Taiwan Cooperative Bank, Ltd. and Subsidiaries

Consolidated Financial Statements for the Years Ended December 31, 2007 and 2006 and Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and the Stockholders Taiwan Cooperative Bank, Ltd.

We have audited the accompanying consolidated balance sheets of Taiwan Cooperative Bank, Ltd. and subsidiaries (collectively, the “Company”) as of December 31, 2007 and 2006, and the consolidated related statements of income, changes in stockholders’ equity and cash flows for the years then ended. 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, 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, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Taiwan Cooperative Bank, Ltd. and subsidiaries as of December 31, 2007 and 2006, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Public Banks, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China.

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As stated in Note 3 to the consolidated financial statements, Taiwan Cooperative Bank, Ltd. and subsidiaries adopted on January 1, 2006 the newly released Statements of Financial Accounting Standards (“Statements”) No. 34 - “Accounting of Financial Instruments” and No. 36 - “Disclosure and Presentation of Financial Instruments” and related revisions of previously released Statements.

February 22, 2008

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.

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TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2007 AND 2006 (In Thousands of New Taiwan Dollars, Except Par Value)

Percentage Percentage Increase Increase 2007 2006 (Decrease) 2007 2006 (Decrease) ASSETS Amount Amount % LIABILITIES AND STOCKHOLDERS’ EQUITY Amount Amount %

CASH AND CASH EQUIVALENTS (Note 4) $ 32,749,198 $ 46,222,447 (29 ) DUE TO THE CENTRAL BANK AND OTHER BANKS (Notes 16 and 29) $ 244,817,573 $ 256,279,278 (4 )

DUE FROM THE CENTRAL BANK AND CALL LOANS TO OTHER FUNDS BORROWED FROM THE CENTRAL BANK 12,891,440 13,713,000 (6 ) BANKS (Notes 5 and 30) 415,729,784 373,209,455 11 COMMERCIAL PAPER ISSUED, NET (Note 17) 399,574 1,018,552 (61 ) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 2, 3 and 6) 44,087,992 47,521,600 (7 ) FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 2, 3, 6 and 21) 2,650,154 3,403,282 (22 ) RECEIVABLES, NET (Notes 2 and 7) 35,037,316 32,318,205 8 SECURITIES SOLD UNDER REPURCHASE AGREEMENTS (Notes 2 DISCOUNTS AND LOANS, NET (Notes 2, 8 and 29) 1,734,893,395 1,718,260,571 1 and 18) 43,251,070 57,147,571 (24 )

AVAILABLE-FOR-SALE FINANCIAL ASSETS (Notes 2, 3 and 9) 60,424,888 61,907,516 (2 ) PAYABLES (Note 19) 40,255,192 49,314,161 (18 )

HELD-TO-MATURITY FINANCIAL ASSETS (Notes 2 and 10) 7,627,062 3,163,176 141 DEPOSITS AND REMITTANCES (Notes 20 and 29) 1,884,858,034 1,823,069,449 3

EQUITY INVESTMENTS UNDER THE EQUITY METHOD (Notes 2 and 11) 69,306 64,583 7 BANK DEBENTURES (Note 21) 84,321,000 64,151,000 31

OTHER FINANCIAL ASSETS, NET (Notes 2 and 12) 55,010,237 48,108,222 14 ACCRUED PENSION COST (Notes 2 and 24) 1,645,063 1,293,153 27

PROPERTIES (Notes 2 and 13) OTHER FINANCIAL LIABILITIES (Note 22) 7,059,998 5,893,585 20 Land (including revaluation increments) 22,216,108 21,959,067 1 Buildings 13,021,714 12,585,683 3 OTHER LIABILITIES (Notes 2, 13 and 23) 4,777,721 3,979,826 20 Machinery and equipment 4,792,128 4,589,836 4 Transportation equipment 696,506 645,699 8 Total liabilities 2,326,926,819 2,279,262,857 2 Other equipment 1,308,170 1,257,765 4 Leasehold improvements 565,913 500,996 13 STOCKHOLDERS' EQUITY OF PARENT COMPANY 42,600,539 41,539,046 3 Capital Less: Accumulated depreciation 8,743,832 7,950,519 10 Common stock - NT$10 par value; authorized 6,000,000 thousand Less: Accumulated impairment 86,215 1,114 7,639 shares; issued and outstanding 4,770,000 thousand shares in 33,770,492 33,587,413 1 2007 and 4,500,000 thousand shares in 2006 47,700,000 45,000,000 6 Construction in progress 42,545 8,556 397 Capital surplus - paid-in capital in excess of par value 32,207,944 34,907,944 (8 ) Prepayment for land and buildings 54,664 - - Retained earnings Prepayment for equipment 17,660 - - Legal reserve 6,071,750 3,319,187 83 Unappropriated earnings 12,660,965 9,401,193 35 Properties, net 33,885,361 33,595,969 1 Total retained earnings 18,732,715 12,720,380 47 Other equity INTANGIBLE ASSETS (Notes 2, 3, 14 and 36) 3,436,827 3,494,562 (2 ) Unrealized revaluation increments 4,419,580 4,024,155 10 Cumulative translation adjustments 274,568 177,176 55 OTHER ASSETS, NET (Notes 2, 15 and 26) Unrealized gain (loss) on financial instruments (896,081 ) 902,595 (199 ) Nonoperating assets, net 4,188,372 4,608,549 (9 ) Total other equity 3,798,067 5,103,926 (26 ) Deferred income tax assets, net 724,141 2,020,265 (64 ) Collaterals assumed, net 985,946 1,480,189 (33 ) Total stockholders' equity of parent company 102,438,726 97,732,250 5 Refundable deposits 1,108,225 1,173,468 (6 ) Operation deposits and settlement funds 247,524 72,262 243 MINORITY INTEREST 1,116,110 504,163 121 Others 276,081 278,231 (1 ) Total stockholders' equity 103,554,836 98,236,413 5 Other assets, net 7,530,289 9,632,964 (22 ) CONTINGENCIES AND COMMITMENTS (Notes 2 and 31)

TOTAL $ 2,430,481,655 $ 2,377,499,270 2 TOTAL $ 2,430,481,655 $ 2,377,499,270 2

The accompanying notes are an integral part of the consolidated financial statements.

(With Deloitte & Touche audit report dated February 22, 2008)

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TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2007 AND 2006 (In Thousands of New Taiwan Dollars, Except Per Share Amounts)

Percentage Increase 2007 2006 (Decrease) Amount Amount %

INTEREST REVENUE (Notes 2, 29 and 33) $ 66,661,164 $ 57,547,403 16

INTEREST EXPENSE (Notes 2, 29 and 33) (42,202,081 ) (36,507,613 ) 16

NET INTEREST 24,459,083 21,039,790 16

NET REVENUE AND GAIN OTHER THAN INTEREST Service fee income, net (Notes 2, 29 and 33) 3,421,314 2,251,661 52 Gain (loss) on financial assets and liabilities at fair value through profit or loss (Notes 2 and 33) (134,190 ) 935,674 (114 ) Realized gains on available-for-sale financial assets (Notes 2 and 33) 668,196 609,614 10 Income from equity investments under the equity method (Notes 2 and 11) 7,536 3,350 125 Foreign exchange gain (loss), net (Note 2) 578,717 (102,841 ) 663 Reversal of impairment loss (impairment loss) on assets (Notes 2, 12, 13 and 15) (439,680 ) 4,886 (9,099 ) Gains on financial assets carried at cost (Note 2) 617,887 367,847 68 Gains on disposal of properties (Note 2) 1,120,188 522,973 114 Recovery of bad debts written off and overdue accounts 3,599,636 6,664,834 (46 ) Other noninterest gains , net (Note 2) 1,079,642 1,264,462 (15 )

Total net revenue and gain other than interest 10,519,246 12,522,460 (16 )

TOTAL NET REVENUE 34,978,329 33,562,250 4

ALLOWANCE FOR BAD-DEBT EXPENSES (Notes 2 and 8) (4,785,674 ) (6,995,477 ) (32 )

OPERATING EXPENSES Personnel (Notes 2 and 25) (11,947,807 ) (10,691,393 ) 12 Depreciation and amortization (Notes 2 and 25) (1,107,345 ) (1,052,337 ) 5 General and administrative (Note 2) (5,063,643 ) (4,366,723 ) 16

Total operating expenses (18,118,795 ) (16,110,453 ) 12

CONSOLIDATED INCOME BEFORE INCOME TAX 12,073,860 10,456,320 15

INCOME TAX EXPENSE (Notes 2 and 26) (2,298,953 ) (1,308,303 ) 76 (Continued)

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TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2007 AND 2006 (In Thousands of New Taiwan Dollars, Except Per Share Amounts)

Percentage Increase 2007 2006 (Decrease) Amount Amount %

CONSOLIDATED INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES $ 9,774,907 $ 9,148,017 7

CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES (NET OF INCOME TAX EXPENSE OF $21,589 THOUSAND FOR THE ACCOUNTING CHANGES) (Note 3) - 40,062 (100 )

CONSOLIDATED NET INCOME $ 9,774,907 $ 9,188,079 6

ATTRIBUTABLE TO: Parent company $ 9,740,373 $ 9,175,208 6 Minority interest 34,534 12,871 168

$ 9,774,907 $ 9,188,079 6

2007 2006 Before After Before After Income Income Income Income Tax Tax Tax Tax EARNINGS PER SHARE (Note 28) Basic $ 2.50 $ 2.04 $ 2.63 $ 2.31

The accompanying notes are an integral part of the consolidated financial statements.

(With Deloitte & Touche audit report dated February 22, 2008) (Concluded)

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TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2007 AND 2006 (In Thousands of New Taiwan Dollars)

Stockholders’ Equity of Parent Company Other Equity Unrealized Unrealized Issued and Outstanding Capital Stock Capital Surplus - Revaluation Cumulative Gain (Loss) (Note 27) Reserve for Paid-in Capital in Retained Earnings (Note 27) Increments Translation on Financial Total Shares Capitalization Excess of Par Unappropriated (Notes 2, 13, Adjustments Instruments Minority Stockholders' (In Thousands) Common Stock (Note 27) Value (Note 27) Legal Reserve Special Reserve Earnings 15 and 27) (Notes 2 and 3) (Notes 2 and 3) Interest Equity

BALANCE, JANUARY 1, 2006 2,539,830 $ 25,398,304 $ 2,539,830 $ 23,696,319 $ 2,528,882 $ 2,993,505 $ 2,654,336 $ 4,025,113 $ 92,628 $ - $ 444,988 $ 64,373,905

Effects of accounting changes (Note 3) ------(23,157 ) 852,057 - 828,900

Special reserve transferred to unappropriated earnings - - - - - (2,993,505 ) 2,993,505 - - - - -

Appropriation of the 2005 earnings Legal reserve - - - - 790,305 - (790,305 ) - - - - - Cash dividends ------(738,135 ) - - - - (738,135 ) Stock dividends 369,068 3,690,674 - - - - (3,690,674 ) - - - - - Remuneration to directors and supervisors ------(18,440 ) - - - - (18,440 ) Bonus to employees ------(147,524 ) - - - - (147,524 ) Appropriation to farmers' associations ------(36,778 ) - - - - (36,778 )

Balance after appropriation 2,908,898 29,088,978 2,539,830 23,696,319 3,319,187 - 225,985 4,025,113 69,471 852,057 444,988 64,261,928

Capital surplus transferred to capital stock in February 2006 253,983 2,539,830 (2,539,830 ) ------

Issuance of common stock for a merger with the Farmers Bank of China in May 2006 896,861 8,968,610 - 7,029,173 - - - 177,148 17,219 118,054 - 16,310,204

Capital increase in December 2006 440,258 4,402,582 - 4,182,452 ------8,585,034

Consolidated net income in 2006 ------9,175,208 - - - 12,871 9,188,079

Change in unrealized revaluation increments ------(178,106 ) - - - (178,106 )

Cumulative translation adjustments ------90,486 - 46,304 136,790

Unrealized loss on financial instruments ------(67,516 ) - (67,516 )

BALANCE, DECEMBER 31, 2006 4,500,000 45,000,000 - 34,907,944 3,319,187 - 9,401,193 4,024,155 177,176 902,595 504,163 98,236,413

Appropriation of the 2006 earnings Legal reserve - - - - 2,752,563 - (2,752,563 ) - - - - - Cash dividends ------(3,150,000 ) - - - - (3,150,000 ) Remuneration to directors and supervisors ------(64,226 ) - - - - (64,226 ) Bonus to employees ------(513,812 ) - - - - (513,812 )

Balance after appropriation 4,500,000 45,000,000 - 34,907,944 6,071,750 - 2,920,592 4,024,155 177,176 902,595 504,163 94,508,375

Capital surplus transferred to capital stock in August 2007 270,000 2,700,000 - (2,700,000 ) ------

Effect of increase in consolidated subsidiary (Taiwan Cooperative Bills Finance Corporation) ------517,754 517,754

Consolidated net income in 2007 ------9,740,373 - - - 34,534 9,774,907

Change in unrealized revaluation increments ------395,425 - - - 395,425

Cumulative translation adjustments ------97,392 - 59,721 157,113

Unrealized loss or financial instruments ------(1,798,676 ) (62 ) (1,798,738 )

BALANCE, DECEMBER 31, 2007 4,770,000 $ 47,700,000 $ - $ 32,207,944 $ 6,071,750 $ - $ 12,660,965 $ 4,419,580 $ 274,568 $ (896,081 ) $ 1,116,110 $ 103,554,836

The accompanying notes are an integral part of the consolidated financial statements.

(With Deloitte & Touche audit report dated February 22, 2008)

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TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2007 AND 2006 (In Thousands of New Taiwan Dollars)

2007 2006

CASH FLOWS FROM OPERATING ACTIVITIES Consolidated net income $ 9,774,907 $ 9,188,079 Cumulative effect of changes in accounting principles - (40,062 ) Loss (gain) on valuation of financial instruments 339,141 (32,117 ) Gain on the sale of available-for-sale financial assets (579,205 ) (461,284 ) Income from equity investments under the equity method, net of cash dividends received (4,610 ) (1,595 ) Impairment loss (reversal of impairment loss) on assets 439,680 (4,886 ) Depreciation and amortization 1,107,345 1,052,337 Gain on disposal of properties, nonoperating assets and collaterals assumed, net (1,202,100 ) (550,786 ) Allowance for bad-debt expenses 4,785,674 6,995,477 Other provisions 19,450 4,840 Recovery of credits written off 1,489 - Amortization of premium or discount on bonds 734,371 900,095 Provision for pension costs 351,910 506,102 Deferred income tax 1,304,317 964,267 Loss (gain) on the sale of financial assets carried at cost (273,380 ) 8,659 Others (15,526 ) (52,828 ) Net changes in operating assets and liabilities Held-for-trading financial assets 7,449,513 (6,118,571 ) Receivables 1,061,934 5,764,450 Other assets 6,394 244,085 Held-for-trading financial liabilities (2,492,428 ) (99,729 ) Payables (9,077,651 ) 1,854,892 Other liabilities (142,077 ) 289,946

Net cash provided by operating activities 13,589,148 20,411,371

CASH FLOWS FROM INVESTING ACTIVITIES Decrease (increase) in due from the Central Bank and call loans to other banks (42,520,329 ) 164,023,258 Acquisition of financial assets designated at fair value through profit or loss (1,470,751 ) (1,755,108 ) Proceeds of the sale of financial assets designated at fair value through profit or loss 1,148,257 1,391,843 Decrease in securities purchased under resell agreements - 219,173 Increase in discounts and loans (31,266,412 ) (9,600,990 ) Acquisition of available-for-sale financial assets (75,893,830 ) (49,324,666 ) Proceeds of the sale of available-for-sale financial assets 75,722,679 48,764,316 Acquisition of held-to-maturity financial assets (4,365,905 ) (562,891 ) Return of principal on held-to-maturity financial assets - 901,950 Acquisition of debt instruments with no active market (16,774,512 ) (15,077,633 ) Proceeds of the sale of and return of principal on debt instruments with no active market 9,689,140 10,729,488 (Continued)

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TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2007 AND 2006 (In Thousands of New Taiwan Dollars)

2007 2006

Acquisition of financial assets carried at cost $ - $ (673 ) Proceeds of the sale of financial assets carried at cost 336,484 1,238 Decrease (increase) in other financial assets (439,175 ) 372,345 Acquisition of properties, intangible assets and nonoperating assets (1,343,285 ) (1,040,010 ) Proceeds of the sale of properties, nonoperating assets and collaterals assumed 2,159,626 2,844,669 Decrease (increase) in other assets 62,525 (34,620 ) Proceeds of the sale of nonperforming loans 6,459,512 8,348,679 Cash and cash equivalents arising from an acquisition of the Taiwan Cooperative Bills Finance Corporation - December 4, 2007 (Notes 1 and 2) 169,141 - Cash and cash equivalents arising from a merger with the Farmers Bank of China - May 1, 2006 - 14,039,052

Net cash provided by (used in) investing activities (78,326,835 ) 174,239,420

CASH FLOWS FROM FINANCING ACTIVITIES Decrease in due to the Central Bank and other banks (12,111,705 ) (53,254,551 ) Decrease in funds borrowed from the Central Bank (821,560 ) (4,061,737 ) Increase in financial liabilities designated at fair value through profit or loss - 1,800,000 Increase (decrease) in commercial paper issued (618,978 ) 714,610 Increase (decrease) in securities sold under repurchase agreements (13,900,407 ) 10,836,724 Increase (decrease) in deposits and remittances 61,788,585 (170,089,030 ) Issuance of bank debentures 20,170,000 25,200,000 Increase (decrease) in other financial liabilities 1,166,413 (348,695 ) Decrease in other liabilities (17,911 ) (764,657 ) Bonus to employees and remuneration to directors and supervisors (576,979 ) (165,964 ) Cash dividends and appropriation to farmers' associations (3,135,216 ) (771,220 ) Capital increase - 8,585,034

Net cash provided by (used in) financing activities 51,942,242 (182,319,486 )

EFFECTS OF EXCHANGE RATE CHANGES (677,804 ) (232,372 )

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,473,249 ) 12,098,933

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 46,222,447 34,123,514

CASH AND CASH EQUIVALENTS, END OF YEAR $ 32,749,198 $ 46,222,447

SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 41,047,244 $ 34,280,358 Income tax paid $ 806,375 $ 729,614

(Continued)

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TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2007 AND 2006 (In Thousands of New Taiwan Dollars)

2007 2006

PART-CASH INVESTING ACTIVITIES Sales of nonperforming loans - current $ - $ 12,416,059 Receivables from the sale of nonperforming loans - (6,459,512 ) Proceeds of the sale of nonperforming loans - previous year 6,459,512 2,392,132 Proceeds of the sale of nonperforming loans $ 6,459,512 $ 8,348,679

The accompanying notes are an integral part of the consolidated financial statements.

(With Deloitte & Touche audit report dated February 22, 2008) (Concluded)

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TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2007 AND 2006 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. ORGANIZATION AND OPERATIONS

Taiwan Cooperative Bank, Ltd. (the “Bank”) was officially established on October 5, 1946 to regulate the supply of and demand for funds for cooperative organizations by accepting their surplus funds as deposits and extending working funds to them. On February 10, 2006, the Bank changed its Chinese name upon approval by the Ministry of Economic Affairs. However, the Bank’s English name remains unchanged. The Bank became a legal entity in 1985 in accordance with the Banking Law. At the start of 2001, the Bank was converted into a corporate entity engaged 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.

The Bank merged with the Farmers Bank of China (FBC) on May 1, 2006, with the Bank as the survivor entity. Please refer to Note 36 for more merger information.

The Bank has its Head Office in Taipei. It had a Business, International Banking, Finance, Security and Trust Departments as well as 299 domestic branches, 10 securities brokerage branches, an offshore banking unit (OBU), 4 overseas branches and 1 representative offices as of December 31, 2007.

The operations of the Bank’s Trust Department are (1) planning, managing and operating the trust business and (2) custodianship of nondiscretionary trust fund in domestic and overseas securities and mutual funds. These operations are regulated under the Banking Law and Trust Law of the Republic of China (ROC).

The Bank’s shares have been listed on the Taiwan Stock Exchange since November 17, 2004.

The Bank set up the United Taiwan Bank S.A. in Belgium through raising funds with Bank of Taiwan, Land Bank of Taiwan and Taiwan Business Bank. The United Taiwan Bank S.A. started its operation, mainly the general deposits and loans business, on December 23, 1992 and it is a 70% subsidiary of the Bank.

The Bank established two wholly-owned subsidiaries, Co-operative Assets Management Co., Ltd. (CAM) and Cooperative Insurance Brokers Co., Ltd. (CIB) in 2005.

CAM was established on October 18, 2005, whose business focuses on purchase, appraisal, auction and management of financial institution creditor’s right as well as purchase of account receivables and management of overdue receivables.

CIB was established on November 25, 2005 and engaged in life and property insurance broker business.

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The Bank acquired 50.56% equity of Great Chinese Bills Finance Corporation (GCBF) by transforming its creditor’s rights over GCBF amounting to $529,516 thousand into stockholder’s rights. On December 19, 2007, GCBF changed its name to Taiwan Cooperative Bills Finance Corporation (TCBF). Based on Statement of Financial Accounting Standards (“Statement” or SFAS) No. 5 - “Long-term Investments under the Equity method” and SFAS No. 25 - “Business Combinations - Accounting Treatment under the Purchase Method,” the fair values as of December 4, 2007 of the net assets of TCBF are summarized as follows:

Fair values of net assets Cash $ 169,141 Financial assets at fair value through profit or loss 2,344,959 Receivables, net 44,184 Available-for-sale financial assets 178,000 Held-to-maturity financial assets 100,000 Properties, net 15,625 Other financial assets 9,277 Other assets 177,938 Call loans from banks (650,000 ) Securities sold under repurchase agreements (3,906 ) Payables (3,571 ) Other liabilities (1,334,377 )

Total fair values of net assets $ 1,047,270

Total fair values of net assets acquired by the Bank $ 529,516

TCBF was established on May 13, 1998, and has Head Office in Taipei and a branch in Kaohsiung. The TCBF engaged 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) brokerage of call loans between financial institutions; (f) consultations on corporate financial matters; (g) brokering and dealing government bonds; (h) other operations approved by the Ministry of Finance (MOF).

The above consolidated entities are hereinafter referred to collectively as the “Company.” Please see Table 10 (attached) for more information on the consolidated entities.

As of December 31, 2007 and 2006, the Bank and its subsidiaries had 8,902 and 8,500 employees, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Public Banks, Business Accounting Law and Guidelines Governing Business Accounting, and accounting principles generally accepted in the Republic of China (ROC). In preparing consolidated financial statements in conformity with these guidelines, law and principles, the Company is required to make certain estimates and assumptions that could affect amounts of the allowance for credit losses, reserve for losses on guarantees, depreciation, pension, assets impairment, the valuation of financial instruments, income tax, accrued litigation loss, etc. Actual results may differ from these estimates.

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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 significant accounting policies are summarized as follows:

Consolidation

The Bank’s consolidated financial statements as of and for the year ended December 31, 2006 included the accounts of the Bank, the United Taiwan Bank S.A., CIB, and CAM and subsidiary (Cooperative I Assets Management Co., Ltd.). Kuo Ming Life Insurance Agent Co., Ltd. and Kuo Ming Property Insurance Agent Co., Ltd., which the Bank acquired due to the merger with the Farmers Bank of China, were liquidated in December 2006. Thus, their accounts were not included in the consolidated financial statements. The Bank obtained over 50% equity in Taiwan Cooperative Bills Finance (TCBF) on December 4, 2007, and TCBF thus became one of the Bank’s subsidiaries. Thus, the Bank’s consolidated financial statements as of and for the year ended December 31, 2007 included the accounts of the Bank, United Taiwan Bank S.A., CIB, TCBF and CAM and CAM’s subsidiary. All significant intercompany transactions and balances have been eliminated for consolidation purposes. The financial statements of all the above subsidiaries as of and for the years ended December 31, 2007 and 2006 had been audited.

The accompanying consolidated financial statements also include the Bank’s accounts of the Head Office, all domestic and overseas operating departments, branches and representative offices. All interoffice account balances and transactions have been eliminated.

Current and Noncurrent Assets and Liabilities.

Since the operating cycle in the banking and bills finance industry cannot be reasonably identified, accounts included in the Bank’s and TCBF’s financial statements are not classified as current or noncurrent. Other subsidiaries’ assets and liabilities are classified as follows: Cash and cash equivalent 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 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 33 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 beneficiary 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 price published by Reuters; (b) listed securities and GreTai Securities Market (GTSM) securities - at closing prices as of the balance sheet date; (c) beneficiary 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.

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Financial Instruments at Fair Value Through Profit or Loss

Financial instruments at fair value through profit or loss are financial assets or liabilities that are designated on initial recognition as those to be measured at fair values, with fair value changes in profit or loss or financial assets or liabilities classified as held for trading. These instruments are required to be recognized at fair value and to be measured at fair value through profit or loss on the balance sheet date.

Financial instruments used in derivative transactions that do not qualify for hedge accounting are classified as financial assets or liabilities held for trading. If the fair value of a derivative is a positive number, the derivative is carried as an asset, and if the fair value is a negative number, the derivative is carried as a 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. If the Company does not adopt hedge accounting and hedged items are not designated as financial assets or liabilities at fair value through profit or loss (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 FVTPL. Moreover, the Company designated hybrid instruments as financial assets and liabilities at FVTPL because embedded derivatives are not separated from the host contract in a hybrid instrument.

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.

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.

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 MOF.

Overdue loans (except other credits) are classified as discounts and loans, and the remaining are classified as other financial assets.

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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.

Under “The Regulations Governing the Procedures for Banking Instructions to Evaluate Assets and Deal with Nonperforming/Non-accrual Loans” (the “Regulations”) issued by the MOF, the Bank evaluates credit losses on the basis of its borrowers’/clients’ financial condition, delinquency record on payment of the interest and principal, and collaterals provided to estimate level of collectibility. The Regulations amended the classification of loan assets, such that loan assets are classified as special mention, substandard, with highly doubtful collectibility and deemed uncollectible, and the minimum allowance for credit losses and provision for losses on guarantees for these classifications are 2%, 10%, 50% and 100% of outstanding credits, respectively.

Under “The Regulations Governing the Procedures for Bills Finance Companies to Evaluate Assets, Set Aside Loss Reserves, and Handle Nonperforming Credits, Non-Accrual Loans, and Bad Debts” issued by the Financial Supervisory Commission, TCBF makes the following minimum provisions for losses on credits with these categories: Uncollectible - 100%; with doubtful collectibility - 50%; substandard - 10%; “special mention” - 2%; and collectible - 1%.

Under the MOF guidelines, write-offs of specific loans are offset against the recorded allowance for loan losses, as approved by the board of directors.

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 financial 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 the assets obtained before 2005 were amortized using the straight-line method or if, for these instruments obtained since 2005, there was a minor difference between the amortizations using the effective interest method and 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 within a year of asset 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.

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 the assets obtained before 2005 were amortized using the straight-line method or if, for these instruments obtained since 2005, there was a minor difference between the amortizations using the effective interest method and 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 de-recognition, impairment or amortization.

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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 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. If net income on an investment becomes negative, the maximum investment loss the Company is allowed to recognize will be limited to the extent that the original carrying amount of the investment plus any advances given to the investee are equal to zero, unless the Company decides to support the investee or there are adequate evidences suggesting the loss is temporary and the investee will become profitable again in the near future.

Stock dividends received are recognized only as increases in the number of shares held and not as income. Cost of long-term equity investments sold is determined by the weighted-average method.

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 are measured at their original cost. The accounting treatment of dividends is similar to that for available-for-sale financial assets.

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 similar to 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.

Properties and Nonoperating Assets

Properties and nonoperating assets are stated at cost, or cost plus revaluation increments and less accumulated depreciation. 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 8 years; transportation equipment, 3 to 10 years; other equipment, 2 to 10 years; and leasehold improvements, 5 to 10 years. Assets still being used after they have reached their full depreciation value are depreciated over newly estimated service lives.

Upon sale or disposal of properties, their cost (including revaluation increments), related accumulated depreciation, accumulated impairment and any unrealized revaluation increment of an item of property and nonoperating asset are removed from the accounts. Any resulting gain 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.

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Asset Impairment

a. Available-for-sale financial assets

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 securities, this loss is recognized as earnings.

b. Held-to-maturity financial assets and debt instruments with no active market

If a held-to-maturity financial asset or debt instrument with no active market 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 amortized cost that would have been determined had no impairment loss been recognized.

c. Financial assets carried at cost

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.

d. Equity investments under the equity 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.

e. Properties, intangible assets, and other assets

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 assets 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.

Goodwill is tested for impairment annually, or more frequently if events indicate goodwill impairment. 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.

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Collaterals Assumed

Collaterals assumed 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, 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 its provision for possible losses.

Reserve for Losses on the Sale of Bonds

Reserve for losses on the sale of bonds is computed at 10% of the net gain on sale of bonds until the balance of the reserve reaches $200,000 thousand. This reserve should only be used to offset actual losses on the sale of the bonds.

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 expense throughout the employees’ service periods.

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.

Unpaid interest on rescheduled loans is recorded as deferred revenue (part of other liabilities), and paid interest is recognized as interest revenue.

Service fees are recorded as income upon receipt or upon substantial completion of the earnings process based on the nature of the transaction.

Income Tax

Inter-period and intra-period income tax allocations 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.

Tax credits for expenditures for research and development, personnel training and stock investments are recognized in the current period.

Any adjustments of prior years’ tax liabilities are included in the current year’s income tax expense.

Income tax on interest in short-term negotiable investments or special-purpose trust beneficiary securities, which is levied separately, is 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.

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Foreign-currency Transactions

The Bank 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 exchange rates announced by the Central Bank of the Republic of China (CBC). On the balance sheet date, monetary financial assets and liabilities are translated into New Taiwan dollars at the CBC closing 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 exchange rates on the transaction dates. The Bank translates overseas branches’ and the equity-method investees’ financial statements at the following rates: Assets and liabilities - the CBC closing 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.

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.

Reclassification

Certain accounts for 2006 had been reclassified to be consistent with the 2007 consolidated financial statement presentation.

3. ACCOUNTING CHANGES

Effective January 1, 2007, the Company adopted the newly released ROC Statement of Financial Accounting Standards (“Statement” or SFAS) No. 37 - “Accounting for Intangible Assets” and related revisions of previously released Statements. The Company’s management believes this change had no significant effect on the financial statements.

Effective January 1, 2006, the Company adopted the newly released SFAS No. 34 - “Accounting for Financial Instruments,” SFAS No. 36 - “Disclosure and Presentation for Financial Instruments” and related revisions of previously released Statements.

The Company categorized its financial assets and liabilities upon initial adoption of the newly released Statements. The adjustments made to the carrying amounts of the financial instruments categorized as financial assets or financial liabilities at fair value through profit or loss were included in the cumulative effect of changes in accounting principles. On the other hand, the adjustments made to the carrying amounts of those categorized as measured at amortized cost or available-for-sale financial assets were recognized as adjustments to stockholders’ equity.

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The effects of accounting changes made on January 1, 2006 are summarized as follows:

Cumulative Effect of Changes in Stockholders’ Accounting Equity Principles Adjustments (Net of Income (Net of Income Tax) Tax)

Financial assets at fair value through profit or loss $ 812,017 $ - Available-for-sale financial assets - 852,057 Financial liabilities at fair value through profit or loss (771,955 ) - Cumulative translation adjustments - (23,157 )

$ 40,062 $ 828,900

The Company held many financial instruments, and the adoption of SFAS No. 34 resulted in inconsistency in the classification and basis of valuation of financial instruments in 2006. Thus, it was difficult to calculate the effect on net income of the adoption of SFAS No. 34 in 2006.

4. CASH AND CASH EQUIVALENTS

2007 2006

Cash on hand $ 21,524,390 $ 20,277,890 Notes and checks in clearing 8,389,336 25,005,285 Due from banks 2,835,472 939,272

$ 32,749,198 $ 46,222,447

5. DUE FROM THE CENTRAL BANK AND CALL LOANS TO OTHER BANKS

2007 2006

Deposit reserve - account A $ 12,001,428 $ 13,858,349 Deposit reserve - account B 48,721,366 45,904,999 Reserves for deposits - community financial institutions 35,790,446 36,061,588 Reserves for deposits - foreign-currency deposits 4,280,900 77,862 Deposits in the Central Bank 49,700,000 79,000,000 Negotiable certificates of deposit in the Central Bank 229,945,000 50,035,000 Time deposits in the Central Bank - 105,500,000 Due from the Central Bank - others 3,228,867 2,984,290 Call loans to banks 32,061,777 39,787,367

$ 415,729,784 $ 373,209,455

The deposit reserves are determined monthly at prescribed rates based on the average balances of customers’ New Taiwan dollar deposits. The deposit reserve is subject to withdrawal restrictions, but deposit reserve - account A and foreign-currency deposit reserves may be withdrawn anytime and are noninterest earning.

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6. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

2007 2006 Held-for-trading financial assets

Commercial paper $ 13,344,907 $ 12,598,287 Listed stocks - domestic 2,592,763 2,083,154 Beneficiary certificates 1,190,132 796,768 Bank acceptances 3,133 14,014 Government bonds 12,324,111 17,892,976 Corporate bonds 33,998 33,110 Beneficiary securities under securitization 2,495,659 2,496,505 Negotiable certificates of deposit 6,000 - Forward contracts 214,094 494,611 Cross-currency swap contracts 77,609 43,461 Interest rate swap contracts 22,098 106,589 Currency swap contracts 506,445 804,627 Foreign-currency margin contracts 279,675 17,171 Currency option contracts - buy 14,073 37,072 Non-deliverable forward contracts 8,848 1,165 33,113,545 37,419,510 Financial assets designated at fair value through profit or loss

Government bonds 5,007,906 4,993,791 Corporate bonds 926,910 236,153 Bank debentures 5,019,831 4,852,746 Structured deposits 19,800 19,400 10,974,447 10,102,090

$ 44,087,992 $ 47,521,600

Held-for-trading financial liabilities

Currency option contracts - sell $ 14,008 $ 36,598 Interest rate swap contracts 442,582 345,381 Currency swap contracts 393,720 1,095,969 Cross-currency swap contracts 1,536 - Forward contracts 29,144 88,548 Non-deliverable forward contracts 3,932 710 Foreign-currency margin contracts 519 715 885,441 1,567,921 Financial liabilities designated at fair value through profit or loss

Bank debentures (Note 21) 1,764,713 1,835,361

$ 2,650,154 $ 3,403,282

The Bank enters into derivative transactions mainly to accommodate customers’ needs and to manage its exposures to changes in exchange rates and interest rates. The Bank’s strategy for hedging risk is to avoid most of the market price risk or cash flow risk.

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As of December 31, 2007 and 2006, the Bank’s contract (notional) amounts of derivative transactions were as follows:

2007 2006

Forward contracts $ 22,396,038 $ 51,286,783 Non-deliverable forward contracts 1,220,241 651,625 Currency swap contracts 157,464,814 168,052,326 Currency option contracts - buy 6,912,619 2,309,333 Currency option contracts - sell 6,912,619 2,158,237 Foreign-currency margin contracts 4,094,398 431,292 Interest rate swap contracts 11,380,680 11,425,613 Cross-currency swap contracts 1,478,897 717,193

7. RECEIVABLES, NET

2007 2006

Acquired loans $ 14,932,423 $ 4,868,735 Accrued interest 8,352,168 8,297,425 Acceptances 4,097,438 4,505,944 Credit cards 2,784,250 3,107,819 Factored accounts receivable without recourse 1,434,713 860,227 Credits receivable 867,701 1,602,626 Tax refundable 625,295 600,857 Accounts receivable 561,416 442,218 Refundable deposits receivable 543,893 658,630 Receivable from overdue commercial papers and bonds 107,682 249,732 Receivable from the sale of nonperforming loans - 6,459,512 Others 1,767,916 1,799,620 36,074,895 33,453,345 Less allowance for credit losses 1,037,579 1,135,140

$ 35,037,316 $ 32,318,205

Credits receivable due to the merger with the Farmers Bank of China on May 1, 2006 (Notes 1 and 36) were recognized at 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.

Receivables - others as of December 31, 2007 and 2006 included the advances of $998,909 thousand for checks of the Fourth Community Institution of Chang Hwa City to be cleared by the Bank.

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To speed up the disposal of nonperforming loans (NPLs) and strengthen the Bank’s financial structure, the Bank sold - through public bidding - NPLs (including a portion of credits written off) and related credits amounting to (a) $19,232,861 thousand on July 24, 2006 to FC Capital Management Co., Ltd., Taiwan Branch and (b) $30,848,504 thousand on December 11, 2006 to Taiwan Asset Management Corporation. Contract terms were as follows:

Date of NPL Sale July 24, 2006 December 11, 2006

a. Contract signing date July 27, 2006 December 14, 2006 b. Cutoff date May 30, 2006 August 31, 2006 c. Settlement date October 25, 2006 March 14, 2007 d. Put-back provision If a buyer identifies any defective asset, If a buyer identifies any defective the Bank should repurchase the asset asset, the Bank should repurchase between the settlement date and the the asset between the settlement end of the 12th month from the date and the end of the 15th month settlement date. from the settlement date.

As of December 31, 2007, the outstanding receivables on the foregoing transactions amounted has received.

8. DISCOUNTS AND LOANS, NET

2007 2006

Bills discounted $ 1,775,063 $ 2,000,261 Overdraft Unsecured 2,254,495 10,558,352 Secured 1,203,408 1,025,481 Import and export negotiations 1,252,678 1,428,666 Short-term loans Unsecured 242,192,244 247,459,169 Secured 75,064,313 69,508,996 Receivable from securities financing 1,284,019 848,739 Medium-term loans Unsecured 322,504,673 354,362,276 Secured 277,121,529 282,087,093 Long-term loans Unsecured 107,143,353 102,497,574 Secured 692,746,978 635,818,018 Overdue loans 26,321,325 31,400,590 1,750,864,078 1,738,995,215 Less allowance for credit losses 15,970,683 20,734,644

$ 1,734,893,395 $ 1,718,260,571

Accrual of interest on the above overdue loans had stopped. Thus, the unrecognized interest revenue was $1,115,108 thousand in 2007 and $1,027,991 thousand in 2006 based on the average loan interest rates for those years.

In 2007 and 2006, the Company had written off credits only after completing the required legal procedures.

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The details and changes in allowance for credit losses of discounts and loans are summarized below:

2007 Specific Risk General Risk Total

Balance, January 1 $ 6,783,839 $ 13,950,805 $ 20,734,644 Provisions (reversal) 8,197,480 (3,706,490 ) 4,490,990 Write-offs (9,255,023 ) - (9,255,023 ) Effects of exchange rate changes - 72 72

Balance, December 31 $ 5,726,296 $ 10,244,387 $ 15,970,683

2006 Specific Risk General Risk Total

Balance, January 1 $ 5,860,917 $ 6,056,173 $ 11,917,090 Provisions 3,565,745 2,417,248 5,982,993 Write-offs (11,563,491 ) - (11,563,491 ) Allowance for credit losses arising from a merger with the Farmers Bank of China - May 1, 2006 (Notes 1 and 36) 8,920,668 5,475,395 14,396,063 Effects of exchange rate changes - 1,989 1,989

Balance, December 31 $ 6,783,839 $ 13,950,805 $ 20,734,644

The status of the provisions for bad-debt expenses in 2007 and 2006 were as follows:

2007 2006

Provision for possible losses on discounts and loans $ 4,490,990 $ 5,982,993 Provision for possible losses on receivables 42,393 253,999 Provision for possible losses on overdue receivables 273,956 625,897 Provision (reversal of provision) for reserve for guarantees (21,665 ) 132,588

$ 4,785,674 $ 6,995,477

9. AVAILABLE-FOR-SALE FINANCIAL ASSETS

2007 2006

Government bonds $ 54,046,232 $ 57,127,686 Bank debentures 5,947,014 2,700,994 Corporate bonds 266,737 - Listed stocks - domestic 164,905 2,078,836

$ 60,424,888 $ 61,907,516

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10. HELD-TO-MATURITY FINANCIAL ASSETS

2007 2006

Treasury bills $ 4,365,905 $ - Preferred stocks 2,320,000 2,320,000 Corporate bonds 400,149 400,176 Time deposits (par value: US$12,000 thousand) 389,808 391,800 Subordinated bank debentures 100,000 - Government bonds 51,200 51,200

$ 7,627,062 $ 3,163,176

11. EQUITY INVESTMENTS UNDER THE EQUITY METHOD

Equity investments under the equity method are summarized as follows:

2007 2006 % of % of Amount Ownership Amount Ownership

United Real Estate Management Co., Ltd. $ 69,306 30.00 $ 64,583 30.00 Agricultural Education Film Co., Ltd. - 45.00 - 45.00

$ 69,306 $ 64,583

The investees’ financial statements as of and for the years ended December 31, 2007 and 2006, which were used as basis for calculating the carrying amounts of and income from the equity-method investments as of December 31, 2007 and 2006 and the related investment had all been audited. The Company’s equity-method investments resulted in gains of $7,536 thousand in 2007 and $3,350 thousand in 2006.

12. OTHER FINANCIAL ASSETS, NET

2007 2006

Overdue receivables $ 2,159,859 $ 285,895 Less allowance for credit losses 1,909,274 189,955 Overdue receivables, net 250,585 95,940 Debt instruments with no active market, net 50,343,145 43,541,947 Financial assets carried at cost, net 4,416,507 4,470,335

$ 55,010,237 $ 48,108,222

Financial assets carried at cost held by the Company were unlisted common stocks with no quoted market prices in an active market and with fair value that cannot be reliably measured. Thus, these assets were measured at cost. The impairment loss recognized on these assets in 2006 was $38,123 thousand.

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Debt instruments with no active market are summarized as follows:

2007 2006

Corporate bonds $ 25,686,712 $ 22,074,265 Bank debentures 20,958,871 18,312,023 Government bonds - domestic 1,347,037 - Beneficiary securities under securitization 1,048,626 881,581 Government bonds - overseas 1,301,899 2,274,078

$ 50,343,145 $ 43,541,947

The impairment loss recognized on debt instruments with no active market in 2007 was $312,594 thousand.

13. PROPERTIES

2007 2006 Land Cost $ 16,212,350 $ 16,223,124 Revaluation increments 6,003,758 5,735,943

$ 22,216,108 $ 21,959,067

Accumulated depreciation Buildings $ 3,437,764 $ 3,164,700 Machinery and equipment 3,392,841 2,999,016 Transportation equipment 449,005 429,308 Other equipment 1,071,216 999,413 Leasehold improvements 393,006 358,082

$ 8,743,832 $ 7,950,519

Accumulated impairment Land $ 86,215 $ 1,114

The Bank revalued its properties three times in 1979, 1998 and 2007. As of December 31, 2007, the revaluation increments on properties and nonoperating assets amounted to $6,133,977 thousand and the reserve for land revaluation increment tax (part of other liabilities) amounted to $2,037,278 thousand (including $125,196 thousand arising from the merger with the Farmers Bank of China). The revaluation increments net of tax were included in other stockholders’ equity - unrealized revaluation increments.

In testing assets for impairment, the Bank defined each operating unit 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 12.79% and 12.45% as of December 31, 2007 and 2006, respectively. In 2006, the Company recognized $73,218 thousand as reversal of impairment loss.

14. INTANGIBLE ASSETS

2007 2006

Goodwill $ 3,170,005 $ 3,170,005 Computer software 266,822 324,557

$ 3,436,827 $ 3,494,562

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Goodwill resulting from the Bank’s merger with the Farmers Bank of China was allocated to operating units (cash-generating units with allocated goodwill). There was no impairment loss on goodwill as of December 31, 2007 and 2006.

15. OTHER ASSETS, NET

2007 2006

Nonoperating assets, net $ 4,188,372 $ 4,608,549 Refundable deposits 1,108,225 1,173,468 Collaterals assumed, net 985,946 1,480,189 Deferred income tax assets, net 724,141 2,020,265 Prepaid expenses 270,332 258,659 Operation deposits and settlement funds 247,524 72,262 Others 5,749 19,572

$ 7,530,289 $ 9,632,964

Nonoperating assets as of December 31, 2007 and 2006 were as follows:

2007 2006 Land Cost $ 2,778,141 $ 3,365,747 Revaluation increments 130,219 151,302 2,908,360 3,517,049 Buildings - cost 1,632,561 1,721,804 Total cost and revaluation increments 4,540,921 5,238,853 Less accumulated depreciation 289,523 335,251 Less accumulated impairment 63,026 295,053

$ 4,188,372 $ 4,608,549

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. After asset valuation, the Company recognized impairment losses of $13,260 thousand in 2007 and $109,209 thousand in 2006. These amounts were credited to impairment loss in the income statements, except for $32,831 thousand in 2006, which was deducted from other stockholders’ equity - unrealized revaluation increments.

The Company also recognized impairment loss on collaterals assumed of $113,826 thousand in 2007 and reversal of impairment loss on collaterals assumed of $46,169 thousand in 2006.

16. DUE TO THE CENTRAL BANK AND OTHER BANKS

2007 2006

Due to banks $ 208,522,243 $ 189,586,646 Call loans from banks 34,748,530 61,863,051 Overdraft 947,130 1,605,679 Due to the Central Bank 599,670 3,223,902

$ 244,817,573 $ 256,279,278

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17. COMMERCIAL PAPER ISSUED, NET

2007 2006

Commercial paper issued - 2.10%-2.32% discount rate in 2007 and 1.50%-1.68% discount rate in 2006 $ 400,000 $ 1,020,000 Less discount on commercial paper issued 426 1,448

$ 399,574 $ 1,018,552

The foregoing commercial papers were guaranteed by financial institutions and matured by January 22, 2008 and February 7, 2007, respectively. As of December 31, 2007, CAM had unused credit lines of issuing commercial paper amounting to $1,200,000 thousand.

18. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

Securities sold for $43,251,070 thousand and $57,147,571 thousand under repurchase agreements as of December 31, 2007 and 2006, respectively, will be purchased for $43,339,971 thousand by June 25, 2008 and were purchased for $57,227,826 thousand by June 27, 2007.

19. PAYABLES

2007 2006

Checks for clearing $ 8,389,336 $ 25,005,285 Accrued interest 7,811,742 6,656,888 Payables on notes and checks collected for others 4,340,284 601,126 Acceptances 4,140,919 4,580,860 Collections payable 3,697,252 3,970,664 Accrued expenses 3,168,827 3,119,130 Payables on notes and checks collected for community financial institutions 2,989,086 677,957 Collections of notes and checks for various financial institutions in other cities 1,794,891 163,799 Taxes payable 502,693 321,369 Payable on the sale of nonperforming loans 221,438 184,052 Dividend payable 164,716 148,407 Factoring account payable 151,482 - Payable repayments of principal and interests of government bonds 39,843 220,994 Payables on the reserve for domestic letters of credit 2,055 387,538 Others 2,840,628 3,276,092

$ 40,255,192 $ 49,314,161

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20. DEPOSITS AND REMITTANCES

2007 2006 Deposits Checking $ 31,578,410 $ 37,452,664 Demand 192,626,990 183,490,493 Savings - demand 394,840,184 403,472,878 Time 473,397,588 331,888,365 Negotiable certificates of deposit 4,746,500 22,082,900 Savings - time 731,322,131 775,506,770 Treasury 55,988,334 68,781,646 Remittances 357,897 393,733

$ 1,884,858,034 $ 1,823,069,449

21. BANK DEBENTURES

2007 2006

Subordinated bonds in 2000: Floating interest rate for 1-year time deposit plus 0.5% amounting to $19,469,000 thousand, and fixed rate of 6.15% amounting to $2,501,000 thousand; maturity - July 14, 2009 $ 1,000 $ 1,000 Subordinated bonds in 2001: Floating interest rate for 1-year time deposit plus 0.6% amounting to $8,100,000 thousand, and fixed rate of 3.3% amounting to $1,900,000 thousand; maturity - November 28, 2008 10,000,000 10,000,000 First subordinated bonds in 2002: Floating interest rate for 2-year time deposit plus 0.7% amounting to $1,500,000 thousand, and fixed rate of 3.3% amounting to $5,050,000 thousand; maturity - April 21, 2008 6,550,000 6,550,000 Second subordinated bonds in 2002: Floating interest rate for 2-year time deposit plus 0.275%; maturity - February 11, 2009 1,450,000 1,450,000 Subordinated bonds in 2003: Floating interest rate for 1-year time deposit plus 0.25%; maturity - May 8, 2010 5,750,000 5,750,000 Subordinated bonds in 2004: Floating interest rate for 1-year time deposit plus 0.375%; maturity - February 23, 2010 15,200,000 15,200,000 First subordinated bonds in 2006: 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 thousand; maturity - April 24, 2013 18,200,000 18,200,000 Second subordinated bonds in 2006: Reuters’ fixed rate for 90 days’ New Taiwan dollar commercial paper plus 0.235%; maturity - December 8, 2013 7,000,000 7,000,000 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 Taiwan dollar commercial paper plus 1.7% if the Bank fails to redeem the bank debenture after five years from the issuance date; no maturity date 13,000,000 - (Continued)

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2007 2006

Second subordinated bonds in 2007, Type A: Reuters’ fixed rate for 90 days’ New Taiwan dollar commercial paper plus 0.34%; maturity - September 28, 2014 $ 1,360,000 $ - 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 90 days’ New Taiwan dollar commercial paper plus 1.85% if the Bank fails to redeem the bank debenture after five years from the issuance date; no maturity date 5,810,000 -

$ 84,321,000 $ 64,151,000 (Concluded)

For the above subordinated bonds in 2000, the Bank had the option to redeem the bonds, regardless of any objection from the bondholders, between June 15, 2004 and June 30, 2004. If the bonds had not been redeemed between those dates, the rates were changed to 7.15% for the fixed rate bonds from July 14, 2003, together with floating interest rate for one-year time deposit plus 2% for the floating rate bonds. The Bank announced a bond redemption on June 22, 2004; bonds redeemed amounted to $21,969,000 as of December 31, 2007.

The details of bank debentures designated at fair value through profit or loss are summarized below:

2007 2006

First subordinated bonds in 2006: Fixed rate of 2.24%, maturity - April 24, 2013 $ 1,800,000 $ 1,800,000 Valuation adjustment (35,287 ) 35,361

$ 1,764,713 $ 1,835,361

To increase its capital adequacy ratio and raise medium-term or long-term capital, the Bank proposed the issuance of domestic subordinated bank debentures with aggregate face value of $20,000,000 thousand. This issuance was approved by the Financial Supervisory Commission on August 28, 2007. As of December 31, 2007, the bank debentures amounting to $12,830,000 thousand had not yet been issued.

22. OTHER FINANCIAL LIABILITIES

2007 2006

Appropriation for loans $ 3,148,331 $ 3,230,968 Guarantee deposits received 1,461,667 1,712,617 Unsecured debts - interest rate at 2.43%-2.52% in 2007 and 1.92%-1.947% in 2006 2,450,000 950,000

$ 7,059,998 $ 5,893,585

As of December 31, 2007, CAM had unused credit lines of unsecured debts amounting to $3,250,000 thousand.

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23. OTHER LIABILITIES

2007 2006

Reserve for land revaluation increment tax $ 2,037,278 $ 2,287,543 Advance receipts 942,490 1,088,168 Reserve for losses on guarantees 1,637,897 346,272 Reserve for losses on breach of purchase commitment 74,937 67,851 Reserve for losses on the sale of bonds 11,717 103,063 Others 73,402 86,929

$ 4,777,721 $ 3,979,826

24. PENSION PLANS

The Company has a defined benefit pension plan for all regular employees. Under this plan, the Bank and TCBF makes monthly contributions, equal to 8% (rate of monthly contributions was changed to 15% of salaries and wages in May 2007) and 6% of salaries and wages, to a pension fund, respectively. The fund is deposited in the Central Trust of China (which merged with the Bank of Taiwan in July 2007). The Bank and TCBF recognize pension expense based on actuarial calculations.

On July 1, 2005, the Labor Pension Act (the “Act”), which provides for a defined contribution plan, took effect. The Company’s employees already under the Labor Standards Law before the enforcement of the Act were allowed to choose to continue being subject to the Labor Standards Law or to be subject instead to the Act, with their service years until June 30, 2005 to be retained. Based on the Act, the Company’s monthly contributions to the employees’ individual pension accounts were 6% of monthly salaries and wages amounted to $65,438 thousand in 2007 and $48,795 thousand in 2006.

The Bank merged with the Farmers Bank of China (FBC) on May 1, 2006 (Notes 1 and 36), with the Bank as survivor entity. All former employees of the FBC were able to retain their service years and applied for the Bank’s pension plan after the merger.

Other information in 2007 and 2006 on the defined benefit plan is as follows:

a. Net pension cost

2007 2006

Service cost $ 871,511 $ 797,190 Interest cost 73,801 48,046 Actual return on plan assets (49,400 ) (28,016 ) Amortization 7,899 (1,120 ) Adjustment of prepaid pension according to SFAS No. 18 - “Accounting for Pensions” 33 -

Net pension cost $ 903,844 $ 816,100

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b. The reconciliation of plan funded status to balance sheet amounts:

2007 2006

Benefit obligation Vested benefit obligation $ 1,701,067 $ 1,284,517 Non-vested benefit obligation 1,115,070 940,787 Accumulated benefit obligation 2,816,137 2,225,304 Additional benefits based on future salaries 1,156,120 739,978 Projected benefit obligation 3,972,257 2,965,282 Fair value of plan assets (2,206,298 ) (1,603,286 ) Funded status 1,765,959 1,361,996 Unrecognized transitional net obligation (961 ) - Unamortized prior service cost (9,649 ) (10,721 ) Unamortized net pension gains or losses (124,288 ) (58,122 ) Adjustment according to SFAS No. 18 33 - Prepaid pension (part of other assets - other) 13,969 -

Accrued pension cost $ 1,645,063 $ 1,293,153

c. Vested benefit $ 2,292,340 $ 1,663,091

d. Actuarial assumptions

Discount rate 3.00% 2.50% Rate of increase in compensation 2.50% 2.00% Expected long-term rate of return on plan assets 3.00% 2.50%

The changes in the pension fund are summarized below:

2007 2006

Balance, January 1 $ 1,603,286 $ 371,505 Effect of increase in consolidated subsidiary (TCBF) 29,290 - Plan assets arising from the merger with the FBC - May 1, 2006 - 928,121 Contributions 551,765 309,998 Interest income 49,352 28,016 Benefits paid (27,395 ) (34,354 )

Balance, December 31 $ 2,206,298 $ 1,603,286

25. PERSONNEL, DEPRECIATION AND AMORTIZATION EXPENSES

2007 2006 Personnel expenses Salaries $ 6,132,111 $ 5,461,642 Bonus 2,876,790 2,553,286 Pension and compensation 993,642 876,594 Overtime 679,711 665,357 Others 1,265,553 1,134,514 Depreciation and amortization 1,107,345 1,052,337

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26. INCOME TAX

Reconciliation of income tax (statutory rate) on pretax income to income tax currently payable is as follows:

2007 2006

Tax on pretax income at statutory rate (25%) $ 3,018,465 $ 2,614,080 Tax-exempt income (588,072 ) (419,680 ) Permanent differences (351,165 ) (147,131 ) Temporary differences (1,210,540 ) (1,697,810 ) Income tax expenses - current 868,688 349,459 Change in deferred income tax 1,304,317 942,678 Tax adjustment from previous year (143,619 ) (337 ) Tax on unappropriated earnings (10%) 269,567 16,503

Income tax expense $ 2,298,953 $ 1,308,303

Deferred income tax assets as of December 31, 2007 and 2006 are summarized as follows:

2007 2006

Deferred income tax assets (liabilities) Loss carryforwards $ 1,030,775 $ 2,041,619 Pension 287,507 199,529 Allowance for credit losses and reserve for losses on guarantee 813,279 - Provision for losses on unrealized asset impairment and market price decline 143,175 167,628 Deferred losses on the sale of nonperforming loans 166,654 145,103 Valuation adjustment on available-for-sale financial assets 39,834 (824 ) Tax credit 10,840 15,000 Goodwill (264,167 ) (105,667 ) Unrealized gain or loss on financial instruments (45,079 ) 401 Cumulative translation adjustments (91,523 ) (59,059 ) Income from equity investments under the equity method (44,981 ) (21,194 ) Others 9,751 8,191 2,056,065 2,390,727 Less allowance for valuation of deferred income tax assets 1,331,924 370,462

$ 724,141 $ 2,020,265

Under the Financial Institution Merger Act, the loss carryforwards from deferred income tax assets were recalculated on the basis of the proportion of shares in the surviving entity held by the Bank’s stockholders after the merger, and the recalculated loss carryforwards can be deducted from taxable income of the next five years.

The amount of loss carryforwards not yet expired is as follows:

Expiry Year Amount

2010 $ 3,906,851 2011 216,246

As of December 31, 2007, the Company’s tax credit for personnel training expenses amounted to $10,840 thousand. This tax credit is valid until 2009.

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Imputed tax credits are summarized as follows:

Taiwan Cooperative Bank, Ltd. CAM CIB TCBF Balances of stockholders’ imputed tax credit December 31, 2007 $ 1,251,884 $ 25,072 $ 2,877 $ 135,570 December 31, 2006 1,127,950 17 2 129,670 Estimated creditable tax ratio for distributing the 2007 earnings 9.52% 10.81% 8.36% 33.33% Actual creditable tax ratio for distributing the 2006 earnings 11.50% 31.68% 33.33% -

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 until December 31, 1997 were included in the unappropriated retained earnings as of December 31, 2007 and 2006, respectively. CAM, CIB and TCBF had no retained earnings generated until December 31, 1997.

The year for which income tax returns had been examined by tax authorities were as follows:

Taiwan Cooperative Bank, Ltd. CAM CIB TCBF

2003 2005 2005 2005

27. STOCKHOLDERS’ EQUITY

a. Capital stock

The Bank’s stockholders resolved to use the 2005 unappropriated earnings of $3,690,674 thousand as stock dividends representing 369,068 thousand shares. This issuance was approved by the Financial Supervisory Commission (FSC) and Ministry of Economic Affairs (MOEA). To strengthen its capital structure and increase its capital adequacy ratio, the Bank increased its capital by $8,585,034 thousand and issued 440,258 thousand shares at NT$19.5 per share. This issuance was approved by the FSC and the MOEA. As of December 31, 2007, the Bank’s authorized capital stock amounted to $60,000,000 thousand, and issued and outstanding capital stock amounted to $47,700,000 thousand.

b. Capital surplus

Under a directive of the MOEA, retained earnings of $29,694,819 thousand, which was the amount of the net assets in excess of shares issued, were transferred to capital surplus when the Bank became a corporate entity on January 1, 2001. From the capital surplus, stock dividends were issued, amounting to $1,250,122 thousand in 2002, $2,208,548 thousand in 2004, and $2,539,830 thousand in 2006.

Under related regulations, capital surplus may only be used to offset a deficit. However, the 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 and within a certain percentage of the Bank’s paid-in capital.

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The Bank issued 896,861 common shares because of its merger with the Farmers Bank of China on May 1, 2006. The capital surplus increased by $7,029,173 thousand (please refer to Note 36). On June 15, 2007, the stockholders resolved to issue stock dividends amounting to $2,700,000 thousand, the amount of the capital surplus from the merger with the Farmers Bank of China. This stock dividend issuance, which resulted in an increase of common shares by 270,000 thousand shares, was approved by the FSC and the MOEA.

c. Other stockholders’ equity

To increase its capital adequacy ratio and present reasonably the fair value of its land, the Bank’s Board of Directors resolved to revalue its land on December 7, 2007. The revaluation increment of $561,145 thousand was included in other stockholders’ equity - unrealized revaluation increments.

d. Appropriation of earnings

From the annual net income less any deficit should be appropriated 30% as legal reserve and a certain amount as special reserve depending on regulations and operating needs. The appropriation of the remaining net income and any other retained earnings, which should be approved by the stockholders, will be as follows:

1) Dividends

2) 1% as remuneration to directors and supervisors

3) Bonus to employees ranging from 1% to 8%, determined annually by the board of directors

4) Other appropriations, in compliance with relevant regulations

The Bank’s policy indicates that cash dividends must consist of 50% or above of the total dividends (including bonus) distributed, but if the legal reserve does not reach the paid-in capital or the capital adequacy ratio does not meet the Ministry of Finance’s minimum requirement, the maximum cash distribution should be within the limit set under the Banking Law and related regulations.

Under the Company Law, legal reserve should be appropriated until the reserve equals the Bank’s paid-in capital. This reserve should only be used to offset a deficit. When the reserve exceeds 50% of the Bank’s paid-in capital, the excess may be distributed as follows: (a) if the Bank has no earnings, the excess may be declared as dividends or bonus; and (b) if the Bank has no deficit, only the excess portion that is over 25% of the Bank’s paid-in capital may be declared as stock dividends.

Under the Integrated Income Tax System, certain stockholders are allowed a tax credit for the income tax paid by the Bank on earnings generated since January 1, 1998.

The appropriation of the 2006 earnings as approved by the board of directors on March 23, 2007 and by the stockholders on June 15, 2007 was as follows:

Legal reserve $ 2,752,563 Cash dividend - NT$0.7 per share 3,150,000 Remuneration to directors and supervisors 64,226 Bonus to employees 513,812

$ 6,480,601

Had the remuneration to directors and supervisors and bonus to employees been recognized as expenses, the basic EPS (after income tax) for 2006 would have decreased from NT$2.31 to NT$2.16.

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The appropriation of the 2005 earnings as approved by the board of directors on March 15, 2006 and by the stockholders on June 30, 2006 was as follows:

Legal reserve $ 790,305 Remuneration to directors and supervisors 18,440 Bonus to employees 147,524 Appropriation to farmers’ associations 36,778 Dividend - cash 738,135 - stock 3,690,674

$ 5,421,856

As of February 22, 2008, the appropriation of 2007 earnings had not been proposed by the board of directors. Information on the appropriation of earnings or deficit offsetting can be accessed through the Web site of the Taiwan Stock Exchange (http://emops.tse.com.tw).

28. 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 2007

Basic EPS $ 11,941,414 $ 9,740,373 4,770,000 $ 2.50 $ 2.04

2006

Basic EPS Income before cumulative effect of changes in accounting principles $ 10,390,338 $ 9,135,146 3,972,306 $ 2.62 $ 2.30 Cumulative effect of changes in accounting principles 61,651 40,062 0.01 0.01

Net income $ 10,451,989 $ 9,175,208 $ 2.63 $ 2.31

The number of shares outstanding was retroactively adjusted to reflect the effects of the stock dividends distributed in the year following earnings generation. As a result of this adjustment, the basic EPS before and after income tax decreased from NT$2.79 to NT$2.63 and from NT$2.45 to NT$2.31, respectively, in 2006.

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29. RELATED-PARTY TRANSACTIONS

The related-party transactions are summarized as follows:

a. Related parties

Related Party Relationship with the Company

United Real Estate Management Equity-method investee Co., Ltd. Kuo Ming Property Insurance Agent Equity-method investee (until its liquidation in December 2006) Co., Ltd. Kuo Ming Life Insurance Agent Equity-method investee (until its liquidation in December 2006) Co., Ltd. Agricultural Education Film Co., Ltd. Equity-method investee Teh-Nan Hsu Chairman (Ministry of Finance (MOF) representative) Sean C. Chen Chairman (MOF representative) till January 1, 2007 An. Hsinng. Chen Managing director (MOF representative) and president Fan Zhi Wu Managing director (MOF representative) and president till January 1, 2007 Jin-Fong Soo Managing director (MOF representative) and president till May 12, 2006 C. C. Liu Managing director (representative of the Farmers’ Associations of Taiwan) T. C. Huang Managing director (representative of Credit Cooperative Associations of the R.O.C.) Q. N. Tsai Managing director (MOF representative) till August 17, 2007 S. Chen Managing director (MOF representative) till August 11, 2006 D. T. Hsieh Director (MOF representative) G. J. Chen Director (MOF representative) R. B. Chen Director (MOF representative), vice president till April 1, 2007 K. T. Chen Director (MOF representative) B. W. Lee Director (MOF representative) C. H. Huang Director (MOF representative) C. H. Chang Director (MOF representative) J. Q. Lee Director (MOF representative) Y. S. Tsai Director (MOF representative) S. K. Lee Director (MOF representative) J. C. Su Director (representative of Farmers’ Associations of Pingtung County) C. F. Wang Director (representative of Farmers’ Associations of Penghu County) S. L. Lin Director (representative of Labor Union of Taiwan Cooperative Bank) C. C. Lian Director (representative of Labor Union of Taiwan Cooperative Bank) S. W. Chang Director (MOF representative) till July 31, 2007 Y. J. Han Director (MOF representative) till March 28, 2007 W. C. Chen Director (MOF representative) till January 16, 2007 C. H. Ju Director (MOF representative) till January 1, 2007 C. Y. Tu Director (representative of Farmers’ Associations of Hua Lien County) till January 1, 2007 T. S. Chiang Director (representative of Farmers’ Associations of Tai-Nan City) till January 1, 2007 (Continued)

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Related Party Relationship with the Company

S. H. Tien Director (representative of Farmers’ Associations of Tai-Tong County) till January 1, 2007 C. T. Liao Director (representative of COTA Commercial Bank Co., Ltd.) till January 1, 2007 Y. M. Tang Director (representative of Foundation of Central Military School Friend) till January 1, 2007 C. C. Lai Resident supervisor (MOF representative) till August 2, 2007 F. D. Hsieh Resident supervisor (MOF representative) till March 28, 2007 C. W. Yao Resident supervisor (MOF representative) till July 21, 2006 L. I. Chen Supervisor (MOF representative) Robert K. Su Supervisor (MOF representative) L. Y. Chuang Supervisor (representative of Farmers’ Association of Taipei City) C. Y. Cheng Supervisor (representative of Credit Cooperative Association of Taiwan) J. T. Chou Supervisor (representative of Cooperative Association of Taipei City) till January 1, 2007 T. Lin Vice president S.C. Chou Vice president C.D. Hsieh Vice president C.Y. Tu Vice president K. H. Hu Vice president Q. J. Fang Vice president till December 20, 2007 C. L. Liu Vice president till June 15, 2007 National Treasury Agency Subordinate agency of MOF C. C. Lin Relative of the Bank’s chairman USB Interior Design Co., Ltd. The chairman of the Company is a relative of the Bank’s president Others Relatives up to the second degree of the Bank’s chairman, president, directors, supervisors, managers (Concluded)

b. Significant transactions between the Company and related parties:

2007 2006 Interest Interest Amount % Expense Amount % Expense

1) Due to banks $ 629,225 - $ 16,097 $ 3,334,851 1 $ 64,271

2) Loans

Highest Ending Interest Interest Rate Balance Balance % Revenue (%)

2007 $ 114,193,648 $ 74,858,845 4 $ 1,712,321 1.4-6.755 2006 $ 139,037,426 $ 104,084,500 6 $ 1,685,148 1.20-5.65

Under the Banking Law, except for customer loans and government loans, credits extended by the Bank 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.

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3) Deposits

Ending Interest Interest Balance % Expense Rate (%)

2007 $ 1,626,744 - $ 34,264 0-13 2006 $ 1,506,918 - $ 35,180 0-13

2007 2006 Amount % Amount %

4) Service fee (part of service fee income, net) $ 1,086 - $ 318 -

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.

5) Directors as credit guarantors

Ending Interest Rate Balance % (%)

2007 $ - - 2.11-2.21 2006 $ 96 - 2.20-2.44

6) Loans

Difference in Terms of Highest Transaction Balance in the Compared Year Ended Loan Classification with Those December 31, Nonper- for Account Volume or 2007 Ending forming Unrelated Type Name (Note) Balance Normal Loans Loans Collaterals Parties

Consumer loans 13 $ 35,347 $ 25,324 $ 25,324 $ - Land and None for employees buildings Self-used housing 8 36,964 29,793 29,793 - Land and None mortgage loans buildings Other loans K.T. Chen 1,827 1,728 1,728 - Land and None buildings Other loans C.C. Liu 129,000 102,000 102,000 - Land and None buildings Other loans National Treasury 114,000,000 74,700,000 74,700,000 - None None Agency Other loans USB Interior Design Co., 2,000 - - - None None Ltd.

Note: The highest balance is the largest sum in a year of all daily accounts for each type.

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30. PLEDGED ASSETS

The pledged bonds and certificates of deposit (face value) as of December 31, 2007 and 2006 are summarized as follows:

2007 2006

Collaterals for day-term overdraft $ 30,000,000 $ 30,000,000 Guarantee deposits for provisional collateral seizure for loan defaults and others 2,416,600 2,591,200 Overseas branches’ capital adequate reserve (US$12,000 thousand) 389,808 391,800 Guarantee deposits for securities operations 290,000 280,000 Guarantee deposits for the trust business compensation reserve 50,000 50,000 Guarantee deposits for bills finance business 50,000 50,000 Others 1,400 11,400

$ 33,197,808 $ 33,374,400

To comply with the Central Bank’s clearing system for real-time gross settlement (RTGS), the Bank 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 the Bank’s liquidity reserve.

31. COMMITMENTS AND CONTINGENT LIABILITIES

In addition to those mentioned in Note 33, the contingencies and commitments as of December 31, 2007 were as follows:

a. Taiwan Cooperative Bank, Ltd.

1) The Bank has operating lease agreements covering its office premises being rented from third parties. As of December 31, 2007, refundable deposits on these leases amounted to $880,282 thousand. Minimum rentals payable in the next five years are as follows:

Year Amount

2008 $ 500,798 2009 390,348 2010 270,798 2011 171,008 2012 68,276

2) The Bank’s outstanding major construction and procurement contracts amounted to $1,366,533 thousand, of which $1,299,823 thousand was still unpaid.

3) Under a resolution of the Legislative Yuan, the Bank is required to pay the paid-in capital of four community financial institutions in Taichung City and The Fourth Community Institution of Chang Hwa City. Payments should be made in five semiannual installments from December 2003. These payments were approved in the Bank stockholders’ meeting and approved by the Ministry of Finance. The Bank had already recognized the payments as expense. As of December 31, 2007, the Bank had made installment payments of $1,727,619 thousand to the four community financial institutions in Taichung City and $74,378 thousand to the Fourth Community Institution of Chang Hwa City.

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b. United Taiwan Bank S.A.

United Taiwan Bank S.A. has operating lease agreements covering its office premises. The rentals payable in the next five years are as follows:

Year Amount

2008 $ 3,170 2009 3,062 2010 3,170 2011 3,280 2012 3,395 c. CIB

CIB entered into insurance agent contracts with various insurance companies. The contracts are summarized as follows:

Contract Commission Insurance Company Date Received Contract Period

Taiwan Life Insurance 2007.02.07 Billed and Effective February 7, 2007; expiry on Co., Ltd. received February 6, 2008. The contract may be according to updated in accordance with the parties’ contract terms written notice when the contract expires. Cardif Assurance Vie 2007.02.07 Billed and Effective February 7, 2007; expiry on received February 7, 2008. The contract may be according to updated in accordance with the parties’ contract terms written notice when the contract expires. Fubon Life Assurance 2007.06.27 Billed and Effective June 27, 2007; expiry on June 26, Co., Ltd. received 2008. The contract may be updated in according to accordance with the parties’ written notice contract terms when the contract expires. Shin Kong Life 2007.08.21 Billed and Effective August 21, 2007; expiry on August Insurance Co., Ltd. received 21, 2008. The contract may be extended according to one year automatically if the parties didn’t contract terms close the contract when the contract expired. Takio Marine Newa 2007.01.08 Billed and Effective January 8, 2007; expiry on January Insurance Co., Ltd. received 7, 2008. The contract may be updated in according to accordance with the parties’ written notice contract terms when the contract expires. Shin Kong Fire & 2007.01.08 Billed and Effective January 8, 2007; expiry on January Marine Insurance received 7, 2008. The contract may be updated in Co., Ltd. according to accordance with the parties’ written notice contract terms when the contract expires. Central Fire & Marine 2007.01.08 Billed and Effective January 8, 2007; expiry on January Insurance Co., Ltd. received 7, 2008. The contract may be updated in according to accordance with the parties’ written notice contract terms when the contract expires. Mingtai Fire & Marine 2007.01.08 Billed and Effective January 8, 2007; expiry on January Insurance Co., Ltd. received 7, 2008. The contract may be updated in according to accordance with the parties’ written notice contract terms when the contract expires. (Continued)

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Contract Commission Insurance Company Date Received Contract Period

Fubon Fire & Marine 2007.01.08 Billed and Effective January 8, 2007; expiry on January Insurance Co., Ltd. received 7, 2008. The contract may be updated in according to accordance with the parties’ written notice contract terms when the contract expires. Taiwan Fire & Marine 2007.01.08 Billed and Effective January 8, 2007; expiry on January Insurance Co., Ltd. received 7, 2008. The contract may be updated in according to accordance with the parties’ written notice contract terms when the contract expires. China Life Insurance 2007.12.11 Billed and Effective December 11, 2007; expiry on Co., Ltd. received December 11, 2008. The contract is according to extended one year automatically unless the contract terms parties give a notice declining contract renewal. Mass Mutual 2007.12.27 Billed and Effective December 27, 2007; expiry on Hercurles Life received December 27, 2008. The contract is Insurance Co., Ltd. according to extended one year automatically unless the contract terms parties give a notice declining contract renewal. CIGNA Life Insurance 2007.11.16 Billed and Effective November 16, 2007; expiry on Co., Ltd. received November 16, 2008. The contract is according to extended one year automatically unless the contract terms parties give a notice declining contract renewal. (Concluded)

A renewable operating lease agreement on premises occupied by CIB will expire on various dates by December 2008. Rentals are calculated on the basis of the areas of the leased spaces and are payable monthly. As of December 31, 2007, refundable deposits on these leases totaled $525 thousand. Minimum annual rentals are as follows:

Year Amount

2008 $ 20 d. TCBF

As of December 31, 2007, the commitments or contingencies are as follows:

1)

Amount

Guarantees of commercial paper $ 2,338,900

2) TCBF has operating lease agreements covering its office premises being rented from third parties, which will expire on March 31, 2008. Refundable deposits on these leases totaled $2,018 thousand. In 2008, it should pay $2,119 thousand for these leases.

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32. CAPITAL ADEQUACY RATIO

a. Taiwan Cooperative Bank, Ltd.

(Unit: In Thousands of New Taiwan Dollars, %)

Year December 31, 2007 Items Standalone Consolidated Eligible

capital Tier 1 capital $ 89,189,356 $ 93,089,316 Tier 2 capital 61,531,310 64,335,034 Tier 3 capital - - Eligible capital 150,720,666 157,424,350 Standardized approach 1,257,980,716 1,285,932,474 Credit risk Internal ratings-based approach - - weighted assets weighted assets Securitization 1,235,102 1,235,102 Basic indicator approach 52,397,893 52,833,268 Risk- Operational Standardized approach/Alternative risk standardized approach - - Advanced measurement approach - - Standardized approach 46,944,104 49,372,688 Market risk Internal model approach - - Risk-weighted assets 1,358,557,815 1,389,373,532 Capital adequacy ratio 11.09 11.33 Ratio of tier 1 capital to risk-weighted assets 6.56 6.70 Ratio of tier 2 capital to risk-weighted assets 4.53 4.63 Ratio of tier 3 capital to risk-weighted assets - - Ratio of common stock to total assets 1.97 1.96

Note 1: Eligible capital and risk-weighted assets are calculated under the “Regulations Governing the Capital Adequacy Ratio of Banks” and “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 asset 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.

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(Unit: In Thousands of New Taiwan Dollars, %)

December 31, Items 2006 Net eligible capital (Note) $ 140,899,547 Total risk-weighted assets (Note) 1,317,239,727 Capital adequacy ratios (Note) 10.70 Ratios of tier 1 capital to risk-weighted assets (Note) 6.80 Ratios of tier 2 capital to risk-weighted assets (Note) 4.91 Ratios of tier 3 capital to risk-weighted assets (Note) - Ratios of common stockholders’ equity to total assets 4.12 Consolidated capital adequacy ratios (Note) 11.07

Note: Capital adequacy ratio = Net eligible capital/Risk-weighted assets. Under the Banking Law and related regulations, the capital adequacy ratio (CAR) should be computed at the end of June and December.

The Banking Law and related regulations require that the Bank maintain its unconsolidated and consolidated CARs at a minimum of 8%. Thus, if the Bank’s CAR falls below 8%, the authorities may impose certain restrictions on the amount of cash dividends that the Bank can declare or, in certain conditions, totally prohibit the Bank from declaring cash dividends.

b. Taiwan Cooperative Bills Finance Corporation

Under the law governing bills finance companies and related regulations, Taiwan Cooperative Bills Finance Corporation (TCBF) should maintain a CAR of at least 8%.

The CARs of TCBF were 37.40% and a negative 21.79% as of December 31, 2007 and 2006, respectively.

33. FINANCIAL INSTRUMENTS

a. Fair values of financial instruments

2007 2006 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 $ 44,087,992 $ 44,087,992 $ 47,521,600 $ 47,521,600 Available-for-sale financial assets 60,424,888 60,424,888 61,907,516 61,907,516 Other short-term financial assets 482,891,003 482,891,003 451,149,250 451,149,250 Discounts and loans 1,734,893,395 1,734,893,395 1,718,260,571 1,718,260,571 Other financial assets - overdue receivables 250,585 250,585 95,940 95,940 Refundable deposits, operation deposits and settlement funds 1,355,749 1,355,749 1,245,730 1,245,730 Held-to-maturity financial assets 7,627,062 7,620,452 3,163,176 3,173,858 Other financial assets - debt instruments with no active market 50,343,145 49,237,488 43,541,947 43,552,340

(Continued)

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2007 2006 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Financial liabilities

Financial liabilities - with fair value approximating carrying amounts Commercial paper issued $ 399,574 $ 399,574 $ 1,018,552 $ 1,018,552 Financial liabilities at fair value through profit or loss 2,650,154 2,650,154 3,403,282 3,403,282 Other short-term financial liabilities 340,712,582 340,712,582 376,132,641 376,132,641 Deposits and remittances 1,884,858,034 1,884,858,034 1,823,069,449 1,823,069,449 Other financial liabilities 7,059,998 7,059,998 5,893,585 5,893,585 Bank debentures 84,321,000 84,479,405 64,151,000 65,038,314 (Concluded)

Effective January 1, 2006, the Company adopted SFAS No. 34 - “Accounting for Financial Instruments.” The amount of the cumulative effect of accounting changes and the adjustments of stockholders’ equity resulting from the adoption of SFAS No. 34 are mentioned in Note 3.

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, held-to-maturity financial assets, operation deposits and bank debentures, 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. Fair values of option contracts are calculated using the parameters quoted by Reuters.

2) The carrying amounts of short-term financial instruments approximate their fair values because of the short maturities of these instruments. Other 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). Other short-term financial liabilities are due to the Central Bank and other banks, payables (except tax payable), securities sold under repurchase agreements and funds borrowed from the Central Bank.

3) Discounts and loans, commercial paper issued, unsecured debts (part of other financial liabilities) 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.

4) For other financial assets, if there are theoretical prices from the GreTai Securities Market (an over-the-counter securities exchange) on the balance sheet date, they are used as the basis for valuating 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 appropriations for loans and guarantee deposits received. They are items that can be transferred to other banks at any time depending on the business situation or withdrawn by providers. The carrying amounts of these liabilities represent their fair values. - 44 -

6) If equity investments under the equity method and financial assets carried at cost both 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.

7) The fair value of refundable deposits and settlement funds is based on their carrying amounts because they do not have specific maturity dates.

c. As of December 31, 2007 and 2006, fair values of financial assets and liabilities determined using quoted market prices or market prices estimated on the basis of valuation method were as follows:

Quoted Market Prices Estimated Market Prices 2007 2006 2007 2006 Financial assets

Financial assets at fair value through profit or loss $ 16,197,342 $ 12,610,753 $ 27,890,650 $ 34,910,847 Available-for-sale financial assets 8,486,800 5,972,382 51,938,088 55,935,134 Held-to-maturity financial assets - 99,940 7,620,452 3,073,918 Other financial assets - debt instruments with no active market 29,729,563 25,140,911 19,507,925 18,411,429

Financial liabilities

Financial liabilities at fair value through profit or loss - - 2,650,154 3,403,282 Bank debentures - - 84,479,405 65,038,314

d. Current income and valuation adjustments

1) The net income (loss) on financial instruments at fair value through profit or loss in 2007 and 2006 were summarized as follows:

2007 Gains Gains Interest (Losses) (Losses) Revenue from from Cash (Expense) Disposal Valuation Dividends Total

Held-for-trading financial assets $ 858,891 $ 5,850,424 $ 1,506,796 $ 98,175 $ 8,314,286 Financial assets designated at fair value through profit or loss 593,257 - (106,637 ) - 486,620 Held-for-trading financial liabilities - (5,743,648 ) (1,809,948 ) - (7,553,596 ) Financial liabilities designated at fair value through profit or loss (40,320 ) - 70,648 - 30,328

$ 1,411,828 $ 106,776 $ (339,141 ) $ 98,175 $ 1,277,638

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2006 Gains Gains Interest (Losses) (Losses) Revenue from from Cash (Expense) Disposal Valuation Dividends Total

Held-for-trading financial assets $ 536,992 $ 5,412,689 $ 480,799 $ 49,299 $ 6,479,779 Financial assets designated at fair value through profit or loss 591,728 (2,298 ) (133,250 ) - 456,180 Held-for-trading financial liabilities - (4,556,133 ) (280,071 ) - (4,836,204 ) Financial liabilities designated at fair value through profit or loss (27,837 ) - (35,361 ) - (63,198 )

$ 1,100,883 $ 854,258 $ 32,117 $ 49,299 $ 2,036,557

In 2007 and 2006, the net gain or loss on the valuation were net loss $339,141 thousand and net gain $32,117 thousand, respectively, of which the net gain or loss on the valuation at estimated market prices were net loss $259,298 thousand and net gain $47,292 thousand, respectively.

2) In 2007 and 2006, 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:

2007 2006

Interest revenue $ 65,209,016 $ 56,418,683 Interest expense (42,161,761 ) (36,479,776 )

$ 23,047,255 $ 19,938,907

3) The adjustments of stockholders’ equity recognized directly from available-for-sale financial assets were debited amounting to $1,219,471 thousand in 2007 and credited amounting to $393,880 thousand in 2006, respectively, and the gain recognized and deducted from the adjustments of stockholders’ equity were a recognized gain $579,205 thousand and $461,284 thousand, respectively.

4) The net service fee income in 2007 and 2006 were as follows:

2007 2006

Service fee $ 3,920,812 $ 2,958,984 Service charge (499,498 ) (707,323 )

$ 3,421,314 $ 2,251,661

e. Financial risk information

1) Risk control and hedge strategy

The Bank has set up a Risk Management Committee in charge of bank-wide risk control tasks. Under this committee, there is a Risk Management Task Force devoted to carrying out resolutions adopted by the Committee and performing other duties with regard to risk management. Currently, 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 Task Force regularly reports risk exposure items with regard to liquidity, interest rates, industry, and securities to the Risk Management Committee and Board of Directors in accordance with risk limit regulations.

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The Bank’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 the Bank meets the minimum statutory requirements, the Bank 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.

2) Market risks

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 net positions of foreign-currency transactions are summarized as follows:

i. Taiwan Cooperative Bank, Ltd.

(In Thousands of Dollars)

Items December 31, 2007 December 31, 2006 Currency NT$ Currency NT$ Net positions of USD (14,476 ) $ (470,225 ) JPY (2,152,188 ) $ (590,130 ) foreign-currency EUR (2,753 ) (131,779 ) CAD (8,436 ) (237,333 ) transactions AUD (3,749 ) (107,035 ) EUR 3,532 151,566 (market risk) JPY (263,818 ) (76,481 ) NZD 1,438 33,125 SGD (3,226 ) (72,553 ) HKD (4,508 ) (18,936 )

ii. United Taiwan Bank S.A.

(In Thousands of Dollars)

Items December 31, 2007 December 31, 2006 Net positions of Currency NT$ Currency NT$ foreign-currency EUR (182 ) $ (8,697 ) USD 268 $ 8,750 transactions JPY 18,261 5,300 EUR (184 ) (7,896 ) (market risk) USD 104 3,397 JPY (3,023 ) (830 )

Note: The foreign currencies represent the top five currencies in the Bank’s basket of international currencies.

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.

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i. Taiwan Cooperative Bank, Ltd.

2007 2006 Average Average Average Average Balance Rate (%) Balance Rate (%) Interest-earning assets

Due from banks $ 2,467,284 2.81 $ 1,726,655 1.94 Due from the Central Bank 291,070,252 1.71 342,114,743 1.60 Call loans to banks 43,291,019 4.83 49,180,244 4.08 Held-for-trading financial assets 29,798,003 2.88 24,947,852 2.15 Financial assets designated at fair value through profit or loss 10,115,997 5.88 10,185,159 5.82 Securities purchased under resell agreements 231,442 1.56 650,216 1.39 Discounts and loans 1,724,865,239 3.05 1,536,220,037 2.89 Available-for-sale financial assets 64,300,833 2.46 66,099,466 2.14 Held-to-maturity financial assets 3,248,776 4.57 1,245,345 1.18 Debt instruments with no active market 38,742,899 3.66 29,691,393 3.90

Interest-bearing liabilities

Due to the Central Bank and other banks 232,698,775 1.88 258,384,016 1.89 Funds borrowed from the Central Bank 10,790,957 4.81 11,682,771 4.77 Financial liabilities designated at fair value through profit or loss 1,800,000 2.24 1,242,740 2.24 Securities sold under repurchase agreements 56,495,077 1.67 49,723,423 1.38 Demand deposits 182,572,768 0.46 152,070,071 0.51 Savings - demand deposits 409,083,859 1.16 359,640,546 1.25 Time deposits 399,098,324 2.62 314,807,556 2.37 Time savings deposits 743,088,851 2.27 803,574,075 1.99 Treasury deposits 54,645,306 1.42 53,543,901 1.38 Negotiable certificates of deposit 20,843,625 1.75 11,001,670 1.50 Bank debentures 75,954,151 2.72 48,055,427 2.58

ii. United Taiwan Bank S.A.

2007 2006 Average Average Average Average Balance Rate (%) Balance Rate (%) Interest-earning assets

Due from banks $ 250,300 3.65 $ 179,266 2.79 Discounts and loans 4,715,343 4.66 3,699,955 4.84 Debt instruments with no active market 7,493,625 5.33 6,402,975 4.69

Interest-bearing liabilities

Due to the Central Bank and other banks 10,610,002 4.59 8,944,293 4.33 Demand deposits 16,789 - 12,977 - Time deposits 126,305 4.29 97,991 3.47

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iii. Taiwan Cooperative Bills Finance Corporation

2007 Average Average Balance Rate (%) Interest-earning assets

Due from banks $ 1,482,176 0.47 Call loans to banks 1,097 1.68 Financial assets at fair value through profit or loss - bills 2,473,266 1.85 Financial assets at fair value through profit or loss - bonds 18,577 3.99 Available-for-sale financial assets - bonds 1,261,008 1.88 Held-to-maturity financial assets 175,000 3.06

Interest-bearing liabilities

Call loans from banks 2,491,444 2.10 Short-term debts 7,796 2.80 Securities sold under repurchase agreements - bills 546,634 1.85 Securities sold under repurchase agreements - bonds 827,028 1.89

c) Interest rate sensitivity information

i. Taiwan Cooperative Bank, Ltd.

Interest Rate Sensitivity (New Taiwan Dollars) December 31, 2007

(In Thousands of New Taiwan Dollars, %)

181 Days to Items 1 to 90 Days 91 to 180 Days Over One Year Total One Year Interest rate-sensitive assets $ 1,801,570,953 $ 144,562,858 $ 73,991,736 $ 60,713,143 $ 2,080,838,690 Interest rate-sensitive liabilities 1,234,986,491 624,881,244 89,994,128 24,660,033 1,974,521,896 Interest rate sensitivity gap 566,584,462 (480,318,386 ) (16,002,392 ) 36,053,110 106,316,794 Net worth 100,660,877 Ratio of interest rate-sensitive assets to liabilities 105.38 Ratio of interest rate sensitivity gap to net worth 105.62

Interest Rate Sensitivity (New Taiwan Dollars) December 31, 2006 (In Thousands of New Taiwan Dollars, %)

181 Days to Items 1 to 90 Days 91 to 180 Days Over One Year Total One Year Interest rate-sensitive assets $ 1,774,994,392 $ 126,881,773 $ 58,925,938 $ 66,785,895 $ 2,027,587,998 Interest rate-sensitive liabilities 1,155,929,636 625,510,745 80,025,501 25,111,923 1,886,577,805 Interest rate sensitivity gap 619,064,756 (498,628,972 ) (21,099,563 ) 41,673,972 141,010,193 Net worth 95,582,998 Ratio of interest rate-sensitive assets to liabilities 107.47 Ratio of interest rate sensitivity gap to net worth 147.53

Note 1: The above amounts included only New Taiwan dollar amounts held by the head office and branches of the Bank (i.e., excluding foreign currency).

Note 2: Interest rate-sensitive assets and liabilities mean the revenues or costs of interest-earning assets and interest-bearing liabilities are affected by interest rate changes.

- 49 -

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 (U.S. Dollars) December 31, 2007 (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 $ 3,957,397 $ 1,075,901 $ 51,832 $ 126,380 $ 5,211,510 Interest rate-sensitive liabilities 3,999,351 739,169 83,446 - 4,821,966 Interest rate sensitivity gap (41,954 ) 336,732 (31,614 ) 126,380 389,544 Net worth 54,730 Ratio of interest rate-sensitive assets to liabilities 108.08 Ratio of interest rate sensitivity gap to net worth 711.76

Interest Rate Sensitivity (U.S. Dollars) December 31, 2006 (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 $ 2,891,353 $ 1,139,009 $ 91,818 $ 1,129,830 $ 5,252,010 Interest rate-sensitive liabilities 3,948,717 492,692 229,594 - 4,671,003 Interest rate sensitivity gap (1,057,364 ) 646,317 (137,776 ) 1,129,830 581,007 Net worth 65,827 Ratio of interest rate-sensitive assets to liabilities 112.44 Ratio of interest rate sensitivity gap to net worth 882.63

Note 1: The above amounts included only U.S. dollar amounts held by the head office, domestic branches, OBU and overseas branches of the Bank and excluded contingent assets and contingent liabilities.

Note 2: Interest rate-sensitive assets and liabilities mean the revenues or costs of interest-earning assets and interest-bearing liabilities 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 (U.S. Dollars) December 31, 2007 (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 $ 360,927 $ 35,451 $ - $ 6,890 $ 403,268 Interest rate-sensitive liabilities 318,110 23,867 - - 341,977 Interest rate sensitivity gap 42,817 11,584 - 6,890 61,291 Net worth 60,496 Ratio of interest rate-sensitive assets to liabilities 117.92 Ratio of interest rate sensitivity gap to net worth 101.31

- 50 -

Interest Rate Sensitivity (U.S. Dollars) December 31, 2006 (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 $ 314,127 $ 41,433 $ - $ 6,880 $ 362,440 Interest rate-sensitive liabilities 296,789 13,386 - - 310,175 Interest rate sensitivity gap 17,338 28,047 - 6,880 52,265 Net worth 51,580 Ratio of interest rate-sensitive assets to liabilities 116.85 Ratio of interest rate sensitivity gap to net worth 101.33

Note 1: The above amounts included only U.S. dollar amounts held by the head office, domestic branches, OBU and overseas branches of United Taiwan Bank S.A. and excluded contingent assets and contingent liabilities.

Note 2: Interest rate-sensitive assets and liabilities mean the revenues or costs of interest-earning assets and interest-bearing liabilities that were 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).

iii. Taiwan Cooperative Bills Finance Corporation

TCBF hold 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, 2007 Due after Due after Due after Due in One Three One Year Due After Currency One Month Up Months Up to Seven Total Month to Three Up to One Seven Years Months Year Years

New Taiwan Dollars $5 $6 $18 $39 $3 $71

3) Credit risk

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, 2007 and 2006, about 61% and 57%, respectively, of the Bank’s total loans had been secured by collaterals. The percentage of collaterals collected for the Bank’s guarantees and letters of credit issued ranged from 9.63% to 19.21% as of December 31, 2007 and from 0% to 20.68% as of December 31, 2006, respectively, with an average of 15.72% and 14.69%, respectively. As of December 31, 2007, about 22.16% of TCBF’s total guarantees had collaterals. 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 the maximum credit exposure without consideration of collateral fair value.

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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, 2007 and 2006 were as follows:

a) Taiwan Cooperative Bank, Ltd.

2007 2006

Credit card commitments $ 50,943,570 $ 54,009,372 Guarantees and letters of credit issued 77,145,645 77,930,044 Irrevocable loan commitments 75,152,825 74,388,602

b) United Taiwan Bank S.A. 2007 2006

Irrevocable loan commitments $ 904,485 $ 587,668

c) Taiwan Cooperative Bills Finance Corporation 2007

Guarantees of commercial paper $ 2,338,900

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. The Bank’s groups or industries with outstanding loans amounting to 10% or more of total outstanding loans were as follows:

2007 2006 Amount % Amount % Domestic Natural person $ 749,169,385 42 $ 705,922,842 41 Manufacturing 296,502,965 16 276,411,975 16 Government institutions 243,683,956 14 284,260,446 16

(In Thousands of New Taiwan Dollars, %)

December 31, 2007 December 31, 2006 Total Amount Total Amount of Credit Percentage of Credit Percentage Rank Group Enterprise Name Endorsement of the Group Enterprise Name Endorsement of the (Note 1) (Note 2) or Other Bank’s (Note 2) or Other Bank’s Transactions Equity Transactions Equity (Note 3) (Note 3) 1 Continental Engineering Co., $35,924,232 35.07 Continental Engineering Co., $36,646,785 37.50 Ltd. Ltd. 2 Formosa Plastic Group Co., Ltd. 29,755,935 29.05 Formosa Petrochemical Co., Ltd. 35,011,660 35.82 3 Far Eastern Textile Ltd. 15,256,153 14.89 Far Eastern Textile Ltd. 14,968,168 15.32 4 Chi Mei Optoelectronics 10,903,823 10.64 Acer Inc. 12,829,743 13.13 5 China Steel Corporation Co., 9,943,736 9.71 Chi Mei Optoelectronics 11,567,542 11.84 Ltd. 6 Qisda Co., Ltd. 9,300,968 9.08 Chunghwa Pictures Tubes, Ltd. 11,385,703 11.65 7 Tatung Company 9,225,603 9.01 China Steel Corporation 10,574,619 10.82 8 ProMOS Technologies Inc. 8,102,390 7.91 Taiwan Cement Co., Ltd. 7,975,263 8.16 9 Highwealth Construction 7,043,302 6.88 Evergreen Group 6,537,177 6.69 10 Evergreen Group 6,958,461 6.79 ProMOS Technologies Inc. 6,450,158 6.60

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Note 1: Ranked by the total amount of credit, endorsement or other transactions; list excludes government-owned or state-run enterprises.

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 the 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, bills 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, factored accounts receivable without recourse, acceptances and guarantees.

For Taiwan Cooperative Bills Finance Corporation, concentrations of credit risk were as follows:

2007 Maximum Credit Counter-party Amount Exposure

Private enterprise $ 2,338,900 $ 2,338,900

2007 Maximum Credit Industries Amount Exposure

Manufacturing $ 785,600 $ 785,600 Wholesaling and retailing 493,600 493,600 Finance and insurance 422,400 422,400

$ 1,701,600 $ 1,701,600

4) Liquidity risk

The Bank’s liquidity reserve ratios as of December 31, 2007 and 2006 were 15.58% and 15.41%, respectively. The Bank has sufficient equity capital and working capital to execute all contract obligations and thus had no liquidity risk.

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, the Bank, TCBF 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 in Table 1 (attached).

34. ASSET QUALITY, PROFITABILITY AND RELEVANT INFORMATION ABOUT TAIWAN COOPERATIVE BANK, LTD.

a. Asset quality

Table 2 (attached).

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b. Profitability

The profitability of Taiwan Cooperative Bank, Ltd. is summarized as follows:

(%)

December 31, December 31, Items 2007 2006 Before income tax 0.50 0.48 Return on total assets After income tax 0.41 0.42 Before income tax 11.93 12.85 Return on equity After income tax 9.73 11.30 Net income ratio 28.18 27.39

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 for 2007 and 2006.

c. Operation and legal risk

Matters Requiring Special Notation

(In Thousands of New Taiwan Dollars)

Summary and Amount Causes December 31, 2007 December 31, 2006 Within the past year, a responsible person or None None professional employee violated the law in the course of business, resulting in an indictment by a prosecutor Within the past year, a fine was levied on the Bank None None for violations of the Banking Law Within the past year, misconduct occurred, resulting None None in the Ministry of Finance’s imposing strict corrective measures on the Bank Within the past year, the individual loss or total loss None None from employee fraud, accidental and material events, or failure to abide by the “Guidelines for Maintenance of Soundness of Financial Institutions” exceeded NT$50 million Other None None

Note 1: The term “within the past year” means one year before the balance sheet date.

Note 2: The term “a fine was levied on the Bank for violations of the related laws and regulations” means a fine levied by the Banking Bureau, Securities and Futures Bureau, Insurance Bureau or Examination Bureau.

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35. TAIWAN COOPERATIVE BANK, LTD. 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 the Bank’s Trust Deportment. However, these items were not included in the Bank financial statement.

Balance Sheets of Trust Accounts December 31, 2007 and 2006

Trust Assets 2007 2006 Trust Liabilities 2007 2006

Cash in banks $ 367,741 $ 318,387 Payables Management fees $ 1,094 $ 1,064 Short-term investments Others 1,663 113 Mutual funds 94,671,268 52,489,820 2,757 1,177 Stocks 436,359 87,715 Bonds 4,523,986 4,417,170 Trust capital 99,631,613 56,994,705 Cash 99,588,832 57,222,251 Real estate 25,922,105 14,559,414 Receivables Securities 315,648 79,292 Accrued interest 1,292 224 Others 66,945 9,245 Mutual funds 27,900 - 125,893,530 71,870,202 29,192 224 Reserves and retained earnings Real estate Net income 126,198 2,874 Land 18,716,235 10,827,178 Appropriation (11,405 ) (1,274 ) Construction in progress 7,262,144 3,731,442 Retained earnings 1,532 1 Buildings 5,687 1,044 116,325 1,601 25,984,066 14,559,664

Total $ 126,012,612 $ 71,872,980 Total $ 126,012,612 $ 71,872,980

Trust Property List December 31, 2007 and 2006

Investment Items 2007 2006

Cash in banks $ 367,741 $ 318,387 Short-term investments Mutual fund 94,671,268 52,489,820 Stock 436,359 87,715 Bonds 4,523,986 4,417,170 Receivables Accrued interest 1,292 224 Mutual funds 27,900 - Real estate Land 18,716,235 10,827,178 Construction in progress 7,262,144 3,731,442 Buildings 5,687 1,044

Total $ 126,012,612 $ 71,872,980

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Statements of Income on Trust Accounts Year Ended December 31, 2007

2007 Revenue

Interest revenue $ 2,311 Cash dividend 12,237 Realized gain on investment - stock 437 Unrealized gain on investment - stock 205,150 Unrealized gain on investment - mutual funds 593 Others 1 Total revenue 220,729

Expenses

Management fees 375 Taxes 215 Service charge 325 Postage 5 Unrealized loss on investment - stock 91,919 Unrealized loss on investment - mutual funds 1,663 Others 29 Total expenses 94,531 Income before income tax 126,198 Income tax -

Net income $ 126,198

b. Nature of trust business operations under the Trust Law: Note 1.

36. ACQUISITIONS OF OTHER FINANCIAL INSTITUTIONS’ ASSETS, LIABILITIES AND OPERATIONS

a. Merger with the Farmers Bank of China

To enhance its competitiveness, expand its business and increase its operating synergy, the stockholders resolved in their special meeting on December 28, 2005 to merge the Bank with the Farmers Bank of China (FBC), with the Bank as the survivor equity. Under the merger contract, the Bank will acquire FBC’s assets and liabilities through a share swap at a 1:2.45 ratio, and the ratio can be adjusted according to the regulations or the merger contract. The merger was completed on May 1, 2006 which was also the merger recording date. The actual share swap ratio was 2.23 shares of FBC for each Bank share because the Bank transferred its capital surplus to capital stock on February 27, 2006. The Bank increased its capital by $8,968,610 thousand and issued 896,861 thousand shares for this merger. This issuance was approved by the Ministry of Economic Affairs.

FBC’s predecessor consisted of farmers’ bank in four provinces in Mainland China and was established in 1933. It changed its name to the Farmers Bank of China in 1935 and established its business in Taiwan on May 20, 1967. It engaged in (a) all specialized banking operations allowed under the Banking Law; (b) trust business authorized by the central authority-in-charge; (c) international banking operations; (d) overseas branch operations as authorized by the respective foreign governments; and (e) other operations as authorized by the central authority-in-charge. FBC was government-owned and then privatized in August 1999. FBC’s stock was listed on the Taiwan Stock Exchange and ceased to be listed on May 1, 2006 because of the merger with the Bank.

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Under an explanation issued by the Accounting Research and Development Foundation (ARDF) of the Republic of China, the merger should be treated as a reorganization because the Ministry of Finance (MOF) is the largest stockholder of both banks. Thus, the Bank should recognize FBC’s assets and liabilities at book value (any impairment loss on assets should be deducted from its book value) for the MOF-owned share ratio (28.06%) and apply Statement of Financial Accounting Standards (SFAS) No. 25 - “Business Combinations - Accounting Treatment under Purchase Method” for the remaining share ratio (71.94%). If the Bank’s accounting policies on assets and liabilities were more appropriate to use than those of FBC, the Bank should adjust the book value of FBC’s assets and liabilities on the basis of the Bank’s accounting policies.

Under the foregoing explanation of the ARDF, the Bank recognized $11,733,278 thousand as the cost of combination for the non-MOF-owned share ratio and issued 645,186 thousand common shares, or $6,451,863 thousand in capital, to the stockholders, except the MOF. The Bank recognized a goodwill amounting to $3,105,957 thousand from the merger.

The amount of assets and liabilities recognized by the Bank after the merger are summarized as follows:

Fair Value of Identifiable Account Name Net Assets Book Value Total

Cash and cash equivalents $ 10,099,694 $ 3,939,358 $ 14,039,052 Due from the Central Bank and call loans to other banks 45,035,844 17,566,108 62,601,952 Financial assets at fair value through profit or loss 12,601,518 4,915,188 17,516,706 Receivables 4,346,097 1,837,511 6,183,608 Discounts and loans 320,147,429 127,251,639 447,399,068 Available-for-sale financial assets 3,534,232 1,378,518 4,912,750 Held-to-maturity financial assets 196,592 76,680 273,272 Equity investments under the equity method 5,550 2,165 7,715 Other financial assets 5,542,406 2,048,574 7,590,980 Properties 6,254,161 2,485,080 8,739,241 Other assets 4,363,151 462,572 4,825,723 Due to the Central Bank and other banks (42,373,337 ) (16,527,604 ) (58,900,941 ) Funds borrowed from the Central Bank (9,123,026 ) (3,558,411 ) (12,681,437 ) Financial liabilities at fair value through profit or loss (1,716 ) (669 ) (2,385 ) Securities sold under repurchase agreements (5,039,992 ) (1,965,835 ) (7,005,827 ) Payables (7,543,888 ) (2,947,114 ) (10,491,002 ) Deposits and remittances (331,009,807 ) (129,109,469 ) (460,119,276 ) Bank debentures (5,755,200 ) (2,244,800 ) (8,000,000 ) Accrued pension cost (64,635 ) (25,211 ) (89,846 ) Other financial liabilities (1,330,603 ) (518,998 ) (1,849,601 ) Other liabilities (1,257,149 ) (488,356 ) (1,745,505 ) Other stockholders’ equity - unrealized revaluation increments - (177,148 ) (177,148 ) Other stockholders’ equity - unrealized gains or losses on financial instruments - (118,054 ) (118,054 ) Other stockholders’ equity - cumulative translation adjustments - (17,219 ) (17,219 ) Subtotal 8,627,321 $ 4,264,505 $ 12,891,826 Cost of combination 11,733,278

Goodwill $ 3,105,957 $ 3,105,957

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The foregoing fair values of identifiable net assets and book value were calculated on the basis of the reports issued by PricewaterhouseCoopers Financial Advisory Service Co., Ltd. and Solomon & Co. CPAs with a proportion of 71.94% and 28.06%, respectively. In calculating the amount corresponding to the share ratio of 28.06%, the Bank had already adjusted the book value of assets and liabilities of FBC, which was audited by Solomon & Co. CPAs, in accordance with the ARDF’s explanation.

The Bank increased the amount of goodwill by $64,048 thousand because of the adjustments of accrued pension cost, credits receivable and deferred income tax assets.

All of FBC’s operating results after May 1, 2006 were included in the Bank’s income statement, but any profit or loss before the merger date was not included. For comparison purposes, the combined pro forma income statement for 2006 is provided as follows (FBC’s data for the period from January 1, 2006 to April 30, 2006 was audited by other auditors and adjusted according to the explanation of the ARDF):

Items 2006

Net interest $ 23,353,302 Net revenue and gain other than interest 12,868,556 Net revenue 36,221,858 Allowance for bad-debt expenses (8,583,696 ) Operating expenses (17,639,619 ) Income before income tax 9,998,543 Income tax expense (1,025,500 ) Income before cumulative effect of changes in accounting principles 8,973,043 Cumulative effect of changes in accounting principles 280,537

Net income $ 9,253,580

Earnings per share (NT$) $ 2.14

The pro forma combined statement of income are presented for illustrative purposes only. That is, this information merely shows the financial position and results of operations under the assumption that the Bank merged with FBC on January 1, 2006; this information also does not show the future financial position or result of operations of the Bank and FBC.

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b. Pro forma information on the acquisition of Taiwan Cooperative Bills Finance Corporation

All of TCBF’s operating results from December 5, 2007 were included in the Company’s consolidated income statement, i.e., profit or loss before the acquisition date (December 4, 2007) was not included. For comparison purposes, the combined pro forma consolidated income statements for 2007 and 2006 are provided as follows (under Statement of Financial Accounting Standards No. 1 - “Conceptual Framework of Financial Accounting and Preparation of Financial Statements,” TCBF’s data in 2007 and 2006 were audited and adjusted for the loss on the disposal of NPLs):

Percentage Increase Items 2007 2006 (Decrease)

Net interest $ 24,419,993 $ 20,990,569 16 Net revenue and gain other than interest 10,612,792 12,447,319 (15 ) Net revenue 35,032,785 33,437,888 5 Allowance for bad-debt expenses (4,256,487 ) (12,180,232 ) (65 ) Operating expenses (18,173,334 ) (16,204,451 ) 12 Income before income tax 12,602,964 5,053,205 149 Income tax expense (1,878,063 ) (1,399,845 ) 34 Income before extra-ordinary gain and cumulative effect of changes in accounting principles 10,724,901 3,653,360 194 Extra-ordinary gain 1,457,341 - - Cumulative effect of changes in accounting principles - 47,479 (100 )

Net income $ 12,182,242 $ 3,700,839 229

Earnings per share (NT$) $ 2.30 $ 1.61

The pro forma combined statements of income are presented for illustrative purposes only. That is, this information merely shows the financial position and results of operations under the assumption that the Bank acquired TCBF on January 1, 2006 and 2007; this information also does not show the future consolidated financial position or result of operations of the Company.

37. OTHER SIGNIFICANT TRANSACTIONS

Article 72-2 of the Banking Law sets a limit on the total amount of loans that banks may extend for construction for residential and business purposes. Thus, on July 27, 2007, the Bank’s board of directors resolved that the Bank will serve as an originator for some of the Bank’s housing loans and issue residential mortgage backed securities amounting to $30 billion in batches in accordance with the Financial Asset Securitization Act. This issuance needs to be approved by the Financial Supervisory Commission.

38. ADDITIONAL DISCLOSURES

a. Related information of significant transactions and b. investees:

1) Financing provided: The Bank - not applicable; investee company - none or not applicable.

2) Endorsement/guarantee provided: The Bank - not applicable; investee company - none or not applicable.

3) Marketable securities held: The Bank - not applicable; investee company - Table 3 (attached).

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4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 10% of the paid-in capital (the Bank disclosed its investments accumulated or disposed of): Table 4 (attached).

5) Acquisition of individual real estate at costs of at least NT$300 million or 10% of the paid-in capital: Table 5 (attached).

6) Disposal of individual real estates at costs of at least NT$300 million or 10% of the paid-in capital: None.

7) Allowance of service fees to related parties amounting to at least NT$5 million: None.

8) Receivables from related parties amounting to at least NT$300 million or 10% of the paid-in capital: Table 6 (attached).

9) Sale of nonperforming loans: Table 7 (attached).

10) Financial asset securitization: None.

11) Other significant transactions which may affect the decisions of users of financial reports: Note 37 to the consolidated financial statements.

12) Information of and proportionate share in investees: Table 8 (attached).

13) Derivative transactions: The Bank - Notes 6 and 33 to the consolidated financial statements; investee - none.

c. Investment in Mainland China: None.

d. Business relationships and significant transactions among the parent company and subsidiaries: Table 9 (attached).

39. SEGMENT INFORMATION

The Company engages mainly in banking activities as prescribed by the Banking Law in the Republic of China. As of December 31, 2007 and 2006, no customers or overseas units individually represented 10% or more of the Bank’s total revenues or total identifiable assets. Thus, no segment and geographic information is required to be disclosed.

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TABLE 1

TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES

MATURITY ANALYSIS DECEMBER 31, 2007 AND 2006 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. Maturity analysis of financial assets and liabilities is summarized as follows:

a. Taiwan Cooperative Bank, Ltd.

December 31, 2007 Due after One Due after Three Due after Six Due in Month up to Months up to Months up to Due after One Month Three Months Six Months One Year One Year Total Assets

Cash and cash equivalents $ 32,500,510 $ - $ - $ - $ - $ 32,500,510 Due from the Central Bank and call loans to other banks 171,665,661 73,695,606 119,206,971 59,791,556 - 424,359,794 Financial assets at fair value through profit or loss 29,389,829 1,117,264 1,248,768 600,297 9,392,357 41,748,515 Receivables 5,654,962 5,158,026 10,645,433 3,064,703 5,177,805 29,700,929 Discounts and loans 97,138,005 81,025,145 102,500,649 200,867,410 1,264,159,813 1,745,691,022 Available-for-sale financial assets 3,940,705 - - 7,922,398 48,384,177 60,247,280 Held-to-maturity financial assets - - - 4,365,905 3,161,157 7,527,062 Other financial assets (exclusive of financial assets carried at cost) 697,328 822,291 482,139 1,944,081 39,156,093 43,101,932

$ 340,987,000 $ 161,818,332 $ 234,083,960 $ 278,556,350 $ 1,369,431,402 $ 2,384,877,044 Liabilities $ 66,028,327 $ 57,141,238 $ 40,879,002 $ 75,041,079 $ 2,835,278 $ 241,924,924 Due to the Central Bank and other banks 12,891,440 - - - - 12,891,440 Funds borrowed from the Central Bank 885,441 - - - 1,764,713 2,650,154 Financial liabilities at fair value through profit or loss 33,603,728 4,710,847 4,932,585 - - 43,247,160 Securities sold under repurchase agreements 32,885,517 234,340 1,698,227 1,985,497 3,310,870 40,114,451 Payables 339,444,957 302,377,914 276,838,845 434,621,689 531,964,432 1,885,247,837 Deposits and remittances - - 6,550,000 10,000,000 67,771,000 84,321,000 Bank debentures 1,470,930 12,000 16,000 30,000 3,079,700 4,608,630 Other financial liabilities $ 487,210,340 $ 364,476,339 $ 330,914,659 $ 521,678,265 $ 610,725,993 $ 2,315,005,596

December 31, 2006 Due after One Due after Three Due after Six Due in Month up to Months up to Months up to Due after One Month Three Months Six Months One Year One Year Total Assets

Cash and cash equivalents $ 46,000,637 $ - $ - $ - $ - $ 46,000,637 Due from the Central Bank and call loans to other banks 250,958,518 33,389,940 47,812,860 48,948,900 163,250 381,273,468 Financial assets at fair value through profit or loss 31,165,222 2,395,535 678,458 162,013 13,120,372 47,521,600 Receivables 14,777,220 5,737,566 1,591,537 2,364,545 4,104,097 28,574,965 Discounts and loans 86,451,607 51,019,677 126,020,314 249,153,803 1,221,880,744 1,734,526,145 Available-for-sale financial assets 1,318,463 238,062 - 3,476,124 56,874,867 61,907,516 Held-to-maturity financial assets - - - - 3,163,176 3,163,176 Other financial assets (exclusive of financial assets carried at cost) 628,351 780,227 622,134 2,355,045 32,405,544 36,791,301

$ 431,300,018 $ 93,561,007 $ 176,725,303 $ 306,460,430 $ 1,331,712,050 $ 2,339,758,808 Liabilities

Due to the Central Bank and other banks $ 115,512,353 $ 60,270,802 $ 36,893,437 $ 38,885,323 $ 2,849,388 $ 254,411,303 Funds borrowed from the Central Bank 13,713,000 - - - - 13,713,000 Financial liabilities at fair value through profit or loss - 1,567,921 - - 1,835,361 3,403,282 Securities sold under repurchase agreements 46,385,886 6,686,597 4,085,088 - - 57,157,571 Payables 41,337,452 1,499,627 1,463,674 1,653,032 3,309,011 49,262,796 Deposits and remittances 362,027,691 331,616,548 244,739,052 357,059,022 527,930,726 1,823,373,039 Bank debentures - - - - 64,151,000 64,151,000 Other financial liabilities 1,712,991 12,000 16,000 30,000 3,171,184 4,942,175

$ 580,689,373 $ 401,653,495 $ 287,197,251 $ 397,627,377 $ 603,246,670 $ 2,270,414,166

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b. United Taiwan Bank S.A.

December 31, 2007 Due after Due after One Three Months Due after Six Due in Month up to up to Months up to Due after One Month Three Months Six Months One Year One Year Total Assets

Cash and cash equivalents $ 241,908 $ - $ - $ - $ - $ 241,908 Receivables 71,855 - - - - 71,855 Discounts and loans - 332,734 - 884,344 3,951,061 5,168,139 Other financial assets (exclusive of financial assets carried at cost) - - 143,449 748,821 6,714,183 7,606,453

$ 313,763 $ 332,734 $ 143,449 $ 1,633,165 $ 10,665,244 $ 13,088,355 Liabilities

Due to the Central Bank and other banks $ 6,292,378 $ 3,843,117 $ 775,296 $ - $ - $ 10,910,791 Payables 32,062 - - - - 32,062 Deposits and remittances 157,255 - - - - 157,255

$ 6,481,695 $ 3,843,117 $ 775,296 $ - $ - $ 11,100,108

December 31, 2006 Due after Due after One Three Months Due after Six Due in Month up to up to Months up to Due after One Month Three Months Six Months One Year One Year Total Assets

Cash and cash equivalents $ 233,093 $ - $ - $ - $ - $ 233,093 Receivables 14,305 37,123 9,730 - - 61,158 Discounts and loans - 215,000 23,312 293,850 3,936,907 4,469,069 Other financial assets (exclusive of financial assets carried at cost) 246,745 398,950 215,000 462,357 5,713,489 7,036,541

$ 494,143 $ 651,073 $ 248,042 $ 756,207 $ 9,650,396 $ 11,799,861 Liabilities

Due to the Central Bank and other banks $ 5,394,834 $ 4,111,745 $ 437,053 $ - $ - $ 9,943,632 Payables 25,354 16,227 1,730 - - 43,311 Deposits and remittances 71,424 39,441 - - - 110,865

$ 5,491,612 $ 4,167,413 $ 438,783 $ - $ - $ 10,097,808

c. Taiwan Cooperative Bills Finance Corporation

December 31, 2007 Due after Due after One Month Three Due in up to Three Months up to Due after One Month Months One Year One Year Total Assets

Financial assets at fair value through profit or loss $ 2,078,753 $ 260,724 $ - $ - $ 2,339,477 Available-for-sale financial assets - - 147,608 30,000 177,608 Held-to-maturity financial assets - - - 100,000 100,000

$ 2,078,753 $ 260,724 $ 147,608 $ 130,000 $ 2,617,085

(Continued)

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December 31, 2007 Due after Due after One Month Three Due in up to Three Months up to Due after One Month Months One Year One Year Total Liabilities

Due to the Central Bank and other banks $ 600,000 $ - $ - $ - $ 600,000 Securities sold under repurchase agreements 3,910 - - - 3,910

$ 603,910 $ - $ - $ - $ 603,910 (Concluded)

2. Maturity analysis of assets and liabilities

a. Taiwan Cooperative Bank, Ltd.

Maturity Analysis of Assets and Liabilities (New Taiwan Dollars) December 31, 2007

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 maturity $ 2,350,726,910 $ 392,432,707 $ 139,538,476 $ 196,196,107 $ 276,491,495 $ 1,346,068,125 Main capital outflow on maturity 2,398,020,342 446,736,298 332,388,491 311,610,996 543,824,956 763,459,601 Gap (47,293,432 ) (54,303,591 ) (192,850,015 ) (115,414,889 ) (267,333,461 ) 582,608,524

Maturity Analysis of Assets and Liabilities (New Taiwan Dollars) December 31, 2006

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 maturity $ 2,329,967,329 $ 484,478,828 $ 68,016,347 $ 157,723,291 $ 308,052,700 $ 1,311,696,163 Main capital outflow on maturity 2,344,814,527 567,451,078 322,417,163 278,372,303 392,645,008 783,928,975 Gap (14,847,198 ) (82,972,250 ) (254,400,816 ) (120,649,012 ) (84,592,308 ) 527,767,188

Note: The above amounts included only New Taiwan dollar amounts held by the head office and domestic branches of the Bank (i.e., excluding foreign currency).

Maturity Analysis of Assets and Liabilities (U.S. Dollars) December 31, 2007

(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 maturity $ 7,200,544 $ 2,211,083 $ 1,399,450 $ 1,205,524 $ 1,235,082 $ 1,149,405 Main capital outflow on maturity 7,200,544 4,710,266 1,259,355 796,380 442,751 (8,208 ) Gap - (2,499,183 ) 140,095 409,144 792,331 1,157,613

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Maturity Analysis of Assets and Liabilities (U.S. Dollars) December 31, 2006

(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 maturity $ 5,246,435 $ 1,340,756 $ 1,357,140 $ 1,087,136 $ 104,708 $ 1,356,695 Main capital outflow on maturity 4,697,883 3,133,215 819,799 459,461 229,544 55,864 Gap 548,552 (1,792,459 ) 537,341 627,675 (124,836 ) 1,300,831

Note: The above amounts included only U.S. dollar amounts held by the head office, domestic branches and OBU of the Bank. b. United Taiwan Bank S.A.

Maturity Analysis of Assets and Liabilities (U.S. Dollars) December 31, 2007

(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 maturity $ 403,268 $ 10,010 $ 14,659 $ - $ 50,276 $ 328,323 Main capital outflow on maturity 341,978 199,803 118,308 23,867 - - Gap 61,290 (189,793 ) (103,649 ) (23,867 ) 50,276 328,323

Maturity Analysis of Assets and Liabilities (U.S. Dollars) December 31, 2006

(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 maturity $ 362,440 $ 17,324 $ 18,804 $ 7,299 $ 23,161 $ 295,852 Main capital outflow on maturity 310,175 170,855 125,934 13,386 - - Gap 52,265 (153,531 ) (107,130 ) (6,087 ) 23,161 295,852

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.

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TABLE 2

TAIWAN COOPERATIVE BANK, LTD.

ASSET QUALITY - NONPERFORMING LOANS AND RECEIVABLES DECEMBER 31, 2007 AND 2006 (In Thousands of New Taiwan Dollars, %)

Period December 31, 2007 December 31, 2006 Nonperforming Ratio of Nonperforming Ratio of Allowance for Coverage Ratio Allowance for Coverage Ratio Items Loans Loans Nonperforming Loans Loans Nonperforming Credit Losses (Note 3) Credit Losses (Note 3) (Note 1) Loans (Note 2) (Note 1) Loans (Note 2) Corporate Secured $ 8,237,876 $ 411,500,023 2.00 $ 2,437,166 29.58 $ 12,763,396 $ 405,131,227 3.15 $ 4,953,512 38.81 Banking Unsecured 5,334,159 621,699,250 0.86 8,344,523 156.44 5,150,215 653,253,461 0.79 8,879,619 172.41 Housing mortgage (Note 4) 9,776,082 554,759,321 1.76 2,971,968 30.40 10,281,828 518,824,231 1.98 3,486,704 33.91 Cash card ------Consumer Small-scale credit loans (Note 5) 1,014,003 42,371,170 2.39 985,147 97.15 1,508,510 49,601,571 3.04 1,338,655 88.74 Banking Secured 4,054,167 103,938,389 3.90 815,882 20.12 6,726,626 91,909,120 7.32 1,226,581 18.23 Other (Note 6) Unsecured 676,257 11,422,869 5.92 390,131 57.69 1,021,380 15,806,535 6.46 827,227 80.99 Loan 29,092,544 1,745,691,022 1.67 15,944,817 54.81 37,451,955 1,734,526,145 2.16 20,712,298 55.30 Ratio of Ratio of Nonperforming Nonperforming Nonperforming Allowance for Coverage Ratio Nonperforming Allowance for Coverage Ratio Receivables Receivables Receivables Receivables Receivables Credit Losses (Note 3) Receivables Credit Losses (Note 3) (Note 1) (Note 1) (Note 2) (Note 2) Credit cards 45,662 2,828,677 1.61 58,398 127.89 67,760 3,173,205 2.14 134,572 198.60 Accounts receivable factored without recourse - 1,434,713 - 1,349 - - 860,227 - 809 - (Note 7) Amounts of executed contracts on negotiated debts 25,397 11,158 not reported as nonperforming loans (Note 8) Amounts of executed contracts on negotiated debts 204,846 278,796 not reported as nonperforming receivables (Note 8)

Note 1: 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 Nonperforming/ Non-accrued Loans.” Nonperforming credit card receivables are reported to the authorities and disclosed to the public, as required by the Banking Bureau’s letter dated July 6, 2005 (Ref. No. 0944000378).

Note 2: Ratio of nonperforming loans: Nonperforming loans ÷ Outstanding loan balance. Ratio of nonperforming credit card receivables: Nonperforming credit card receivables ÷ Outstanding credit card receivable balance.

Note 3: Coverage ratio of loans: Allowance for credit losses for loans ÷ Nonperforming loans. Coverage ratio of credit card receivables: Allowance for credit losses for credit card receivables ÷ Nonperforming credit card receivables.

Note 4: The mortgage loan is for house purchase or renovation and is fully secured by housing that is purchased (owned) by the borrower, the spouse or the minor children of the borrowers.

Note 5: Based on the Banking Bureau’s letter dated December 19, 2005 (Ref. No. 09440010950), small-scale credit loans are unsecured, involve small amounts and exclude credit cards and cash cards.

Note 6: Other consumers banking loans refer to secured or unsecured loans that exclude housing mortgage, cash and credit card, and small-scale credit loans.

Note 7: 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 after the factors or insurance companies refuse to indemnify banks for any liabilities on these accounts.

Note 8: Amounts of executed contracts on negotiated debts that are not reported as nonperforming loans or receivables are disclosed to the public in accordance with the Banking Bureau’s letter dated April 25, 2006 (Ref. No. 09510001270).

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TABLE 3

TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES HELD DECEMBER 31, 2007 (In Thousands of New Taiwan Dollars)

December 31, 2007 Relationship with the Market Value Holding Company Name Marketable Securities Type and Issuer Financial Statement Account Shares Percentage of Note Holding Company Carrying Value or Net Asset (Thousands) Ownership Value

Co-operative Assets Management Stock Co., Ltd. Cooperative I Assets Management Co., Ltd. Subsidiary Equity investments under the 50,000 $ 503,777 100 $ 503,777 (Shown below) equity method

Note: When the Bank prepared the consolidated financial statements, the related account and security transaction were eliminated.

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TABLE 4

TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 10% OF THE PAID-IN CAPITAL (THE BANK DISCLOSED ITS INVESTMENTS ACCUMULATED OR DISPOSED OF) YEAR ENDED DECEMBER 31, 2007 (In Thousands of Shares or New Taiwan Dollars)

Beginning Balance Acquisition Disposal Ending Balance Marketable Securities Type Financial Statement Company Name Counter-party Nature of Relationship Carrying Gain (Loss) on and Issuer Account Shares Amount Shares Amount Shares Price Shares Amount Value Disposal

Taiwan Cooperative Taiwan Cooperative Bills Equity investments - Subsidiary - $ - 52,952 $ 537,982 - $ - $ 64 $ - 52,952 $ 537,918 Bank, Ltd. Finance Corporation under the equity (Note 1) (Note 1) method Waterland Financial Holding Available-for-sale Sold in the market None 148,318 1,594,420 2,967 - 151,284 1,674,604 1,594,414 649,462 1 6 Co., Ltd. financial assets (Note 2) (Note 3) Taiwan Development Co., Ltd. Available-for-sale Sold in the market None 25,230 484,416 - - 13,500 178,452 319,517 43,452 11,730 164,899 financial assets (Note 4)

Note 1: Acquisition amounting to $529,516 thousand involving the transformation of creditor’s rights to stockholder’s rights and an income of $8,466 thousand from equity-method investments; this disposal resulted in an adjustment to stockholders’ equity.

Note 2: Acquisition shares refer to stock dividends received.

Note 3: Gain on disposal includes a debit of $569,272 thousand to other stockholders’ equity - unrealized gain on financial instruments.

Note 4: Gain on disposal includes a debit of $184,517 thousand to other stockholders’ equity - unrealized gain on financial instruments.

Note 5: When the Bank prepared the consolidated financial statements, the related account and security transaction was eliminated.

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TABLE 5

TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES

ACQUISITION OF INDIVIDUAL REAL ESTATE AT COSTS OF AT LEAST NT$300 MILLION OR 10% OF THE PAID-IN CAPITAL YEAR ENDED DECEMBER 31, 2007 (In Thousands of New Taiwan Dollars)

Prior Transaction of Related Counter-party Transaction Transaction Nature of Purpose of Company Name Property Payment Term Counter-party Price Reference Other Terms Date Amount Relationship Transfer Acquisition Owner Relationship Amount Date

Taiwan Cooperative Land and buildings: No. 152, 2007.8.22 $454,220 (dealing Paid in full China United Trust & None - - - $ - 1. Appraisal price of To construct an - Bank, Ltd. Songjiang Rd., Taipei City price of $453,620, Investment Corp. $455,727 - Taidsu office of the deed tax of $600) Appraisers Firm Songjiang branch 2. Appraisal price of $492,465 - Honda Appraisers Firm

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TABLE 6

TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$300 MILLION OR 10% OF THE PAID-IN CAPITAL DECEMBER 31, 2007 (In Thousands of New Taiwan Dollars)

Overdue Receivables from Related Party Amount Received Amount of Receivable Turnover Provisions Company Name Counter-party Nature of Relationship Method used to on Post Balance from Related Party Rate Amount Addressed Process Sheet

Taiwan Cooperative Bank, Ltd. Co-operative Asset Management Co., Ltd. Subsidiary $8,743,226 - $ - - $ - $ - (Note)

Note: The amount is the receivable from the sale of nonperforming loans sold by Taiwan Cooperative Bank, Ltd. to its subsidiary. When the Bank prepared the consolidated financial statements, the related account and transaction were eliminated.

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TABLE 7

TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES

SALE OF NONPERFORMING LOANS YEAR ENDED DECEMBER 31, 2007 (In Thousands of New Taiwan Dollars)

1. Sale of nonperforming loans

Co-operative Asset Management Co., Ltd.

Relationship Contract on Book Value Terms Between the Trade Date Counterparty Selling Price Gain (Loss) Nonperforming Loan (Note) Attached Counterparty and the Bank

2007.01.22 Z. H. Lu Mortgage on land $ 11,452 $ 11,500 $ 48 None None 2007.01.30 Y. L. Cheng Mortgage on land and 23,590 30,500 6,910 None None building 2007.01.31 J. S. Lin Mortgage on land 9,615 11,500 1,885 None None 2007.03.13 S. X. Wu Mortgage on land and 1,646 3,250 1,604 None None building 2007.03.22 L. W. Lai Mortgage on land 194,960 310,000 115,040 None None 2007.03.29 L. X. Lin Mortgage on land - 100 100 None None 2007.04.10 Q. X. Hung Mortgage on land and 48,500 32,000 (16,500 ) None None building 2007.04.27 Q. F. Lin Mortgage on land and 594 1,500 906 None None building 2007.05.30 Z. M. Yu Mortgage on land and 11,161 14,500 3,339 None None building 2007.06.20 S. P. Lin Mortgage on land and 1,055 1,550 495 None None building 2007.07.10 L. Q. Chen Mortgage on land and 10,794 16,000 5,206 None None building 2007.07.24 Z. T. Wong Mortgage on land and 762 1,822 1,060 None None building 2007.12,31 Santos Hotel Mortgage on land and 517,426 525,401 7,975 None None building

Note: Book value equals the original purchase price.

2. The sale of a batch of nonperforming loans over NT$1 billion (excluding those sold to related-parties): None.

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TABLE 8

TAIWAN COOPERATIVE BANK, LTD.

INFORMATION ON AND PROPORTIONATE SHARE IN INVESTEES YEAR ENDED DECEMBER 31, 2007 (In Thousands of New Taiwan Dollars)

The Proportionate Share of the Bank and its Affiliates in Investees (Note 1) Percentage Investment Gain Total Investee Company Location Main Businesses and Products of Carrying Value Pro Forma Note (Loss) Percentage Ownership Shares Shares Shares of (Note 2) Ownership

Finance-related business Waterland Financial Holding Corp. Taipei City Financial holding - $ 6 $ 738,453 543 - 543 - Not settled Co-operative Assets Management Co., Ltd. Taipei City Acquisition of delinquent loans 100.00 3,746,144 230,559 350,000,000 - 350,000,000 100.00 Cooperative Insurance Brokers Co., Ltd. Taipei City Life and property insurance agent 100.00 45,999 33,962 1,000,000 - 1,000,000 100.00 Taiwan Cooperative Bills Finance Corporation Taipei City Bills finance dealer 50.56 537,918 8,466 52,951,572 - 52,951,572 50.56 United Taiwan Bank S.A. Belgium Banking 70.00 1,376,916 61,188 1,023,750 - 1,023,750 70.00 Chinfon Commercial Bank Taipei City Banking 0.26 - - 1,495,100 - 1,495,100 0.26 Taipei Forex Inc. Taipei City Foreign exchange brokering 7.06 19,198 4,360 1,400,000 - 1,400,000 7.06 Taiwan Futures Exchange Co., Ltd. Taipei City Futures clearing 1.75 53,468 2,345 3,850,000 - 3,850,000 1.75 Taiwan Financial Asset Service Co., Ltd. Taipei City Property auction 5.88 101,125 - 10,000,000 - 10,000,000 5.88 Taiwan Asset Management Co., Ltd. Taipei City Acquisition of delinquent loans 17.03 3,120,934 282,300 300,000,000 - 300,000,000 17.03 Financial eSolution Co., Ltd. Taipei City Office machine wholesaling 12.37 48,768 - 4,267,094 - 4,267,094 12.37 Financial Information Service Co., Ltd Taipei City Information service 2.89 135,405 19,681 11,577,000 - 11,577,000 2.89 Taiwan Integrated Shareholder Service Taipei City Proxy processing and rendering 0.53 1,600 - 160,000 - 160,000 0.53 Company electronic-voting service Sunny Asset Management Co., Ltd. Taipei City Acquisition of delinquent loans 0.72 431 - 43,088 - 43,088 0.72 Taiwan Depository & Clearing Co., Ltd. Taipei City Custody of securities and short-term bills 0.84 60,694 2,376 2,435,182 - 2,435,182 0.84 Central Deposit Insurance Co., Ltd. Taipei City Deposit insurance - 10 - 1,000 - 1,000 -

Non-finance related business Taiwan Development Co., Ltd. Taipei City Urban renewal and industrial park development 3.91 164,899 43,452 11,730,000 - 11,730,000 3.91 Not settled United Real Estate Management Co., Ltd. Taipei City Real estate appraisal 30.00 69,306 7,536 5,850,000 - 5,850,000 30.00 Agricultural Education Film Co., Ltd. - (Operation terminated) 45.00 - - 9,000 - 9,000 45.00 Taipei Rapid Transit Co., Ltd. Taipei City Public transportation - 139 7 13,363 - 13,363 - TWTC International Trade Building Co., Ltd. Taipei City TWTC international trade building leasing 12.50 212,085 28,609 11,250 - 11,250 12.50 Taiwan Sugar Company Tainan City Sugar manufacturing 0.08 14,599 4,704 5,880,212 - 5,880,212 0.08 Taiwan Power Company Taipei City Power development and supply 0.24 631,153 - 78,754,764 - 78,754,764 0.24 China Daily News Tainan City Newspaper publishing 0.04 52 - 16,768 - 16,768 0.04 Tai-Hsin Enterprise Co., Ltd. Taipei County Printing industry 16.33 2,058 - 343,000 - 343,000 16.33 Lieu-An Service Co., Ltd. Taipei City Leasing 5.00 1,250 125 125,000 - 125,000 5.00

Note 1: Shares or pro forma shares held by the Bank, directors, supervisors, president, vice president and affiliates in accordance with the Company Law have been included. Note 2: a. Pro forma shares are shares that are assumed to be obtained through buying equity-based securities or entering into equity-linked derivative contracts for purposes defined in Article 74 of the Banking Law. b. Equity-based securities, such as convertible bonds and warrants, are covered by Article 11 of the “Securities and Exchange Law Enforcement Rules.” c. Derivative contracts are those conforming to the definition of derivatives in Statement of Financial Accounting Standards No. 34 - “Accounting for Financial Instruments,” such as stock options. Note 3: The shares of Taiwan Television Enterprise Ltd. were sold in 2007, resulting in a gain of $220,003 thousand. Note 4: When the Bank prepared the consolidated financial statements, it has been eliminated.

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TABLE 9

TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES

BUSINESS RELATIONSHIPS AND SIGNIFICANT TRANSACTIONS AMONG THE PARENT COMPANY AND SUBSIDIARIES YEARS ENDED DECEMBER 31, 2007 AND 2006 (In Thousands of New Taiwan Dollars)

2007 Description of Transactions (Notes 3 and 5) Transaction Flow of Amount/Total No. Transaction Company Counter-party Transaction Consolidated Net (Note 1) Financial Statement Account Amounts Trading Terms (Note 2) Revenue or Total Consolidated Assets (%)

0 Taiwan Cooperative Bank, Ltd. United Taiwan Bank S.A. a Call loans to banks $ 8,330,010 Note 4 0.34

1 United Taiwan Bank S.A. Taiwan Cooperative Bank, Ltd. b Call loans from banks 8,330,010 Note 4 0.34

0 Taiwan Cooperative Bank, Ltd. United Taiwan Bank S.A. a Interest revenue 334,791 Note 4 0.96

1 United Taiwan Bank S.A. Taiwan Cooperative Bank, Ltd. b Interest expense 334,791 Note 4 0.96

0 Taiwan Cooperative Bank, Ltd. Co-operative Assets Management Co., Ltd. a Receivable from the sale of nonperforming 8,743,226 Note 4 0.36 loans

2 Co-operative Assets Management Co., Ltd. Taiwan Cooperative Bank, Ltd. b Accounts payable - related party 8,743,226 Note 4 0.36

0 Taiwan Cooperative Bank, Ltd. Cooperative Insurance Brokers Co., Ltd. a Service fee 176,297 Note 4 0.50

3 Cooperative Insurance Brokers Co., Ltd. Taiwan Cooperative Bank, Ltd. b Service charge 176,297 Note 4 0.50

0 Taiwan Cooperative Bank, Ltd. Cooperative I Assets Management Co., Ltd. a Deposits and remittances 277,593 Note 4 0.01

4 Cooperative I Assets Management Co., Ltd. Taiwan Cooperative Bank, Ltd. b Cash in bank 277,593 Note 4 0.01

0 Taiwan Cooperative Bank, Ltd. Taiwan Cooperative Bills Finance a Call loans to banks 300,000 Note 4 0.01 Corporation

5 Taiwan Cooperative Bills Finance Corporation Taiwan Cooperative Bank, Ltd. b Call loans from banks 300,000 Note 4 0.01

0 Taiwan Cooperative Bank, Ltd. Taiwan Cooperative Bills Finance a Deposits and remittances 126,077 Note 4 0.01 Corporation

5 Taiwan Cooperative Bills Finance Corporation Taiwan Cooperative Bank, Ltd. b Cash in bank 126,077 Note 4 0.01

(Continued)

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2006 Description of Transactions (Notes 3 and 5) Transaction Flow of Amount/Total No. Transaction Company Counter-party Transaction Consolidated Net (Note 1) Financial Statement Account Amounts Trading Terms (Note 2) Revenue or Total Consolidated Assets (%)

0 Taiwan Cooperative Bank, Ltd. United Taiwan Bank S.A. a Call loans to banks $ 8,064,013 Note 4 0.34

1 United Taiwan Bank S.A. Taiwan Cooperative Bank, Ltd. b Call loans from banks 8,064,013 Note 4 0.34

0 Taiwan Cooperative Bank, Ltd. United Taiwan Bank S.A. a Interest revenue 306,482 Note 4 0.91

1 United Taiwan Bank S.A. Taiwan Cooperative Bank, Ltd. b Interest expense 306,482 Note 4 0.91

0 Taiwan Cooperative Bank, Ltd. Co-operative Assets Management Co., Ltd. a Deposits and remittances 113,375 Note 4 0.00

2 Co-operative Assets Management Co., Ltd. Taiwan Cooperative Bank, Ltd. b Cash in banks 113,375 Note 4 0.00

0 Taiwan Cooperative Bank, Ltd. Cooperative I Assets Management Co., Ltd. a Deposits and remittances 281,635 Note 4 0.01

4 Cooperative I Assets Management Co., Ltd. Taiwan Cooperative Bank, Ltd. b Cash in banks 281,635 Note 4 0.01

Note 1: The parent company and subsidiaries are numbered as follows:

a. Parent company: 0. b. Subsidiaries are numbered sequentially from 1.

Note 2: Three types of transactions with related parties were classified as follows:

a. From parent company to subsidiary. b. From subsidiary to parent company. c. Between subsidiaries.

Note 3: For calculating the percentages, asset or liability account is divided by the consolidated total assets and revenue or expense account is divided by the total consolidated net revenue of the same year.

Note 4: The terms for the transactions between the Company and related parties are similar to those with unrelated parties.

Note 5: Referring to transactions exceeding New Taiwan dollars $100 million. (Concluded)

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TABLE 10

TAIWAN COOPERATIVE BANK, LTD. AND SUBSIDIARIES

CONSOLIDATED ENTITIES DECEMBER 31, 2007 AND 2006

Subsidiaries included in the consolidated financial statements:

Percentage of Ownership Investor Company Investee Company Location Main Business and Products December 31, December 31, Note 2007 2006

Taiwan Cooperative Bank, Ltd. Co-operative Assets Management Co., Ltd. Taipei City Acquisition of delinquent loans 100.00 100.00 Taiwan Cooperative Bills Finance Corporation Taipei City Bills finance 50.56 - 1 United Taiwan Bank S.A. Belgium Banking 70.00 70.00 Cooperative Insurance Brokers Co., Ltd. Taipei City Life and property insurance agent 100.00 100.00

Co-operative Assets Management Co., Ltd. Cooperative I Asset Management Co., Ltd. Taipei City Real estate appraisal and acquisition of delinquent loans 100.00 100.00

Subsidiaries not included in the consolidated financial statements:

Percentage of Ownership Investor Company Investee Company Location Main Business and Products December 31, December 31, Note 2007 2006

Taiwan Cooperative Bank, Ltd. Kuo Ming Life Insurance Agent Co., Ltd. Taipei City Life insurance agent - - 2 Kuo Mign Property Insurance Agent Co., Ltd. Taipei City Property insurance agent - - 2

Note 1: Taiwan Cooperative Bank, Ltd. acquired shares of Taiwan Cooperative Bills Finance Corporation and Taiwan Cooperative Bills Finance Corporation became a subsidiary of the Bank on December 4, 2007. Thus, the consolidated financial statements as of and for the year ended December 31, 2007 included accounts of Taiwan Cooperative Bills Finance Corporation.

Note 2: These companies were liquidated in December 2006. Thus, these companies were excluded from the consolidated financial statements as of and for the year ended December 31, 2007.

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