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Stock Code:2880 2ANNUAL REPORT19 HUA NAN FINANCIAL HOLDINGS CO., LTD. https://www.hnfhc.com.tw https://mops.twse.com.tw 108Printed on April 30. 2020 ANNUAL REPORT 2HUA NAN FINANCIAL HOLDINGS19 CO., LTD. I. Address, Website, and Telephone No. of HNFHC and Its II. Spokesperson Subsidiaries Name of spokesperson: King-Huo, Lu (I) HNFHC Title: Executive Vice President and Company Secretary Address: No. 123, Songren Rd., Xinyi Dist., Tel No.: (02)2371-3111 Ext. 1865 Taipei City E-mail: [email protected] Tel No.: (02)2371-3111 Name of deputy spokesperson: Tien-Yu, Chen Website: https://www.hnfhc.com.tw Title: Executive Vice President (II) Subsidiaries Tel No.: (02)2371-3111 Ext. 1862 1. Hua Nan Commercial Bank Ltd. E-mail: [email protected] Address: No. 123, Songren Rd., Xinyi Dist., Taipei City III. Stock Transfer Handling Agency Tel No.: (02)2371-3111 Name: Hua Nan Securities Co., Ltd. Website: https://www.hncb.com.tw Address: 4F, No. 54, Sec. 4, Mingsheng E. Rd., 2. Hua Nan Securities Co., Ltd. Songshan Dist., Taipei City Address: 5F, No. 54, Sec. 4, Minsheng E. Rd., Tel No.: (02)2545-6888 Songshan Dist., Taipei City Website: https://www.entrust.com.tw Tel No.: (02)2545-6888 Website: https://www.entrust.com.tw/ IV. CPA of the Financial Reports 3. South China Insurance Co., Ltd. Name of CPA: Chang,Ting-Sheng and Lai, Address: 5F, No. 560, Sec. 4, Zhongxiao E. Kuan-Chung Rd., Xinyi Dist., Taipei City Name of accounting firm: Deloitte Taiwan Website: https://www.south-china.com.tw Address: 20F, No.100, Songren Rd., Xinyi Dist., Tel No.: (02)2758-8418 Taipei City 4. Hua Nan Investment Trust Corp. Tel No.: (02)2725-9988 Address: 3F-1, No. 54, Sec. 4, Minsheng E. Website: https://www.deloitte.com.tw Rd., Songshan Dist., Taipei City Tel No.: (02)2719-6688 V. Name of Overseas Listing Securities Exchange Website: https://www.hnitc.com.tw Office and the Way to Inquire: None. 5. Hua Nan Venture Capital Co., Ltd. Address: 3F, No. 143, Sec. 2, Mingsheng E. VI. Credit Rating Agency Rd., Zhongshan Dist., Taipei City Name: Taiwan Ratings Co. Tel No.: (02)2500-0622 Address: 49F, No. 7, Sec. 5, Xinyi Rd., Xinyi Dist., Website: None Taipei City 6. Hua Nan Assets Management Co., Ltd. Tel No.: (02)8722-5800 Address: 4F, No. 18, Sec. 1, Changan E. Website: https://www.taiwanratings.com Rd., Zhongshan Dist., Taipei City Tel No.: (02)2511-2900 Website: https://www.hnamc.com.tw C NTENTS HUA NAN FINANCIAL HOLDINGS CO., LTD. VIII. Labor management relations of the Group 003 I |Letter to the Shareholders IX. Material Contracts of the Group X. Key indicators of the Group 123 012 II |Company Profile VI |The Company’s Business I. Condensed balance sheets and statements of comprehensive income for the past five years 014 III |Corporate Governance II. Financial analysis for the past five years III. Audit Committee Report for the past year's financial report IV. The past year's financial report I. Organization Chart V. Other financial status disclosure II. Directors and Management Team III. Status of Corporate Governance IV. Information on CPA Professional Fees 316 VII | Risk Management and V. CPA change information VI. If Chairman, President, or Chief Financial Officer Holding Analysis on Financial Status Positions at the Independent Audit Firm or its Affiliated and Operating Results. Company within the Most Recent Fiscal Year VII. Any Transfer or Pledge of Equity Interests in the Most Recent Year up to the Date of Publication of the Annual Report by I. Financial Status a Director, Manager, or Individual or Related Party Holding Shares of the Same Financial Holding Company with Voting II. Financial performance Rights Issued over a Certain Ratio Set Forth in Article 11 of III. Cash flow the Regulations IV. Major Capital Expenditure for the Most Recent Year and Its VIII. Information on Relationship if among Top 10 Shareholders Effect on Financial Position and Operation of the Company Any One Is a Related Party or a Relative within the Second V. Company Reinvestment Policy for the Most Recent Degree of Kinship of Another. Fiscal Year, Main Reasons for Profits/Losses Generated IX. Total Number of Shares Held by the Financial Holding Thereby, Plan for Improving Re-investment Profitability, and Company and Its Subsidiaries, Directors, Managers, and Investment Plans for Coming Year Businesses either Directly or Indirectly Controlled by the VI. Risk management Financial Holding Company as a Result of Investment, and the Ratio of Consolidated Shares Held. VII. Crisis management and response mechanisms VIII. Other Important Issues 061 IV |Capital Overview 352 VIII |Other Special Notes I. Stocks and Dividends II. Corporate Bonds I. Related Information for Subsidiaries III. Issuance of Preferred Stock II. Private Placement Securities of the Most Recent Year up to IV. Issuance of Global Depositary Receipts the Date of Publication of This Report V. New Issuance of Restricted Employee Shares III. Holding or Disposal of the Company's Shares by the Subsidiaries of the Most Recent Year up to the Date of VI. Merger by Other Financial Institutions or Acquisition of Other Publication of This Report Financial Institutions IV. Any Events that Had Significnt Impacts on Sharehdeler’s VII. Execution of Fund Application Plans Right or Security Prices V. Other Necessary Supplement 068 V |Business Overview 356 IX | Basic information for domestic I. Details on Group business and overseas operating II. The Benefit of Cross-Industry and Cross-Selling in the Group. units of the Group III. Market and Business Conditions of the Group IV. Employee data of the Group V. The Group’s corporate responsibility and ethical behavior I. Hua Nan Commercial Bank VI. The number of full-time non-management employees, the II. Hua Nan Securities average and median salary of full-time non-management III. South China Insurance employees, and the difference of the three statistics compared to the previous year IV. Hua Nan Investment Trust VII. The information equipment of the Group V. Hua Nan Venture Capital VI. Hua Nan Assets Management ANNUAL REPORT 2 19 HUA NAN FINANCIAL HOLDINGS CO., LTD. ● Honesty ● Efficiency ● Activeness ● Responsibility ● Teamwork I LETTER TO THE SHAREHOLDERS CHAIRMAN I |Letter to the Shareholders I. The Group's Business Results for 2019 (I) Domestic and Foreign Financial Environment in 2019 The trade war between the United States and China has impacted global economic growth and trade in 2019, and manufacturing industries in major economies also suffered. IHS Markit estimates that the global economy in 2019 grew by around 2.6%, far lower than 3.2% achieved in 2018. Thus it's evident that the global economy is in a decline. However, reduced interest rates and monetary easing policies of several central banks across the world have boosted the financial market. However, there was optimism in new technologies (i.e., 5G, AI, IoT, and electric vehicles) coupled with the restart of trade negotiations between the United States and China. These have created a bull market as reflected in the Dow Jones continuously reaching record highs. These international developments and the global supply chain reorganization spurred the return of Taiwanese businesses back toTaiwan with investments. Taiwan's stock market also benefited from tech company stocks and record highs in the American stock market and rise by 23% in the year. Estimates by the Directorate-General of Budget, Accounting and Statistics, Executive Yuan on February 12, 2020 show the annual economic growth rate in 2019 to be approximately 2.71%, a marginal decline of 0.04% from 2.75% in 2018. The marginal decline is a result of uncertainties in the global economy created by the trade war between the United States and China. The decline in international raw material prices also reduced exports. Consumer spending grew as a result of increased demand in the automobile market and smart phones and growth in the stock market. The return of Taiwanese businesses to Taiwan with investments and increased capital expenditure in the semiconductor industry also offset some of the unfavorable factors. < 2019 ANNUAL REPORT > 003 HONESTY. EFFICIENCY. ACTIVENESS. RESPONSIBILITY. TEAMWORK VICE CHAIRMAN (II) Changes to the Company Organization Since its inception on December 19, 2001, HNFHC has operated financial services across professional fields like banking, securities, insurance, investment trusts, asset management, and venture capital. At the end of 2019, the Company gained 100% ownership control over all its six subsidiaries. (III) Business Plan and Results of Business Strategies The Group will carefully evaluate risks and follow the following strategies in response to domestic and international political and economic developments: 1. Assess business opportunities with the return of Taiwanese businesses and offshore capital to Taiwan. 2. Provide loans to small and medium enterprises and develop wealth-management plans for business owners. 3. Make suitable adjustments in investment strategies amid fluctuations in financial market to improve profitability. 4. Reduce exposure to China and increase bad debt provision owing to risks from a decelerating economy. 5. Increase the ratio of securities and life- insurance products to improve profitability. 6. Develop FinTech and attract young customers to face challenges posed by online banks. The significant involvement and professional guidance of Directors and Supervisors of the Group and the hard work put in by employees helped the Company grow its net profit after tax in 2019 to NT$15.955 billion, a 9% increase over 2018. The earnings per share (EPS) were NT$1.31 and the return on equity (ROE) 8.79%. The net profit after tax of the subsidiary HNCB was NT$15.169 billion, an increase of 6% over the previous year. Its profitability reached new highs and the non- performing loan ratio reduced to 0.12% with outstanding asset quality.