excluding financial 222,547 993,815 1,526,686 3,324,150 37,945,105 44,012,303 assets carried at cost) $ 449,583,921 $ 311,824,592 $ 181,226,120 $ 248,529,817 $ 1,533,940,089 $ 2,725,104,539 Liabilities
Due to the Central Bank $ 95,632,832 $ 97,076,601 $ 15,978,768 $ 18,856,686 $ 299,856 $ 227,844,743 and other banks Financial liabilities at fair value through profit 2,391,284 - - - 1,827,517 4,218,801 or loss Securities sold under 35,109,129 5,823,528 2,547,320 12,659 - 43,492,636 repurchase agreements Payables 28,648,747 1,338,229 3,264,719 5,871,909 3,914,571 43,038,175 Deposits and remittances 332,899,664 345,446,797 313,132,913 582,275,026 639,663,095 2,213,417,495 Bank debentures - - - - 90,080,000 90,080,000 Other financial liabilities 10,397,779 84,646 71,878 178,022 2,220,000 12,952,325 $ 505,079,435 $ 449,769,801 $ 334,995,598 $ 607,194,302 $ 738,005,039 $ 2,635,044,175 2012 ANNUAL REPORT
ii. United Taiwan Bank S.A.
December 31, 2012 Due after One Due after Three Due after Six Due in Due after Month up to Months up to Months up to Total One Month One Year Three Months Six Months One Year Assets
Cash and cash $ 105,367 $ - $ - $ - $ - $ 105,367 equivalents Due from the Central Bank and call loans to 142,265 - - - - 142,265 other banks Receivables 20,511 - - - - 20,511 Discounts and loans 168,342 306,464 195,435 973,137 4,661,918 6,305,296 Other financial assets (excluding financial - - 101,993 - 1,827,607 1,929,600 assets carried at cost) $ 436,485 $ 306,464 $ 297,428 $ 973,137 $ 6,489,525 $ 8,503,039 Liabilities
Due to the Central Bank $ 1,791,997 $ 3,034,187 $ 1,483,311 $ - $ - $ 6,309,495 and other banks Payables 19,372 - - - - 19,372 Deposits and remittances 136,414 - - - - 136,414 $ 1,947,783 $ 3,034,187 $ 1,483,311 $ - $ - $ 6,465,281
December 31, 2011 Due after One Due after Three Due after Six Due in Due after Month up to Months up to Months up to Total One Month One Year Three Months Six Months One Year Assets
Cash and cash $ 127,638 $ - $ - $ - $ - $ 127,638 equivalents Due from the Central Bank and call loans to 611,832 - - - - 611,832 other banks Receivables 19,539 - - - - 19,539 Discounts and loans 33,076 230,362 386,975 198,907 4,304,863 5,154,183 Other financial assets (excluding financial - - 278,848 536,418 550,074 1,365,340 assets carried at cost) $ 792,085 $ 230,362 $ 665,823 $ 735,325 $ 4,854,937 $ 7,278,532 Liabilities
Due to the Central Bank $ 1,803,260 $ 1,790,464 $ 1,542,693 $ - $ - $ 5,136,417 and other banks Payables 17,081 - - - - 17,081 Deposits and remittances 135,308 - - - - 135,308 $ 1,955,649 $ 1,790,464 $ 1,542,693 $ - $ - $ 5,288,806
99 100 Financial Information
iii. Taiwan Cooperative Bills Finance Corporation Ltd.
December 31, 2012 Due after One Due after Three Due after One Due in Due after Month up to Months up to Year up to Total One Month Seven Years Three Months One Year Seven Years Assets
Financial assets at fair value through profit or $ 5,341,766 $ 5,599,321 $ 1,023,279 $ 55,966 $ 647,498 $ 12,667,830 loss Available-for-sale 100,090 761,518 1,657,400 6,891,867 1,406,153 10,817,028 financial assets 5,441,856 6,360,839 2,680,679 6,947,833 2,053,651 23,484,858 Liabilities
Securities sold under 17,954,234 2,191,230 75,000 - - 20,220,464 repurchase agreements $ (12,512,378) $ 4,169,609 $ 2,605,679 $ 6,947,833 $ 2,053,651 $ 3,264,394
December 31, 2011 Due after One Due after Three Due after One Due in Due after Month up to Months up to Year up to Total One Month Seven Years Three Months One Year Seven Years Assets
Financial assets at fair value through profit or $ 5,618,992 $ 5,815,783 $ 718,779 $ - $ - $ 12,153,554 loss Available-for-sale - 301,614 727,928 7,798,275 - 8,827,817 financial assets 5,618,992 6,117,397 1,446,707 7,798,275 - 20,981,371 Liabilities
Securities sold under 15,445,894 2,881,359 15,009 - - 18,342,262 repurchase agreements $ (9,826,902) $ 3,236,038 $ 1,431,698 $ 7,798,275 $ - $ 2,639,109
b) Maturity analysis of assets and liabilities i. Taiwan Cooperative Bank, Ltd. Maturity Analysis of Assets and Liabilities December 31, 2012 (In Thousands of New Taiwan Dollars)
Remaining Period to Maturity Total 181 Days to 1 to 30 Days 31 to 90 Days 91 to 180 Days Over One Year One Year Main capital inflow on $ 2,716,369,547 $ 722,274,415 $ 151,017,808 $ 176,219,391 $ 315,472,031 $ 1,351,385,902 maturity Main capital outflow on 2,762,980,891 433,308,672 403,393,925 351,658,452 626,170,812 938,449,030 maturity Gap (46,611,344 ) 278,965,743 (252,376,117 ) (175,439,061 ) (310,698,781 ) 412,936,872 2012 ANNUAL REPORT
Maturity Analysis of Assets and Liabilities December 31, 2011 (In Thousands of New Taiwan Dollars)
Remaining Period to Maturity Total 181 Days to 1 to 30 Days 31 to 90 Days 91 to 180 Days Over One Year One Year Main capital inflow on $ 2,610,099,381 $ 459,809,127 $ 324,848,595 $ 207,004,571 $ 335,964,428 $ 1,282,472,660 maturity Main capital outflow on 3,354,841,788 412,460,650 493,433,873 458,492,969 846,465,635 1,143,988,661 maturity Gap (744,742,407 ) 47,348,477 (168,585,278 ) (251,488,398 ) (510,501,207 ) 138,483,999 Note: The above amounts included only New Taiwan dollar amounts held by TCB’s head office and domestic branches (i.e., excluding foreign currency).
Maturity Analysis of Assets and Liabilities December 31, 2012 (In Thousands of U.S. Dollars) Remaining Period to Maturity Total 181 Days to 1 to 30 Days 31 to 90 Days 91 to 180 Days Over One Year One Year Main capital inflow on $ 14,024,094 $ 7,134,121 $ 2,368,480 $ 1,165,697 $ 692,214 $ 2,663,582 maturity Main capital outflow on 14,024,094 11,815,307 1,042,564 555,929 497,248 113,046 maturity Gap - (4,681,186 ) 1,325,916 609,768 194,966 2,550,536 Maturity Analysis of Assets and Liabilities December 31, 2011 (In Thousands of U.S. Dollars) Remaining Period to Maturity Total 181 Days to 1 to 30 Days 31 to 90 Days 91 to 180 Days Over One Year One Year Main capital inflow on $ 15,007,809 $ 6,843,113 $ 3,648,499 $ 1,631,608 $ 1,018,435 $ 1,866,154 maturity Main capital outflow on 15,007,809 10,478,572 3,212,123 734,970 547,035 35,109 maturity Gap - (3,635,459 ) 436,376 896,638 471,400 1,831,045 Note: The above amounts included only U.S. dollar amounts held by TCB’s head office and domestic branches.
ii. United Taiwan Bank S.A. Maturity Analysis of Assets and Liabilities December 31, 2012 (In Thousands of U.S. Dollars) Remaining Period to Maturity Total 181 Days to 1 to 30 Days 31 to 90 Days 91 to 180 Days Over One Year One Year Main capital inflow on $ 292,228 $ 14,650 $ 10,555 $ 10,231 $ 33,516 $ 223,276 maturity Main capital outflow on 232,661 68,136 107,140 51,087 - 6,298 maturity Gap 59,567 (53,486 ) (96,585 ) (40,856 ) 33,516 216,978 101 102 Financial Information
Maturity Analysis of Assets and Liabilities December 31, 2011 (In Thousands of U.S. Dollars) Remaining Period to Maturity Total 181 Days to 1 to 30 Days 31 to 90 Days 91 to 180 Days Over One Year One Year Main capital inflow on $ 250,728 $ 26,051 $ 11,039 $ 21,982 $ 24,266 $ 167,390 maturity Main capital outflow on 194,982 65,861 59,140 50,956 - 19,025 maturity Gap 55,746 (39,810 ) (48,101 ) (28,974 ) 24,266 148,365 Note: The above amounts included only U.S. dollar amounts held by the head office, domestic branches and OBU of United Taiwan Bank S.A.
iii. Taiwan Cooperative Bills Finance Corporation Ltd. December 31, 2012
Period 181 Days to 1 to 30 Days 31 to 90 Days 91 to 180 Days Over One Year Items One Year Bills $ 5,341,766 $ 5,599,321 $ 1,023,279 $ - $ - Bonds 100,090 761,518 151,053 1,506,347 9,001,484 Use of funds Cash in bank 1,478,221 200,000 200 - - Lending 250,000 - - - - Total 7,170,077 6,560,839 1,174,532 1,506,347 9,001,484 Borrowings 1,510,000 - - - - Securities sold under 17,954,234 2,191,230 75,000 - - Source of funds repurchase agreements Capital - - - - 2,547,270 Total 19,464,234 2,191,230 75,000 - 2,547,270 Net flows (12,294,157 ) 4,369,609 1,099,532 1,506,347 6,454,214 Accumulated capital net flows (12,294,157 ) (7,924,548 ) (6,825,016 ) (5,318,669 ) 1,135,545
December 31, 2011
Period 181 Days to 1 to 30 Days 31 to 90 Days 91 to 180 Days Over One Year Items One Year Bills $ 5,625,800 $ 5,827,500 $ 722,000 $ - $ - Bonds - 330,100 - 700,000 7,810,000 Use of funds Cash in bank 721,183 100,000 - - - Total 6,346,983 6,257,600 722,000 700,000 7,810,000 Borrowings 300,000 - - - - Securities sold under 14,873,786 3,463,048 15,054 - - Source of funds repurchase agreements Capital - - - - 3,072,503 Total 15,173,786 3,463,048 15,054 - 3,072,503 Net flows (8,826,803 ) 2,794,552 706,946 700,000 4,737,497 Accumulated capital net flows (8,826,803 ) (6,032,251 ) (5,325,305 ) (4,625,305 ) 112,192 2012 ANNUAL REPORT
37. ASSET QUALITY, PROFITABILITY AND RELEVANT INFORMATION OF TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES a. Taiwan Cooperative Bank, Ltd.’s asset quality Table 2 (attached) b. Concentration of credit extensions 1) Taiwan Cooperative Bank, Ltd. (In Thousands of New Taiwan Dollars, %) December 31, 2012 December 31, 2011 Total Amount of Credit Total Amount of Credit Rank Industry of Group Industry of Group Endorsement or Other Percentage of the Endorsement or Other Percentage of the (Note 1) Enterprise Enterprise Transactions Bank’s Equity Transactions Bank’s Equity (Note 2) (Note 2) (Note 3) (Note 3) Group A Group A 1 $ 54,214,316 39.96 $ 54,299,829 48.21 Transport via railways Transport via railways Group B Group B 2 Manufacture of petroleum and 38,296,632 28.23 Manufacture of petroleum 43,592,244 38.70 coal products and coal products Group C Group C Manufacture of other Manufacture of other 3 electronic parts and 23,592,339 17.39 electronic parts and 24,542,136 21.79 components not elsewhere components not elsewhere classified classified Group D Group D 4 Smelting and refining of iron 15,162,183 11.18 Smelting and refining of 21,323,100 18.93 and steel iron and steel Group E Group F 5 Spinning of yarn, cotton and 13,935,595 10.27 Manufacture of liquid crystal 15,368,410 13.64 wool panel and components Group F Group E 6 Manufacture of liquid crystal 13,492,612 9.95 Spinning of yarn, cotton and 13,571,984 12.05 panel and components wool Group I Group G 7 12,636,828 9.31 Real estate development 9,275,350 8.24 Ocean transportation activities Group H Group G 8 9,207,830 6.79 9,126,828 8.10 Manufacture of cement Ocean transportation Group I Group K 9 Real estate development 9,032,413 6.66 Smelting and refining of 9,043,560 8.03 activities iron and steel Group L Group J 10 8,621,951 6.36 Manufacture of integrated 7,728,593 6.86 Ocean transportation circuits
103 104 Financial Information
2) Taiwan Cooperative Bills Finance Corporation Ltd. (In Thousands of New Taiwan Dollars, %) December 31, 2012 December 31, 2011 Total Amount of Credit Industry of Group Total Amount of Credit Rank Industry of Group Endorsement or Other Percentage of the Enterprise Endorsement or Other Percentage of the (Note 1) Enterprise Transactions Bank’s Equity (Note 2) Transactions Bank’s Equity (Note 2) (Note 3) (Note 3) Group A Group A Other financial 1 Other financial intermediation $ 610,000 18.79 $ 575,000 18.71 intermediation not not elsewhere classified elsewhere classified Group B Group E 2 Rolling and extruding of iron 531,000 16.36 Retail sale in non- 500,000 16.27 and steel specialized stores Group C Group F 3 Real estate development 515,000 15.86 500,000 16.27 Shipping agency services activities Group D Group H Wholesale of motor vehicles 4 500,000 15.40 Manufacture of cleaning 463,500 15.09 and motorcycles parts and preparations accessories Group E Group K 5 Retail sale in non-specialized 500,000 15.40 Real estate development 460,000 14.97 stores activities Group D Group F Wholesale of motor 6 500,000 15.40 400,000 13.02 Shipping agency services vehicles and motorcycles parts and accessories Group G Group C 7 Real estate development 450,000 13.86 Real estate development 311,000 10.12 activities activities Group H Group B 8 Manufacture of cleaning 418,900 12.90 Rolling and extruding of 301,000 9.80 preparations iron and steel Group I Group I 9 360,000 11.09 300,000 9.76 Financial leasing Financial leasing Group J Group L 10 Renting and leasing of motor 330,000 10.17 Real estate development 300,000 9.76 vehicles activities Note 1: The list shows rankings by total amount of credit, endorsement or other transactions but excludes 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: Group enterprise refers to a group of corporate entities as defined by Article 6 of “Supplementary Provisions to the Taiwan Stock Exchange Corporation Rules for Review of Securities Listings.” Note 3: The total amount of credit, endorsement or other transactions is the sum of various loans (including import and export negotiations, discounted, overdraft, 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. 2012 ANNUAL REPORT
c. Profitability 1) Taiwan Cooperative Financial Holding Co., Ltd. and its subsidiaries (%) Period from December 1, 2011 to Items Year Ended December 31, 2012 December 31, 2011 Before income tax 0.31 0.14 Return on total assets After income tax 0.26 0.11 Before income tax 6.57 3.23 Return on equity After income tax 5.52 2.54 Net income ratio 21.23 8.89
2) Taiwan Cooperative Financial Holding Co., Ltd. (%) Period from December 1, 2011 to Items Year Ended December 31, 2012 December 31, 2011 Before income tax 5.53 2.56 Return on total assets After income tax 5.54 2.56 Before income tax 5.61 2.56 Return on equity After income tax 5.61 2.56 Net income ratio 97.43 116.90
3) Taiwan Cooperative Bank, Ltd. (%) Period from December 1, 2011 to Items Year Ended December 31, 2012 December 31, 2011 Before income tax 0.32 0.33 Return on total assets After income tax 0.27 0.28 Before income tax 7.18 7.79 Return on equity After income tax 6.07 6.55 Net income ratio 22.83 22.56
4) Taiwan Cooperative Bills Finance Corporation Ltd. (%) Period from December 1, 2011 to Items Year Ended December 31, 2012 December 31, 2011 Before income tax 0.78 0.80 Return on total assets After income tax 0.74 0.75 Before income tax 6.06 5.58 Return on equity After income tax 5.75 5.27 Net income ratio 77.60 57.34
5) Taiwan Cooperative Securities Co., Ltd. (%) Period from December 1, 2011 to Items Year Ended December 31, 2012 December 31, 2011 Before income tax (1.73) (0.89) Return on total assets After income tax (1.74) (0.88) Before income tax (2.22) (0.94) Return on equity After income tax (2.23) (0.93) Net income ratio (24.02) (12.03) 105 106 Financial Information
6) BNP Paribas Assurance TCB Life Insurance Co., Ltd. (%)
Items Year Ended December 31, 2012
Before income tax (0.19) Return on total assets After income tax (0.19) Before income tax (3.45) Return on equity After income tax (3.45) Net income ratio (56.22) Note 1: Return on total assets = Income before (after) income tax ÷ Average total assets. Note 2: Return on equity = Income before (after) income tax ÷ Average stockholders’ equity. Note 3: Net income ratio = Income after income tax ÷ Total net revenue. Note 4: Income before (after) income tax represents income in 2011 for TCB and TCBF and income from the date of establishment to December 31, 2011 for TCFHC and TCS. Note 5: The above profitability ratios are expressed annually. Note 6: Income before income tax includes net income before extraordinary gain and extraordinary gain before income tax.
d. Taiwan Cooperative Bank, Ltd.’s operation and legal risk Matters Requiring Special Notation (In Thousands of New Taiwan Dollars) Summary and Amount Causes December 31, 2012 December 31, 2011 Within the past year, a responsible person or professional employee violated A former branch employee was the law in the course of business, resulting in an indictment by a prosecutor. suspected of taking advantage of his position to misappropriate None cash on hand, and the staff was prosecuted. Within the past year, a fine was levied on TCB for violations of laws and None None regulations. Within the past year, misconduct occurred, resulting in the authorities’ None None imposing strict corrective measures on TCB. Within the past year, the individual loss or total loss from employee fraud, accidental and material events, or failure to abide by the “Guidelines for None None Maintenance of Soundness of Financial Institutions” exceeded NT$50 million. Within the past year, TCB faced penalties due to violations of Article 61-1 A former branch employee was The FSC instructed TCB to of the “Banking Law of Republic of China.” suspected of taking advantage improve its process on the of his position to misappropriate sending to clients of mails or cash on hand. The FSC corrected e-mails, including credit-card TCB and the employee was related marketing information, to dismissed. enhance the protection of clients’ private and sensitive information. Other None
Note: The term “within the past year” means one year before the balance sheet date. 2012 ANNUAL REPORT
38. TAIWAN COOPERATIVE BANK, LTD.’S TRUST BUSINESS UNDER THE TRUST LAW a. Trust-related items are those shown in the following balance sheets, statements of income and trust property list These items were managed by TCB’s Trust Department. However, these items were not included in the consolidated financial statements. Balance Sheets of Trust Accounts December 31, 2012 and 2011 Trust Assets 2012 2011 Trust Liabilities 2012 2011 Cash in banks $ 2,220,932 $ 1,562,707 Payables Accrued expense $ 2,171 $ 2,468 Short-term investments Others 4,450 2,281 Mutual funds 123,773,531 119,216,256 Mutual funds 6,450 200 Acquisition of Stocks 427,644 439,467 874 - securities Bonds 88,395 279,929 Redemption of funds 10,853 6,482 124,289,570 119,935,652 24,798 11,431
Accounts payable on Receivables 13,485 2,433 55,662,385 61,981,985 securities under custody
Real estate Trust capital Land 29,198,464 26,447,153 Cash 126,537,947 121,518,822 Buildings 18,940 18,363 Real estate 29,065,728 26,329,417 29,217,404 26,465,516 Securities 116,499 125,846 Securities under 55,662,385 61,981,985 Others 109,020 94,830 custody 155,829,194 148,068,915
Reserves and retained earnings Net income ( 108,941 ) ( 137,223 ) Appropriation ( 11,617 ) ( 19,887 ) Retained earnings 7,957 43,072 ( 112,601 ) ( 114,038 )
Total $ 211,403,776 $ 209,948,293 Total $ 211,403,776 $ 209,948,293
Trust Property List December 31, 2012 and 2011 Investment Items 2012 2011 Cash in banks $ 2,220,932 $ 1,562,707 Short-term investments Mutual funds 123,773,531 119,216,256 Stocks 427,644 439,467 Bonds 88,395 279,929
(Continued) 107 108 Financial Information
Investment Items 2012 2011 Receivables Accrued interest 1,511 1,507 Receivable on the sale of securities 7,074 200 Cash dividends 1,100 726 Mutual funds 3,800 - Real estate Land 29,198,464 26,447,153 Buildings 18,940 18,363 Securities under custody 55,662,385 61,981,985 Total $ 211,403,776 $ 209,948,293
(Concluded) Statements of Income on Trust Accounts Years Ended December 31, 2012 and 2011 2012 2011 Revenue Interest revenue $ 4,148 $ 3,864 Cash dividend 16,516 26,741 Realized gain on investment - stocks 10,305 19,497 Unrealized gain on investment - stocks 32,049 53,794 Realized gain on investment - mutual funds 17,599 23,089 Unrealized gain on investment - mutual funds 36,970 19,405 Others 562 770 Total revenue 118,149 147,160 Expenses Management fees 11,865 16,182 Taxes 355 1,353 Insurance fees 44 47 Service charge 528 1,480 Postage 12 12 Realized loss on investment - stocks 3,781 15,016 Unrealized loss on investment - stocks 55,522 71,959 Realized loss on investment - mutual funds 7,831 29,869 Unrealized loss on investment - mutual funds 16,230 45,882 Realized exchange loss 14,109 25,301 Unrealized exchange loss 34,824 28,572 Others 81,989 48,710 Total expenses 227,090 284,383 Loss before income tax ( 108,941 ) ( 137,223 ) Income tax expense - - Net loss $ ( 108,941 ) $ ( 137,223 )
b. Nature of trust business operations under the Trust Law: Note 1. 2012 ANNUAL REPORT
39. ALLOCATION OF REVENUE, COST AND EXPENSE RESULTING FROM INTERCOMPANY SHARING OF RESOURCES Under cooperation arrangements which signed in June 2012, Taiwan Cooperative Bank, Ltd. (TCB) and Taiwan Cooperative Securities Co., Ltd. (TCS) promoted securities brokerage business together; thus, related revenues received by the TCB were calculated as follows: (a) revenues based on 100%, 70% and 30% of the net revenue derived from security transactions in the first, second, and third year, respectively, of the new securities accounts which were referred to TCS by TCB; (b) related revenues from utilizing some operating sites and equipment by the TCS; and (c) receiving cross-selling service fees of $2,000 thousand annually. To promote the credit card business together, TCB and TCS signed cooperation arrangements in June 2012, marketing expenses paid by the Bank were based on the arrangements. As of December 31, 2012, the accrued receivables were $2,010 thousand. The revenues from cross- selling transactions were $2,556 thousand in 2012. To promote the insurance business together, TCB and BNP Paribas Assurance TCB Life Insurance Co., Ltd. signed cooperation arrangements in April 2012. The service fees earned by TCB were based on the agreed percentage of the premiums from the insurance companies’ products sold by TCB. As of December 31, 2012, the accrued receivables were $865 thousand. The revenues from cross-selling transactions were $3,730 thousand. 40. JOINT VENTURE a. BNP Paribas Assurance TCB Life Insurance Co., Ltd. (BPATLI) 1) Taiwan Cooperative Bank, Ltd. (TCB) acquired 51% ownership of the BPATLI which was established on the basis of a joint venture agreement (the “Agreement”) signed by TCB and BNP Paribas Investment Partner S.A. Under the Agreement, TCB, BPATLI and Cooperative Insurance Brokers Co., Ltd. (CIB) signed an agreement on April 13, 2010. Under this agreement, BPATLI’s insurance products will be sold by CIB through TCB’s channel exclusively. On April 3, 2012, TCB reduced its capital and transferred the TCB’s long-term equity investments in BPATLI to Taiwan Cooperative Financial Holding Co., Ltd. (TCFHC). This capital reduction was approved by the Financial Supervisory Commission (FSC) on March 28, 2012. After that, BPATLI became a subsidiary of TCFHC. 2) TCB’s proportionate interests in the accounts of BPATLI were as follows: Period from January 1, 2012 to April 2, 2012 Revenues $ 3,437,606 Costs 3,462,531 Expenditures 50,157
b. BNP Paribas TCB Asset Management Co., Ltd. (BPTAM) 1) TCB acquired 51% ownership of the BPTAM. On April 3, 2012, TCB reduced its capital and transferred the TCB’s long-term equity investments in BPTAM to TCFHC. This capital reduction was approved by the FSC on March 14, 2012. After that, BPTAM became a subsidiary of TCFHC. 2) TCB’s proportionate interests in the accounts of BPTAM were as follows: Period from January 1, 2012 to April 2, 2012 Revenues $ 9,881 Expenditures 19,574 Nonoperating revenues and gains 708 109 110 Financial Information
41. TCFHC’S FINANCIAL STATEMENTS AND CONDENSED FINANCIAL STATEMENTS OF SUBSIDIARIES Please see Table 3 (attached). 42. BUSINESS SEGMENT FINANCIAL INFORMATION Please see Table 4 (attached). 43. CAPITAL ADEQUACY RATIO Under the Financial Holding Company Act and related regulations, TCFHC should maintain a consolidated capital adequacy ratio (CAR) of at least 100%. If the ratio falls below 100%, the appropriation of earnings as cash dividends or other assets will be restricted, and the authorities may discipline TCFHC, depending on the situation. The Banking Law and related regulations require that TCB maintains both stand-alone and consolidated CARs at a minimum of 8% each. If TCB’s CAR falls below 8%, the authorities may impose certain restrictions on the amount of cash dividends that TCB may declare or, in certain conditions, prohibit TCB from declaring cash dividends. The Act Governing Bills Finance Business and related regulations require that the bills finance business maintains CARs at a minimum of 8%. The CARs of TCBF were 15.46% and 18.09% as of December 31, 2012 and 2011, respectively. Under the rules governing securities firms and related regulations, the CAR of a securities firm should be at least 200% to ensure its stability as well as maintain the health of the security markets. If the ratio is below 200%, the authority may impose certain restrictions on a firm’s operations. The CAR of TCS were 984% and 1,582% as of December 31, 2012 and 2011. Please refer to related information in Table 11. 44. DISCLOSURE REQUIRED UNDER ARTICLE 46 OF THE FINANCIAL HOLDING COMPANY ACT Please see Table 12 (attached). 45. PREPARATION OF PRO FORMA FINANCIAL STATEMENTS Under the Guidelines Governing the Preparation of Financial Reports by Financial Holding Companies, a financial holding company formed through business combination or share swap under the Financial Holding Company Act should prepare comparative pro forma financial statements as supplemental information, which pertain to the period when the combination or share swap was completed and the immediately succeeding year. Please see Tables 13 and 14 (attached). 46. PLAN FOR THE ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS Under Rule No. 0990004943 issued by the Financial Supervisory Commission on February 2, 2010, TCFHC discloses the following information on the adoption of International Financial Reporting Standards (IFRSs): a. Under Rule No. 0980027134 issued by the FSC, effective 2013, companies with shares listed on the Taiwan Stock Exchange or traded on the Taiwan GreTai Securities Market or Emerging Stock Market and financial institutions supervised by the FSC should prepare their financial statements in 2012 ANNUAL REPORT
accordance with the International Financial Reporting Standards, International Accounting Standards (IAS), and the Interpretations as well as related guidance translated by the Accounting Research and Development Foundation (ARDF) and issued by the FSC. To comply with this rule, TCFHC has set up a project team and made a plan to adopt the IFRSs. Leading the implementation of this plan is the vice president in charge of the Operating Management Department. The main contents of the plan, schedule and status of execution/target completion month as of December 31, 2012 were as follows:
Status of Task/Item Procedure for Task Accomplishment Execution/ Target Completion Date 1) First stage: Analysis and planning a) Establishment of the project team a) Hold an executive meeting to discuss IFRSs and have the board of directors Completed approve the project. b) Choose suitable members of the project team. c) Hold the first meeting of the project team. d) Assign and confirm the responsibility of each member and establishing operating procedures. b) IFRSs and their impact Understand the IFRS impact on the current operating processes of each Completed department. c) Conversion plan and schedule a) Draw up the conversion plan, taking into consideration the Company’s scale Completed and the project members’ opinions. b) Submit the conversion plan to the board of directors. d) Initial analysis of choices of Identify the impact of accounting changes on operating processes, financial Completed accounting policies reports and internal controls. e) Consolidated entities Identify which subsidiaries to include in the consolidation based on IFRSs Completed f) Comparison of ROC GAAP and Identify the significant differences between the current accounting policies and Completed IFRSs IFRSs and the impact of these differences. g) Analysis of IFRS 1 - “First-time Identify the impact of the IFRS 1 exemption options on financial reports, tax Completed Adoption of International Financial issues, and internal controls. Reporting Standards” 2) Second stage: Design and implementation a) Conversion plan amendment Amend the conversion plan after considering regulatory requirements and the Completed results of the assessment in the analysis and planning phases. b) Selection of IFRS accounting policies Select the accounting policies to be adopted after considering regulations and Completed other factors, such as operating items, business environment, economic reality of transactions. c) Impact on operations of conversion valuate the impact of conversion to IFRSs on business procedures, financial Completed to IFRSs reports, IT system, tax issues, internal controls and daily operations and formulate solutions to any problems. d) Impact on the internal control system Determine the impact of IFRS adoption on the internal control and internal audit Completed and internal audit system systems as well as financial reports. e) Changes in business procedures, Make the needed adjustments to the related operations, systems and procedures. Completed financial reporting procedures, IT system and operations in each department f) New-system testing a) After adjusting the business process, financial reporting, information systems, Completed and department operations, make the necessary tests. b) On the basis of the test results, evaluate whether IFRS 1 and other IFRS standards need to be adopted, and make the necessary procedural and system corrections and adjustments g) Communication to stockholders of a) Confirming that the plan and the impact of adopting IFRS are disclosed in Completed the expected impact of IFRS adoption financial statements on a regular basis. b) Assess the probable impact of IFRSs on contracts, financial situation and business performance and inform related parties of these assessment results 3) Third stage: Conversion 111 112 Financial Information
Status of Task/Item Procedure for Task Accomplishment Execution/ Target Completion Date a) Account balances on the transition Determine the account balances on the transition day based on the second- stage Completed day analysis. b) Make a final choice of accounting Confirm the impact of the selected IFRS accounting policies on the Company’s Completed policies to apply and determine their financial statements. impact on the financial statements. c) Financial reports on the transition a) Determine the account balances on the transition day in accordance with the Completed day (2012.01.01) selected IFRS accounting policies and special requirements for first-time adoption. b) Prepare the statement of financial position as of the transition day. d) IFRS financial reports for the first Prepare IFRS financial reports for the first quarter of 2012 in accordance with Completed quarter of 2012 the selected IFRS accounting policies. e) Enhanced process for preparing IFRS a) Compare IFRS financial reports with ROC GAAP financial reports, check Completed financial statements for differences, and modify the process for financial statement preparation, if necessary. b) Review the process for preparing the IFRS financial statements for the first quarter of 2012 and determine if this process needs improvement. f) Internal control operation Assess the effectiveness of internal control after the second-stage adjustments Completed and monitor operations for continuing efficiency. 4) Fourth Stage: Adjustment and improvement a) Reintegrate management information Review the existing management information and performance evaluation June 2013 and performance evaluation criteria criteria and make appropriate modifications. b) Design IFRS assessment tasks for the Develop standard assessment processes to determine how new trading patterns December 2013 new trading patterns in the future will comply with the requirements of IFRSs
(Concluded)
b. Significant differences between the current accounting policies under generally accepted accounting principles of the Republic of China (ROC GAAP) and the accounting policies to be adopted under IFRSs as well as the effects of transition to IFRS are as follows: 1) Reconciliation of the balance sheet as of January 1, 2012
Effect of Transition to IFRSs Recognition and ROC GAAP Presentation IFRSs Measurement Difference Account Amount Difference Amount Account Note Cash and cash equivalents $ 52,877,576 $ - $ - $ 52,877,576 Cash and cash equivalents Due from the Central Bank Due from the Central Bank 574,368,770 - - 574,368,770 and call loans to other and call loans to other banks banks Financial assets at fair value Financial assets at fair 29,683,803 - 9,593 29,693,396 5) a) through profit or loss value through profit or loss Receivables, net 26,711,626 ( 412,328 ) 116,029 26,415,327 Receivables, net 5) a), g) - 1,778,163 - 1,778,163 Current income tax assets Discounts and loans, net 1,943,392,930 - - 1,943,392,930 Discounts and loans, net Available-for-sale financial Available-for-sale financial 55,865,511 - ( 41,868 ) 55,823,643 5) a), b) assets assets Held-to-maturity financial Held-to-maturity financial 8,716,618 - - 8,716,618 assets assets Equity investments under the Equity investments under 1,572,078 - ( 553 ) 1,571,525 equity method the equity method Other financial assets, net 49,326,551 - ( 33,672 ) 49,292,879 Other financial assets, net 5) b)
(Continued) 2012 ANNUAL REPORT
Effect of Transition to IFRSs Recognition and ROC GAAP Presentation IFRSs Measurement Difference Account Amount Difference Amount Account Note Properties and equipment, Properties, net 35,457,864 3,199,418 838,222 39,495,504 5) h) net - 1,204,057 - 1,204,057 Investment properties, net 5) h) Intangible assets 3,859,007 - - 3,859,007 Intangible assets Other assets, net 5,933,086 ( 4,475,383 ) 1,180 1,458,883 Other assets, net 5) e), g), h) - 187,448 766,793 954,241 Deferred income tax assets 5) c), d), f)
Total $ 2,787,765,420 $ 1,481,375 $ 1,655,724 $ 2,790,902,519 Total
Due to the Central Bank and Due to the Central Bank $ 228,380,002 $ - $ - $ 228,380,002 other banks and other banks Commercial paper issued, Commercial paper issued, net 879,696 - - 879,696 net Financial liabilities at fair Financial liabilities at fair 4,218,801 - - 4,218,801 5) a) value through profit or loss value through profit or loss Securities sold under Securities sold under 61,834,898 - - 61,834,898 repurchase agreements repurchase agreements Payables 43,360,504 1,205,588 548,956 45,115,048 Payables 5) a), d), g) Current income tax - 88,339 - 88,339 liabilities Deposits and remittances 2,212,922,547 - - 2,212,922,547 Deposits and remittances Bonds Payable 90,080,000 - - 90,080,000 Bonds Payable Other borrowings 970,000 - - 970,000 Other borrowings Accrued pension cost 2,391,743 ( 7,414,436 ) 5,022,693 - 5) e), f) Other financial liabilities 12,947,680 - - 12,947,680 Other financial liabilities Reserves for operations and 1,633,693 7,414,436 - 9,048,129 Provisions liabilities Deferred income tax - 3,230,748 262,509 3,493,257 5) c), h) liabilities Other liabilities 5,052,214 ( 3,043,300 ) 174,387 2,183,301 Other liabilities 5) c) Total liabilities 2,664,671,778 1,481,375 6,008,545 2,672,161,698 Total liabilities Capital stock 65,968,254 - - 65,968,254 Capital stock Capital surplus 58,051,217 - - 58,051,217 Capital surplus Retained earnings 262,533 - 1,090,441 1,352,974 Retained earnings 5) i) Other equity ( 1,356,923 ) 7,136,010 ( 5,443,262 ) 335,825 Other equity 5) a), b), h), i) - ( 7,136,010 ) - ( 7,136,010 ) Treasury stock Total stockholders’ equity of Total equity attributable to 122,925,081 - ( 4,352,821 ) 118,572,260 parent company owners of parent company Minority interest 168,561 - - 168,561 Non-controlling interests Total stockholders’ equity 123,093,642 - ( 4,352,821 ) 118,740,821 Total equity
Total $ 2,787,765,420 $ 1,481,375 $ 1,655,724 $ 2,790,902,519 Total
(Concluded) 113 114 Financial Information
2) Reconciliation of the balance sheet as of December 31, 2012
Effect of Transition to IFRSs ROC GAAP Recognition and IFRSs Presentation Measurement Difference Account Amount Difference Amount Account Note Cash and cash equivalents $ 59,384,522 $ - $ - $ 59,384,522 Cash and cash equivalents Due from the Central Bank Due from the Central Bank 683,262,154 - - 683,262,154 and call loans to other and call loans to other banks banks Financial assets at fair value Financial assets at fair 68,153,168 - ( 167,993 ) 67,985,175 5) a) through profit or loss value through profit or loss Securities purchased under Securities purchased under 2,067,432 - - 2,067,432 resell agreements resell agreements Receivables, net 26,610,993 465,382 347,785 27,424,160 Receivables, net 5) a), g) - 1,427,581 92 1,427,673 Current income tax assets 5) a) Discounts and loans, net 1,867,116,105 - - 1,867,116,105 Discounts and loans, net - 8,737 - 8,737 Reinsurance assets Available-for-sale financial Available-for-sale financial 110,605,494 - 100,030 110,705,524 5) a), b) assets assets Held-to-maturity financial Held-to-maturity financial 14,462,544 - - 14,462,544 assets assets Equity investments under the Equity investments under 99,556 - - 99,556 equity method the equity method Other financial assets, net 104,572,208 - ( 33,558 ) 104,538,650 Other financial assets, net 5) a), b) Properties and equipment, Properties, net 37,167,520 2,762,757 ( 104,346 ) 39,825,931 5) h) net - 1,152,374 - 1,152,374 Investment properties, net 5) h) Intangible assets 3,788,452 - - 3,788,452 Intangible assets Other assets, net 6,301,015 ( 3,979,283 ) 36,208 2,357,940 Other assets, net 5) e), g), h) - 347,098 799,844 1,146,942 Deferred income tax assets 5) c), d), f)
Total $ 2,983,591,163 $ 2,184,646 $ 978,062 $ 2,986,753,871 Total
Due to the Central Bank and Due to the Central Bank $ 236,448,850 $ - $ - $ 236,448,850 other banks and other banks Commercial paper issued, Commercial paper issued, 1,821,456 - - 1,821,456 net net Financial liabilities at fair Financial liabilities at fair 3,592,769 - - 3,592,769 value through profit or loss value through profit or loss Securities sold under Securities sold under 51,380,691 - - 51,380,691 repurchase agreements repurchase agreements Payables 47,447,331 1,070,821 732,117 49,250,269 Payables 5) a), d), g) Current income tax - 766,727 31 766,758 5) a) liabilities Deposits and remittances 2,273,480,798 - - 2,273,480,798 Deposits and remittances Bonds payable 110,080,000 - - 110,080,000 Bonds Payable Other borrowings 3,783,000 - - 3,783,000 Other borrowings Accrued pension cost 2,683,081 ( 8,266,262 ) 5,583,181 - 5) e), f) Other financial liabilities 42,077,539 - - 42,077,539 Other financial liabilities Reserves for operations and 56,002,619 8,266,262 ( 247 ) 64,268,634 Provisions liabilities
(Continued) 2012 ANNUAL REPORT
Effect of Transition to IFRSs ROC GAAP Recognition and IFRSs Presentation Measurement Difference Account Amount Difference Amount Account Note Other liabilities 4,896,654 ( 3,160,696 ) 19,263 1,755,221 Other liabilities 5) c) Deferred income tax - 3,507,794 - 3,507,794 5) c) liabilities Total liabilities 2,833,694,788 2,184,646 6,334,345 2,842,213,779 Total liabilities
Capital stock 81,266,667 - - 81,266,667 Capital stock Capital surplus 57,853,927 - - 57,853,927 Capital surplus Retained earnings 7,587,747 - 694,274 8,282,021 Retained earnings 5) i) Other equity ( 84,551 ) 7,136,010 ( 6,049,968 ) 1,001,491 Other equity 5) a), b), h), i) - ( 7,136,010 ) - ( 7,136,010 ) Treasury stock Total stockholders’ equity of Total equity attributable to 146,623,790 - ( 5,355,694 ) 141,268,096 parent company owners of parent company Minority interest 3,272,585 - ( 589 ) 3,271,996 Non-controlling interests Total stockholders’ equity 149,896,375 - ( 5,356,283 ) 144,540,092 Total equity
Total $ 2,983,591,163 $ 2,184,646 $ 978,062 $ 2,986,753,871 Total (Concluded)
3) Reconciliations of the statement of comprehensive income for the year ended December 31, 2012
Effect of Transition to IFRSs ROC GAAP Recognition and IFRSs Presentation Measurement Difference Account Amount Difference Amount Account Note Interest revenue $ 49,172,852 $ 195,109 $ 42,718 $ 49,410,679 Interest revenue 5) j) Less: Interest expense ( 22,872,504 ) 40,396 1,291,609 ( 21,540,499 ) Less: Interest expense 5) f), j) Net interest 26,300,348 235,505 1,334,327 27,870,180 Net interest Net revenues and gains other than interest Service fee and commission Service fee and 3,417,842 - 155,124 3,572,966 income, net commission income, net Premium income, net 989,998 - - 989,998 Premium income Gains on financial assets Gains on financial assets and liabilities at fair value 3,417,748 351,267 182 3,769,197 and liabilities at fair value 5) a), j) through profit or loss through profit or loss Realized gains on Realized gains on available- 913,258 - 8,640 921,898 available-for-sale financial 5) a) for-sale financial assets assets Share of losses of Losses from equity associates and joint investments under the equity ( 75,170 ) - ( 1,035 ) ( 76,205 ) ventures accounted for method using the equity method Foreign exchange losses, Foreign exchange losses, net ( 2,206,944 ) - - ( 2,206,944 ) net Gains on the sale of 585,990 ( 585,990 ) - - 5) j) nonperforming loans, net
(Continued) 115 116 Financial Information
Effect of Transition to IFRSs ROC GAAP Recognition and IFRSs Presentation Measurement Difference Account Amount Difference Amount Account Note Recovery of bad debts written off and overdue 1,176,274 ( 1,176,274 ) - - accounts Other noninterest gains, Other noninterest gains, net 980,326 ( 782 ) ( 19,945 ) 959,599 net Total net revenues and gains Total net revenues and 9,199,322 ( 1,411,779 ) 142,966 7,930,509 other than interest gains other than interest Total net revenues 35,499,670 ( 1,176,274 ) 1,477,293 35,800,689 Total net revenues Bad-debt expenses ( 4,634,193 ) 1,176,274 ( 42,718 ) ( 3,500,637 ) Bad debt expenses Operating expenses ( 20,891,839 ) - ( 1,610,629 ) ( 22,502,468 ) Operating expenses 5) d),e), f) Net change in reserves for Net change in reserves for ( 1,003,607 ) - - ( 1,003,607 ) liabilities liabilities Consolidated income before 8,970,031 - ( 176,054 ) 8,793,977 Income before income tax income tax Income tax expense ( 1,434,021 ) - 33,052 ( 1,400,969 ) Income tax expense 5) d), f) Consolidated net income $ 7,536,010 $ - $ ( 143,002 ) $ 7,393,008 Net income Other comprehensive income Exchange differences in translation of financial ( 156,474 ) statements of foreign operations Unrealized gains on 735,206 available-for-sale financial assets Actuarial losses under ( 252,229 ) 5) e) the defined benefit plans Share of the other comprehensive income 407,325 of associates and joint ventures accounted for using the equity method Income tax attributable ( 47,526 ) to other comprehensive income Other comprehensive 686,302 income for the year, net of income tax
Total comprehensive $ 8,079,310 income for the year
(Concluded)
4) Exemptions under IFRS 1 The IFRS 1 - “First-time Adoption of International Financial Reporting Standards” sets out the procedures that an entity must follow when it adopts IFRSs for the first time. Under IFRS 1, the Company applied the accounting policies under IFRSs retroactively to prepare and present an opening IFRS consolidated statement of financial position at the date of transition to IFRSs, i.e. January 1, 2012. IFRS 1 granted several exemptions from the general requirement to comply with each IFRS, effective at the end of its first IFRS reporting period, and the main exemptions that the 2012 ANNUAL REPORT
Company selected to apply were as follows: Business combinations The Company has elected not to apply IFRS 3 - “Business Combinations” retrospectively for the business combinations that happened before the date of transition to IFRSs. Thus, in the consolidated balance sheet under IFRS as of January 1, 2012, the goodwill, related assets and liabilities, and non-controlling interests that resulted from past business combinations were shown as the same amounts under ROC GAAP as of December 31, 2011. Above also apply to investments in associates in previous years. Share-based payments The Company has chosen the exemption pertaining to IFRS 2 - “Share-based Payments” to all share- based payments granted and vested before the date of transition to IFRSs. Deemed cost The Company has chosen to use the revaluation under ROC GAAP of part of property as their deemed cost at the date of transition to IFRSs. The other properties, equipment, investment properties and intangible assets were used the cost model in accordance with the IFRSs. Employee benefits The Company has chosen to recognize all cumulative actuarial gains and losses on employee benefit plans under retained earnings on the date of transition to IFRSs. Cumulative translation adjustments The cumulative translation adjustments for all the Company’s foreign operations were deemed to be zero and recognized under retained earnings at the date of transition to IFRSs. 5) Significant reconciliations on the conversion to IFRSs Significant differences between the current ROC GAAP and the accounting policies to be adopted under IFRSs are as follows: a) Regular way purchase or sale of financial assets The Company uses settlement date accounting when recording transactions, except those on beneficial certificates, for which trade date accounting is used. On conversion to IFRSs, the Company applied trade date accounting to all regular way purchase or sale of financial assets. The adoption of the IFRS policy on regular way purchase or sale of financial asset had adjusted the accounts as of December 31, 2012 as follows: Financial assets at fair value through profit or loss decreased by $167,993 thousand; Financial assets carried at cost increased by $114 thousand; available-for-sale financial assets decreased by $3,482 thousand; receivables increased by $347,785 thousand; current income tax asset increased by $92 thousand; payables increased by $176,303 thousand; current income tax liabilities increased by $31 thousand; other equity decreased by $350 thousand. In addition, gain on financial assets and liabilities at fair value through profit or loss increased by $182 thousand; realized gains on available-for-sale financial $350 thousand in the year ended December 31, 2012. The adoption of the IFRS policy on regular way purchase or sale of financial asset had adjusted the accounts as of January 1, 2012 as follows: Financial assets at fair value through profit or loss increased by $9,593 thousand; payables increased by $9,593 thousand; available-for-sale financial asset decreased by $116,029 thousand; receivables increased by $116,029 thousand; other equity increased by $8,290 thousand and retained earnings decreased by $8,290 thousand. b) Financial assets carried at cost Under the Guidelines Governing the Preparation of Financial Reports by Financial Holding 117 118 Financial Information
Companies and Guidelines Governing the Preparation of Financial Reports by Public Banks, unlisted stocks over which the Company waived no significant influences should be recognized as financial assets carried at cost. On conversion to IFRSs, financial assets designated as available-for-sale or equity instruments that are not designated as at fair value through profit or loss should be measured at fair values As of December 31, 2012 and January 1, 2012, the Company had reclassified the financial assets carried at cost of $33,672 thousand in both years, to available-for-sale financial assets of $103,512 thousand and $74,161 thousand, respectively, and increased unrealized gains on available-for- sale financial assets of $69,840 thousand and $40,489 thousand, respectively. c) Deferred income tax assets or liabilities Under ROC GAAP, a valuation allowance is provided if it is more likely than not that a deferred income tax asset will not be realized. Under IFRSs, a deferred income tax asset is recognized only when it is probable that taxable profits will be available, against which the deferred income tax assets can be used; thus, a valuation allowance is not needed. In addition, under ROC GAAP, the deferred income tax assets and liabilities of the same taxable entity should offset each other and should be shown in the financial statements at their net value. On conversion to IFRSs, an entity should offset deferred income tax assets and deferred income tax liabilities against each other in the balance sheet only if: (a) the entity has a legally enforceable right to offset current tax assets against current tax liabilities; and (b) the deferred income tax assets and the deferred income tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities that intend either to settle current income tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously. As of January 1, 2012, the Company had reclassified other liabilities of $3,043,300 thousand (including reserve for land revaluation increment tax of $2,562,372 thousand) to deferred income tax assets of $187,448 thousand and deferred income tax liabilities of $3,230,748 thousand, respectively, in accordance with the foregoing accounting policy on deferred income tax assets/liabilities. As of December 31, 2012, the Company had reclassified other liabilities of $3,160,696 thousand (including reserve for land revaluation increment tax of $2,816,216 thousand) to deferred income tax assets of $347,098 thousand and deferred income tax liabilities of $3,507,794 thousand, respectively. d) Employee benefits - short-term compensated absences Under ROC GAAP, there is no specific accounting policy on short-term compensated absences. The short-term compensated absences are usually recognized as the vacation leaves are actually taken by the employees. On conversion to IFRSs, an entity should recognize the expected cost of short-term employee benefits as employees render services that increase their entitlement to these compensated absences. Under the IFRS accounting policy on short-term compensated absences, the Company had adjusted the accounts as of December 31, 2012 and January 1, 2012 as follows: Accrued expenses increased by $555,814 thousand and $539,363 thousand, respectively; and deferred income tax assets increased by $92,786 thousand and $91,293 thousand, respectively. In addition, in the year ended December 31, 2012, salary expense increased by $13,091 thousand and income tax expense decreased by $1,493 thousand. e) Employee benefits - actuarial gains and losses under defined benefit plan Under ROC GAAP, the unrecognized transitional net obligations resulting from the first-time adoption of SFAS No. 18 - “Accounting for Pensions” is amortized on a straight-line basis over the expected average remaining working lives of the employees who are still in service and expected to receive pension benefits and should be included in the net pension cost. In 2012 ANNUAL REPORT
addition, on conversion to IFRSs, the transitional policies of IAS 19 - “Employee Benefit” are not applicable. Thus, the effects of the unrecognized transitional net obligations should be recognized immediately, and the retained earnings should be adjusted accordingly. Under ROC GAAP, actuarial gains and losses are recognized by the corridor approach and amortized over the expected average remaining service lives of the employees who are still in service and expected to receive pension benefits. On conversion to IFRSs, IAS 19 requires that actuarial gains and losses under the defined benefit plan be immediately recognized under other comprehensive income. Actuarial gains and losses recognized under comprehensive income should be recognized immediately under retained earnings, and they should not be reclassified to profit or loss in the subsequent period. The Company had revaluated its defined benefit plan in accordance with IAS 19. The Company also adjusted the accounts as of December 31, 2012 and January 1, 2012 in accordance with IFRS 1 as follows: Accrued pension liabilities increased by $1,511,723 thousand and $1,295,205 thousand, respectively; and prepaid pension (part of other assets, net) increased by $308 thousand and $1,181 thousand, respectively. In addition, pension cost decreased by $34,838 thousand; and actuarial losses under defined benefit plan increased by $252,229 thousand in the year ended December 31, 2012. f) Employee benefits - preferential rates for employees’ deposits Under IAS 19 - “Employee Benefits”, the interest expense for the preferential rates for employees’ deposits in excess of market rate should be treated as employee benefits. Under IFRSs, the preferential rates for retired employees’ deposits in excess of market rate should be treated as post-employment benefits, and recognized under personnel expenses based on actuarial calculations. Under the revised Guidelines Governing the Preparation of Financial Reports by Financial Holding Companies and the revised Guidelines Governing the Preparation of Financial Reports by Public Banks, the personnel expense for the preferential rate for employees’ deposits would not be recognized until the employees retire. In addition, the accounting treatment for the preferential interest-related amounts before employees retire could be the same as under ROC GAAP, i.e., recognized at actual cost under the accrual basis. As of December 31, 2012 and January 1, 2012, the Company had measured the preferential rates for retired employees’ deposits in excess of market rate in accordance with IAS 19 - “Employee Benefits”, the revised Guidelines Governing the Preparation of Financial Reports by Financial Holding Companies, the revised Guidelines Governing the Preparation of Financial Reports by Public Banks and the other relevant directives. The Company thus adjusted the accounts as follows: Provision for employee benefits increased by $4,071,458 thousand and $3,727,488 thousand, respectively; deferred income tax assets increased by $692,148 thousand and $633,673 thousand, respectively as of December 31, 2012 and January 1, 2012. In addition, the expenses on employee benefits increased by $1,147,740 thousand, equaling the amount of change in post-employee benefits; interest expense decreased by $803,770 thousand and income expense decreased by $58,475 thousand. Furthermore, the excessive interest of $487,859 thousand resulted from the preferential rates for current employees were reclassified under expenses on employee benefits. g) Security brokerage, debit and credit Under the Guidelines Governing the Preparation of Financial Reports by Securities Firms, the security brokerage account should be recorded at net value. On conversion to IFRSs, IAS 32 - “Financial Instruments: Presentation” specifies the offsetting of financial assets and financial liabilities, with the net amount reported under certain conditions, otherwise, the assets and liabilities should not be offset and should be recorded separately in accordance with their nature. As of December 31, 2012 and January 1, 2012, a debit of $12,596 thousand and $8,054 119 120 Financial Information
thousand, respectively, on security brokerage (part of other assets) were reclassified to (a) receivables of $1,847,926 thousand and $1,301,981 thousand, respectively; (b) other assets of $2,218 thousand and $0 thousand, respectively; (c) payables of $1,837,548 thousand and $1,293,927 thousand, respectively. h) Properties and Equipment/Investment properties Under ROC GAAP, the Company’s nonoperating assets are recognized under other assets. On conversion to IFRSs, except the properties held by the owner or lessee to earn rentals or for capital appreciation should be recognized under investment properties, the other properties should be recognized under properties and equipment. As of December 31, 2012 and January 1, 2012, the Company had reclassified from other assets amount to $2,779,658 thousand and $3,199,418 to properties and equipment, respectively, and $1,152,374 thousand and $1,204,057 thousand to investment properties, respectively. TCB revalued its land based on the present value announced on January 1, 2012. As result of the revaluation, properties and equipment increased by $909,872 thousand; deferred income tax liabilities increased by 262,509 thousand; unrealized revaluation increments increased by 647,363 thousand and transferred it to retained earnings as of January 1, 2012. i) Reconciliations of retained earnings The difference between the retained earnings under ROC GAAP and those under IFRSs as of January 1, 2012 mainly resulted from the debits of (a) $3,093,815 thousand increase in provision for preferential rates for retired employees’ deposits liabilities, (b) $1,294,024 thousand increase in the actuarial losses under the defined benefit plan, (c) $448,070 thousand increase in liabilities of short-term compensated absences, (d) $213,053 thousand increase in other adjustment and from the credits of (a) $6,082,090 thousand in unrealized revaluation increments, (e) $57,313 thousand in cumulative translation adjustments. j) Presentation in the statement of comprehensive income On conversion to IFRSs, the items in the statement of comprehensive income are classified by the nature of each account. For the year ended December 31, 2012, the interest revenue and interest expense generated from the financial assets and liabilities at fair value through profit and loss, which amounted to $391,663 thousand and $40,396 thousand, respectively, should be recognized under gains (losses) on financial assets and liabilities at fair value through profit or loss, and the proceeds of recovered bad debts and overdue account are presented in accordance with interest revenue; and net gains on the sale of non-performing loans of $586,772 thousand is presented in accordance with interest revenue. k) Other accounts in the balance sheet are presented in accordance with IFRSs. c. Special reserves made on the date of transition to IFRSs As stated in the Financial Supervisory Commission’s letter dated April 6, 2012 (Ref. No. 1010012865), on the first-time adoption of IFRSs, a special reserve should be appropriated from the balance of the retained earnings at an amount that is equal to the portion of retained earnings transferred from unrealized revaluation increment or positive cumulative translation adjustments in the stockholders’ equity section by applying the related IFRS 1 exemption. The Company could only appropriate the amount of the retained earnings recognized at the date of transition if which is less than which should be reserved, and revise the reversed in the proportion of appropriating to the retained earnings for distributing the dividends, while using, disposing or reclassification of the related assets. Thus, the Company appropriated the special surplus amounted to $1,090,441 thousand from retained earnings on the first-time adoption of IFRSs. d. The Company has prepared the above assessments in compliance with (a) the 2010 version of the 2012 ANNUAL REPORT
IFRSs translated by the ARDF and issued by the FSC and (b) Regulations Governing the Preparation of Financial Reports by Financial Holding Companies and the Guidelines Governing the Preparation of Financial Reports by Public Banks amended and issued by the FSC on December 26, 2011. (c) Regulations Governing the Preparation of Financial Reports by Securities Firms amended and issued on December 29, 2011. These assessments may be changed as the regulators may issue new rules governing the adoption of IFRSs. Actual accounting policies adopted under IFRSs in future may differ from those contemplated during the assessments. 47. OTHER SIGNIFICANT TRANSACTIONS a. TCB’s application to set up the Tianjin Branch and Gaoshin sub branch of Suzhou branch in Mainland China was approved by the Financial Supervisory Commission on February 9, 2012. TCB will invest RMB600,000 thousand in the Tianjin branch and Suzhou branch is expected to appropriate RMB100,000 thousand to Gaoshin sub branch as its operating funds under the rules of the “Regulations Governing Approvals of Banks to Engage in Financial Activities Between the Taiwan Area and the Mainland Area.” As of March 25, 2013, the date of the accompanying auditors’ report, the investment of Tianjin Branch had not yet been approved by the relevant authorities of Mainland China and the investment of Gaoshin sub branch of Suzhou branch had not yet been approved by the Investment Commission under the Ministry of Economic Affairs and the relevant authorities of Mainland China. b. On November 26, 2012, the board of directors of TCFHC resolved that AMC set up the financial leasing company and will invest US$30,000 thousand in China. As of March 25, 2013, the investment had yet been applied for FSC. c. The board of directors of TCFHC approved TCB’s capital increase by surplus of $1,993,180 thousand in their meeting on March 25, 2013. 48. ADDITIONAL DISCLOSURES a. Related information of significant transactions and b. investees: 1) Financing provided: TCFHC and investees - none or not applicable. 2) Endorsement/guarantee provided: TCFHC - not applicable; investees - none or not applicable. 3) Marketable securities held: TCFHC, TCB, TCBF, BPATLI and TCS - not applicable; investees - Table 5 (attached). 4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 10% of the paid-in capital (TCFHC and TCB disclosed its investees acquired or disposed of): TCS and BPATLI - not applicable; TCFHC and investees - Table 6 (attached). 5) Acquisition of individual real estate at costs of at least NT$300 million or 10% of the paid-in capital: None. 6) Disposal of individual real estates at costs of at least NT$300 million or 10% of the paid-in capital: None. 7) Financial asset securitization of subsidiaries: None. 8) Allowance of service fees to related parties amounting to at least NT$5 million: Table 7 (attached). 9) Sale of nonperforming loans of subsidiaries: Table 8 (attached). 10) Receivables from related parties amounting to at least NT$300 million or 10% of the paid-in capital: Table 16 (attached). 11) Percentage share in investees and related information: Table 15 (attached). 12) Derivative transactions: Notes 6 and 36 to the consolidated financial statements. As of December 31, 2012, outstanding option contracts held by TCS were as follows:
December 31, 2012 Outstanding Contract Amount Number of or Paid (Charged) Item Type of Transaction Buyer/Seller Fair Value Contracts Premium Option contract TAIEX Option Buyer 150 $444 $398 121 122 Financial Information
The Company engages in derivative transactions generated gains and losses were as follows:
2012 Gains from futures contracts Realized $ 8,602 Unrealized -
$ 8,602
Losses from futures contracts Realized ($ 9,366 ) Unrealized -
($ 9,366 )
Gains on option contracts Realized $ 3,118 Unrealized -
$ 3,118
Losses on option contracts Realized ($ 6,238 ) Unrealized ( 46 )
($ 6,284 )
BPATLI engages in cross-currency swap contracts and currency swap contracts for the years ended December 31, 2012 to manage the exposures due to exchange rate fluctuations. The objective of financial risk management of BPATLI is to manage substantial risks due to changes in fair value or cash flow. As of December 31, 2012, outstanding currency swap contracts held by BPATLI were as follows:
Contract Amount Currency Maturity Date (In Thousands) December 31, 2012 Currency swap contracts USD/NTD 2013.01.16-2013.03.11 USD118,722/NTD3,451,171
December 31, 2011 Currency swap contracts USD/NTD 2012.02.09-2012.05.16 USD46,778/NTD1,407,289
As of December 31, 2012, outstanding cross-currency swap contracts held by BPATLI were as follows:
Contract Amount Maturity Date Range of Interest Rates Paid Range of Interest Rates Received (In Thousands) US$ 288,000 2015.01.25-2018.01.26 3.1%-5% 1.39%-3.82%
13) Other significant transactions which may affect the decisions of users of financial reports: Note 47 to the consolidated financial statements. c. Investment in Mainland China: Based on the “Regulations Governing Approvals of Banks to Engage in Financial Activities between 2012 ANNUAL REPORT
the Taiwan Area and the Mainland Area,” TCB invested RMB300,000 thousand to set up the Suzhou Branch in Mainland China. This investment was approved by the Financial Supervisory Commission on June 28, 2010. The branch’s information - major operating items, capital stock, the way of investment, investment inflows and outflows, the holding percentage, the investment income or loss, the book value at year-end, the remitted investment profits and the limit on the amount of investment in Mainland China - is shown in Table 9 (attached). d. Business relationships and significant transactions between the parent company and subsidiaries: Table 10 (attached). 49. OPERATING SEGMENTS The information reported to the Company’s chief operating decision makers for the assessment of segment performance focuses mainly on business and profit or loss. The Company’s reportable segments under the Statement of Financial Accounting Standards No. 41 - “Operating Segments” are as follows: a. TCB business, including deposit and loan, capital, offshore, trust and other business; b. Other noncore business. The accounting policies of the reportable segments are the same as the Company’s accounting policies described in Note 2. The measure reported by a segment to the chief operating decision makers is profit before income tax. The terms of transactions between segments are similar to those for third parties. The revenue, expenses, and related information of the Company’s reportable segments were as follows:
Year Ended December 31, 2012 Adjustment and TCB Business Others Total Total Elimination Net interest $ 25,299,415 $ 967,501 $ 26,266,916 $ 33,432 $ 26,300,348 Net revenues and gains other 7,697,557 9,574,577 17,272,134 ( 8,072,812 ) 9,199,322 than interest Net revenue 32,996,972 10,542,078 43,539,050 ( 8,039,380 ) 35,499,670 Bad-debt expenses ( 4,392,239 ) ( 242,738 ) ( 4,634,977 ) 784 ( 4,634,193 ) Operating expenses ( 19,691,895 ) ( 1,305,114 ) ( 20,997,009 ) 105,170 ( 20,891,839 ) - ( 1,003,607 ) ( 1,003,607 ) - ( 1,003,607 ) Income (loss) before income tax $ 8,912,838 $ 7,990,619 $ 16,903,457 $( 7,933,426 ) $ 8,970,031
Year Ended December 31, 2011 Adjustment and TCB Business Others Total Total Elimination Net interest $ 2,147,911 $ 25,635 $ 2,173,546 $ 2,160 $ 2,175,706 Net revenues and gains other 480,931 258,705 739,636 19,492 759,128 than interest Net revenue 2,628,842 284,340 2,913,182 21,652 2,934,834 Bad-debt expenses ( 484,113 ) ( 7,877 ) ( 491,990 ) ( 164 ) ( 492,154 ) Operating expenses ( 1,865,623 ) ( 86,179 ) ( 1,951,802 ) ( 231,416 ) ( 2,183,218 ) Income (loss) before income tax $ 279,106 $ 190,284 $ 469,390 $( 209,928 ) $ 259,462
The chief operating decision makers of the Company rely only on the average amounts of loans and deposits during the period to assess the performance of the operating segments and make decisions. Under an explanation issued by Accounting Research and Development Foundation of ROC, the measure of segment assets is zero. 123 124 Financial Information
TABLE 1
TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED ENTITIES DECEMBER 31, 2012 AND 2011 Subsidiaries included in the consolidated financial statements
Percentage of Ownership Main Business and Investor Company Investee Company Location Note Products December 31, December 31, 2012 2011 Taiwan Cooperative Bank, Ltd. Taipei City Banking 100.00 100.00 Co-operative Assets Acquisition of Taipei City 100.00 100.00 Management Co., Ltd. delinquent loans Taiwan Cooperative Bills Taipei City Bills finance dealer 100.00 100.00 Taiwan Cooperative Finance Corporation Ltd Financial Holding Co., Taiwan Cooperative Securities Taipei City Securities dealer 100.00 100.00 Ltd. Co., Ltd. BNP Paribas Assurance TCB Taipei City Life Insurance 51.00 - Life Insurance Co., Ltd. BNP Paribas TCB Asset Securities investment Taipei City 51.00 - Management Co., Ltd. trust United Taiwan Bank S.A. Belgium Banking 90.02 90.02 Taiwan Cooperative Cooperative Insurance Brokers Life and property Bank, Ltd. Taipei City 100.00 100.00 Co., Ltd. insurance agent Real estate appraisal and Co-operative Assets Cooperative I Assets Taipei City acquisition of delinquent 100.00 100.00 Management Co., Ltd. Management Co., Ltd. loans
Subsidiaries not included in the consolidated financial statements
Percentage of Ownership Main Business and Investor Company Investee Company Location Note Products December 31, December 31, 2012 2011 BNP Paribas Assurance TCB Taipei City Life Insurance - 51.00 Note Taiwan Cooperative Life Insurance Co., Ltd. Bank, Ltd. BNP Paribas TCB Asset Securities investment Taipei City - 51.00 Note Management Co., Ltd. trust Note: Based on the Guidelines Governing the preparation of Financial Reports by Financial Holdings Companies, the Company’s subsidiaries, BNP Paribas Assurance TCB Life Insurance Co., Ltd. and BNP Paribas TCB Asset Management Co., Ltd., should have been included in the consolidation. However, the authorities had approved the Company’s exclusion of these the two companies from the consolidated financial reports as of December 31, 2011 because the Company did not have real control over these two companies. 2012 ANNUAL REPORT - 64.14 114.90 161.23 148.03 135.45 781.89 140.09 208.70 180.24 TABLE 2 TABLE (Note 3) (Note 3) Coverage Ratio Coverage Ratio -
318,638 207,704 120,982 122,870 1,076,417 9,714,695 3,816,603 3,809,341 18,943,398 Credit Losses Allowance for Credit Losses Credit Allowance for Allowance for $ - 0.71 1.41 0.55 1.50 0.64 1.49 1.06 0.73 0.37 (In Thousands of New Taiwan Dollars, %) Taiwan Thousands of New (In 8,487 84,117 45,019 85,925 Ratio of (Note 2) Ratio of Receivables Nonperforming Loans (Note 2) Nonperforming December 31, 2011 December - 9,369,517 2,399,981 5,871,098 14,029,563 Loans 169,083,531 640,044,757 565,760,152 1,957,649,319 Receivables $ 559,361,799 - 15,473 87,708 197,625 936,856 140,308 2,117,495 4,654,754 5,938,646 13,985,684 Loans (Note 1) (Note 1) Receivables Nonperforming Nonperforming $ - - 69.17 156.86 126.66 255.70 143.61 828.56 313.12 201.60 (Note 3) (Note 3) Coverage Ratio Coverage Ratio - 39,013 215,535 821,590 234,186 120,953 9,417,674 3,200,351 19,492,632 Credit Losses Allowance for Credit Losses Credit Allowance for Allowance for $ 5,603,296 - - 1.09 0.37 0.67 0.72 0.62 0.51 1.44 0.30 5,981 43,488 35,216 85,109 Ratio of (Note 2) Ratio of Receivables Nonperforming Loans (Note 2) Nonperforming December 31, 2012 December - DECEMBER 31, 2012 AND 2011 DECEMBER 31, 2012 2,344,972 5,190,967 12,552,350 13,722,023 Loans TAIWAN COOPERATIVE BANK, LTD. COOPERATIVE TAIWAN 175,151,277 586,343,743 529,697,914 563,300,475 1,880,767,782 Receivables $ - - 91,587 14,598 137,408 648,663 3,007,700 1,587,457 13,573,192 Loans (Note 1) (Note 1) Receivables Nonperforming Nonperforming $ 8,100,377 ASSET QUALITY - NONPERFORMING LOANS AND RECEIVABLES AND RECEIVABLES - NONPERFORMING LOANS QUALITY ASSET Period Secured Unsecured Small-scale credit loans (Note 5) Other (Note 6) Secured Unsecured Housing mortgage (Note 4) Cash card Bureau’s letter dated July 6, 2005 (Ref. No. 0944000378). Nonperforming credit card receivables are reported to the autho rities and disclosed public, as required by Banking Bureau’s Ratio of nonperforming loans: Nonperforming loans ÷ Outstanding loan balance. Ratio of nonperforming receivables: Nonperforming receivables ÷ Outstanding receivable balance. Allowance for credit losses loans ÷ Nonperforming loans. Coverage ratio of loans: Allowance for credit losses receivables ÷ Nonperforming receivables. Coverage ratio of receivables: the spouse or minor children of borrowers. The mortgage loan is for house purchase or renovation and fu lly secured by housing that purchased (owned) the borrowe r, letter dated December 19, 2005 (Ref. No. 09440010950), small-scale credit loans are unsecured, involve small amounts and exclude cards cash cards. Based on the Banking Bureau’s Other consumers banking loans refer to secured or unsecured that exclude housing mortgage, cash and credit cards, sma ll-scale loans. As required by the Banking Bureau in its letter dated July 19, 2005 (Ref. No. 0945000494), accounts receivable factored without recourse are reported as nonperforming receivables within three months April 25, letter dated Amounts of executed contracts on negotiated debts that are not reported as nonperforming loans or receivables disclosed to the public in accordance with Banking Bureau’s 15, 2008 (Ref. September dated letter Bureau’s with the Banking accordance in the public to disclosed are loans or receivables as nonperforming not reported projects debt-restructuring Amounts of executed Nonperforming/Nonaccrual Loans.” after the factors or insurance companies refuse to indemnify banks for any liabilities on these accounts. 2006 (Ref. No. 09510001270). No. 09700318940) Nonperforming loans are reported to the authorities and disclosed to the public, as required by the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with
Items 1: banking banking Corporate Consumer Loan Credit cards Accounts receivable factored without recourse (Note 7) Amounts of executed contracts on negotiated debts not reported as nonperforming loans (Note 8) Amounts of executed contracts on negotiated debts not reported as nonperforming receivables (Note 8) Amounts of executed debt-restructuring projects not reported as nonperforming loans (Note 9) Amounts of executed debt-restructuring projects not reported as nonperforming receivables (Note 9) ote Note 2: Note 3: Note 4: Note 5: Note 6: Note 7: 8: Note Note 9: 125 126 Financial Information
TABLE 3 TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES TCFHC'S FINANCIAL STATEMENTS AND CONDENSED FINANCIAL STATEMENTS OF SUBSIDIARIES YEARS ENDED DECEMBER 31, 2012 AND 2011 1. TCFHC’s financial statements
Taiwan Cooperative Financial Holding Co., Ltd.
Balance Sheet December 31, 2012 and 2011 (In Thousands of New Taiwan Dollars, Except Par Value) Assets 2012 2011 Liabilities and Stockholder’s Equity 2012 2011 Cash and cash equivalents $ 15,464 $ 40,485 Liabilities Receivables 724,005 4,509 Payables $ 816,163 $ 19,273 Equity investments under the equity 149,368,745 122,954,278 Other borrowings 2,700,000 66,000 method Properties, net 25,202 11,753 Other financial liabilities 3,889 1,738 Intangible assets 12,410 - Other liabilities 6,841 373 Other assets, net 4,857 1,440 Total liabilities 3,526,893 87,384 Stockholders’ equity Common stock - NT$10.00 par value, authorized 12,000,000 thousand shares; issued and outstanding 8,126,666 81,266,667 65,968,254 thousand shares in 2012 and 6,596,825 thousand shares in 2011 Capital surplus 57,853,927 58,051,217 Retained earnings 7,587,747 262,533 Unrealized revaluation increment 6,062,145 5,434,727 Cumulative translation adjustments ( 69,790 ) 57,313 Unrealized valuation gain on financial 1,059,104 287,047 instruments Treasury stock ( 7,136,010 ) ( 7,136,010 ) Total stockholders’ equity 146,623,790 122,925,081
Total $ 150,150,683 $ 123,012,465 Total $ 150,150,683 $ 123,012,465
(Continued) 2012 ANNUAL REPORT
Taiwan Cooperative Financial Holdings Co., Ltd.
Statement of Income Year Ended December 31, 2012 and Period from December 1, 2011 to December 31, 2011
(In Thousands of New Taiwan Dollars, Except Per Share Amounts) Period from December 1, 2011 2012 to December 31, 2011 Revenues and gains Income from equity investments under the equity method $ 7,873,976 $ 222,488 Other revenues and gains 4,564 4,513 Total revenues and gains 7,878,540 227,001 Expenses and losses Loss from equity investments under equity method 105,731 2,346 Operating expenses 206,715 33,643 Other expenses and losses 11,643 67 Total expenses and losses 324,089 36,056 Income before income tax 7,554,451 190,945 Income tax gain 6,929 - Income before extraordinary gain 7,561,380 190,945 Extraordinary gain - 71,588 Net income $ 7,561,380 $ 262,533
Period from 2012 December 1, 2011 to December 31, 2011 Before Income Tax After Income Tax Before Income Tax After Income Tax Basic earnings per share Income before extraordinary gain $ 1.07 $ 1.07 $ 0.03 $ 0.03 Extraordinary gain - - 0.01 0.01 Net income $ 1.07 $ 1.07 $ 0.04 $ 0.04
Diluted earnings per share Income before extraordinary gain $ 1.07 $ 1.07 $ 0.03 $ 0.03 Extraordinary gain - - 0.01 0.01
Net income $ 1.07 $ 1.07 $ 0.04 $ 0.04
(Continued)
127 128 Financial Information ) ) ) ) - 89,035 236,166 772,057 262,533 262,390 288,000 103,370 627,418 127,103 Total 1,108,854 7,561,380 3,062,247 Equity 17,772,000 (Continued) 146,623,790 121,380,339 122,925,081 122,688,915 Stockholders' $ ( ( ( ( $
) ) ) ------7,136,010 7,136,010 Treasury Stock Treasury 7,136,010) ( ( ( $( 7,136,010 $
(In Thousands of New Taiwan Dollars) Taiwan Thousands of New (In ------24,657 772,057 262,390 287,047 287,047 1,059,104 Instruments on Financial Unrealized Gain $ $
) ) ) ------Equity Adjustments Equity 89,035 57,313 57,313 146,348 127,103 Translation Cumulative Adjustments $ ( $( 69,790 (
------627,418 1,108,854 6,062,145 4,325,873 5,434,727 5,434,727 Unrealized Increments Revaluation $ $
) ) ------114 26,253 236,166 262,533 262,533 7,561,494 7,561,380 Earnings Unappropriated $ ( ( $
------Retained Earnings 26,253 26,253 26,253 Legal Reserve $ $
)
------288,000 103,370 6,360,660 5,772,000 57,853,927 58,051,217 58,051,217 58,051,217 Capital Surplus $ ( $
------Statement of Changes in Stockholders' Equity Taiwan Cooperative Financial Holding Co., Ltd. Taiwan 3,298,413 81,266,667 65,968,254 65,968,254 65,968,254 12,000,000 Common Stock $ $
------Capital Stock 329,841 Issued and Outstanding 8,126,666 6,596,825 6,596,825 6,596,825 1,200,000 Shares (In Thousands)
Year Ended December 31, 2012 and Period from December 1, 2011 to December 31, 2011 to December 1, 2011 December 31, 2012 and Period from Ended December Year statements. adjustments financial instruments increments (Note) and cash dividend subscription for new shares Financial Holding Co., Ltd. received Cooperative Bank, Ltd. as a Taiwan by result of a share swap increments adjustments financial instruments Legal reserve Dividend - cash BALANCE, DECEMBER 1, 2011 Net income in December 2011 Change in cumulative translation Change in unrealized valuation gains on Change in unrealized revaluation BALANCE, DECEMBER 31, 2011 earnings Appropriation of prior year’s Balance after appropriation Capital surplus transferred to capital stock Net income in 2012 Capital increase in September 2012 Share-based payment for the employees' Cooperative Taiwan Cash dividends from Change in unrealized revaluation Change in cumulative translation Change in unrealized valuation gains on BALANCE, DECEMBER 31, 2012 Note: For the period from December 1, 2011 to December 31, 2011, the remunerations to directors of $2,363 thousand and bonuses to employees of $378 thousand were deducted from the income income the from deducted were thousand of $378 employees to bonuses and thousand $2,363 of directors to remunerations the 2011, 31, December to 2011 1, December from period For the Note: 2012 ANNUAL REPORT
Taiwan Cooperative Financial Holding Co., Ltd.
Statement of Cash Flows Year Ended December 31, 2012 and Period from December 1, 2011 to December 31, 2011
(In Thousands of New Taiwan Dollars) Period from December 1, 2011 2012 to December 31, 2011 Cash flows from operating activities Net income $ 7,561,380 $ 262,533 Adjustments to reconcile net income to net cash provided by (used in) operating activities Extraordinary gain - ( 71,588 ) Salary expenses on share-based payment 1,635 - Income from equity investments under the equity method, net of cash ( 5,807,360 ) ( 220,142 ) dividends received Depreciation and amortization expenses 6,683 198 Net changes in operating assets and liabilities Receivables ( 719,496 ) ( 4,509 ) Other assets ( 3,417 ) - Payables 796,890 19,273 Other liabilities 6,468 373 Net cash provided by (used in) operating activities 1,842,783 ( 13,862 ) Cash flows from investing activities Increase in investments accounted for under the equity method ( 18,945,000 ) - Acquisition of properties and intangible assets ( 32,542 ) ( 11,951 ) Increase in refundable deposits - ( 1,440 ) Net cash used in investing activities ( 18,977,542 ) ( 13,391 ) Cash flows from financing activities Increase in other borrowings 2,634,000 66,000 Increase in other financial liabilities 2,151 1,738 Cash dividends ( 3,298,413 ) - Capital increase 17,772,000 - Net cash provided by financing activities 17,109,738 67,738 Net increase (decrease) in cash and cash equivalents ( 25,021 ) 40,485 Cash and cash equivalents, beginning of period 40,485 - Cash and cash equivalents, end of period $ 15,464 $ 40,485 Supplementary cash flow information Interest paid $ 8,855 $ - Income tax paid $ 358 $ 1 Investing and financing activities not affecting cash item Capital reduction of Taiwan Cooperative Bank, Ltd. through a transfer of $ 1,800,120 the long-term equity investments $ -
(Continued)
129 130 Financial Information
2. Subsidiaries’ condensed balance sheets
Taiwan Cooperative Bank, Ltd. Condensed Balance Sheet December 31, 2012 and 2011 (In Thousands of New Taiwan Dollars) Assets 2012 2011 Liabilities and Stockholder’s Equity 2012 2011 Cash and cash equivalents $ 57,444,085 $ 52,772,714 Liabilities Due from the Central Bank and Due to the Central Bank and other 687,147,087 577,231,935 $ 234,276,858 $ 227,844,743 call loans to other banks banks Financial assets at fair value through Financial liabilities at fair value 54,844,619 17,160,870 3,511,220 4,218,801 profit or loss through profit or loss Securities sold under repurchase Receivables, net 17,867,261 19,351,808 31,160,227 43,492,636 agreements Discounts and loans, net 1,860,974,490 1,938,497,764 Payables 46,491,492 43,038,175 Available-for-sale financial assets 47,538,520 47,021,325 Deposits and remittances 2,278,185,983 2,213,417,495 Held-to-maturity financial assets 14,458,863 8,712,829 Bank debentures 110,080,000 90,080,000 Equity investments under the equity 1,793,584 3,202,912 Accrued pension cost 2,683,081 2,391,743 method Other financial assets, net 68,796,752 47,951,934 Other financial liabilities 8,607,118 12,952,325 Properties, net 36,919,481 35,386,491 Other liabilities 4,747,422 5,562,592 Intangible assets 3,735,249 3,831,442 Total liabilities 2,719,743,401 2,642,998,510 Other assets, net 3,891,180 4,509,079 Stockholder’s equity Capital stock 66,439,340 60,854,930 Capital surplus 31,598,687 20,647,756 Retained earnings 31,134,236 25,427,015 Unrealized revaluation increments 6,062,145 5,434,727 Cumulative translation adjustments ( 69,790 ) 57,313 Unrealized valuation gain on financial 503,152 210,852 instruments Total stockholder’s equity 135,667,770 112,632,593
Total $ 2,855,411,171 $ 2,755,631,103 Total $ 2,855,411,171 $ 2,755,631,103
(Continued) 2012 ANNUAL REPORT
Taiwan Cooperative Bills Finance Corporation Ltd Condensed Balance Sheet December 31, 2012 and 2011 (In Thousands of New Taiwan Dollars) Assets 2012 2011 Liabilities and Stockholder’s Equity 2012 2011 Cash $ 1,478,341 $ 821,183 Liabilities Call loans to banks 250,000 - Call loans from banks $ 1,510,000 $ 300,000 Financial assets at fair value through Securities sold under repurchase 12,684,426 12,153,554 20,220,464 18,342,262 profit or loss agreements Available-for-sale financial assets, 10,980,814 8,844,185 Payables 47,835 44,611 net Receivables, net 166,620 151,611 Other liabilities 929,433 1,117,067 Properties, net 15,084 15,381 Total liabilities 22,707,732 19,803,940 Other financial assets 209,477 709,477 Stockholder’s equity Intangible assets 1,705 2,904 Capital stock 2,547,270 2,547,270 Other assets 167,536 178,148 Capital surplus 1,443 - Retained earnings 630,593 461,761 Unrealized valuation gain on 66,965 63,472 financial instruments Total stockholder’s equity 3,246,271 3,072,503
Total $ 25,954,003 $ 22,876,443 Total $ 25,954,003 $ 22,876,443
Taiwan Cooperative Securities Co., Ltd. Condensed Balance Sheet December 31, 2012 and 2011 (In Thousands of New Taiwan Dollars) Assets 2012 2011 Liabilities and Stockholder’s Equity 2012 2011 Current assets $ 3,886,648 $ 2,662,353 Liabilities Properties, net 99,442 40,850 Intangible assets 33,039 23,021 Current liabilities $ 1,496,437 $ 180,135 Other assets 426,576 456,746 Other liabilities 10,052 513 Securities brokerage accounts, net 12,596 8,055 Total liabilities 1,506,489 180,643 Stockholder’s equity Capital stock 3,000,000 3,000,000 Capital surplus 7,855 - Accumulated deficit ( 68,886 ) ( 2,346 ) Unrealized valuation gain on 12,843 12,723 financial instruments Total stockholder’s equity 2,951,812 3,010,377
Total $ 4,458,301 $ 3,191,025 Total $ 4,458,301 $ 3,191,025
(Continued) 131 132 Financial Information
Co-operative Assets Management Co., Ltd. Condensed Balance Sheet December 31, 2012 and 2011 (In Thousands of New Taiwan Dollars) Assets 2012 2011 Liabilities and Stockholder’s Equity 2012 2011 Current assets $ 951,282 $ 63,066 Liabilities Accounts receivable - 4,374,008 5,159,336 Current liabilities $ 1,693,966 $ 1,642,928 acquired loans, net of loans Equity investments under the equity 512,364 505,872 Other liabilities 7,858 1,557 method Properties, net 3,311 2,797 Total liabilities 1,701,824 1,644,485 Intangible assets 899 149 Stockholder’s equity Other assets 136,926 152,070 Capital stock 3,500,000 3,500,000 Capital surplus 1,122 - Retained earnings 775,844 738,805 Total stockholder’s equity 4,276,966 4,238,805
Total $ 5,978,790 $ 5,883,290 Total $ 5,978,790 $ 5,883,290
BNP Paribas Assurance TCB Life Insurance Co., Ltd. Condensed Balance Sheet December 31, 2012 (In Thousands of New Taiwan Dollars) Assets 2012 Liabilities and Stockholder’s Equity 2012 Cash and cash equivalents $ 6,818,645 Liabilities Receivables 1,061,374 Payables $ 387,542 Investments 52,702,653 Financial liabilities 93,230 Reinsurance assets 1,372 Reserves for life and health insurance 54,586,209 Properties 81,518 Other liabilities 670,145 Other assets 994,161 Separate-account liabilities 33,468,840 Separate-account assets 33,468,840 Total liabilities 89,205,966 Stockholders’ equity Capital stock 6,000,000 Capital surplus 3,366 Retained earnings ( 1,014,385 ) Unrealized valuation gain on financial 933,616 instruments Total stockholder’s equity 5,922,597
Total $ 95,128,563 Total $ 95,128,563
(Continued) 2012 ANNUAL REPORT
BNP Paribas TCB Asset Management Co., Ltd. Condensed Balance Sheet December 31, 2012 (In Thousands of New Taiwan Dollars) Assets 2012 Liabilities and Stockholder’s Equity 2012 Current assets $ 380,276 Liabilities Properties 22,714 Current liabilities $ 26,021 Intangible assets 3,994 Other liabilities 5,077 Other assets 26,863 Total liabilities 31,098 Stockholders’ equity Capital stock 387,000 Capital surplus 61,282 Accumulated deficit ( 45,533 ) Total stockholder’s equity 402,749
Total $ 433,847 Total $ 433,847
3. Subsidiaries’ condensed income statements
Taiwan Cooperative Bank, Ltd. Condensed Income Statement Years Ended December 31, 2012 and 2011 (In Thousands of New Taiwan Dollars, Except Per Share Amounts) Items 2012 2011 Net interest $ 25,299,415 $ 24,688,950 Net revenues and gains other than interest 7,697,557 8,874,282 Total net revenues 32,996,972 33,563,232 Bad-debt expenses ( 4,392,239 ) ( 5,170,597 ) Operating expenses ( 19,691,895 ) ( 19,381,915 ) Income before income tax $ 8,912,838 $ 9,010,720 Net income $ 7,532,869 $ 7,571,015 Earnings per share (NT$) Before income tax $ 1.45 $ 1.41 After income tax $ 1.22 $ 1.19
(Continued)
133 134 Financial Information
Taiwan Cooperative Bills Finance Corporation Ltd Condensed Income Statement Years Ended December 31, 2012 and 2011 (In Thousands of New Taiwan Dollars, Except Per Share Amounts) Items 2012 2011 Net interest $ 125,424 $ 170,427 Net revenue and gains other than interest 108,560 104,886 Total net revenues 233,984 275,313 Provisions 63,440 ( 4,472 ) Operating expenses ( 106,078 ) ( 103,831 ) Income before income tax $ 191,346 $ 167,010 Net income $ 181,568 $ 157,874 Earnings per share (NT$) Before income tax $ 0.75 $ 0.66 After income tax $ 0.71 $ 0.62
Taiwan Cooperative Securities Co., Ltd. Condensed Income Statement Year Ended December 31, 2012 and Period from December 2, 2011 to December 31, 2011 (In Thousands of New Taiwan Dollars, Except Per Share Amounts) Period from December 2, 2011 Items 2012 to December 31, 2011
Revenues $ 324,618 $ 20,647 Expenses ( 390,831 ) ( 23,011 ) Loss before income tax ( $ 66,213 ) ( $ 2,364 ) Net loss ( $ 66,540 ) ( $ 2,346 ) Loss per share (NT$) Before income tax ( $ 0.22 ) ( $ 0.01 ) After income tax ( $ 0.22 ) ( $ 0.01 )
Co-operative Assets Management Co., Ltd. Condensed Income Statement Years Ended December 31, 2012 and 2011 (In Thousands of New Taiwan Dollars, Except Per Share Amounts) Items 2012 2011
Revenues and gains $ 604,408 $ 1,196,066 Expenses and losses ( 412,870 ) ( 1,011,756 ) Income before income tax $ 191,538 $ 184,310 Net income $ 159,539 $ 145,356 Earnings per share (NT$) Before income tax $ 0.55 $ 0.53 After income tax $ 0.46 $ 0.42
(Continued) 2012 ANNUAL REPORT
BNP Paribas Assurance TCB Life Insurance Co., Ltd. Condensed Income Statement Year Ended December 31, 2012 (In Thousands of New Taiwan Dollars, Except Per Share Amounts) Items 2012 Operating revenues $ 35,502,404 Operating costs ( 35,237,326 ) Gross gain 265,078 Operating expenses ( 414,092 ) Loss before income tax $ ( 149,014 ) Net loss $ ( 149,014 ) Loss per share (NT$) Before income tax $ ( 0.33 ) After income tax $ ( 0.33 )
BNP Paribas TCB Asset Management Co., Ltd. Condensed Income Statement Year Ended December 31, 2012 (In Thousands of New Taiwan Dollars, Except Per Share Amounts) Items 2012 Operating revenues $ 92,489 Operating expenses ( 183,575 ) Operating loss ( 91,086 ) Non-operating revenues and gains 2,882 Loss before income tax $ ( 88,204 ) Net loss $ ( 88,204 ) Loss per share (NT$) Before income tax $ ( 4.12 ) After income tax $ ( 4.12 )
(Concluded)
135 136 Financial Information
TABLE 4
TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES BUSINESS SEGMENT FINANCIAL INFORMATION YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM DECEMBER 1, 2011 TO DECEMBER 31, 2011 (In Thousands of New Taiwan Dollars) Business Segment Year Ended December 31, 2012 Items Banking Securities Others Consolidated Net interest $ 25,436,400 $ 125,849 $ 738,099 $ 26,300,348 Net revenues and gains other than interest 6,622,162 108,587 2,468,573 9,199,322 Total net revenues 32,058,562 234,436 3,206,672 35,499,670 Bad-debt expenses ( 4,403,896 ) 63,440 ( 293,737 ) ( 4,634,193 ) Operating expenses ( 19,738,044 ) ( 98,304 ) ( 1,055,491 ) ( 20,891,839 ) Net change in reserves for liabilities - - ( 1,003,607 ) ( 1,003,607 ) Income before income tax 7,916,622 199,572 853,837 8,970,031 Income tax expenses ( 1,379,969 ) ( 9,778 ) ( 44,274 ) ( 1,434,021 ) Net income 6,536,653 189,794 809,563 7,536,010
Business Segment Period from December 1, 2011 to December 31, 2011 Items Banking Securities Others Consolidated Net interest $ 2,159,482 $ 9,658 $ 6,566 $ 2,175,706 Net revenues and gains other than interest 647,016 9,905 102,207 759,128 Total net revenues 2,806,498 19,563 108,773 2,934,834 Bad-debt expenses ( 492,308 ) 154 - ( 492,154 ) Operating expenses ( 2,056,409 ) ( 9,431 ) ( 117,378 ) ( 2,183,218 ) Income (losses) before income tax 257,781 10,286 ( 8,605 ) 259,462 Income tax expenses ( 68,266 ) - ( 1,936 ) ( 70,202 ) Income (losses) before extraordinary gains 189,515 10,286 ( 10,541 ) 189,260 Extraordinary gains - - 71,588 71,588 Net income 189,515 10,286 61,047 260,848 TABLE 5
TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES MARKETABLE SECURITIES HELD DECEMBER 31, 2012 (In Thousands of New Taiwan Dollars)
Relationship December 31, 2012 Marketable Financial Holding Company with the Percentage Market Securities Type Statement Shares Carrying Note Name Holding of Value or Net and Issuer Account (Thousands) Value Company Ownership Asset Value Stock Equity Co-operative Assets Cooperative I investments Subsidiary 50,000 $ 512,364 100.00 $ 512,364 Note 1 Management Co., Ltd. Assets Management under the equity Co., Ltd. method Bonds Cooperative Insurance Held-to-maturity Government Bonds - - 3,681 - 3,735 Note 2 Brokers Co., Ltd.. financial assets - 88 A3 Note 1: When Taiwan Cooperative Financial Holding Co., Ltd. prepared the consolidated financial statements, the related account and security transaction were eliminated. Note 2: Pledged bonds as collaterals for public guarantee at Financial Supervisory Commission. 2012 ANNUAL REPORT (Note 2) 3,020,524 Amount $ - TABLE 6 TABLE Ending Balance Shares 306,000,000 - - - Gain Disposal (Loss) on $ 2,564 (In Thousands of New Taiwan Dollars) Taiwan Thousands of New (In (Note 1) (Note 2) Value Carrying $ 1,787,455
- - Disposal Price $ Shares 204,000,000 - 407,325 (Note 1) (Note 2) 3,023,088 Amount $ Acquisition Shares 306,000,000 - Amount $ 1,380,130 - - Beginning Balance Shares 204,000,000
Nature of Nature Parent company Subsidiary Relationship YEAR ENDED DECEMBER 31, 2012 party Counter- MILLION OR 10% OF THE PAID-IN CAPITAL THE PAID-IN MILLION OR 10% OF Taiwan Taiwan Cooperative Financial Holding Company, Ltd. Taiwan Cooperative Bank, Ltd. Account Financial Statement Equity investment under the equity method Equity investment under the equity method (TCFHC AND TCB DISCLOSED ITS INVESTEES ACQUIRED OR DISPOSED OF) TCB DISCLOSED ITS INVESTEES AND (TCFHC TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES HOLDING CO., LTD. FINANCIAL COOPERATIVE TAIWAN Type and Issuer Type BNP Paribas BNP Assurance TCB Life Insurance Co., Ltd. Paribas BNP Assurance TCB Life Insurance Co., Ltd. Marketable Securities Acquisition consists of an unrealized gain of $407,325 thousand on financialavailable-for-sale assets. Disposal consists of a loss of $75,081 thousand from equity investments under the equity method and Acquisition consists of a long-term transfer equity of TCB’s investments of $1,712,374 thousand to TCFHC due to capital reduction, an unrealized gain of $287,348 thousand on financial available-for-sale a transfer of TCB’s long-term equity investments of $1,712,374 thousand to TCFHC due to capital reduction. long-term equity investments of $1,712,374 thousand to TCB’s a transfer of employees. Disposal consists of a loss of $2,564 thousand from assets, capital increase of $1,020,000 thousand, and TCFHC’s share-based payment of $3,366 thousand for the subscription of new shares by When the Company prepared consolidated financial statements, related account and security transactions were eliminated. equity investment under method. MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 LEAST AT COSTS OR PRICES OF AT AND DISPOSED OF ACQUIRED SECURITIES MARKETABLE Company Name Taiwan Taiwan Cooperative Bank, Ltd. Taiwan Taiwan Cooperative Financial Holding Co., Ltd. Note 1: Note 2: 137 138 Financial Information
TABLE 7
TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES ALLOWANCE OF SERVICE FEES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$5 MILLION YEAR ENDED DECEMBER 31, 2012 (In Thousands of New Taiwan Dollars)
Description Transaction Nature of Securities Firms Counter-party Trading Terms Note Relationship Amount Rate
Taiwan Cooperative Taiwan Cooperative Subsidiaries of As general non- $ 16,146,923 0.04% Securities Co., Ltd. Bank, Ltd. TCFHC related parties.
TABLE 8
TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES SALE OF NONPERFORMING LOANS YEAR ENDED DECEMBER 31, 2012 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
1. Sale of nonperforming loans Co-operative Assets Management Co., Ltd. Relationship Form of Between the Book Value Trade Date Counterparty Nonperforming Selling Price Gain (Loss) Terms Counterparty (Note) Loan and the Company $ 4,680 2012.01.06 Lee sir Mortgage on land $ - (Exclusive of the $ 4,680 None None related cost of $520)
Mega Asset Mortgage on land 38,106 2012.05.15 12,514 25,592 None None Management Corp. and buildings (Exclusive of the related cost of $84) 2012.06.06 Chen sir Mortgage on land 2,545 3,000 455 None None Mortgage on land 2012.08.29 Liao sir 4,873 5,500 627 None None and buildings Mortgage on land 2012.08.29 Liao sir 6,235 8,500 2,265 None None and buildings Mortgage on land 2012.09.19 Wang sir 2,151 2,400 249 None None and buildings Mortgage on land 2012.09.21 Chen sir 12,303 13,600 1,297 None None and buildings Mortgage on land 2012.12.25 Jian sir 286 650 364 None None and buildings
Note: Book value equals the original loan and collections payable. 2. The sale of a batch of nonperforming loans totaling over NT$1 billion (excluding those sold to related parties): None 2012 ANNUAL REPORT TABLE 9 TABLE 2012 Inward $ - Accumulated December 31, December Remittance of Earnings as of 2012 Carrying Value as of Value $ 4,620,969 December 31, December $ 93,843 Investment Gain (Loss) (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) Taiwan Thousands of New (In 100% of Direct of Direct or Indirect Indirect or Investment % Ownership 2012 Outflow of Taiwan as of Taiwan Accumulated December 31, December $ 4,547,235 (Note 1) $ 81,504,562 (US $154,395) Investment from Investment from
$ - Inflow Maximum Investment Allowable (Note 2) Maximum Investment Outflow Investment Flows $ - Outflow of Taiwan as of Taiwan Accumulated (Note 1) (US$ 154,395) $ 4,547,235 YEAR ENDED DECEMBER 31, 2012 January 1, 2012 Investment from Investment from INVESTMENT IN MAINLAND CHINA INVESTMENT $ 4,547,235 (Note 1) (US $154,395) Investment Commission, MOEA Type Type Direct Investment Amount Approved Investment Amount Approved by the Investment
Capital of Paid-in (Note 1) (US$154,395) $ 4,547,235 Total Amount Total TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES HOLDING CO., LTD. FINANCIAL COOPERATIVE TAIWAN and Products Deposits, loans, import and export, exchange and foreign exchange business $ 4,547,235 Main Businesses (Note 1) (US $154,395) as of December 31, 2012 as of December Translation into New Taiwan dollars at the exchange rates on date of each outflow investment. Taiwan into New Translation Based “Regulation Cooperation on in the the Mainland Investment Examination China,” Commission’s of investments Investment are Technical or limited to the net higher asset of value 60 % TCB’s of or 60% of TCB’s consolidated net asset value. TCB’s or 60% of Name Investee Company Taiwan Taiwan Cooperative Bank Suzhou Branch Accumulated Investment in Mainland China
Note 1: Note 2: 139 140 Financial Information - - - - TABLE 10 TABLE 0.11 0.11 0.02 0.02 0.01 0.01 0.03 0.03 2.34 2.34 2.03 2.03 0.19 0.19 (Continued) Assets (%) Transaction Transaction Consolidated Amount/Total Amount/Total Revenue or Total Total Revenue or Consolidated Net Terms Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Trading Trading (In Thousands of New Taiwan Dollars) Taiwan Thousands of New (In 112,104 112,104 716,051 180,951 180,951 914,066 914,066 134,810 134,810 829,846 829,846 722,281 722,281 3,406,644 3,406,644 5,627,198 5,627,198 (Note 5) Amounts $ 716,051 Description of Transactions (Notes 3 and 5) Transactions Description of Financial Statement Account Tax receivables - consolidated tax return Tax Payables - consolidated tax return Tax Deposits and remittances Cash and cash equivalents Deposits and remittances Cash and cash equivalents Deposits and remittances Cash and cash equivalents Deposits and remittances Cash and cash equivalents, refundable deposits Service and commission fee Service and commission charge Service and commission fee Service and commission charge Call loans to banks Call loans from banks Deposits and remittances Cash and cash equivalents 1 2 3 3 3 3 3 3 1 2 1 2 3 3 1 2 3 3 Flow (Note 2) Transaction Transaction SUBSIDIARIES Counter-party Taiwan Cooperative Bank, Ltd. Taiwan Cooperative Financial Holding Co., Ltd. Taiwan TCB Life Insurance Co., Ltd. Assurance Paribas BNP Cooperative Bank, Ltd. Taiwan Cooperative Securities Co., Ltd. Taiwan Cooperative Bank, Ltd. Taiwan Assets Management Co., Ltd. Co-operative Cooperative Bank, Ltd. Taiwan Cooperative Insurance Brokers Co., Ltd. Cooperative Bank, Ltd. Taiwan Cooperative Insurance Brokers Co., Ltd. Cooperative Bank, Ltd. Taiwan TCB Life Insurance Co., Ltd Assurance Paribas BNP Cooperative Insurance Brokers Co., Ltd. Bank S.A. Taiwan United Cooperative Bank, Ltd. Taiwan Asset Management Co., Ltd. TCB Paribas BNP Cooperative Bank, Ltd. Taiwan TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES HOLDING CO., LTD. FINANCIAL COOPERATIVE TAIWAN Transacting Company Transacting YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM DECEMBER 1, 2011 TO DECEMBER 31, 2011 TO AND PERIOD FROM DECEMBER 1, 2011 YEAR ENDED DECEMBER 31, 2012 Taiwan Cooperative Financial Holding Co., Ltd. Taiwan Cooperative Bank, Ltd. Taiwan Cooperative Bank, Ltd. Taiwan TCB Life Insurance Co., Ltd. Assurance Paribas BNP Cooperative Bank, Ltd. Taiwan Cooperative Securities Co., Ltd. Taiwan Cooperative Bank, Ltd. Taiwan Assets Management Co., Ltd. Co-operative Cooperative Bank, Ltd. Taiwan Cooperative Insurance Brokers Co., Ltd. Cooperative Bank, Ltd. Taiwan Cooperative Insurance Brokers Co., Ltd. Cooperative Insurance Brokers Co., Ltd. TCB Life Insurance Co., Ltd. Assurance Paribas BNP Cooperative Bank, Ltd. Taiwan Bank S.A. Taiwan United Cooperative Bank, Ltd. Taiwan Asset Management Co., Ltd. TCB Paribas BNP BUSINESS RELATIONSHIPS AND SIGNIFICANT TRANSACTIONS BETWEEN THE PARENT COMPANY AND COMPANY THE PARENT TRANSACTIONS BETWEEN AND SIGNIFICANT BUSINESS RELATIONSHIPS 0 1 1 2 1 3 1 4 1 5 1 5 5 2 1 6 1 7 No. (Note 1) 2012 2012 ANNUAL REPORT - - - - TABLE 10 TABLE 0.11 0.11 0.02 0.02 0.01 0.01 0.03 0.03 2.34 2.34 2.03 2.03 0.19 0.19 ------(Continued) (Concluded) Assets (%) Transaction Transaction Consolidated Amount/Total Amount/Total Assets (%) Revenue or Total Total Revenue or Consolidated Net Transaction Transaction Consolidated Amount/Total Amount/Total Revenue or Total Total Revenue or Consolidated Net Terms Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Trading Trading Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Terms Trading Trading (In Thousands of New Taiwan Dollars) Taiwan Thousands of New (In 112,104 112,104 716,051 180,951 180,951 914,066 914,066 134,810 134,810 829,846 829,846 722,281 722,281 3,406,644 3,406,644 5,627,198 5,627,198 (Note 5) 119,656 119,656 114,174 114,174 340,763 380,434 380,434 Amounts $ 716,051 4,494,563 4,494,563 (Note 5) Amounts $ 340,763 Description of Transactions (Notes 3 and 5) Transactions Description of Description of Transactions (Notes 3 and 5) Transactions Description of Financial Statement Account Tax receivables - consolidated tax return Tax Payables - consolidated tax return Tax Deposits and remittances Cash and cash equivalents Deposits and remittances Cash and cash equivalents Deposits and remittances Cash and cash equivalents Deposits and remittances Cash and cash equivalents, refundable deposits Service and commission fee Service and commission charge Service and commission fee Service and commission charge Call loans to banks Call loans from banks Deposits and remittances Cash and cash equivalents Financial Statement Account Deposit and remittances Cash and cash equivalents Deposit and remittances Cash in bank, other financial assets Deposit and remittances Cash and cash equivalents, restricted asset Call loans to banks Call loans from banks Call loans from banks Call loans to banks 1 2 3 3 3 3 3 3 1 2 1 2 3 3 1 2 3 3 Flow (Note 2) 3 3 3 3 1 2 1 2 1 2 Transaction Transaction Flow (Note 2) Transaction Transaction SUBSIDIARIES Counter-party Counter-party Taiwan Cooperative Bank, Ltd. Taiwan Cooperative Financial Holding Co., Ltd. Taiwan TCB Life Insurance Co., Ltd. Assurance Paribas BNP Cooperative Bank, Ltd. Taiwan Cooperative Securities Co., Ltd. Taiwan Cooperative Bank, Ltd. Taiwan Assets Management Co., Ltd. Co-operative Cooperative Bank, Ltd. Taiwan Cooperative Insurance Brokers Co., Ltd. Cooperative Bank, Ltd. Taiwan Cooperative Insurance Brokers Co., Ltd. Cooperative Bank, Ltd. Taiwan TCB Life Insurance Co., Ltd Assurance Paribas BNP Cooperative Insurance Brokers Co., Ltd. Bank S.A. Taiwan United Cooperative Bank, Ltd. Taiwan Asset Management Co., Ltd. TCB Paribas BNP Cooperative Bank, Ltd. Taiwan Taiwan Cooperative Securities Corp., Ltd. Taiwan Cooperative Bank, Ltd. Taiwan Cooperative Bills Finance Corporation Taiwan Ltd. Cooperative Bank, Ltd. Taiwan Cooperative Insurance Brokers Co., Ltd. Cooperative Bank, Ltd. Taiwan Bank S.A. Taiwan United Cooperative Bank, Ltd. Taiwan Bank S.A. Taiwan United Cooperative Bank, Ltd. Taiwan TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES HOLDING CO., LTD. FINANCIAL COOPERATIVE TAIWAN Transacting Company Transacting Transacting Company Transacting YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM DECEMBER 1, 2011 TO DECEMBER 31, 2011 TO AND PERIOD FROM DECEMBER 1, 2011 YEAR ENDED DECEMBER 31, 2012 Taiwan Cooperative Financial Holding Co., Ltd. Taiwan Cooperative Bank, Ltd. Taiwan Cooperative Bank, Ltd. Taiwan TCB Life Insurance Co., Ltd. Assurance Paribas BNP Cooperative Bank, Ltd. Taiwan Cooperative Securities Co., Ltd. Taiwan Cooperative Bank, Ltd. Taiwan Assets Management Co., Ltd. Co-operative Cooperative Bank, Ltd. Taiwan Cooperative Insurance Brokers Co., Ltd. Cooperative Bank, Ltd. Taiwan Cooperative Insurance Brokers Co., Ltd. Cooperative Insurance Brokers Co., Ltd. TCB Life Insurance Co., Ltd. Assurance Paribas BNP Cooperative Bank, Ltd. Taiwan Bank S.A. Taiwan United Cooperative Bank, Ltd. Taiwan Asset Management Co., Ltd. TCB Paribas BNP Taiwan Cooperative Bank, Ltd. Taiwan Cooperative Securities Co., Ltd. Taiwan Cooperative Bank, Ltd. Taiwan Cooperative Bills Finance Corporation Taiwan Cooperative Bank, Ltd. Taiwan Cooperative Insurance Brokers Co., Ltd. Cooperative Bank, Ltd. Taiwan Bank S.A. Taiwan United Cooperative Bank, Ltd. Taiwan Bank S.A. Taiwan United The parent company and subsidiaries are numbered as follows: a. Parent company: 0. b. Subsidiaries are numbered sequentially from 1. flows are as follows: Transaction 1. From parent company to subsidiary. 2. From subsidiary to parent company. 3. Between subsidiaries. For calculating the percentages, asset or liability account is divided by consolidated total assets, and revenue expense net of same year. The terms for the transactions between transacting company and related parties are similar to those unrelated parties. Referring to transactions exceeding NT$100 million. BUSINESS RELATIONSHIPS AND SIGNIFICANT TRANSACTIONS BETWEEN THE PARENT COMPANY AND COMPANY THE PARENT TRANSACTIONS BETWEEN AND SIGNIFICANT BUSINESS RELATIONSHIPS 0 1 1 2 1 3 1 4 1 5 1 5 5 2 1 6 1 7 1 2 1 3 1 4 1 5 1 5 No. No. (Note 1) (Note 1) 2012 2011 Note 1: Note 2: Note 3: Note 4: Note 5: 141 142 Financial Information
TABLE 11 TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CAPITAL ADEQUACY RATIO DECEMBER 31, 2012 AND 2011
1. Taiwan Cooperative Financial Holding Co., Ltd.’s Capital Adequacy Ratio Unit: In Thousands of New Taiwan Dollars, % 2012 (Note 1) 2011 (Note 1) Items Group’s Group’s Proportionate Group’s Net Proportionate Group’s Net Company Statutory Capital Statutory Capital Share Eligible Capital Share Eligible Capital Requirement Requirement Taiwan Cooperative Financial $ 146,623,790 $ 149,411,265 $ 122,925,081 $ 122,971,980 Holdings Co., Ltd. Taiwan Cooperative Bank, Ltd. 100 203,386,952 128,793,957 100 167,603,732 131,018,239 Taiwan Cooperative Bills Finance 100 3,306,735 1,711,011 100 3,098,123 1,369,764 Corporation Ltd Taiwan Cooperative Securities Co., 100 2,464,603 375,626 100 2,494,870 236,531 Ltd. Co-operative Assets Management 100 4,276,966 2,989,395 100 4,238,805 2,941,645 Co., Ltd. BNP Paribas Assurance TCB Life 51 2,470,106 1,102,831 - - - Insurance Co., Ltd. BNP Paribas TCB Asset 51 205,402 110,547 - - - Management Co., Ltd Deduction (187,048,306 ) (149,368,745 ) ( 142,544,185) ( 122,954,278) Total 175,686,248 135,125,887 157,816,426 135,583,881 Group capital adequacy ratio (Note 130.02% 116.40% 2)
Note 1: The above amounts are calculated under the “Regulations Governing the Consolidated Capital Adequacy of Financial Holding Companies.” Note 2: Group capital adequacy ratio = Group’s net eligible capital ÷ Group’s statutory capital requirement.
(Continued) 2012 ANNUAL REPORT
2. Taiwan Cooperative Financial Holding Co., Ltd.’s Eligible Capital (Unit: In Thousands of New Taiwan Dollars) December 31, 2012 December 31, 2011 Items (Note) (Note) Common stock $ 81,266,667 $ 65,968,254 Qualified noncumulative perpetual preferred stocks and noncumulative subordinated debts without maturity dates, which conform to the terms of Bank’s Tier 1 capital - - Other preferred stocks and subordinated debts - - Capital collected in advance - - Capital surplus 57,853,927 58,051,217 Legal reserve 26,253 - Special reserve - - Cumulative earnings 7,561,494 262,533 Equity adjustments 7,051,459 5,779,087 Less: Goodwill - - Less: Deferred assets - - Less: Treasury stock 7,136,010 7,136,010 Total eligible capital 146,623,790 122,925,081 Note: The above amounts are calculated under the “Regulations Governing the Consolidated Capital Adequacy of Financial Holding Companies.” 3. Taiwan Cooperative Bank, Ltd.’s Capital Adequacy Ratio (Unit: In Thousands of New Taiwan Dollars, %) Year December 31, 2012 December 31, 2011 Items Standalone Consolidated Standalone Consolidated Eligible capital Tier 1 capital $ 122,417,997 $ 123,438,177 $ 99,235,347 $ 100,219,325 (Note 2) Tier 2 capital 80,968,955 82,023,047 68,368,385 69,382,339 Tier 3 capital - - - - Eligible capital 203,386,952 205,461,224 167,603,732 169,601,664
Risk-weighted assets (Note 2) Standardized approach 1,548,538,285 1,551,054,616 1,569,701,294 1,571,938,427 Credit risk Internal ratings-based approach - - - - Securitization - - 69,831 69,831 Basic indicator approach - - - - Operational Standardized approach/alternative standardized approach 52,939,133 55,146,919 52,217,558 54,508,321 risk Advanced measurement approach - - - - Standardized approach 8,447,039 8,446,991 15,739,309 15,737,951 Market risk Internal model approach - - - - Risk-weighted assets 1,609,924,457 1,614,648,526 1,637,727,992 1,642,254,530 Capital adequacy ratio 12.63 12.72 10.23 10.33 Ratio of Tier 1 capital to risk-weighted assets 7.60 7.64 6.06 6.10 Ratio of Tier 2 capital to risk-weighted assets 5.03 5.08 4.17 4.23 Ratio of Tier 3 capital to risk-weighted assets - - - - Ratio of common stock to total assets 2.33 2.33 2.21 2.21 Ratio of leverage 4.37 4.41 3.68 3.70
Note 1: Eligible capital and risk-weighted assets are calculated under the “Regulations Governing the Capital Adequacy Ratio of Banks” and the “Explanation of Methods for Calculating the Eligible Capital and Risk-weighted Assets of Banks.” Note 2: Formulas used were as follows: 1) Eligible capital = Tier 1 capital + Tier 2 capital + Tier 3 capital. 2) Risk-weighted assets = Risk-weighted assets for credit risk + Capital requirements for operational risk and market risk x 12.5. 3) Capital adequacy ratio = Eligible capital ÷ Risk-weighted assets. 4) Ratio of Tier 1 capital to risk-weighted assets = Tier 1 capital ÷ Risk-weighted assets. 5) Ratio of Tier 2 capital to risk-weighted assets = Tier 2 capital ÷ Risk-weighted assets. 6) Ratio of Tier 3 capital to risk-weighted assets = Tier 3 capital ÷ Risk-weighted assets. 7) Ratio of common stock to total assets = Common stock ÷ Total assets. 8) Ratio of leverage = Tier 1 capital ÷ Adjusted average total asset (the average total asset excludes goodwill, deferred losses on the sale of nonperforming loans and ineligible items deducted from Tier 1 capital under the “Explanation of Methods for Calculating the Eligible Capital and Risk-Weighted Assets of Banks”).
(Concluded) 143 144 Financial Information
TABLE 12
TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES DISCLOSURE REQUIRED UNDER ARTICLE 46 OF THE FINANCIAL HOLDING COMPANY ACT DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, %) December 31, 2012
Total Amounts of Percentage Total Amounts of Percentage Name Credits, Endorsement of TCFHC’s Name Credits, Endorsement of TCFHC’s or Other Transactions Equity(%) or Other Transactions Equity(%) 1. Same person Central Bank $ 455,875,000 310.91 Yang Ming Marine Transport Corp. 5,220,457 3.56 Pacific Sogo Department Stores Co., National Treasury Administration 125,352,223 85.49 5,198,648 3.55 Ltd. Ruen Chen Investment Holding Co., Tai Power Co., Ltd. 107,132,818 73.07 5,059,050 3.45 Ltd. Taiwan High Speed Rail Corporation 56,214,317 38.34 Yunlin County Government 4,820,605 3.29 CPC Corporation, Taiwan 43,060,281 29.37 China Steel Corporation 4,797,615 3.27 Foundation of China Aviation Central Taiwan Science Park 26,061,000 17.77 4,500,000 3.07 Development Foundation Chi Mei Optoelectronics Corp. 16,029,960 10.93 Radium Life Tech. Co., Ltd. 4,427,616 3.02 Industrial Development Bureau, Ministry of Economic Affairs 15,998,528 10.91 Inotera Memories, Inc. 4,418,572 3.01 Development and Management of Fund AUO Co., Ltd. 10,929,918 7.45 Chiayi County Government 4,074,050 2.78 Advanced Semiconductor Taiwan Railways Administration 9,140,000 6.23 3,817,046 2.60 Engineering, Inc. Formosa Chemical & Fibre 8,824,926 6.02 Polaris Taiwan Top 50 Tracker Fund 3,443,200 2.35 Corporation Nan Ya Plastic Co., Ltd. 7,826,710 5.34 Quanta Computer Inc. 3,430,467 2.34 Eva Airways Corporation 7,821,064 5.33 Wan Hai Lines Ltd. 3,286,762 2.24 Far Eastern New Century 7,421,716 5.06 Macronix International Co., Ltd. 3,280,512 2.24 Corporation Dragon Steel Corporation 7,337,969 5.00 Taiwan Asset Management Co., Ltd. 3,120,934 2.13 Formosa Petrochemical Corp. 7,112,720 4.85 BES Engineering Co. 3,110,863 2.12 China Airlines Ltd. 6,481,348 4.42 Taoyuan County Government 3,000,000 2.05 Kaohsiung City Bus Service Hon Hai Precision Co., Ltd. 6,243,757 4.26 3,000,000 2.05 Administration Promos Technologies Inc. 5,799,869 3.96 Taitung County Government 3,000,000 2.05 Yilan County Government 5,365,197 3.66 2. Same related parties Client A 5,729,328 3.91 Client C 3,082,715 2.10 Client B 3,653,499 2.49 3. Same affiliate Nan Ya Plastic Co., Ltd. 34,424,359 23.48 Chung Hung Steel Corporation 18,491,981 12.61 Formosa Chemical & Fiber China Prosperity Development 28,955,054 19.75 18,491,981 12.61 Corporation Corp. Formosa Plastics Corporation 26,346,893 17.97 CSE Transport 18,289,868 12.47 Formosa Petrochemical Corp. 25,958,510 17.70 Kaohsiung Rapid Transit Corp. 18,182,981 12.40 Chimei Lighting Technology Hon Hai Precision Co., Ltd. 23,546,220 16.06 17,582,030 11.99 Corp.
(Continued) 2012 ANNUAL REPORT
Total Amounts of Percentage Total Amounts of Percentage Name Credits, Endorsement of TCFHC’s Name Credits, Endorsement of TCFHC’s or Other Transactions Equity(%) or Other Transactions Equity(%) Leadtek Global Group Limited 17,481,710 11.92 Feng Sheng Enterprise Co., Ltd. 8,668,303 5.91 GIO Optoelectronics Corp. 17,242,669 11.76 Pau-Jar Construction Co., Ltd. 8,352,014 5.70 NanYa Printed Circuit Board Inotera Memories, Inc. 16,931,330 11.55 8,242,745 5.62 (Hong Kong) Corporation Far Eastern New Century 16,862,982 11.50 Ruentex Industries Limited 7,849,554 5.35 Corporation CSEI Transport 16,761,495 11.43 China Steel Structure Co., Ltd. 7,754,961 5.29 Oriental Petrochemical (Taiwan) China Steel Corporation 16,584,382 11.31 7,522,316 5.13 Corporation Chi Mei Optoelectronics Corp. 16,506,153 11.26 Ruentex Development Co., Ltd. 7,237,209 4.94 U-Ming Marine Transport Corp. 16,432,859 11.21 Asia Cement Corporation 6,964,416 4.75 Far EasTone Telecommunications 15,932,859 10.87 All Oceans Transportation Inc. 6,958,742 4.75 Co., Ltd. Evergreen Marine Corp. (Taiwan) Far Eastern Department Stores 14,190,604 9.68 6,830,542 4.66 Ltd. Ltd. AUO Co., Ltd. 13,544,813 9.24 Chahui Power Corporation 6,661,834 4.54 Pacific Sogo Department Stores Evergreen Marine (UK) Limited 13,155,800 8.97 6,597,542 4.50 Co., Ltd. Dragon Steel Corporation 12,135,584 8.28 China Airlines Ltd. 6,488,148 4.43 Evergreen Aviation Technologies G-Tech Optoelectronics 12,083,946 8.24 6,429,129 4.38 Corp. Corporation M.Setek Co., Ltd. 12,038,718 8.21 Uni-President Enterprises Corp. 5,989,072 4.08 BENQ Materials Corp. 11,867,238 8.09 Yieh Hsing Enterprise Co., Ltd. 5,988,178 4.08 Mai-Liao Power Corporation 11,821,470 8.06 Hung Li Steel Co., Ltd. 5,885,383 4.01 Taiwan Cement (Anshun) Co., AUO Sunpower Sdn. Bhd. 11,800,968 8.05 5,839,048 3.98 Ltd. United Microelectronics SiPix Technology, Inc. 11,223,668 7.65 5,823,208 3.97 Corporation Kao Ming Container Terminal Lextar Electronics Corp. 11,100,543 7.57 5,810,700 3.96 Corp. Foundation of China Aviation 10,981,348 7.49 Wan Hai Lines Ltd. 5,794,350 3.95 Development Foundation Formosa Taffeta Co., Ltd. 10,794,926 7.36 Wan Hai Lines SG 5,794,350 3.95 Formosa Advanced Tech Co., Ltd. 10,794,926 7.36 Radum Life Tech. Co., Ltd. 5,712,288 3.90 Nan Chung Petrochemical Corp. 10,474,886 7.14 Kuang Ming (Liberia) Corp. 5,510,761 3.76 Nan Ya Technology Corp. 9,899,233 6.75 Wan Da Tong Enterprise Co., Ltd. 5,375,896 3.67 Eva Airways Corporation 9,778,112 6.67 Farglory Dome Co., Ltd. 5,308,577 3.62 Taiwan Acetic Acid Chemical Co., 9,671,426 6.60 Wpg Holdings Limited 5,153,104 3.51 Ltd. Uni Airways Corporation 9,559,962 6.52 Unimicron Technology Corp. 5,145,880 3.51 Nan Ya Plastics (Ningbo) Corp., Ltd. 9,211,931 6.28 China Steel Chemical Corporation 5,106,615 3.48 Nan Ya Plastics (Hong Kong) Corp. 9,125,552 6.22 Tatung Co. 5,070,918 3.46 Ltd. Ruen Chen Investment Holding Yang Ming Marine Transport Corp. 9,109,570 6.21 5,059,050 3.45 Co., Ltd. Formosa PS (Ningbo) Ltd. Co 8,901,491 6.07 Chung Hang Co., Ltd. 5,007,208 3.42 Yang Ming Marine Transport 8,819,266 6.01 Hannstar Display Corp. 5,007,037 3.41 (Liberia) Corp. Thintech Materials Technology Taiwan Cement Co., Ltd. 8,744,160 5.96 4,867,299 3.32 Co., Ltd. Guangan Changxing Cement Co., Kuan-Ho Refractories Corp. 8,709,341 5.94 4,822,823 3.29 Ltd (Continued) 145 146 Financial Information
Total Amounts of Percentage Total Amounts of Percentage Name Credits, Endorsement of TCFHC’s Name Credits, Endorsement of TCFHC’s or Other Transactions Equity(%) or Other Transactions Equity(%) Li Jiang Development Co., Ltd. 4,763,616 3.25 Kuo Chang Industry Co., Ltd. 3,662,992 2.50 Ubilux Optoelectronics Parnas Electronics Co., Ltd. 4,723,590 3.22 3,657,684 2.49 Corporation Powerchip Technology Chunghwa Picture Tubes, Ltd. 4,533,409 3.09 3,657,684 2.49 Corporation Advanced Semiconductor 4,451,267 3.04 Formosa Plastics Corp USA 3,643,697 2.49 Engineering, Inc. Radum-Kagaya International Hotel 4,428,008 3.02 Run Long Construction Co., Ltd. 3,639,154 2.48 Chailease Finance Co., Ltd. 4,260,119 2.91 TTET Union Corporation 3,517,633 2.40 Chailease Consumer Finance Yien United Steel Corp. 4,240,415 2.89 3,516,920 2.40 Co., Ltd. Yosun Industrial Corp. 4,223,332 2.88 Dragontech Precision Co., Ltd. 3,456,018 2.36 Hung Ching Development & 4,176,596 2.85 Life-On Technology Corp. 3,351,103 2.29 Construction Co., Ltd. Yosun Singapore Pte Ltd. 4,107,695 2.80 Life-On Mobile Pte Ltd. 3,351,103 2.29 Shih Wei Navigation Co., Ltd. 4,063,336 2.77 Winbond Electronics Corp. 3,279,601 2.24 Walsin Lihwa Holdings Spinnaker Pescadores S.A. Panama 4,063,336 2.77 3,259,559 2.22 Limited Quanta Computer Inc. 4,000,424 2.73 Pan Asia Chemical Co. 3,252,176 2.22 Quanta International Limited 4,000,424 2.73 UniDisplay Inc. 3,248,218 2.22 Farglory Land Development Fina Finance & Trading Co., Ltd. 3,982,797 2.72 3,226,447 2.20 Co., Ltd. Advanced Semiconductor 3,904,679 2.66 Yieh Phui Enterprise Co., Ltd. 3,204,748 2.19 Engineering (Kunshan) Inc. ASE Assembly and Test (Shanghai) Unimicron Technology 3,904,151 2.66 3,161,500 2.16 Limited (Kunshan) Corporation Unimicron Technology Dong Lien Maritime SA Panama 3,887,748 2.65 3,161,500 2.16 (Shenzeng) Corporation Advanced Semiconductor 3,887,434 2.65 Walsin Lihwa Corp. 3,159,375 2.15 Engineering (Weihai) Inc. Walton Advanced Engineering, Macronix International Co., Ltd. 3,858,928 2.63 3,147,820 2.15 Inc. ASE Electronics Inc. 3,846,591 2.62 China Synthetic Rubber Corp. 3,126,854 2.13 Sunny Asset Management Co., Highwealth Construction Co., Ltd. 3,802,641 2.59 3,121,365 2.13 Ltd. Taiwan Asset Management Co., QiYu Construction Co., Ltd. 3,802,641 2.59 3,120,934 2.13 Ltd. WPG Electronic Ltd. 3,731,005 2.54 Coreasia Co., Ltd. 3,120,863 2.13 Uni-President (Cayman) Holdings 3,710,935 2.53 BES Engineering Co. 3,120,863 2.13 Limited Smart Idea Holdings Limited 3,684,130 2.51 Zhong Tai Hotel Co., Ltd. 3,051,386 2.08 2012 ANNUAL REPORT
December 31, 2011 Total Amounts of Percentage Total Amounts of Percentage Name Credits, Endorsement of TCFHC’s Name Credits, Endorsement of TCFHC’s or Other Transactions Equity(%) or Other Transactions Equity(%) 1. Same person Tai Power Co., Ltd. $ 119,986,455 97.61 Hon Hai Precision Co., Ltd. 4,444,626 3.62 Taiwan High Speed Rail Corporation 56,299,830 45.80 Yunlin County Government 4,300,605 3.50 CPC Corporation, Taiwan 40,366,823 32.84 Formosa Plastics Corporation 4,234,015 3.44 National Treasury Agency 40,283,354 32.77 Taichung City Government 4,182,356 3.40 Kaohsiung City Government 35,892,559 29.20 Chiayi County Government 4,137,767 3.37 Industrial Development Bureau, Ministry of Economic Affairs 17,498,528 14.24 Inotera Memories, Inc. 4,086,011 3.32 Development and Management of Fund Pacific Sogo Department Stores Co., Chi Mei Optoelectronics Corp. 16,817,022 13.68 4,014,812 3.27 Ltd.
AUO Co., Ltd. 11,418,785 9.29 Chung Hung Steel Corporation 3,969,862 3.23
Dragon Steel Corporation 10,441,477 8.49 Radium Life Tech. Co., Ltd. 3,854,926 3.14 Advanced Semiconductor Bureau Of High Speed Rail, Motc 10,206,000 8.30 3,593,341 2.92 Engineering, Inc. Taiwan Railways Administration 10,000,000 8.14 Quanta Computer Inc. 3,473,402 2.83 Bureau of National Health Insurance 8,700,000 7.08 Wan Hai Lines Ltd. 3,349,846 2.73 Formosa Chemical & Fibre 8,571,621 6.97 Yang Ming Marine Transport Corp. 3,320,141 2.70 Corporation Taoyuan County Government 8,400,000 6.83 BES Engineering Co. 3,272,504 2.66 Aerospace Industrial Development Promos Technologies Inc. 7,731,003 6.29 3,246,726 2.64 Corporation China Airlines Ltd. 7,157,482 5.82 Science Park Administration 3,126,500 2.54 Nan Ya Plastic Co., Ltd. 6,976,620 5.68 Powerchip Technology Corporation 3,123,142 2.54 Formosa Petrochemical Corp 6,529,841 5.31 Taiwan Asset Management Co., Ltd. 3,120,934 2.54 Eva Airways Corporation 5,696,527 4.63 Taiwan Water Corporation 3,110,722 2.53 Ruen Chen Investment Holding Co., 5,500,000 4.47 Powertech Technology Inc. 3,092,897 2.52 Ltd. Far Eastern New Century 5,302,356 4.31 Yien United Steel Corp. 3,072,837 2.50 Corporation Foundation of China Aviation 4,500,000 3.66 Wistron Corporation 3,025,246 2.46 Development Foundation Prince Motor Co., Ltd. 4,473,441 3.64 Hualien County Government 3,000,000 2.44 2. Same related parties Lin sir 4,543,116 3.70 Cheng sir 3,459,100 2.81 3. Same affiliate Far Eastern New Century Hon Hai Precision Co., Ltd. 22,637,627 18.42 14,831,326 12.07 Corporation China Steel Corporation 20,860,620 16.97 Nan-Hwa Cement Corporation 14,588,248 11.87 Chimei Lighting Technology Corp. 19,792,117 16.10 Far Eastern Department Stores Ltd. 13,633,475 11.09 GIO Optoelectronics Corp. 17,895,447 14.56 U-Ming Marine Transport Corp. 13,530,970 11.01 Far EasTone Telecommunications Chi Mei Optoelectronics Corp. 17,551,168 14.28 13,030,970 10.60 Co., Ltd. F.S.E Corporation 16,827,022 13.69 M.Setek Co., Ltd. 12,544,044 10.20 Formosa Chemical & Fiber AUO Co., Ltd. 15,466,333 12.58 12,485,691 10.16 Corporation
(Continued) 147 148 Financial Information
Total Amounts of Percentage Total Amounts of Percentage Name Credits, Endorsement of TCFHC’s Name Credits, Endorsement of TCFHC’s or Other Transactions Equity(%) or Other Transactions Equity(%) Dragon Steel Corporation 12,348,620 10.05 Tatung Co. 5,875,862 4.78 Auo Sunpower Snd. Bhd. 12,327,035 10.03 Formosa Plastics Corp USA 5,867,484 4.77 BriView Corporation 11,872,910 9.66 Cayman President Holdings Ltd. 5,669,787 4.61 SiPix Technology, Inc. 11,717,986 9.53 Oriental Textile Holding Limited 5,605,106 4.56 Lextar Electronics Corp. 11,689,785 9.51 Asia Cement Corporation 5,554,278 4.52 Foundation of China Aviation 11,657,482 9.48 Chahui Power Corporation 5,554,278 4.52 Development Foundation Ni-President Southeast Asia Formosa Taffeta Co., Ltd. 11,141,621 9.06 5,549,815 4.51 Holdings Ltd. Formosa Advanced Tech Co., 11,141,621 9.06 All Oceans Transportation Inc. 5,504,666 4.48 Ltd. Evergreen Marine Corp. (Taiwan) Far Eastern Construction. Co., 10,204,348 8.30 5,502,292 4.48 Ltd. Ltd. Nan Chung Petrochemical Corp. 9,836,198 8.00 Chunghwa Picture Tubes, Ltd. 5,421,456 4.41 Formosa Chemicals Industries 9,480,321 7.71 Radum Life Tech. Co., Ltd. 5,239,046 4.26 (Ningbo) Limited Formosa PS (Ningbo) Ltd. Co 9,268,291 7.54 Jiangsu Pengfei Group Co., Ltd. 5,197,024 4.23 Taiwan Acetic Acid Chemical 9,219,021 7.50 Yien United Steel Corp. 5,006,672 4.07 Co., Ltd. Oriental Petrochemical (Taiwan) 9,000,255 7.32 China Steel Structure Co., Ltd. 4,920,852 4.00 Corporation Wan Da Tong Enterprise Co., Nan Ya Plastic Co., Ltd. 8,632,622 7.02 4,903,046 3.99 Ltd. Nan Ya Plastics (Hong Kong) 8,331,222 6.78 Chung Hang Co., Ltd. 4,853,777 3.95 Corp. Ltd. Pai Ting Investment Co., Ltd. 8,190,000 6.66 Prince Motor Co., Ltd. 4,833,201 3.93 Pai Yang Investment Co., Ltd. 7,786,345 6.33 Kuo Chang Industry Co., Ltd. 4,722,345 3.84 Yang Ming Marine Transport 7,684,347 6.25 Wpg Holdings Limited 4,706,450 3.83 Corp. Yang Ming Marine Transport 7,684,347 6.25 Yongmei Automobile Co., Ltd. 4,674,201 3.80 (Liberia) Corp. Ruentex Industries Limited 7,669,615 6.24 Taiwan Song Stacker Co., Ltd. 4,674,201 3.80 G-Tech Optoelectronics Taiwan Cement Co., Ltd. 7,547,566 6.14 4,651,287 3.78 Corporation NanYa Printed Circuit Board 7,388,381 6.01 Inteplast Group Ltd. 4,641,639 3.78 (Hong Kong) Corporation Uni-President Enterprises Corp. 7,247,425 5.90 Formosa Plastics Corporation 4,588,573 3.73 China Airlines Ltd. 7,164,782 5.83 Hui Rong Automobile Co., Ltd. 4,552,441 3.70 Ubilux Optoelectronics Eva Airways Corporation 7,038,977 5.73 4,517,493 3.67 Corporation Powerchip Technology Inotera Memories, Inc. 6,896,560 5.61 4,517,493 3.67 Corporation Yieh Hsing Enterprise Co., Ltd. 6,778,695 5.51 Hannstar Display Corp. 4,450,468 3.62 Advanced Semiconductor Uni Airways Corporation 6,713,184 5.46 4,268,471 3.47 Engineering, Inc. Hung Ching Development & Ceung Hung Steel Corporation 6,530,038 5.31 4,192,783 3.41 Construction Co., Ltd. Hung Li Steel Co., Ltd. 6,530,038 5.31 Li Jiang Development Co., Ltd. 4,190,926 3.41 Evergreen Aviation Technologies 6,196,527 5.04 Quanta International Limited 4,115,731 3.35 Corp. (Continued) 2012 ANNUAL REPORT
Total Amounts of Percentage Total Amounts of Percentage Name Credits, Endorsement of TCFHC’s Name Credits, Endorsement of TCFHC’s or Other Transactions Equity(%) or Other Transactions Equity(%) Quanta Computer Inc. 4,115,731 3.35 Dragontech Precision Co., Ltd. 3,548,075 2.89 Kao Ming Container Terminal 3,910,384 3.18 Pan Asia Chemical Co. 3,358,178 2.73 Corp. Chailease Finance Co., Ltd. 3,880,898 3.16 Smart Idea Holdings Limited 3,313,136 2.70 Kaohsiung Rapid Transit 3,820,396 3.11 Life-On Mobile Pte Ltd. 3,286,458 2.67 Corporation Today's III Inc. 3,803,784 3.09 Life-On Technology Corp. 3,286,458 2.67 Suzhou Riyuexin Semiconductors 3,669,029 2.98 Ritek Corporation 3,133,732 2.55 Co., Ltd. Sunny Asset Management Co., Unimicron Technology Corp. 3,625,886 2.95 3,121,365 2.54 Ltd. Advanced Semiconductor 3,620,411 2.95 President Tokyo Corporation 3,113,886 2.53 Engineering Inc. President Tokyo Lease Walsin Lihwa Holdings Limited 3,560,858 2.90 3,113,886 2.53 Corporation Wan Hall Ine (Singapore) Pte 3,554,202 2.89 Winbond Electronics Corp. 3,034,393 2.47 Ltd. (Concluded)
149 150 Financial Information
TABLE 13
TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. PRO FORMA BALANCE SHEETS DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Per Share Amounts) Liabilities and Stockholders’ Assets 2012 2011 2012 2011 Equity Cash and cash equivalents $ 3,268 $ 29,137 Liabilities Receivables 773,598 54,102 Payables $ 891,275 $ 94,300 Equity investments under the 149,339,004 122,924,537 Other borrowings 2,784,000 150,000 equity method Properties, net 23,026 9,578 Other financial liabilities 3,889 1,738 Intangible assets 12,410 - Other liabilities 9,215 2,748 Other assets, net 4,857 1,440 Total liabilities 3,688,379 248,786 Stockholders’ equity Common stock - NT$10.00 par value, authorized 12,000,000 thousand shares; issued and outstanding 81,266,667 65,968,254 8,126,666 thousand shares in 2012 and 6,596,825 thousand shares in 2011 Capital surplus 50,068,430 50,265,720 Retained earnings 14,954,398 7,630,117 Unrealized revaluation 6,062,145 5,434,727 increment Cumulative translation ( 69,790 ) 57,313 adjustments Unrealized valuation gains on 1,059,104 287,047 financial instruments Treasury stock ( 6,873,170 ) ( 6,873,170 ) Total stockholders’ equity 146,467,784 122,770,008
Total $ 150,156,163 $ 123,018,794 Total $ 150,156,163 $ 123,018,794
Basic assumptions used in preparing pro forma balance sheets 1. The main changes of equity investments under the equity method were estimated at the investment income recognized on the equity method investments. 2. Cash was estimated under the consideration of cash dividends appropriated by subsidiaries, and capital allocation of TCFHC. 2012 ANNUAL REPORT
TABLE 14
TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. PRO FORMA STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Per Share Amounts) 2012 2011 Revenues and gains Income from equity investments under the equity method $ 7,873,976 $ 7,595,185 Other revenues and gains 4,564 54,102 Total revenues and gains 7,878,540 7,649,287 Expenses and losses Loss from equity investments under the equity method 105,731 - Operating expenses 206,715 235,007 Other expenses and losses 12,575 3,860 Total expenses and losses 325,021 238,867 Income before income tax 7,553,519 7,410,420 Income tax gain 6,929 - Income before extraordinary gain 7,560,448 7,410,420 Extraordinary gain - 38,672
Net income $ 7,560,448 $ 7,449,092
2012 2011 Before Income Tax After Income Tax Before Income Tax After Income Tax Basic earnings per share (NT$) Income before extraordinary gain $ 1.07 $ 1.07 $ 1.10 $ 1.10 Extraordinary gain - - 0.01 0.01 Net income $ 1.07 $ 1.07 $ 1.11 $ 1.11
Diluted earnings per share (NT$) Income before extraordinary gain $ 1.07 $ 1.07 $ 1.10 $ 1.10 Extraordinary gain - - 0.01 0.01
Net income $ 1.07 $ 1.07 $ 1.11 $ 1.11
Significant assumption used in preparing the pro forma income statements a. Income from equity investments under the equity method was estimated on the basis of net income or loss of subsidiaries. b. Operating expenses were mainly for salaries payment and for licenses. License expenses were estimated on the basis of legal regulations while salary expenses were estimated on the basis of the number of employees and adjustment ranges of salary. c. Other revenues and gains were mainly the remunerations to directors and supervisors, which were estimated by subsidiaries. d. Other expenses and losses were mainly the interest expense for borrowings from banks, which were estimated at the rate between 0.93% and 1.25% in 2012 and of 1.93% in 2011. (Concluded) 151 152 Financial Information Note Note 3 Note 3 Note 3 Note 3 Note 3 Note 3 TABLE 15 TABLE 51.00 51.00 100.00 100.00 100.00 100.00 Ownership Percentage of Percentage Total 19,737 300,000 254,727 350,000 306,000 (In Thousands of New Taiwan Dollars) Taiwan Thousands of New (In 6,643,934 Shares Shares (Thousands) ------Investees (Note 1) Shares (Note 2) Pro Forma Pro 19,737 300,000 254,727 350,000 306,000 6,643,934 Shares Shares Proportionate Share of the Company and Its Affiliates in of the Company and Its Share Proportionate (Thousands) ) ) ) 2,564 66,540 36,627 181,568 159,539 $ 7,532,869 ( ( ( Investment Gain
205,402 2,951,812 3,246,271 4,276,966 3,020,524 Value Carrying $135,667,770 51.00 51.00 100.00 100.00 100.00 100.00 Ownership Percentage of Percentage YEAR ENDED DECEMBER 31, 2012 Main Businesses and Products Banking Securities dealer Bills finance dealer Acquisition of delinquent loans Life insurance Securities investment trust TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. FINANCIAL COOPERATIVE TAIWAN Location Taipei Taipei Taipei Taipei Taipei Taipei PERCENTAGE SHARE IN INVESTEES AND RELATED INFORMATION AND RELATED SHARE IN INVESTEES PERCENTAGE Investee Company Taiwan Cooperative Taiwan Bank, Ltd. Cooperative Taiwan Securities Co., Ltd. Cooperative Bills Taiwan Finance Corporation Ltd Co-operative Assets Management Co., Ltd. Assurance Paribas BNP TCB Life Insurance Co., Ltd. Asset TCB Paribas BNP Management Co., Ltd. , are covered by Article 11 of the “Securities and Exchange Law Enforcement Rules.” Article 11 Equity-based securities, such as convertible bonds and warrants , are covered by Derivative instruments, such as stock options, are those conforming to the definition of derivatives in Statement of Financial Accounting Standards No. 34 - “Financial Instruments: Recognition and 36 and Article 37 of the Financial Holding Company Act. Article 37 of the Financial Holding Company 36 and Measurement,” such as stock options. Pro forma shares are shares that are assumed to have been obtained through buying equity-based securities or entering into equity-linked derivative contracts for purposes defined in Paragraph 2 of Article Pro forma shares are shares that are assumed to have been obtained through buying equity-based securities or entering into equity-linked derivative contracts for purposes defined in Paragraph 2 of Shares or pro forma shares held by the Company, directors, supervisors, president, vice president and affiliates in accordance with the Company Law have been included. Shares or pro forma shares held by the Company, When preparing the consolidated financial statements, this inves tment was eliminated. b. c. Investor Investor Company Taiwan Taiwan Cooperative Financial Holding Co., Ltd. Note 1: Note 2: a. Note 3: 2012 ANNUAL REPORT TABLE 16 TABLE Bad Debts $ - Allowance for Allowance for Period $ - (In Thousands of New Taiwan Dollars) Taiwan Thousands of New (In in Subsequent Amount Received - Action Taken Overdue Amount $ - - Turnover Rate Turnover $ 716,051 (Notes 1 and 2) DECEMBER 31, 2012 Ending Balance Subsidiary Relationship Related Party Taiwan Cooperative Taiwan Bank, Ltd. TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES HOLDING CO., LTD. FINANCIAL COOPERATIVE TAIWAN Company Name The receivable came from the consolidated tax return. The balance was not included in the consolidated financial state ment. Taiwan Cooperative Financial Taiwan Holding Co., Ltd. RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$300 MILLION OR 10% OF THE PAID-IN CAPITAL THE PAID-IN NT$300 MILLION OR 10% OF LEAST AT TO AMOUNTING PARTIES FROM RELATED RECEIVABLES Note 1: Note 2: 153 154 Financial Status and Risk Management
7. Financial Status and Risk Management
155 7.1 Capital Management in 2012 155 7.2 Review of Investment Performance 156 7.3 Investment Plans for 2013
156 7.4 Analysis of Risk Management 2012 ANNUAL REPORT
7. Financial Status and Risk Management
7.1 Capital Management in 2012 1. Taiwan Cooperative Bank, Ltd. transferred 51% of the shares in its invested enterprises, BNP Paribas TCB Life Insurance Co., Ltd. and BNP Paribas TCB Asset Management Co., Ltd. to the Company’s ownership via a capital reduction, so that the two companies became subsidiaries of the Company.
2. The Company’s increased investment it its subsidiaries via cash capital increase in September 2012, in line with the subsidiaries’ needs to reinforce their capital structures and upgrade their capital adequacy, is as follows: Taiwan Cooperative Bank, Ltd. Increased investment of NT$17.772 billion, for an increase of NT$25 per share; increased shareholding of 710,880,000 shares, with no change in the 100% shareholding following the capital increase. BNP Paribas Assurance TCB Life Insurance Co. Ltd. Increased investment of NT$1.02 billion, for an increase of NT$10 per share; increased shareholding of 102 million shares, with no change in 51% shareholding following the capital increase. BNP Paribas TCB Asset Management Co. Ltd. Increased investment of NT$153 million, for an increase of NT$12.5 per share; increased shareholding of 12,240,000 shares, with no change in the 51% shareholding following the capital increase.
3. To make up its losses, the BNP Paribas TCB Asset Management Co. Ltd. carried out a capital reduction of NT$153 million, and the Company’s original shareholding was proportionately reduced by 7,803,000 shares.
7.2 Review of Investment Performance The Company’s primary source of profit in 2012 was the recognition of profits from of subsidiary companies, of which the Taiwan Cooperative Bank, Ltd., Co-operative Assets Management, Co., Ltd. and Taiwan Cooperative Bills Finance Corporation Ltd. enjoyed stable profit while Taiwan Cooperative Securities, BNP Paribas Assurance TCB Life Insurance, Co., Ltd. and BNP Paribas TCB Asset Management Co. Ltd. suffered losses:
1. Taiwan Cooperative Securities Co., Ltd. Factors such as the European debt crisis and the reimposition of the securities transaction tax in Taiwan led to a substantial contraction in overall stock market momentum, and the Company’s revenues from brokerage, underwriting, and proprietary businesses were less than expected. In addition, a relatively large amount of operating expenditures were initially needed following the Company’s establishment in December 2011, leading to losses. The Company will follow the strategies of operating location readjustment, promotion of joint marketing with the Taiwan Cooperative Bank, Ltd. and expansion of its customer financing balance with the aim of increasing operating revenue and creating profit.
2. BNP Paribas Assurance TCB Life Insurance Co., Ltd. The Company has been in operation less than three years since its establishment in 2010; and because 155 156 Financial Status and Risk Management
of the rapid increase in new contracts and the need for life insurance products to undergo a stage-by- stage recovery of reserves before they can bring positive profits to the company, it was impossible to achieve a profit in 2012. However, losses are on a declining trend. The Company will continue to lower costs by controlling expenditures and vigorously developing business while striving to strengthen income by turning loss to profit as quickly as possible.
3. BNP Paribas TCB Asset Management Co., Ltd. The Company was established at the end of 2012 and has raised four funds; it has not yet reached an economic scale and so is still in a state of loss, although the losses are already contracting. The Company will continue issuing new funds according to plan in order to build up a comprehensive product line, expand its business scale, and increase its revenues.
7.3 Investment Plans for 2013 To reinforce the financial structure of the Company’s subsidiaries and meet the needs of business expansion, Taiwan Cooperative Bills Finance Corporation Ltd. will increase its capital in line with its capital increase plan. Attention will continue to be devoted to the market development situation and, in line with the group’s development strategy, investment targets will be assessed with the aim of expanding the group’s business territory and upgrading its competitiveness.
7.4 Analysis of Risk Management 7.4.1 Risk Management Structure
1. The Company’s Board of Directors bears ultimate responsibility for the Group’s overall risk management. Top managers and risk control units are responsible for the supervision and execution of risk management policies, systems, procedures, and primary risk assumption; and, in accordance with regulations, submitting reports on the status of execution.
2. To bring about the integration of risk management and operating strategies, and assure the consistency of risk management and business operating targets, the Company has established a Risk Management Committee to monitor the various kinds of risk and operating processes of the Company and its subsidiaries, and to coordinate and supervise the risk management affairs of its subsidiaries.
3. The Boards of Directors of the different subsidiaries are their supreme risk management decision- making units, and bear ultimate responsibility for the subsidiaries’ overall risk. Each subsidiary has established its own Risk Management Committee or other independent risk management unit charged with executing risk controls. 7.4.2 Risk Management Policy To reinforce the Company’s operation and development, the management of the Company and its subsidiaries encompass the major risks which their business operations entail. In addition to complying with the relevant regulations of the competent authority, and establishing risk management rules in accordance with the nature and scale of their businesses, the different companies comply with and execute those regulations and rules in order to achieve the rationalization of risk and compensation. 2011 ANNUAL REPORT
TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. Stock Code: 5880 TAIWAN COOPERATIVE FINANCIAL HOLDING CO.,LTD. TAIWAN COOPERATIVE FINANCIAL HOLDING CO.,LTD.
ANNUAL REPORT 2012
Proactive．Agile．Innovative ANNUAL REPORT 2012 Proactive．Agile．Innovative
TAIWAN COOPERATIVE FINANCIAL HOLDING CO.,LTD.
77, Guan Qian Road, Taipei, Taiwan R.O.C. Tel: +886-2-2311-8811 Fax: +886-2-2311-3699
This annual report is available at our website: http://www.tcfhc.com.tw Printed on April 23, 2013