Stock Code:2845 www.feib.com.tw mops.twse.com.tw Published Date: April 22, 2019 2018 Annual Report FETPFETP 外匯領航王外匯領航王 Spokesperson Name: Jiann Jong Lin Title: Chief Executive Vice President Tel.:(02) 2378-6868 Email: [email protected] Proxy Spokesperson Name: Shin Hwa Chou Title: Senior Deputy Executive Vice President Tel.:(02) 2378-6868 Email: [email protected] Headquarter and branches address and telephone Add.: 26, 27F, No. 207, Sec.2, Dunhua S. Rd., Daan Dist., Taipei City, Taiwan Tel.: (02) 2378-6868 Branches address refer to context Share Transfer Institution Name: Oriental Securities Corporation Add.: 3F, No.86, Chongqing S. Rd., Sec. 1, Zhongzheng Dist., Taipei, Taiwan Tel.:(02) 2361-8608 Website: http://www.osc.com.tw Credit Rating Institution Name: Fitch Australia Pty Ltd., Taiwan Branch Add.: Suite 1306, 13F, 205, Tun Hwa N. Rd., Taipei, Taiwan Tel: (02) 8175-7600 Recent Annual Financial Statement Auditor Name: Deloitte & Touche CPA: Shih-Tsung Wu, Chen-Hsiu Yang Add.: 20F, Taipei Nan Shan Plaza, No. 100, Songren Rd., Xinyi Dist., Taipei, Taiwan Tel.: (02) 2725-9988 Name of the exchange of Oversea Debenture and Inquiry for that Oversea Debenture Luxembourg Stock Exchange Website: https://www.bourse.lu/ ISIN: US30733T2069, US30733T1079 Our website https://www.feib.com.tw CONTENTS I. Chairperson’s Message 5 II. Company Profile 12 1. Date of Establishment............................................................................................... 12 2. Company History ...................................................................................................... 12 III. Corporate Governance Report 15 1. Organization Structure .............................................................................................. 15 2. Information on Directors, Management Team, Department Heads and Branch Managers ............................................................................................................... 18 3. Implementation of Corporate Governance .................................................................. 41 4. Information on CPA audit fees ................................................................................... 82 5. Replacement of CPAs ................................................................................................ 83 6. Chairman, President, and Managers in Charge of Finance or Accounting who holds any positions in the Bank’s Independent Auditing Firm or its Affiliates within the recent year .............................................................................................. 84 7. The Changes in Shareholding .................................................................................... 84 8. Relationship among the Top Ten Shareholders ............................................................ 91 9. Shareholding in Affiliated Enterprises ......................................................................... 92 IV. Fund Raising Status 93 1. Capital and Shares ................................................................................................... 93 2. Bonds ..................................................................................................................... 99 3. Issuance of Preferred Stock ....................................................................................... 102 4. Issuance of Global Depository Receipt ........................................................................ 103 5. Issuance of Employee Stock Options .......................................................................... 103 6. Issuance of New Restricted Shares to Employee ......................................................... 103 7. Mergers and Acquisitions ........................................................................................... 104 8. The Execution of Fund Utilization Plan ........................................................................ 104 V. Operation Highlights 105 1. Business Activities .................................................................................................... 105 2. Human Resources .................................................................................................... 116 3. Corporate Social Responsibility .................................................................................. 120 4. Non-Executive Employees, Annual Employee Welfare Costs and the Difference from the Previous Year ............................................................................................. 121 5. IT Equipment ........................................................................................................... 122 6. Labor Relations ........................................................................................................ 123 7. Important Contracts ................................................................................................. 126 8. Securitization ........................................................................................................... 128 Far Eastern International Bank 2 2018 Annual Report CONTENTS VI. Financial Information 129 1. Five-Year Financial Summary ..................................................................................... 129 2. Five-Year Financial Analysis ....................................................................................... 135 3. The Audit committee’s Review Report ........................................................................ 140 4. 2018 Non-Consolidated Financial Statement ............................................................... 141 5. 2018 Audited Consolidated Financial Statement .......................................................... 141 6. The Bank should disclose the financial impacts to the Company and its affiliated companies have incurred any financial or cash flow difficulties in 2017 and as of the date of the publication of the annual report .......................................................... 141 VII. Review of Financial Conditions, Financial Performance, and Risk Management 142 1. Analysis of Financial Status ....................................................................................... 142 2. Analysis of Financial Performance .............................................................................. 143 3. Analysis of Cash Flow ............................................................................................... 143 4. Major Capital Expenditure in Recent Years .................................................................. 144 5. Investment Policy in Last Year, Main Causes of Profits or Losses, and Improvement and Investment Plans for the Coming Year ............................................ 144 6. Analysis of Risk Management .................................................................................... 145 7. Crisis Management Mechanism .................................................................................. 158 8. Other Important Items ............................................................................................. 158 VIII. Special Disclosure 159 1. Summary of affiliated companies ............................................................................... 159 2. Private Placement Securities and Financial Bonds: ....................................................... 161 3. The Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent Years ........................................................................................................... 161 4. Other Important Supplementary Information .............................................................. 161 5. Events Occurred in the Previous Year and Up to the Publication of this Annual Report, which Significantly Affect Shareholders’ Equity or Price of Shares Pursuant to Item 2, paragraph 3 of Article 36 of the Securities and Exchange Act ......................................................................................................................... 161 VIIII. Memorabilia 162 Headquarters and Domestic Branches 163 Far Eastern International Bank 3 2018 Annual Report Chairperson Ms. Ching-Ing Hou Far Eastern International Bank 4 2018 Annual Report Chairperson’s Message Reflecting on the 2018, the global economy continued recovering in the first half of the year, pushing up Taiwan's economic growth. In the second half of the year, although the global economy was affected by US-China trade war and the violent fluctuations in the international financial market, Taiwan’s economy GDP remained at 2.63%. Looking forward to 2019, global economic and geopolitical uncertainty is rising, economic growth momentum is slowing, and Taiwan's GDP forecast that will be slow down to 2.27%. Nonetheless, for financial industry, FSC fully supports Fintech development, encourages digital transformation in banking industry, and applies AI to create a new economy. In 2018, Far Eastern International Bank (FEIB)’s overall profitability was strong. The net profit after tax was NT$3.524 billion, increased 23% from last year. EPS was NT$1.08, which was also 24% higher than last year. The growth rate was the highest in eight years. Total assets exceeded NT$600 billion. The asset quality remained good, as NPL ratio fell to 0.237%, and the NPL coverage ratio increased to 574%, both of which were better than industry. FEIB continued long-term steady growth strategy in 2018, led the market with niche products and drove innovation with digital technology. In digital banking, the transaction automation was